Archive for the ‘Business Court Blast’ Category
By: Austin Webber
Rodriguez v. FastMed Urgent Care, Inc., 2025 NCBC 15 (N. C. Super. Ct. Mar. 25, 2025) (Davis, J.)
Key Terms: Rule 12(b)(6); common law negligence; emotional distress; economic injury
Plaintiff Jackelyn Rodriguez initiated this putative class action, asserting claims for violation of the N.C. Electronic Surveillance Act, negligence per se, common law negligence, and invasion of privacy against Defendant Fastmed Urgent Care, Inc., based on allegations that Defendant secretly embedded third-party technology on its website that collected and disseminated her confidential information without her consent. Defendant moved to dismiss all claims under Rule 12(b)(6).
In her brief and at the hearing, counsel for Plaintiff indicated that Plaintiff only intended to proceed on her claim for common law negligence. Accordingly, the Court dismissed the other claims with prejudice.
Regarding the common law negligence claim, the Court rejected Defendant’s argument that Plaintiff had failed to establish any legal duty that it owed its patients with regard to maintaining the privacy of health information. The Court of Appeals has unambiguously recognized that healthcare providers owe a general duty of care to patients regarding maintenance of their confidential information, the very duty Plaintiff had alleged in her complaint. The Court also rejected Defendant’s argument that Plaintiff had not adequately alleged injury. Plaintiff’s allegations that she suffered from “embarrassment, humiliation, emotional harm, and distress” were sufficient to allege emotional distress damages as there is no heightened pleading requirement in this regard. Regarding Defendant’s argument that Plaintiff’s alleged economic damages were barred by the economic loss rule, the Court determined that, first, the alleged duty of care was not dependent on any contractual duty between the parties, and second, any argument regarding the economic loss rule was premature since even if a contract existed between the parties, further factual development would be necessary to determine the contours of that relationship.
*******
Bourgeois v. Lapelusa, 2025 NCBC 16 (N.C. Super Ct. March 18, 2025) (Earp, J.)
Key Terms: N.C.G.S. § 1-569.22; arbitration award; motion to confirm
Defendants moved to confirm an arbitration award in which the arbitrator: (1) ruled that Defendants had not been unjustly enriched to the detriment of Plaintiff Bourgeois or The Pit Box, LLC; (2) ruled in favor of The Pit Box, LLC with respect to its counterclaims and ordered Plaintiff Bourgeois to pay compensatory damages; and (3) denied all remaining claims. The arbitrator also directed the distribution of the assets of The Pit Box, LLC, which had been judicially dissolved. Plaintiffs objected to the motion to confirm and moved the arbitrator to amend the award. The arbitrator denied the motion to amend. Because N.C.G.S. § 1-569.22 requires the court, upon motion, to enter an order confirming an arbitration award unless the award is modified, corrected, or vacated, and the Court had not received a motion to modify, correct, or vacate the award, the Court granted Defendant’s motion to confirm.
*******
Hose Co. v. Smith, 2025 NCBC 17 (N.C. Super. Ct. March 28, 2025) (Earp, J.)
Key Terms: Rule 12(b)(6); breach of contract; fraudulent concealment; misappropriation of trade secrets; Unfair and Deceptive Trade Practice Act; civil conspiracy; employment agreement; non-competition agreement; confidentiality; fiduciary duty.
Plaintiff The Hose Company (“THC”) initiated this lawsuit asserting various claims against Defendant Smith arising from his resignation from THC and subsequent employment in alleged violation of his non-compete agreement. Smith moved to dismiss all claims.
Breach of Contract. Having already determined that the non-compete agreement was unenforceable as a matter of law, the Court dismissed this claim with prejudice.
Fraudulent Concealment. THC’s first fraudulent concealment claim alleged that in his resignation letter, Smith affirmatively concealed the true nature of his new job in the hose industry. The Court found these allegations sufficient to state a claim for fraudulent concealment and denied dismissal of the first claim.
THC’s second fraudulent concealment claim alleged that Smith, while employed at THC, fraudulently concealed his efforts to form a competing business. However, since THC did not adequately allege the existence of a fiduciary relationship, and therefore a duty to disclose, the Court dismissed the claim.
Misappropriation of Trade Secrets. THC asserted that Smith misappropriated its customer lists and pricing information. Regarding the customer list, the Court found the compiled list of customers alluded to by THC did not identify the trade secret information with sufficient specificity, nor did THC describe the effort and cost it incurred to put the list together. Regarding the pricing information, the Court noted that THC did not provide an explanation to how the dealer network information, once released externally, is kept secret. Therefore, the Court granted Smith’s motion.
Unfair and Deceptive Trade Practice. THC’s UDTPA claim was premised on its fraud and misappropriation of trade secrets claims, along with Smith’s general unscrupulous behavior while employed by THC. Since the misappropriation claim was dismissed and since the fraud and “unscrupulous behavior” allegations involved internal conduct and were therefore not in or affecting commerce under the UDTPA, the Court dismissed this claim.
Civil Conspiracy. Because the tort claims underlying the civil conspiracy claim had all been dismissed, the Court dismissed the civil conspiracy claim as well.
*******
Exencial Wealth Advisors, LLC v. Downing, 2025 NCBC 18 (N.C. Super. Ct. April 1, 2025) (Brown, J.)
Key Terms: Rule 12(b)(6); breach of contract; choice of law; tortious interference with business relationship; misappropriation of trade secrets; declaratory judgment; non-solicitation; confidentiality agreement; de facto non-compete; customer and pricing lists
Plaintiff filed suit against its former employee, asserting various claims arising from Defendant’s alleged violation of confidentiality and non-solicitation provisions in his employment agreement. Defendant moved to dismiss all claims.
Choice of Law. The Court determined that Oklahoma law governed the claims for breach of the employment agreement because the agreement had an Oklahoma choice of law provision, Oklahoma has a substantial relationship to the parties, and application of Oklahoma law would not violate public policy. However, North Carolina law governed the tortious interference with business relationship and misappropriation of trade secrets claims under the lex loci test because the injury alleged was sustained in North Carolina. North Carolina law also governed the declaratory judgment claim as procedural matters are governed by the law of the forum.
Breach of Contract. The Court found that the non-solicitation provisions in the employment agreement violated Oklahoma’s public policy, because they prohibited far more than the “direct solicitation of established customers” allowed by statute.
Regarding the confidentiality provisions, Defendant argued that they acted as a de facto non-compete and were therefore void. The Court disagreed, finding that the confidentiality provisions were not so burdensome as to operate as a de facto non-compete, particularly because they were tailored to apply only to information which was not part of the public domain or of which the Defendant did not have independent knowledge. Moreover, Plaintiff had adequately alleged that Defendant had breached these provisions by storing Plaintiff’s confidential information on a personal computer and sharing it with others, including his new employer. Therefore, the Court dismissed the breach of contract claim related to the non-solicitation provisions but otherwise allowed the claim to survive.
Tortious Interference with Business Relationships. Because Plaintiff had adequately alleged that Defendant engaged in unlawful competition by violating the confidentiality provisions of his employment agreement and otherwise pleaded the necessary elements, the Court denied dismissal of this claim.
Misappropriation of Trade Secrets. The Court dismissed this claim because Plaintiff failed to allege with sufficient particularity the existence of a trade secret. Plaintiff’s identification of its potential trade secrets as “its Confidential information, manner of doing business with customers, members’ contact information, and other non-public information” were insufficient to put Defendant on notice as to the precise information allegedly misappropriated.
Declaratory Judgment. The Court dismissed the declaratory judgment claim regarding the confidentiality provisions of the employment agreement because it was duplicative of Plaintiff’s claim for breach of those provisions.
*******
Wolfspeed, Inc. v. Van Brunt, 2025 NCBC 19 (N.C. Super. Ct. April 2, 2025) (Robinson, C.J.)
Key Terms: Rule 12(b)(6); preliminary and permanent injunction, breach of contract; wrongful interference with contractual relationships; misappropriation of trade secrets, confidentiality; non-competition; breach of duty of loyalty; breach of fiduciary duty; UDTPA
Wolfspeed initiated this action contending that former employees Van Brunt and Allen left Wolfspeed for a competitor, Onsemi, in violation of their respective employment agreements and the restrictive covenants found therein, taking with them to Onsemi trade secret information. Wolfspeed also contends Onsemi wrongfully interfered with Van Brunt’s and Allen’s respective employment agreements by inducing them to breach the restrictive covenants found therein. Defendants moved to dismiss all claims.
Preliminary and Permanent Injunction. The Court dismissed this claim without prejudice as preliminary and permanent injunctions are remedies, not independent causes of action.
Breach of Contract against Allen. The Court denied the motion to dismiss Plaintiff’s claim for breach of the confidentiality provision in Allen’s employment agreement, finding that Plaintiff’s allegations that the agreement was enforceable and that Allen had breached it by using Plaintiff’s confidential information in concert with Van Brunt and Onsemi were sufficient to state a claim.
Breach of Contract against Van Brunt. Plaintiff asserted two breach of contract claims against Van Brunt: 1) breach of the non-competition and confidentiality provisions in his employment agreement; and 2) breach of his RSU agreements’ terms and conditions. Regarding the first, the Court determined that the non-compete provision was overly broad and unenforceable because it prohibited Van Brunt from working for a competitor in any capacity. However, breach of the non-solicitation provision was adequately pleaded based on Plaintiff’s allegations that Van Brunt retained his Plaintiff-issued laptop which contained Plaintiff’s sensitive and proprietary information and did not return it until nearly one month after he accepted employment with Onsemi. Regarding the second claim, neither side addressed the claim in their briefs and the Court found the allegations minimally sufficient.
Wrongful Interference with Contractual Relationships Against Onsemi and Allen. Plaintiff asserted two claims for wrongful interference, the first against Onsemi and Allen for inducing Van Brunt to breach his restrictive covenants and the second against Onsemi for inducing Allen to breach his restrictive covenants. Due to its ruling that Van Brunt’s non-compete was unenforceable, the Court dismissed the first claim to the extent it was premised on that provision. The Court otherwise found that the claims had been sufficiently pleaded and therefore denied dismissal.
Misappropriation of Trade Secrets. The Court found that Plaintiff had sufficiently identified its trade secrets at this stage. Regarding acts of misappropriation, the Court found that Plaintiff’s allegations (made upon information and belief) that Van Brunt retained his Plaintiff-issued laptop and accessed trade secret information or had access to such information after his employment with Onsemi commenced were minimally sufficient to state a claim for misappropriation of trade secrets against Van Brunt and Onsemi. However, since the complaint did not contain any allegations that Allen accessed, had access to, or took with him upon termination of his employment with Plaintiff, any trade secret information, the Court dismissed the claim against Allen.
Unfair and Deceptive Trade Practices. Since the UDTPA claims were predicated on the misappropriation of trade secrets claims, the Court dismissed the UDTPA claim against Allen but allowed it to survive against Van Brunt and Onsemi.
Breach of Duty of Loyalty by Van Brunt. Construing the claim for breach of the duty of loyalty as a claim for breach of fiduciary duty, the Court concluded that Plaintiff had failed to allege the existence of a fiduciary duty. As alleged, Van Brunt was a research scientist, not an officer of Plaintiff, therefore, no de jure fiduciary relationship existed. Further, Plaintiff did not plead that Van Brunt exercised any dominion or control over Plaintiff such that a de facto fiduciary relationship existed. Accordingly, the Court dismissed this claim.
*******
Murphy-Brown, LLC v. Ace Am. Ins. Co., 2025 NCBC Order 19 (N. C. Super. Ct. Mar. 26, 2025) (Davis, J.)
Key Terms: motion in limine; expert witnesses; qualifications; vouching; Rule 702 of the North Carolina Rules of Evidence; Rule 1.5 of the Rules of Professional Conduct; block billing; forum rate rule; Real Rate Report; legal opinion
Plaintiffs originally sued various insurers who provided them with primary and excess insurance coverage, contending that the insurers were obligated to indemnify Plaintiffs for amounts paid to settle certain nuisance actions relating to Plaintiffs’ hog farms and to reimburse Plaintiffs for their defense costs for such underlying lawsuits. The Court previously determined that Defendant Ace breached its contractual duty to defend Plaintiff in those lawsuits and is required to reimburse Plaintiff for its Defense Costs. A jury trial on the issue of the reasonable amount of Defense Costs is scheduled. Presently before the Court are the parties’ motions to exclude, either in whole or in part, the opinion testimony of the opposing side’s expert witnesses regarding the reasonableness of the Defense Costs.
Plaintiff’s Motion to Exclude Defendant’s Expert Witness (Pierce)
Qualifications. Based on Pierce’s decades of experience as a complex commercial litigator, coupled with his experience consulting on attorneys’ fees cases, the Court was satisfied that Pierce had sufficient specialized knowledge regarding billing practices within the legal industry so as to be helpful to the jury in determining the reasonableness of the Defense Costs. Plaintiff’s concerns that Pierce’s lack of experience in the specific area of hog farm litigation and North Carolina litigation goes to the weight that the jury should give his opinions, not their admissibility.
Vouching. Plaintiff argued that Pierce’s opinions were unreliable because he took information and opinions provided by a legal auditing firm and presented them as his own. The Court disagreed, finding that based on the record, it appeared that the legal auditing firm merely performed organization and computational functions and that reliance on such work was permissible. Moreover, Plaintiff would have the opportunity to cross-examine Peirce on the role the legal auditing firm played in his analysis.
Consideration of the Rule 1.5 Factors. Plaintiff next argued that Pierce’s testimony should be excluded because he ignored Rule 1.5(a) of the North Carolina Rules of Professional Conduct, which governs the reasonableness of fees in North Carolina, in forming his opinions. The Court rejected this argument as it was clear that Pierce had considered at least some of the Rule 1.5 factors and the comments to Rule 1.5 make clear that not all of the factors were necessarily relevant to every case.
Reasonableness of Hourly Rates Charged. The Court also determined that Pierce’s reliance on the “Forum Rate Rule” and the Real Rate Report issued by Wolters Kluwer did not warrant exclusion of his testimony. Although North Carolina has never adopted the Forum Rate Rule by name, it has recognized that community rates in the geographic area of the litigation are relevant to the reasonableness determination. The reliability of the Real Rate Report went to the weight, rather than the admissibility, of Pierce’s opinion and could be examined at trial.
Redacted Time Entries. Plaintiff argued that Pierce should not be allowed to opine on the reasonableness of redacted time entries because, without the redacted information, he could not have formed a reliable opinion. The Court agreed and noted that Ace had forfeited its right to complain about the redactions by failing to object to them during discovery.
Vague and Block-Billed Time Entries. The Court concluded that Pierce could offer opinions as the unreasonableness of time entries based on vagueness or block-billing as North Carolina courts have allowed challenges to the reasonableness of claimed attorneys’ fees on these bases.
Alternative Fee Arrangement Invoices. The Court prohibited Pierce from opining regarding the reasonableness of certain invoices billed under an alternative fee arrangement because Pierce had not reviewed the detailed narrative time entries for those invoices and therefore could not have formed a reliable opinion as to their reasonableness.
Opinion on Legal Issues. The Court prohibited Pierce from testifying regarding legal issues or other cases as such testimony invades the province of the court to determine the applicable law and instruct the jury accordingly. Further, to the extent Pierce’s opinions addressed coverage defenses based on policy provisions, the Court had already ruled that Ace was estopped from asserting such defenses.
Defendant’s Motion to Exclude Plaintiff’s Expert Witness (DeGeorge)
The Court held that DeGeorge was prohibited from offering opinions at trial as to legal principles and from referencing case law while testifying. However, since Defendant failed to identify any other basis to exclude DeGeorge under Rule 702, he was not otherwise excluded from testifying as an expert.
*******
Hose Co. v. Smith, 2025 NCBC Order 20 (N. C. Super. Ct. Mar. 27, 2025) (Earp, J.)
Key Terms: Rule 65; preliminary injunction; non-competition; breach of contract; look-back rule; restraint of trade
Plaintiff The Hose Company LLC (“THC”) moved for a preliminary injunction prohibiting Defendant Smith from violating a Noncompetition Agreement he signed while a THC employee, which provided that, during his employment and for a period of two years after termination, he would not accept employment involving the same or similar services that he provided at THC, within a defined restricted territory. On January 2, 2024, Smith had resigned from THC and accepted employment with Triosim. It is undisputed that Triosim, through its subsidiaries, is involved in the industrial hose industry and that its sales territories overlap with THC’s.
The Court began by considering the two-year time restriction in the non-compete. Smith argued that the time period was unreasonable because the language of the restriction required the Court to apply the look-back rule and add in his seven years of employment. In response, THC argued that the look-back rule did not apply because it only applies when the restriction is tied to an employee’s contact with customers, not his job duties as it was here. Although the Court agreed that the look-back rule was applicable, it determined that the rule was not determinative in this case. The look-back rule is merely a tool used to determine whether a restriction is broader than necessary to protect an employer’s legitimate business interests. Here, the passage of time did not lessen the relevance of the information at issue because Smith’s testimony established that his most recent job duties at THC encompassed the duties of his prior position. Accordingly, the Court determined that the non-compete was reasonable as to time.
Turning to the territorial restrictions, the Court determined that the noncompete was unenforceable because it contained a nationwide restriction and THC had not met its burden to show that such a broad restriction was necessary. While the “Restricted Territory” was drafted in the alternative and THC encouraged the Court to apply the blue pencil rule, the Court lacked sufficient information about THC’s business to make a reasoned choice.
Moreover, even if the time and territory were reasonable, the non-compete was unenforceable as a matter of law because its second clause, which limited the services Smith could provide, was not restricted to a particular industry or business. Although Plaintiff urged the Court to use the blue pencil rule to eliminate this second clause, the Court determined that even though the clauses were joined by “or,” they were not distinctly separable and thus the blue pencil rule could not be applied.
Because Plaintiff had not shown it was likely to succeed on the merits of its breach of contract claim, the Court denied its motion for a preliminary injunction.
*******
Vista Horticultural, Inc. v. Johnson Price Sprinkle PA, 2025 NCBC Order 21 (N.C. Super. Ct. April 1, 2025) (Brown, J.)
Key Terms: motion in limine; expert witnesses and opinions; professional malpractice; negligence; taxes; N.C. R. Evid. 404; N.C. R. Evid 411; N.C. R. Evid. 401; N.C. R. Evid. 403
This is an accounting malpractice case concerning Defendants alleged failure to notify Plaintiff of its obligation to pay various state sales taxes based on sales made to residents of those states. Plaintiff contends that this failure caused it to incur an unexpected tax liability of $2.1 million. Prior to trial on Plaintiff’s claims against Defendant JPS for breach of contract and against JPS and Defendant Cheng for professional negligence/malpractice and common law negligence, the parties filed various motions in limine.
Plaintiff’s Motion to Exclude Expert Opinions. Plaintiff objected to the admissibility of certain testimony and opinions by Defendants’ expert. First, the Court granted the motion with respect to any testimony regarding anyone’s state of mind or Cheng’s credibility as these were the province of the jury. Second, the Court determined that Cheng and other JPS personnel could not be identified as experts to the jury but could, if otherwise qualified as experts, testify as to whether Cheng’s conduct met the standard of care. Third, the Court denied the motion to the extent it sought to preclude the expert from testifying regarding JPS’s passing scores on previous peer review reports because such testimony did not constitute inadmissible character evidence but was instead being used to show JPS’s capabilities, quality control standards, and experience. Finally, the Court granted Plaintiff’s motion to exclude any evidence, testimony, and opinions by Defendant’s expert regarding the percentage amount by which any compensatory damages award that the jury may award to Plaintiff must be reduced because of potential income tax savings Plaintiff may realize due to potential tax deductions. While there was no North Carolina case law on point, persuasive authority from other jurisdictions applied this general rule.
Defendants’ Motion to Exclude Any Evidence or Opinions at Trial Other than as Disclosed in Discovery. Defendants sought to preclude Plaintiff’s expert from testifying that Cheng violated the standard care because, according to Defendants, the expert’s report was limited to conclusions regarding JPS. The Court disagreed, finding that Defendants received ample notice that Plaintiff’s expert intended to opine on the failures of both JPS and Cheng to meet the professional standard of care, as it was clearly stated in Plaintiff’s notice of designation of expert witness, the expert’s summary judgment affidavit, and the expert’s report.
Defendants’ Motion to Prohibit Evidence of Effect on Judgment on the Parties. Based on N.C. R. Evid. 411, the Court granted Defendants’ motion to prohibit evidence of any insurance coverage available to Defendants. Based on N.C. R. Evid. 401 and 403, the Court also granted Defendants’ motion to prohibit evidence regarding tax consequences to Plaintiff.
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 04/08/25
By: Lauren Schantz
Hart v. First Oak Wealth Mgmt., LLC, 2025 NCBC 11 (N.C. Super. Ct. Mar. 14, 2025) (Earp, J.)
Key Terms: summary judgment; accredited investor; (un)registered investment adviser; private equity investments; conflict of interest; regulatory agency investigation; consent order; North Carolina Investment Advisers Act; statute of limitations; discovery rule; fraud; negligent misrepresentation; constructive fraud; fiduciary relationship; nominal damages; civil conspiracy; Fifth Amendment; punitive damages
This action involves a dispute between an accredited investor and his investment advisers. Plaintiff Hart engaged Defendant DWM Advisors, LLC to provide investment advisory services. Defendant Davis was DWM’s sole member-manager and a registered investment adviser. Defendant Abolins was a part-owner and employee of DWM.
Between 2009 and 2014, Hart invested substantial sums in various private equity investments recommended by Davis. Davis—and in some cases, Abolins—directly or indirectly owned and/or managed the entities in which Hart invested. Despite assurances that the investments were performing well, Hart ultimately lost most of the money he invested.
In 2017, some of DWM’s former clients began to file suits against DWM, Davis, and Abolins, and Davis came under regulatory scrutiny. DWM sold its public investment accounts to Defendant First Oak Wealth Management, LLC in early 2017, with Abolins joining the company as an employee and Davis a consultant. Hart agreed to move his investment accounts to First Oak but was not informed that First Oak was not managing his private investments until April 2018.
Over the next few years, both state and federal regulators imposed various consent orders on Davis and First Oak, resulting in (1) Davis being permanently barred from the securities industry in South Carolina; (2) Davis being permanently barred from the securities industry nationwide; and (3) First Oak being penalized by the North Carolina Secretary of State for engaging in an unethical business practice by using Davis as an unregistered investment adviser in violation of the North Carolina Investment Advisers Act (“NCIAA”).
Hart alleged that he was not informed of these violations and, further, that Davis advised him on his private equity investments as late as 2019. Hart ultimately lost most of the money he had invested pursuant to Davis’s advice. Hart initiated this lawsuit in October 2021. Abolins and First Oak both moved for summary judgment on all claims.
Statute of Limitations. Abolins and First Oak argued that the three-year statute of limitations barred Hart’s claims for fraud, negligent misrepresentation, and violation of the NCIAA. Applying the discovery rule, which tolls the statute of limitations until a reasonable person should have discovered the fraud, the Court agreed and dismissed the claims, concluding that Hart knew or should have known of the alleged fraud more than three years before filing suit.
Constructive Fraud. The Court determined that Hart had put forth sufficient evidence from which a jury could conclude that Abolins and First Oak, as Hart’s fiduciaries, deterred him from suspecting or discovering the fraud and benefitted therefrom. As a result, a genuine issue of material fact existed as to when the ten-year statute of limitations for constructive fraud began to run. Abolins and First Oak argued that this claim should be dismissed because Hart did not suffer actual damages as a result of their actions, but the Court also concluded that Hart was entitled to at least nominal damages. Accordingly, the Court denied summary judgment on this claim.
Civil Conspiracy. The Court found that Hart had produced sufficient evidence of an agreement among Davis, Abolins, and First Oak to commit constructive fraud and, thus, support a civil conspiracy claim. The Court further concluded that a reasonable jury could infer from Davis’s invocation of the Fifth Amendment during his deposition that he engaged in such constructive fraud, both individually and as an agent for DWM and First Oak. The Court denied the motions for summary judgment as to this claim.
Punitive Damages. Because Hart could recover punitive damages on a claim for constructive fraud with or without an award of nominal damages, the Court denied Abolins’s and First Oak’s motions with respect to this relief.
*******
Mayer v. Goldner, 2025 NCBC 12 (N.C. Super. Ct. Mar. 17, 2025) (Conrad, J.)
Key Terms: motion to dismiss; Rule 12(b)(6); minority shareholders; captive insurance company; reinsurance; derivative claims; self-dealing; N.C.G.S. § 55-8-09; arguments not raised in briefs; accounting; punitive damages; remedies
This action involves a dispute among the members of an LLC. Plaintiffs Mayer and Queen and Defendant Goldner are the shareholders of Nominal Defendant Sherbrooke Corporate Ltd., a captive insurance company. Sherbrooke reinsures insurance policies issued by a single carrier that provide coverage for nursing homes owned by Goldner.
Plaintiffs alleged that Goldner’s nursing homes underpaid and then stopped paying their insurance premiums to Sherbrooke. These insurance premiums were the LLC’s only source of income. Plaintiffs allege that Goldner, as the majority shareholder of Sherbrooke, subsequently removed Plaintiffs as directors and officers, seized control of the LLC, halted all of its operations, and misappropriated Sherbrooke’s assets to pay his personal legal expenses.
Plaintiffs asserted the following claims against Goldner: derivative claims for breach of fiduciary duty, constructive fraud, and unjust enrichment; a claim to remove Goldner as a director pursuant to N.C.G.S. § 55-8-09; and claims for an equitable accounting and punitive damages. Goldner moved to dismiss the majority of the Complaint pursuant to Rule 12(b)(6).
Derivative Claims. Goldner sought to dismiss the derivative claims to the extent that they were based on the nonpayment of insurance premiums to Sherbrooke, arguing that Plaintiffs improperly imputed obligations owed by his nursing homes to him. The Court denied the motion, concluding that the Complaint, taken in the light most favorable to Plaintiffs, alleged that Goldner used his dual roles to benefit himself and his nursing homes to the detriment of Sherbrooke.
Removal of Director. Although judicial removal of a director is an extraordinary remedy, the Court concluded that Goldner’s alleged wrongful conduct and the resulting impact on Sherbrooke’s operations and financial viability, as pleaded, supported a claim for removal of Goldner as a director of Sherbrooke under N.C.G.S. § 55-8-09. The Court declined to consider Goldner’s argument, raised for the first time at the hearing, that the alleged wrongful conduct was stale.
Accounting and Punitive Damages. The Court dismissed Plaintiffs’ claims for an accounting and punitive damages without prejudice because they are remedies, not independent causes of action.
*******
Brown v. TM Northlake Mall, LP, 2025 NCBC 13 (N.C. Super. Ct. Mar. 19, 2025) (Conrad, J.)
Key Terms: motion to dismiss; Rule 12(b)(6); judgment on the pleadings; Rule 12(c); torts; negligence; invitees; criminal acts; third parties; foreseeability; reasonable care
These consolidated actions arise from a random act of violence. A car followed Armani Spencer and Plaintiff Bianca Brown from the parking lot of a restaurant located in the Northlake Commons shopping center to neighboring Northlake Mall. The car pulled up next to them and an unknown assailant shot into their car, killing Spencer and seriously injuring Brown. Spencer’s estate and Brown brought suit against various entities associated with Northlake Commons and Northlake Mall, alleging that they knew about the area’s history of criminal activity and negligently breached their duty to warn patrons and provide adequate security. The owner, manager, and security provider of Northlake Commons separately moved to dismiss the complaints pursuant to Rule 12(b)(6) or Rule 12(c).
The Court observed that, although a possessor of land is generally not liable for the criminal acts of third parties that injure invitees, if the criminal conduct was foreseeable, the landowner has a duty to warn its invitees.
The owner and manager of Northlake Commons argued that Plaintiffs failed to plead a claim for negligence because the criminal activity did not occur on Northlake Commons property. The Court disagreed, concluding that the allegations of the complaints showed that the shooting was the result of a series of events that originated on Northlake Commons property due to the owner’s and manager’s failure to provide adequate security for their customers.
The security provider argued that, pursuant to its contract, it was not obligated to provide security to Northlake Mall or to intervene to stop a violent attack anywhere, including on the Northlake Commons property. The Court rejected both arguments, holding that (1) the security provider may be held liable for negligence in performing its duties related to the Northlake Commons property even if the result of the security provider’s negligence occurred elsewhere, and (2) because the security provider’s contract was not before the Court, only the allegations in the complaints could be considered and they were sufficient to state a claim for the security provider’s negligence.
Accordingly, the Court denied the motions.
*******
Maven Advantage, Inc. v. Square One Storm Restoration, LLC, 2025 NCBC 14 (N.C. Super. Ct. Mar. 24, 2025) (Davis, J.)
Key Terms: motion to dismiss; Rule 12(b)(6); confidential information; trade secrets; non-solicitation; non-competition; non-disclosure; misappropriation of trade secrets; breach of contract; overbroad; unenforceable; “blue pencil” doctrine; punctuation; formatting; embezzlement
Maven Advantage, Inc. initiated this lawsuit in November 2024, asserting various claims arising from alleged misappropriation and misuse of Maven’s confidential and trade secret information by its former employees (Defendants Couch and Daniels) and their new employer (Defendant Square One Storm Restoration, LLC). Maven employed Defendants Couch and Daniels as sales representatives until their resignation in October 2024. Couch and Daniels had entered into non-solicitation, non-competition, and non-disclosure agreements with Maven. In September 2024, Maven experienced a sharp decline in sales, which Maven alleged was a result of Couch and Daniels diverting clients to their new employer. Defendants moved to dismiss Maven’s claims for misappropriation of trade secrets, breach of contract, and civil embezzlement.
Misappropriation of Trade Secrets. Defendants argued that the Complaint failed to adequately identify Maven’s alleged trade secrets, and the Court agreed, concluding that the allegations were too broad. The Court also concluded that Maven’s allegation that Daniels had attempted to obtain certain information was insufficient to allege misappropriation because it did not allege that he had actually obtained the information (which in any event, was not adequately identified as a trade secret). The Court therefore dismissed the claim.
Breach of Non-Competition Provision. Maven conceded that the non-competition provision in Couch and Daniels’s employment agreements was unenforceable under North Carolina law and the Court dismissed with prejudice Maven’s breach of contract claim to that extent.
Breach of Non-Solicitation Provision. Defendants argued that all three subparts of the non-solicitation provision were overbroad and unenforceable; Maven conceded that the third subpart was overbroad but could be severed from the agreement. Applying the blue pencil doctrine, the Court concluded that, based on the formatting and punctuation used, as well as a provision in the employment agreements that specifically provided for the application of the blue pencil doctrine, the third subpart could be severed from the employment agreement. The Court determined that the remaining two subparts of the non-solicitation provision—which restricted solicitation of customers that Defendants had personal contact with and did business with—were narrowly tailored to protect Maven’s legitimate business interests and denied the motion to that extent.
Breach of Non-Disclosure Provision. The Court concluded that the allegations were sufficient to state a claim for breach of the non-disclosure provision by Couch, but insufficient to state a claim for breach of the same provision by Daniels because the complaint did not allege facts constituting an actual breach of the provision by Daniels. The Court therefore denied the motion as to Couch but granted the motion as to Daniels.
Civil Embezzlement. Maven informed the Court that it no longer intended to proceed on this claim, so the Court dismissed it with prejudice.
*******
Murphy-Brown, LLC v. ACE Am. Ins. Co., 2025 NCBC Order 16 (N.C. Super. Ct. Mar. 12, 2025) (Davis, J.)
Key Terms: de bene esse deposition; subpoena duces tecum; redactions; discovery; delay; untimely
As summarized here, Plaintiffs originally sued various insurers who provided them with primary and excess insurance coverage, contending that the insurers were obligated to indemnify Plaintiffs for amounts paid to settle certain nuisance actions relating to Plaintiffs’ hog farms and to reimburse Plaintiffs for their defense costs for such underlying lawsuits. Presently before the Court was Defendant’s motion to (1) take the de bene esse deposition of Plaintiff Smithfield Foods, Inc.’s Chief Legal Officer ahead of an April trial date, and (2) obtain unredacted copies of certain related invoices produced in discovery via a subpoena duces tecum.
Before joining Smithfield in 2020, the CLO represented Plaintiffs in the underlying lawsuits. During fact discovery, Defendant ACE American Insurance Company deposed three attorneys, not including the CLO, who had represented Plaintiffs in the underlying lawsuits. Plaintiffs also produced numerous attorney invoices, some of which included redactions for fees associated with certain time entries unrelated to the underlying lawsuits.
Fact discovery ended in January 2021. In October 2024, ACE notified Plaintiffs’ counsel that it intended to seek the CLO’s deposition de bene esse. Three months later, ACE attempted to domesticate and serve a subpoena duces tecum on the CLO in Virginia, where she resided, demanding that she appear for a deposition and produce unredacted copies of the invoices. ACE moved to take the de bene esse deposition of the CLO and to obtain unredacted copies of the attorney invoices in February 2025.
After considering (1) when ACE became aware that the CLO would be unavailable; (2) whether ACE knew what the substance of the CLO’s testimony would be; (3) whether the CLO was “friendly” or “hostile”; and (4) whether allowing the de bene esse deposition would unfairly prejudice Plaintiffs, the Court concluded that ACE was not entitled to take a de bene esse deposition of the CLO. The Court also denied ACE’s request for the production of the unredacted invoices as untimely, noting that ACE did not seek production of the invoices during discovery, instead waiting until just weeks before trial.
*******
Hedgepeth v. Cornblum, 2025 NCBC Order 17 (N.C. Super. Ct. Mar. 17, 2025) (Robinson, C.J.)
Key Terms: order on designation; amend; N.C.G.S. § 7A-45.4(a)(1); piercing the corporate veil; N.C.G.S. § 7A-45.4(c); N.C.G.S. § 7A-45.4(g); “mandatory” mandatory designation; N.C.G.S. § 7A-45.4(b)(2); Rule 8
As summarized here, the Court previously concluded that this matter was not properly designated as a mandatory complex business case under N.C.G.S. § 7A-45.4(a)(1) for both substantive and procedural reasons. Undeterred, Plaintiff filed an Amended Notice of Designation (“NOD”), again seeking designation pursuant to N.C.G.S. § 7A-45.4(a)(1)—based on the same facts as those included in the original NOD—and additionally seeking designation pursuant to N.C.G.S. § 7A-45.4(b)(2). The Court concluded once again that the matter was not properly designated as a mandatory complex business case.
Designation was procedurally improper because (1) N.C.G.S. § 7A-45.4 does not provide a procedure for amending a NOD; and (2) the NOD must be filed contemporaneously with the complaint, not two months later.
Designation was substantively improper because a veil-piercing allegation, standing alone, is insufficient to support designation under N.C.G.S. § 7A-45.4(a)(1). When a case must be designated pursuant to N.C.G.S. § 7A-45.4(b)(2)—a “mandatory” mandatory complex business case—N.C.G.S. § 7A-45.4(g) permits designation at any time. But to qualify for designation under N.C.G.S. § 7A-45.4(b)(2), the case must first qualify for designation under N.C.G.S. § 7A-45.4(a)(1)–(5) or (8) and, pursuant to Rule 8 of the North Carolina Rules of Civil Procedure, the pleading on which designation is based must state affirmatively that damages exceed $5 million. Neither requirement was met.
*******
Members of N.C. State Univ.’s 1983 NCAA Men’s Basketball Nat’l Championship Team v. Nat’l Collegiate Athletic Ass’n, 2025 NCBC Order 18 (N.C. Super. Ct. Mar. 25, 2025) (Davis, J.)
Key Terms: motion to stay; N.C. State University; basketball; name, image, and likeness; monopoly; anticompetitive; N.C.G.S. § 1-75.12; substantial injustice; discretion; first-filed rule; choice of forum; litigating matters of local concern;
This case involves the alleged misappropriation of former athletes’ names, images, and likenesses (“NIL”). Twelve former members of N.C. State University’s 1983 NCAA Division I men’s basketball team brought suit against the NCAA, alleging that the NCAA has had a decades-long monopoly over collegiate athletics in North Carolina. Plaintiffs allege that the NCAA has generated billions of dollars in revenue from using Plaintiffs’ NILs without compensating Plaintiffs for their use.
The NCAA moved to stay this action in its entirety pending resolution of Chalmers v. NCAA, a related putative class action brought on behalf of former college athletes nationwide pending in the U.S. District Court for the Southern District of New York. The Chalmers lawsuit was initiated after this action and, while it involves substantively similar issues, none of the Chalmers plaintiffs have a direct connection with this action nor has the class been certified.
The NCAA argued that facing suit in North Carolina will work a “substantial injustice” by forcing the NCAA to litigate similar claims in two forums, running the risk of obtaining contradictory rulings, and resulting in judicial inefficiency. Conversely, Plaintiffs contend that they will suffer “substantial injustice” if this action is stayed in favor of the Chalmers lawsuit.
Whether to grant a stay is within the discretion of the Court. The Court concluded that the following factors all weighed against the entry of a stay: (1) although there was overlap between the attorneys in both actions, there was no (current) overlap between Plaintiffs in this action and the plaintiffs in Chalmers; (2) should the first-filed rule apply, this action was filed before the Chalmers lawsuit; (3) this action involved only North Carolina law; the Chalmers action was based on federal law; (4) Plaintiffs’ choice of forum in their home state was entitled to deference; (5) should a class be certified in Chalmers, the litigation of the resulting class action could significantly delay Plaintiffs’ ability to obtain relief; and (6) North Carolina had a strong interest in litigating North Carolina claims brought by North Carolina residents who attended a North Carolina public university for alleged wrongs committed in this state.
The Court therefore denied the NCAA’s motion to stay.
*******
Charles Schwab & Co., Inc. v. Marilley, No. 210A24, 2025 N.C. LEXIS 162 (N.C. 2025) (per curiam)
Key Terms: motion to stay; arbitration; affirmed
As summarized here, the Business Court previously entered an order denying, in part, Defendant Peter Marilley’s motion to stay proceedings and compel arbitration because the cross-claims at issue fell outside the scope of the parties’ arbitration agreement. The Supreme Court affirmed.
*******
Vanguard Pai Lung, LLC v. Moody, No. 15A24, 2025 N.C. LEXIS 150 (N.C. 2025) (Dietz, J.)
Key Terms: JNOV motion; directed verdict motion; waiver of issues; affirmed
Following an adverse jury verdict, Defendants filed several post-trial motions, including a JNOV motion. As summarized here, the Business Court determined that two of the issues raised in the JNOV motion had been waived because they were not raised in Defendants’ earlier motion for a directed verdict. The Business Court also rejected Defendants’ other post-trial arguments on the merits. Defendants appealed.
Adopting the reasoning of a line of Court of Appeals cases, the Supreme Court held that while a movant may not need to state the specific grounds for a directed verdict motion in uncomplicated, single-issue cases where the grounds are obvious, in cases involving multiple defenses and theories of liability, a movant’s failure to expressly state in a directed verdict motion a specific argument or theory that forms a ground for relief waives the issue at both the directed verdict and JNOV stage. Applying this rule to the facts at hand, the Supreme Court affirmed the ruling of the Business Court. Although Defendants challenged Plaintiffs’ conversion and fraud claims at the directed verdict stage, the arguments and issues raised at the JNOV stage were different than those raised earlier. Accordingly, the Business Court was correct in determining that the new arguments and issues were waived. Acknowledging the difficulties with raising all issues at the directed verdict stage in open court during trial, the Supreme Court noted that the best practice in multi-claim, multi-defense cases is to prepare and file a written motion for directed verdict so as to provide the opposing parties and the court with notice of the specific grounds for the motion. The Supreme Court also affirmed the Business Court’s orders on the merits, for the reasons stated in the Business Court’s orders.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should
Posted 03/26/25
By: Ashley Oldfield
JT Russell & Sons, Inc. v. Russell, 2025 NCBC 7 (N.C. Super. Ct. Mar. 4, 2025 (Conrad, J.)
Key Terms: Rule 12(b)(6); derivative claims; independent panel; N.C.G.S. § 55-7-44; judicial removal of a director; N.C.G.S. § 55-8-09
As summarized here, this action involves a dispute between two branches of a family regarding their company, JT Russell & Sons. Defendant Jim Russell, a former officer and director of the company, asserted derivative counterclaims against the remaining directors for alleged misuse of company assets, as well as a direct counterclaim to remove them as directors. Upon the request of the company’s board, the Court appointed, pursuant to N.C.G.S. 55-7-44(f), an independent panel to conduct an inquiry into whether the maintenance of the derivative counterclaims was in the best interest of the corporation. Following its investigation, the panel submitted a detailed report regarding its inquiry and concluded that it was not in the company’s best interest to pursue the various derivative counterclaims. Thereafter, the company moved to dismiss the derivative counterclaims and the direct counterclaim for removal of directors.
The Court granted the motion to dismiss the derivative counterclaims. N.C.G.S. § 55-7-44 requires that a court grant a motion to dismiss a derivative proceeding if an independent, court-appointed panel determines in good faith after conducting a reasonable inquiry that the maintenance of the derivative proceeding is not in the best interest of the company. Upon review of the panel’s report, the Court concluded that these elements were satisfied and dismissal was warranted.
However, the Court denied the motion to dismiss the direct counterclaim for removal of directors. N.C.G.S. § 55-8-09 allows a court to remove a director if a shareholder shows that the director engaged in fraudulent or dishonest conduct or gross abuse of authority or discretion with respect to the corporation. Limiting its review solely to the allegations in the counterclaims, the Court concluded that Jim’s allegations that the directors had unlawfully circumvented the bylaws to gain corporate control and had engaged in self-dealing were sufficient to state a claim under the statute.
*******
Lafayette Vill. Pub, LLC v. Burnham, 2025 NCBC 8 (N.C. Super. Ct. Mar. 4, 2025) (Davis, J.)
Key Terms: Rule 12(b)(6); existence of a fiduciary duty between LLC members; breach of fiduciary duty; constructive fraud; derivative claims; statute of limitations; accounting
This action involves a dispute between members of two LLCs. Two of the members brought suit against the third member, asserting various derivative and individual claims arising from Defendant’s alleged financial mismanagement and self-dealing. Defendant moved under Rule 12(b)(6) to dismiss the derivative and individual claims for breach of fiduciary duty and constructive fraud, as well as the claim for an accounting.
Beginning with the individual breach of fiduciary claims, the Court first concluded that the Complaint did not allege the existence of a de jure fiduciary relationship between Defendant and Plaintiffs based on Defendant’s status as a member, since as a general rule, members do not owe fiduciary duties to each other and there was no operating agreement providing otherwise. Second, the Court concluded that, at best, the complaint alleged that Defendant had exercised more power than he actually possessed over the companies and that the Plaintiffs let him do so, and that this was insufficient to establish a de facto fiduciary relationship. The complaint contained no allegations that Plaintiffs, as members with equal managerial authority, had ever called a managers’ meeting, formally voted against Defendant’s actions, or sought injunctive relief. Since the complaint failed to allege the existence of a fiduciary relationship between the members, the Court dismissed the individual breach of fiduciary duty claims.
The Court also dismissed the individual constructive fraud claims due to the absence of a fiduciary relationship and the complaint’s failure to allege any alternative factual basis for a relationship of trust and confidence between the members.
Turning to the derivative claims, the Court noted that Defendant’s argument that the claims were barred by the three-year statute of limitations was inapplicable to the constructive fraud claim because the statute of limitations for such a claim is ten years. As to the breach of fiduciary duty claim, the Court concluded that it would benefit from a more developed factual record regarding when Plaintiffs had actual or constructive knowledge of Defendant’s alleged wrongful acts. Accordingly, the motion to dismiss the derivative claims was denied without prejudice.
Finally, the Court dismissed Plaintiffs’ claim for an accounting because an accounting is a remedy, not a claim.
*******
Hengqin Dingsheng Zhirong Equity Inv. Fund (Ltd. P’ship) v. Li, 2025 NCBC 9 (N.C. Super. Ct. Mar. 5, 2025) (Davis, J.)
Key Terms: forum non conveniens; N.C.G.S. 1-75.12; China; motion to dismiss; motion to stay
Plaintiffs, Chinese investors and minority shareholders of a Chinese pharmaceutical research company, filed this action against three of the executives of the company, alleging that the executives improperly enriched themselves at the expense of the Plaintiffs and the company. Defendants moved to dismiss the action pursuant to Rules 12(b)(2) and 12(b)(6), or, alternatively, to stay the action on forum non conveniens grounds.
Upon consideration of the forum non conveniens factors, the Court granted the motion to stay and consequently denied the motion to dismiss as moot. First, the nature of the case, applicable law, and the respective interests of China and North Carolina all weighed strongly in favor of a stay because Chinese law would need to be applied to the case, many of the witnesses and documents would require a Chinese translator, and China had a far greater interest than North Carolina in the litigation because the case involved a dispute between Chinese investors of a Chinese company regarding actions mostly taken in China. Second, the location of witnesses and evidence weighed neither for or against a stay because witnesses and evidence were located both in China and North Carolina. Third, China provided an adequate forum for Plaintiffs to litigate their claims despite the fact that China uses a judge-led inquisitorial system, rather than the adversarial system used in the U.S. Finally, although deference is usually given to a plaintiff’s choice of forum, such deference is diminished when, as here, plaintiffs chose to bring their case outside their home forum.
*******
Epes Logistics Servs., Inc. v. De Piante, 2025 NCBC 10 (N.C. Super. Ct. Mar. 11, 2025) (Robinson, C.J.)
Key Terms: summary judgment; non-disclosure agreement; non-solicitation agreement; breach of fiduciary duty; breach of contract, ; injunctive relief; aiding and abetting breach of fiduciary duty; tortious interference; UDTPA; civil conspiracy; respondeat superior; declaratory judgment; failure to brief an issue
This case arose from the resignation of three employees from Plaintiff and their alleged access to, and use of, Plaintiff’s confidential information to begin their own competing business. Plaintiff brought suit alleging various claims arising from the Individual Defendant’s alleged breach of their employment agreements with Plaintiff and interference with Plaintiff’s customer relationships. Defendants asserted a counterclaim for a declaratory judgment concerning the enforceability of the non-solicitation covenants in their employment agreements. Both sides moved for summary judgment, in whole or in part.
Breach of Fiduciary Duty. Plaintiff asserted that Defendant De Piante owed it both de jure and de facto fiduciary duties and that Defendant Caron owed it de facto fiduciary duties. Because the parties heavily disputed whether De Piante was an officer of Plaintiff, the Court denied Plaintiff’s motion for summary judgment as it related to De Piante’s de jure fiduciary duty to Plaintiff. However, regarding de facto fiduciary duties, the Court determined that there was no evidence that either De Piante or Caron exercised domination and control over Plaintiff; to the contrary, the evidence showed that both worked in a specific division of Plaintiff and reported to superiors. Accordingly, the Court dismissed the claim to the extent it was based on de facto fiduciary duties.
Breach of Contract. The Court found that Plaintiff had put forth sufficient evidence that would permit a jury to conclude that the Individual Defendants had violated the confidentiality provisions of their employment agreements, including by using Plaintiff’s financial information to obtain financing for their new company. Thus, genuine issues of material fact existed, precluding summary judgment on the breach of contract claim.
Injunctive Relief. Plaintiff sought to permanently enjoin the Individual Defendants from using or disclosing its confidential information. Because the Court had already determined that there was a genuine issue of material fact as to whether the Individual Defendants breached their employment agreements by disclosing confidential information, the Court held that it would be premature to determine whether the requested injunctive relief was warranted and therefore denied Defendants’ motion for summary judgment on this claim.
Aiding and Abetting Breach of Fiduciary Duty. Because North Carolina does not recognize a claim for aiding and abetting breach of fiduciary duty, the Court dismissed this claim.
Tortious Interference with Contracts Claim against Individual Defendants. Defendants sought summary judgment on Plaintiff’s claim that the Individual Defendants had tortiously interfered with each other’s employment agreements and the confidentiality provisions found therein. Since the Court had already determined that genuine issues of material fact existed regarding the enforceability of the agreements, it rejected any argument that the tortious interference claim failed because the agreements were unenforceable. The Court was also satisfied that genuine issues of material fact existed regarding inducement. Thus, the Court denied summary judgment on this claim.
Tortious Interference with Prospective Economic Advantage Claim against Defendants. The Court granted summary judgment in Defendants’ favor on this claim because, although Plaintiff had identified specific customers it contends would have continued to do business with it but for Defendants’ conduct, Plaintiff failed to point to any specific contracts that would have ensued but for Defendants’ conduct, a required element of the claim.
UDTPA. Defendants sought summary judgment on plaintiff’s UDTPA claim arguing that it was precluded by the single market participant exclusion. The Court determined, however, that Plaintiff had forecast sufficient evidence that the alleged conduct supporting the claim involved market participants outside of Plaintiff’s organization and therefore denied the motion for summary judgment.
Civil Conspiracy. Because Defendants’ only argument in favor of summary judgment as to the civil conspiracy claim was that it should be dismissed if all other tort claims were dismissed, and other claims had survived dismissal, the Court denied Defendants’ motion for summary judgment on this claim.
Respondeat Superior against Defendant Noble. Because Defendants did not present any argument in their brief regarding this claim, the Court denied Defendants’ motion for summary judgment on the respondent superior claim.
Declaratory Judgment Counterclaim. Defendants sought summary judgment on their claim for a declaratory judgment that the non-solicitation provisions in their employment agreements were unenforceable. Because Defendants had presented sufficient evidence to support a prima facie case as to this claim and Plaintiff failed to present any argument regarding this claim in its brief in opposition to summary judgment, the Court concluded that no genuine issue of material fact existed and granted summary judgment in Defendants’ favor.
*******
Jackson v. MH Master Holdings, LLLP, 2025 NCBC Order 15 (N.C. Super. Ct. Feb. 28, 2025) (Earp, J.)
Key Terms: BCR 10.9; public records; work product doctrine; attorney-client privilege; anticipation of litigation; substantial need
As summarized here, the N.C. Attorney General initiated this action against Defendant, alleging that Defendant had violated certain provisions of an asset purchase agreement relating to its acquisition of a hospital system in western North Carolina. In response to Defendant’s Rule 34 document request, Plaintiff withheld or redacted various documents that he identified in a privilege log as relating to legal advice. After complying with BCR 10.9, Defendant filed a motion to compel Plaintiff to produce the documents, which Defendant contends are public records.
Because Plaintiff asserted that the majority of the documents were withheld based on the work product doctrine, the Court began by examining the interplay between the Public Records Act and the work product doctrine. Although the Act defines public record broadly, it also recognizes application of the work product doctrine to public records and incorporates the provisions of Rule 26 regarding the production of trial preparation materials. Under Rule 26(b)(3), documents prepared in anticipation of litigation are subject to the work product doctrine. Here, Defendant argued that the documents at issue were prepared in connection with the negotiation of a contract, not in anticipation of litigation. However, because there was evidence in the record that the Plaintiff anticipated litigation early on in the transaction, the Court determined that an in camera review of the documents was necessary to determine if they were prepared in anticipation of litigation.
Defendant also argued that even if the work product doctrine applied, the documents must still be produced because Defendant had a substantial need for the materials (and couldn’t get equivalent materials elsewhere) since the Attorney General was the only source of information concerning his contemporaneous understanding of potentially ambiguous language in the APA. Plaintiff responded that regardless of Defendant’s “substantial need,” the work product documents were not discoverable because they reflected the mental impressions, conclusions, opinions, and legal theories of Plaintiff’s attorneys. Once again, the Court concluded that an in camera review of the documents was needed to determine this issue.
Accordingly, the Court ordered Plaintiff to provide the documents at issue to the Court for an in camera review.
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 03/11/25
By: Rachel Brinson
Water.io Ltd v. Sealed Air Corp, 2025 NCBC 5 (N.C. Super. Ct. Feb. 19, 2025) (Conrad, J.)
Key Terms: motion to dismiss; breach of contract; repudiation; nonperformance; counterclaims; implied covenant of good faith and fair dealing; UDTP; N.C.G.S. § 75-1.1; Rule 12(b)(6); statute of limitations; N.C.G.S. § 1-52(1); UCC; N.C.G.S. § 25-2-725(1); contract for the sale of goods; predominate purpose test; nonconforming goods; fraudulent inducement; heightened pleading standard
This case arises out of a dispute over a contract for the development and sale of sensors for use in insulated shipping containers. Plaintiff brought suit alleging that Defendant breached their contract by repudiation and nonperformance. Defendant counterclaimed for breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair or deceptive trade practices. Plaintiff moved to dismiss the counterclaims.
Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing. Because Defendant’s counterclaims for breach of contract and breach of the implied covenant of good faith and fair dealing were based on the same underlying allegations, the Court considered the two claims as one. Plaintiff moved to dismiss the claims based on the statute of limitations. The Court first determined, under the predominate purpose test, that the contract was predominately one for the sale of goods and therefore, the UCC’s four-year statute of limitations applied. Accordingly, the Court dismissed the claims to the extent they were based on alleged breaches occurring more than four years prior to the commencement of this suit, but otherwise denied the motion.
UDTP. Defendant asserted a UDTP claim based on Plaintiff’s alleged breach of contract. The Court dismissed the claim, concluding that Defendant’s allegations of fraudulent inducement were conclusory and not pleaded with sufficient particularity and therefore did not supply the necessary aggravating circumstances to support a UDTP claim based on breach of contract. Further, the Court concluded that the Parties’ dispute was essentially one regarding contractual rights and obligations, which does not support a UDTP claim.
*******
Barings LLC v. Fowler, 2025 NCBC 6 (N.C. Super. Ct. Feb. 13, 2025) (Conrad, J.)
Key Terms: motion to dismiss; trade secrets; confidential information; corporate raid; conspiracy; tortious interference with contract; N.C.G.S. § 75-1.1; breach of fiduciary duty
In March 2024, twenty-two members of Plaintiff Barings LLC’s Global Private Finance group resigned in unison to join Defendant Corinthia Global Management Limited, a fledgling competitor. In this lawsuit, Plaintiff alleges that the departing employees took its trade secrets and other confidential information at Defendant Corinthia’s direction. Plaintiff Barings also alleges that Defendant Corinthia conspired with Defendants Ian Fowler (a leader of the Global Private Finance group) and Kelsey Tucker (Barings’s former head of global operations) in orchestrating the raid. Defendants moved to dismiss all nine claims brought by Plaintiff.
Breach of Contract. Plaintiff alleges that the individual Defendants breached the restrictive covenants of their respective employment or separation agreements with Plaintiff. However, the Court found that Plaintiff failed to meet the modest pleading requirements to state a claim for breach of contract because its allegations of breaches were conclusory and not specific enough to put the Defendants on notice of the claims against them. The Court granted the motion to dismiss the breach of contract claims against the individual Defendants.
Misappropriation of Trade Secrets. Plaintiff alleged that Defendants misappropriated its trade secrets, including plans for new products, employee compensation information, and various internal policies. Applying the lex loci test, the Court determined that North Carolina law, not English law, controls this claim for present purposes. The Court found that Plaintiff had sufficiently identified its allegedly misappropriated trade secrets and properly alleged that it was harmed by the alleged misappropriations. However, the Court found that the allegations against the individual Defendants were insufficient because Plaintiff failed to specifically allege that the individual Defendants improperly acquired, used, or disclosed any trade secrets. Accordingly, the Court dismissed the claim against the individual Defendants but denied the motion as to Corinthia.
Tortious Interference with Contract. Plaintiff alleged that Defendants induced the departing employees to breach their employment agreements by misusing Plaintiff’s confidential information and soliciting its customers. Corinthia argued that any interference on its part was justifiable market competition. The Court rejected this argument because Plaintiff had adequately alleged that Corinthia misappropriated its trade secrets, which is not a lawful means of competition. Defendants also argued that it did not know about the employees’ agreements, induce the employees to breach the agreements, or cause any harm to Plaintiff. The Court disagreed, finding that Plaintiff’s allegations that Corinthia held resignation letters from the employees for months before such employees resigned, conditioned such employees’ start dates with Corinthia on the expiration of applicable restrictive periods, and returned documents containing Plaintiff’s trade secrets all supported an inference that Corinthia knew of the agreements and induced their breach to Plaintiff’s harm. Conversely, the Court again found that the allegations against the individual Defendants were conclusory and not sufficient to state a claim for tortious interference with contract. The Court granted the motion to dismiss the claims against the individual Defendants but denied it as to Corinthia.
UDTP. Since Plaintiff’s UDTP claim was predicated on its underlying misappropriation of trade secrets and tortious interference with contract claims, the Court dismissed the UDTPA claim to the same extent it had dismissed the other claims, but otherwise denied the motion to dismiss the UDTP claim.
Civil Conspiracy. Although the Court dismissed the misappropriation of trade secrets and tortious interference with contract claims against the individual Defendants, the underlying claims against Corinthia survived and Plaintiff alleged that all the Defendants conspired together to commit those torts. Thus, although the conspiracy allegations were not as particularized or comprehensive as they could be, they were sufficient to survive a motion to dismiss.
Constructive Fraud and Breach of Fiduciary Duty. These claims against Defendant Fowler survived because Plaintiff had sufficiently alleged that Fowler owed it fiduciary duties as an officer and director and that he breached those duties for his own benefit by secretly helping Corinthia raid Plaintiff’s Global Private Finance group.
Permanent Injunction. Noting that injunctions are remedies and not standalone causes of action, the Court granted the motion to dismiss the claim for permanent injunction without prejudice to Plaintiff’s ability to seek a permanent injunction as a remedy if it is successful on an underlying claim.
Breach of Stipulated Injunction Order. Corinthia argued that the claim for breach of the injunction order should be dismissed because dismissal of all other claims against Corinthia warranted termination of the injunction order and because Plaintiff did not allege any damages. The Court rejected both arguments because 1) not all claims against Corinthia had been dismissed and 2) North Carolina does not require proof of damages as an element of a breach of contract claim.
*******
Barings LLC v. Fowler, 2025 NCBC Order 11 (N.C. Super. Ct. Feb. 13, 2025) (Conrad, J.)
Key Terms: motion to stay; N.C.G.S. § 1-75.12(a); forum non conveniens
As summarized above, this case involves claims relating to an alleged corporate raid. Plaintiff is a Delaware LLC headquartered in North Carolina and Defendant Corinthia is chartered and headquartered in the United Kingdom. Corinthia moved to stay the case on forum non conveniens grounds pursuant to N.C.G.S. § 1-75.12, arguing that North Carolina is an inconvenient forum and that Plaintiff’s claims should be heard in England. The Court determined that the applicable factors regarding whether to grant a stay were either neutral or weighed against a stay and that Corinthia had not shown that a substantial injustice would result if the case were to proceed in North Carolina. First, Plaintiff’s choice of forum deserved great deference so this factor weighed against a stay. Second, the witnesses and sources of proof were located both in the United States and in England, so these factors were neutral. Third, the Court would likely need to apply North Carolina, Delaware, and English law, so this factor weighed slightly against a stay since the Court was best suited to apply North Carolina law and frequently applied Delaware law. The remaining factors either weighed against a stay or warranted little weight. Therefore, the Court denied Corinthia’s motion to stay.
*******
ECA Gen. P’Ship, LLC v. First Bank, 2025 NCBC Order 12 (N.C. Super. Ct. Feb. 18, 2025) (Robinson, C.J.)
Key Terms: order on designation; N.C.G.S. § 7A-45.4(a); N.C.G.S. § 7A-45.4(a)(5); timely notice of designation; intellectual property
Plaintiff filed this action, asserting various claims arising from alleged cybercrime activity. Defendants timely served their Notice of Designation but did not file it with the clerk of court, as required by N.C.G.S. §§ 7A-45.4(c) and (d). Accordingly, the Court determined, on procedural grounds, that the case was not properly designated to the Business Court.
In addition, even assuming the NOD was timely, the Court determined that designation pursuant to N.C.G.S. § 7A-45.4(a)(5) was not proper because the material issues in dispute, namely the Defendant’s security procedures and negligent conduct, were not tied to the underlying intellectual property involved, as required by section 7A-45.4(a)(5).
*******
Lucas v. Hopper, 2025 NCBC Order 13 (N.C. Super. Ct. Feb. 20, 2025) (Earp, J.)
Key Terms: motion to quash subpoenas; discovery dispute; close of discovery; BCR 10.9; BCR 10.4
Defendants filed objections and motions to quash subpoenas issued to third parties by Plaintiffs that would require production of documents by the subpoenaed parties after the close of the discovery period. Finding that Plaintiffs did not move to extend the discovery period and failed to comply with BCR 10.4 requiring that discovery be served with enough time so that responses are due before the close of discovery, the Court granted the motions and quashed the subpoenas as untimely.
*******
Implus Footcare, LLC v. Vore, 2025 NCBC Order 14 (N.C. Super. Ct. Feb. 25, 2025) (Davis, J.)
Key Terms: motion for commission; non-party subpoena; Rule 45; Massachusetts; letters rogatory; BCR 10.9; discovery dispute
Defendants sought the issuance of a commission from the Court pursuant to Rule 45(f) to compel discovery from a non-party entity located in Massachusetts. However, Defendants failed to follow BCR 10.9 prior to filing the motion for commission. The Court therefore denied the motion, without prejudice, and instructed the parties to participate in the BCR 10.9 process and to make a good-faith effort to resolve their discovery dispute.
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 02/25/25
By: Natalie E. Kutcher
CTS Metrolina, LLC v. Berastain, 2025 NCBC 3 (N.C. Super. Ct. Feb. 4, 2025) (Earp, J.)
Key Terms: motion to dismiss; Rule 12(b)(6); unfair and deceptive trade practices act; tortious interference; misappropriation of trade secrets; computer trespass; N.C.G.S. 14-458(a); vicarious liability; declaratory judgment; civil conspiracy
As previously summarized here, this case arose after Plaintiff purchased the assets of a business from Defendants Berastain and Moreau in 2022. As part of the transaction, Berastain and Moreau executed confidentiality and noncompete agreements. Following Berastain and Moreau’s departure from Plaintiff, a significant number of Plaintiff’s “jobs” were deleted from a project management platform by two employees, who later became employed by Inkwell, a company formed by Berastain and Moreau. Inkwell was subsequently purchased by S&P Cap, a company formed by two brokers who participated in the CTS Metrolina purchase agreement. Inkwell, S&P Cap, Cherry and Pena moved to dismiss a number of Plaintiff’s claims pursuant to Rule 12(b)(6).
Tortious Interference with Contract Claim against Inkwell. The Court denied Inkwell’s motion to dismiss as it related to Inkwell’s interference with Berastain and Moreau’s noncompete agreement with CTS Metrolina. The Court noted the inapplicability of the intracorporate immunity doctrine, which applies to conspiracies, to this claim. The Court held that the amended complaint sufficiently alleged that Inkwell had induced Berastain and Moreau to violate their restrictive covenants with CTS Metrolina and satisfied the pleading elements for this claim. However, the Court granted Inkwell’s motion as it related to contracts with CTS Metrolina’s customers, subcontractors, and vendors. CTS Metrolina’s “mere expectation of a continuing business relationship” was insufficient to establish a claim for tortious interference.
Tortious Interference with Contract Claim against Cherry and S&P Cap. The Court granted Cherry and S&P Cap’s motions to dismiss, as the amended complaint failed to establish the existence of a valid contract between CTS Metrolina and its customers, subcontractors and vendors. As with Inkwell, the expectation of a continuing business relationship with these entities did not constitute a contract for the purposes of a tortious interference claim.
Misappropriation of Trade Secrets Claim against Inkwell, Cherry and S&P Cap. Defendants argued that the misappropriation of trade secrets claim failed because Plaintiff had failed to adequately allege the existence of a trade secret or misappropriation. The Court agreed in part, concluding that Plaintiff’s allegations regarding misappropriation of “business operation information” were too vague. However, Plaintiff’s detailed descriptions of its customer lists and subcontractor/vendor lists were adequate to allege the existence of compilation-based trade secrets and its allegations that Defendants had used the information were sufficient to allege misappropriation.
Computer Trespass Claim against Pena and Inkwell. Plaintiff alleged that Pena violated North Carolina’s Computer Trespass Statute (N.C.G.S. § 14-458(a)) by deleting its “jobs” from iRestore, a project management platform. Pena argued that these allegations failed because they did not allege that iRestore was a “computer or computer network” or that the data belonged to Plaintiff rather than iRestore. The Court disagreed, finding that the allegations were sufficient to show that iRestore operates on a “computer or computer network” and that Plaintiff’s use of the possessive “its jobs” was sufficient to allege that the data belonged to Plaintiff. Inkwell also argued that Plaintiff’s claim against it could not survive to the extent the claim sought to allege Inkwell’s liability for the violations of its employees under the doctrine of respondeat superior. The Court disagreed, concluding that the Computer Trespass Statute did not foreclose the possibility of vicarious liability under the present circumstances.
Civil Conspiracy Claim against Cherry, Pena, S&P Cap. Defendants argued that the civil conspiracy claim should be dismissed for failure to allege facts showing how, when, and why a conspiracy was formed. The Court denied the motion, finding that Plaintiff’s allegations that Berastain, Moreau, Cherry, Pena and S&P Cap agreed to unlawfully compete with CTS Metrolina, and carried out this agreement by violating the Computer Trespass Statute and the Court’s prior orders were sufficient to state a claim.
Unfair and Deceptive Trade Practices Claim against Inkwell, Cherry, Pena. The Court also denied dismissal of Plaintiff’s UDTPA claim, concluding that the alleged violation of the Computer Trespass Statute constituted an “unfair act or practice,” and, as the alleged wrongful conduct was not contained within CTS Metrolina, the conduct was sufficiently “in or affecting commerce” to support the claim.
Accounting and Constructive Trust Claims against Inkwell and S&P Cap. The Court granted dismissed Plaintiff’s claims for accounting and constructive trust, as those are remedies rather than independent claims. This dismissal was without prejudice to Plaintiff’s ability seek the imposition of either or both remedies for any surviving claims at the appropriate time.
Declaratory Judgment Claim against Inkwell and S&P Cap. The Court denied the motion to dismiss Plaintiff’s claim for declaratory judgment, which requested that the sale of IER and Inkwell to S&P Cap be declared void ab initio because it perpetuated Berastain’s and Moreau’s unlawful competition in violation of their restrictive covenants. The Court concluded that because Berastain and Moreau had entered into the restrictive covenants with Plaintiff, Plaintiff had an interest in determining whether Berastain and Moreau could profit from the sale of IER and Inkwell.
******
Pro-Tops, Inc. v. Maksimenko, 2025 NCBC 4 (N.C. Super. Ct. Feb. 10, 2025) (Earp, J.)
Key Terms: Rule 12(b)(5); motion to dismiss; invalid service of process; Rule 4; sheriff; private process server
Plaintiff filed a verified complaint against Defendant Maksimenko. Plaintiff sought to effectuate service through a private process server on six different occasions without success. The personal process server contacted Maksimenko, who denied “ducking” service, and requested that the two meet at a local hardware store. On December 19, 2024, the private process server met with Maksimenko and handed him copies of the complaint and summons. Maksimenko moved to dismiss under Rule 12(b)(5) for improper service of process.
The Court granted Maksimenko’s motion to dismiss, noting that Plaintiff’s affidavit of service did not indicate service by sheriff was attempted or that the sheriff was otherwise unable to serve the summons or complaint. Citing precedent, the Court noted that “use of a private process server is limited by statute to scenarios where the sheriff is unable to fulfill the duties of a process server.” Finding that service was not properly effectuated on Maksimenko, Plaintiff’s case was dismissed.
*******
Wilmington Tr., N.A. v. TM Northlake Mall, L.P., 2025 NCBC Order 7 (N.C. Super. Ct. Jan. 31, 2025) (Conrad, J.)
Key Terms: motion to approve sale; receivership; bankruptcy law; objections
In 2019, TM Northlake Mall, L.P. defaulted on a loan secured by its primary asset, a property known as Northlake Mall. Plaintiff Wilmington Trust, as trustee for the noteholder, initiated this suit and moved to place TM Northlake into receivership. A general receiver was appointed with broad authority to manage Northlake Mall’s operations and advertise the property for sale. Having found a buyer and negotiated a proposed purchase agreement, the receiver moved for the Court to approve the sale of Northlake Mall.
Two objections to the receiver’s motion were filed. The first objection was filed by a party interested in purchasing the property, who objected on the basis that the receiver’s marketing campaign was deficient and the sale price of the property was below value. The first objection requested a thirty-day due diligence period, to allow the objecting party to decide if it was willing to make an offer. The second objection was filed by two plaintiffs in two premises liability lawsuits against the receiver, who objected on the basis that the sale price of the property was too low to ensure the receivership estate had sufficient assets to compensate them should they succeed in obtaining a judgment.
Noting the broad authority given to receivers under state law and looking to bankruptcy law for guidance, the Court held that the receiver’s judgment was reasonable and that a sound business justification supported the proposed sale. The Court highlighted the “striking” fact that both TM Northlake and Wilmington Trust, who both had “every incentive” to maximize the sale price, approved the proposed sale. The Court further found that the objections filed did not present compelling reasons to reject the sale. As such, the Court approved the receiver’s proposed sale of the property.
******
Hedgepeth v. Cornblum, 2025 NCBC Order 8 (N.C. Super. Ct. Jan. 31, 2025) (Robinson, J.)
Key Terms: order on designation; mandatory complex business case; N.C.G.S. § 7A-45.4(a)(1); N.C.G.S. § 7A-45.4(c); contemporaneous service requirement
In this Order on Designation, the Court determined that designation under N.C.G.S. § 7A-45.4(a)(1) was not appropriate. This case arises out of a dispute relating to the assessment and collection of clubhouse dues in a planned community. Plaintiff alleges that Defendants took control of the community’s homeowner’s association for the purpose of assessing and collecting dues for their own benefit. Plaintiff sought designation based solely upon her claim to pierce the corporate veil.
Citing precedent, the Court emphasized that a claim for piercing the corporate veil on its own is insufficient to support mandatory complex business case designation under N.C.G.S. § 7A-45.4(a)(1). As Plaintiff’s other claims did not implicate the law governing corporations, partnerships, or LLCs, designation was inappropriate. The Court further noted that Plaintiff’s failure to comply with the contemporaneous service requirement of N.C.G.S. § 7A-45.4(c) rendered the designation untimely.
******
Laport v. Bakkavor Foods USA, Inc., 2025 NCBC Order 9 (N.C. Super. Ct. Feb. 5, 2025) (Robinson, J.)
Key Terms: order on designation; N.C.G.S. § 7A-45.4(a)(2); securities
This case arises from a dispute following Plaintiff Laport’s departure from Defendant Bakkavor Food’s employment. Laport filed this lawsuit in Mecklenburg County against Bakkavor Foods asserting claims of fraud in the inducement, negligent misrepresentation, violation of the North Carolina Wage and Hour Act, breach of contract, breach of covenant of good faith and fair dealing, conversion of wages, unjust enrichment, quantum meruit, and unfair and deceptive trade practices against Bakkavor Foods. Among these claims, the complaint alleges that Bakkavor Foods represented to Laport that he would earn the option to own shares of Bakkavor Foods’ stock through the company’s incentive plan. Bakkavor Foods filed a timely notice of designation under N.C.G.S. § 7A-45.4(a)(2). Laport subsequently filed an objection to the designation of the case, arguing that the complaint does not assert any securities claims.
The Court overruled Laport’s objection. Though the complaint did not explicitly assert a securities claim under Chapter 78A, the Court noted that section 7A-45.4(a)(2) does not require the claim to be explicitly stated to be properly designated. While a “tangential relationship” between securities and the complaint’s allegations is insufficient to warrant designation, designation is proper when the acquisition, disposition, transfer, existence, or characteristics of the securities is at issue. Finding that Laport’s claims required a determination of whether the shares in dispute had vested under the incentive plan, the Court held that the case would proceed as a mandatory complex business case.
******
Maven Advantage, Inc. v. Square One Storm Restoration, LLC, 2025 NCBC Order 10 (N.C. Super. Ct. Feb. 10, 2025) (Davis, J.)
Key Terms: preliminary injunction; non-compete; non-solicit; misappropriation of trade secrets
This case arises following Defendants William Couch and Tyler Daniels’ resignation from Plaintiff Maven Advantage’s employment. Plaintiff alleges that Couch and Daniels violated their restrictive covenant agreements with Plaintiff through their employment with Square One, who is also a named defendant. Plaintiff asserted claims of unfair and deceptive trade practices, common law unfair competition, misappropriation of trade secrets, tortious interference with contract, and tortious interference with prospective economic advantage against all three defendants, and claims against Couch and Daniels for breach of contract and against Daniels for civil embezzlement. Shortly after the suit was filed, a TRO was entered prohibiting Defendants from using confidential information and customer lists obtained from Plaintiff and from contacting or soliciting Plaintiff’s current or prospective customers using information obtained from Plaintiff. Here, the Court addressed Plaintiff’s motion for a preliminary injunction.
The Court denied Plaintiff’s request for a preliminary injunction, finding that Plaintiff failed to show a likelihood of success on the merits of its claims. In coming to this decision, the Court noted that Defendants had “meticulously rebutted” each of Plaintiff’s allegations relating to specific events of alleged misappropriation or solicitation through affidavits. The Court also acknowledged that Plaintiff’s affidavits contained hearsay, which was directly contradicted by affidavits submitted by Defendants from individuals with first-hand knowledge of the events. Though acknowledging that these findings and credibility determinations were limited in application to the preliminary injunction motion, the Court found that Plaintiff had failed to meet the high burden required to show entitlement to a preliminary injunction with the limited evidence on record at this time.
*******
James H.Q. Davis Trust v. JHD Properties, LLC, No. 32PA24, 2025 N.C. LEXIS 66, 2025 WL 350300 (Jan. 31, 2025) (Barringer, J.)
Key Terms: N.C.G.S. § 57D-6-02(2); judicial dissolution; “not practicable” standard
This appeal arose from the Business Court’s order on cross-motions for summary judgment, which, as summarized here, granted summary judgment in favor of plaintiffs on their claim for judicial dissolution of two LLCs. The Business Court had concluded that judicial dissolution was warranted under N.C.G.S. § 57D-6-02(2), which provides that dissolution is appropriate when it is “not practicable” to conduct the LLC’s business. The Business Court found that the “not practicable” standard had been met because the LLCs’ managers had been unable to reach agreement for at least three years, resulting in the failure of the LLCs to conduct any economically useful activity, and the LLCs’ operating agreements did not provide any mechanism to break the deadlock. The Supreme Court affirmed and held that “not practicable” means “unfeasible” and does not mean “impossible.” In determining whether it is not practicable for managers to continue operating a company, a court may consider: (1) whether the management of the company is unable or unwilling to work together to reasonably engage in or promote the purpose for which the company was formed; (2) whether there is deadlock between the managers; (3) whether the operating agreement provides a means of navigating around such deadlock; (4) whether, due to the company’s financial position, there is still a business to operate; (5) whether continuing the company is financially feasible; and (6) whether a member or manager has engaged in misconduct. Applying these factors to the present case, the Supreme Court agreed that it was not practicable for the managers to continue operating the LLCs due to the presence of managerial deadlock, the lack of an equitable means of resolving that deadlock, and the unwillingness of the managers to permit the LLCs to engage in and pursue the purpose for which they were formed.
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 02/11/25
By: Austin Webber
Cherry v. Mauck, 2025 NCBC 1 (N.C. Super. Ct. Jan. 21, 2025) (Conrad, J.)
Key Terms: Rule 12(b)(6); breach of contract; breach of fiduciary duty
Plaintiffs and Defendant are co-owners of two family businesses. Plaintiff commenced this action asserting claims for breach of contract and breach of fiduciary duty arising from Defendant’s alleged distribution of company cash without a majority of member approval as required by each company’s respective operating agreement. Defendant moved to dismiss both claims under Rule 12(b)(6).
Breach of Contract. The Court denied dismissal of the breach of contract claim, finding that Plaintiff’s allegations that the operating agreements of the companies were valid and enforceable, that the agreement provided that company cash can only be distributed with the approval of a majority of the members, and that Defendant breached the agreements by making distributions over the Plaintiffs’ objection were sufficient to state a claim.
Breach of Fiduciary Duty. The Court granted the motion to dismiss the breach of fiduciary duty claim because Plaintiffs’ failed to adequately allege that Defendant owed them a fiduciary duty. Defendant, as a manager and member of each company, did not owe fiduciary duties to Plaintiffs personally as members. Further, Plaintiffs had not asserted derivative claims on behalf of the companies and thus did not have standing to sue for breach of the fiduciary duties Defendant owed to the companies. Additionally, the Plaintiffs did not assert any special duty Defendant owed them or any peculiar or personal injury caused by Defendant.
*******
M.D. Claims Group, LLC v. Bagley, 2025 NCBC 2 (N.C. Super. Ct. Jan. 22, 2025) (Earp, J.)
Key Terms: motion to amend complaint; Rule 15; fraud; trade secret misappropriation; UDTPA; veil piercing
Plaintiff filed suit against its former employee Bagley, asserting various claims arising from Bagley’s alleged violations of his employment agreement and non-disclosure agreement and other misconduct. Plaintiff moved to amend the complaint to add various causes of action.
Breach of Contract: Plaintiff alleged that Bagley breached his employment agreement and NDA (governed by Louisiana law) when he failed to return all company property, including confidential information. Defendants argued that the NDA operates as a restraint of trade making it subject to the requirements of Louisiana law which require non-compete provisions to contain geographic and temporal restrictions. The Court disagreed with Defendants as the language of the NDA was tailored to prevent the disclosure of confidential information, not restrain trade, and any language to the contrary could be properly severed under Louisiana law. Since a breach of contract was otherwise adequately stated under Louisiana law, the Court granted the motion to amend as to this claim.
Fraudulent Concealment and Fraudulent Misrepresentation: The Court granted the motion as to Plaintiff’s proposed fraud claims. Plaintiff alleged that 1) Bagley made false representations of the company’s status in weekly management meetings and falsely told Plaintiff that Bagley Consulting was organized for his wife’s business ventures rather than his own; 2) that these representations were reasonably calculated and intended to deceive; and 3) that Plaintiff reasonably relied on the misrepresentations and was actually deceived by them. Plaintiff also alleged that a duty to disclose arose when Bagley took affirmative steps to conceal material facts from Plaintiff and that Bagley implemented a plan to sabotage Plaintiff’s business. These allegations were sufficient to state claims for fraudulent misrepresentation and concealment.
Misappropriation of Trade Secrets: The Court held that Plaintiff had adequately stated a claim for trade secret misappropriation based on the alleged misappropriation of its “Adjuster Roster,” which was a database of adjusters used to investigate claims. Plaintiff’s proposed factual allegations that the Adjuster Roster had commercial value, was subject to reasonable efforts to maintain its secrecy, was not generally available to the public, and had been developed at significant time and expense to Plaintiff were sufficient to allege the existence of a trade secret. Additionally, the allegations that Bagley had regular access to the information and was able to transfer it to his new business in the weeks before his termination were sufficient to allege misappropriation. However, Plaintiff’s broad references to “Company Materials” and “Client-related information” were not sufficient to allege the existence of a trade secret because the allegations regarding categories of information such as general/administrative information, sales trends, and generalized customer pricing information did not satisfy the particularly requirement or were not pleaded in such a manner to show that the information was compiled and maintained as confidential in a secure location. Accordingly, the motion was granted as to a misappropriation claim based on the Adjuster Roster but otherwise denied.
Violation of the Unfair and Deceptive Trade Practices Act: The Court determined that the allegations against Defendants in support of Plaintiff’s misappropriation of the Adjuster Roster were sufficient to allege a UDTPA claim and therefore the motion to amend was granted as to this proposed claim.
Veil Piercing: The Court denied the motion to amend as to veil piercing because Plaintiff’s allegations of complete domination and control were conclusory and unsupported by facts.
*******
Leone v. Leone, 2025 NCBC Order 1 (NC. Super. Ct. Jan. 13, 2025) (Robinson, C.J.)
Key Terms: N.C.G.S. § 7A-45.4(a)(1); opposition to designation; N.C.G.S. § 57D-3-21; N.C.G.S. § 57-D-8-01; breach of fiduciary duties
Plaintiff initiated this action against Defendant Philip Leone asserting that, as equal 50% owners/members of Cleveland Lube and Tune, LLC, Defendant breached its fiduciary, statutory and common law duties under N.C.G.S. § 57D-3-21. Defendants timely filed a notice of designation, asserting that the case meets the criteria for designation under N.C.G.S. § 7A-45.4(a)(1), which permits designation if the action involves a material dispute involving the law governing limited liability companies, including Chapter 57D. Plaintiff opposed designation.
The Court overruled Plaintiff’s opposition finding that designation was proper because Plaintiff alleged that Defendant Leone breached his statutory duties as a manager under N.C.G.S. § 57D-3-21. The Court also rejected Plaintiff’s argument that designation was improper because the action did not contain novel, extraordinary, or complex issues; as the Court has repeatedly stated, designation under N.C.G.S. § 7A-45.4(a)(1) does not require that the issue involve a claim of any particular complexity.
*******
Hays v. Lewis, 2025 NCBC Order 2 (N.C. Super. Ct. Jan. 21, 2025) (Conrad, J.)
Key Terms: Rule 1.9(a) of the Rules of Professional Conduct; same or substantially related matter
Plaintiff Hays and Defendant Lewis are the two member-managers of Gunnerson Enterprises, LLC, a real estate investment company. Hays initiated this action, asserting direct and derivative claims against Lewis arising from his alleged misconduct relating to Gunnerson. After Lewis engaged Rossabi Law to defend him and Gunnerson in the case, Hays filed a motion to disqualify Rossabi, based on its previous representation of Gunnerson, Hays, and Lewis in other matters. Rossabi withdrew from representing Gunnerson after it was placed in receivership but continued to represent Lewis personally.
The Court granted the motion to disqualify. Absent written consent, Rule 1.9(a) of the Rules of Professional Conduct prohibits a lawyer who has formerly represented a client in a matter from representing another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client. Here, there was no dispute that Rossabi previously represented Hays and Gunnerson or that its representation of Lewis in this case was materially adverse to the interests of Hays and Gunnerson.
The Court determined that Rossabi would have likely obtained confidential information in its prior representation of Hays (in previous matters) and Gunnerson (in the current matter and past matters), which would materially advance Defendant’s position in the current matter, including, for example, Gunnerson’s evaluation of the derivate claims and Hays’ financial condition, business strategy, assessment of the strength of her legal claims, willingness to settle claims, etc. Therefore, the Court granted the motion to disqualify and struck Lewis’s answer and certain other motions and supporting materials filed by Rossabi.
*******
Daedong-USA, Inc. v. KI Fin., Inc., 2025 NCBC Order 3 (N.C. Super. Ct. Jan. 21, 2025) (Davis, J.)
Key Terms: BCR 10.9 submission; discovery; relevance
In this action, Plaintiff Daedong-USA, Inc. alleged that the C-Suite Defendants and Defendant Dae Kim, who are all former executives or senior employees of Plaintiff, devised a series of self-dealing schemes that were implemented for the purpose of siphoning millions of dollars from the company. This order addressed multiple BCR 10.9 submissions by the parties.
Plaintiff’s BCR 10.9 Submission. Plaintiff sought access to, and answers to interrogatories regarding, the personal financial information of the C-Suite Defendants. Plaintiff argued that such information was necessary to determine if the C-Suite Defendants used an intermediary to conceal their personal financial interest in Defendant KI Finance, which should have been disclosed. The C-Suite Defendant objected to these requests, arguing that Plaintiff failed to articulate a basis for believing that any intermediaries were actually used, and that they had already agreed to produce documents related to any transaction they had with KI Finance, as well as all other documents related to their alleged conflict of interest transactions. The Court agreed with the C-Suite Defendants and denied Plaintiff’s discovery request for the broad personal financial information of the C-Suite Defendants.
C-Suite Defendants’ 10.9 Submission. The C-Suite Defendants sought from Plaintiff evidence relating to (1) intercompany transactions between its parent company and affiliated entities and (2) its parent company’s approval processes for decisions made by its affiliates. Regarding the intercompany transactions, the C-Suite Defendants argued that this information was relevant to their defense because the actions of the parent company contributed to the C-Suite Defendants’ business decisions on behalf of Plaintiff. Plaintiff argued such information was irrelevant to its claims because it only sought damages relating to the C-Suite Defendants’ specific misconduct. The Court agreed with Defendants but found the requests overly broad. Accordingly, the Court ordered the parties to meet and confer to agree on a narrowly-tailored set of specific topics. Regarding evidence of the parent company’s approval process, the Court concluded that the C-Suite Defendants were not entitled to discovery on this topic since their request was based on a misunderstanding of Plaintiff’s allegations.
KI Finance’s 10.9 Submission. KI Finance sought the identities of the board of directors of Plaintiff’s parent company and documents reflecting the parent company’s influence over Plaintiff’s operations. Given the minimal degree of work to produce the identity of the directors and the Court’s inability to determine this information’s relevance based on the current record, the Court ordered Plaintiff to provide the requested identities. The Court also agreed that Defendants were entitled to conduct discovery relating to the parent company’s influence over Plaintiff but determined that the discovery requests at issue were overly broad. Accordingly, the Court ordered the parties to meet and confer to agree on a narrowly-tailored set of specific topics.
*******
CTS Metrolina, LLC v. Berastain, 2025 NCBC Order 4 (N.C. Super. Ct. Jan. 23, 2025) (Earp, J.)
Key Terms: Rule 15; motion to amend; futility; piercing the corporate veil.
As summarized here, this action involves a dispute arising from the sale of a business and the previous owners’ alleged involvement in a competing business. Defendants Berastain and Moreau (the previous owners) previously answered the complaint and asserted counterclaims against the various CTS Entities. Here, they moved to amend their answer and counterclaims to expand the facts and add two new counterclaim-defendants, Andrew Robertson and Robertson Capital LLC. Plaintiffs opposed the motion on the basis of futility.
Defendants’ proposed amendments alleged that the CTS Entities were all dominated by Robertson, who indirectly owns them through Robertson Capital. Accordingly, Defendants sought to pierce the corporate veil on multiple levels to ultimately hold Robertson personally liable for Defendants’ claims. The Court denied the motion because the proposed amendments did not satisfy the pleading standards and were therefore futile. Defendants’ allegations regarding Robertson’s domination and control over the other entities were conclusory and without factual support.
*******
Greentouch USA, Inc. v. Lowe’s Cos. Inc., 2025 NCBC Order 5 (N.C. Super. Ct., Jan. 23, 2025) (Davis, J.)
Key Terms: Rule 13(h); joinder; breach of contract; indemnity; jurisdiction
As summarized here, this case relates to a supplier contract between the parties. In addition to pleading its own claims in the complaint, Plaintiff also pleaded claims that had been purportedly assigned to it by HK Greentouch. Defendants answered and asserted counterclaims against both Plaintiff and HK Greentouch for breach of contract and indemnity and alleged that the two entities were under a complete identity of control and that the agreements underlying the counterclaims were entered into by both entities. Defendants then moved to join HK Greentouch as a party under Rule 13(h) of the North Carolina Rules of Civil Procedure, which requires joinder if the purported counterclaim defendant is necessary to grant complete relief and the court can obtain jurisdiction.
The Court concluded that the presence of HK Greentouch was required for the granting of complete relief regarding Defendants’ counterclaims because the breach of contract claim would necessarily involve questions of law and fact common to Plaintiff and HK Greentouch and the indemnification counterclaim would necessarily involve a determination as to Defendants’ ability to obtain relief.
The Court also determined that Defendants’ allegations that HK Greentouch contractually consented to be subject to the jurisdiction of North Carolina’s courts was facially sufficient to satisfy Rule 13(h)’s requirement that a party can only be joined if jurisdiction of them can be obtained.
Lastly, the Court found that Defendants did not need to give notice to HK Greentouch prior to its joinder. Following joinder and service, HK Greentouch would have a full and fair opportunity to assert any arguments it may possess as to whether it should not be a party to this lawsuit, including any jurisdictional arguments. For these reasons, the Court granted the motion.
*******
Value Health Sols. Inc. v. Pharm. Rsch. Assocs., Inc., 2025 NCBC Order 6 (N.C. Super. Ct. Jan. 27, 2025) (Davis, J.)
Key Terms: motion for leave to file motion for summary judgment, law of the case, doctrine of “prevention.”
Plaintiffs VHS and Raja, VHS’s founder, commenced this suit in 2018, alleging various claims relating to Defendant PRA’s acquisition of VHS and its proprietary Software. The Court previously dismissed certain of Plaintiffs’ claims and later granted summary against Plaintiff on their remaining claims. As summarized here, on appeal, the North Carolina Supreme Court affirmed all but one of the Business Court’s rulings and reversed entry of summary judgment on the issue of PRA’s alleged breach of certain sections of the parties’ Asset Purchase Agreement and remanded such claim for trial. On remand, the Court entered a Supplemental Case Management Order requiring the parties to seek leave of Court prior to filing any new motions for summary judgment. Following a year of supplemental discovery, Defendants moved for leave to file motions for summary judgment on three issues: (i) whether PRA’s internal use of the Software for its customers constitutes an External Sale; (ii) whether a third-party, Takeda Pharmaceuticals, paid any consideration to PRA for a license or right to access the Software; and (iii) whether Plaintiffs are barred by the applicable statute of limitations from claiming that PRA breached the APA by conditioning certain sales of its Software upon completion of certain milestones listed in the APA. Plaintiffs opposed the motion on two grounds: the “law of the case” doctrine based on the Supreme Court’s opinion and the “prevention” doctrine.
Issue 1. The Court held that the law of the case doctrine was inapplicable to the issue of PRA’s internal use because the Supreme Court did not discuss whether PRA’s internal use of the Software could constitute an External Sale.
Issue 2. The Court also determined that the law of the case doctrine did not preclude the filing of a new motion for summary judgment on the issue of whether PRA’s contractual relationship with Takeda constituted an External Sale because the Supreme Court expressly remanded the issue with instructions for the Court to determine this very issue.
Issue 3. The Court held that the law of the case doctrine also did not apply to whether Plaintiffs’ claim that PRA breached Section 2.6(b) of the APA was barred by the statute of limitations because the Supreme Court expressly declined to address the issue since it had not been addressed by the court below.
With regards to the doctrine of prevention, which under Delaware law provides that where a party’s breach by nonperformance contributes materially to the non-occurrence of a condition of one of his duties, the non-occurrence is excused, the Court could not discern any basis by which the doctrine would apply to any of the issues raised.
Accordingly, the Court entered an order permitting Defendants to file their requested motions for summary judgment.
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 01/28/25
By: Lauren Schantz
Maxwell Foods, LLC v. Smithfield Foods, Inc., 2024 NCBC 89 (N.C. Super. Ct. Dec. 30, 2024) (Conrad, J.)
Key Terms: hogs; summary judgment; breach of contract; most-favored-nation clause; output contract; force majeure; Covid-19 pandemic; UCC Article 2; contract interpretation; statute of limitations; repudiation; anticipatory breach; impracticability; good-faith business judgment; offensive summary judgment
As previously summarized here, Plaintiff Maxwell Foods, LLC sold hogs to Defendant Smithfield Foods, Inc. under an output contract with a most-favored-nation (“MFN”) clause for almost three decades. Each side alleged claims for breach of contract, and each side moved for summary judgment. The parties’ arguments focused on three specific provisions: the MFN clause, the output requirement, and whether payment was based on live weight or carcass weight.
MFN Clause. Maxwell first alleged that Smithfield breached the MFN clause by offering better pricing to six of its other suppliers. The Court concluded that the phrase “major swine suppliers” referred only to those suppliers in existence at the time the contract was executed and, therefore, Smithfield was entitled to partial summary judgment on this claim as to four of the six suppliers. The Court declined to adopt Smithfield’s narrow reading of the term “economic benefits,” instead embracing Maxwell’s broader interpretation as it related to various pricing formulas. The Court concluded that Maxwell’s claim for breach of the MFN clause based on pricing terms given to one of the two remaining suppliers was untimely under the UCC’s four-year statute of limitations and granted Smithfield’s motion for summary judgment to that extent. The Court denied Smithfield’s request for summary judgment regarding Smithfield’s compliance with the MFN clause, concluding that genuine issues of material fact about whether Smithfield offered Maxwell comparable pricing terms remained. The Court also rejected Smithfield’s arguments that Maxwell relied on impermissible hindsight and that the MFN clause did not require Smithfield to pay Maxwell the price it paid to other suppliers for Maxwell’s (allegedly) lower-quality hogs.
Output Requirement. The Court granted summary judgment in favor of Maxwell as to Smithfield’s affirmative defense of force majeure, concluding that no physical, contractual, or legal limitation made it impracticable for Smithfield to comply with the contract’s output requirement during the Covid-19 pandemic. The Court also granted Maxwell’s motion as to Smithfield’s counterclaims and affirmative defense of anticipatory breach, determining that Maxwell’s decision to go out of business was based on a good-faith business judgment and did not constitute a repudiation or termination of the contract without notice. Based on the Court’s prior rulings, the Court concluded that Maxwell was entitled to offensive summary judgment on its claim against Smithfield for breach of the output provision (and denied Smithfield’s related cross-motion).
Payment for Hog Deliveries. The Court concluded that Smithfield was entitled to summary judgment on Maxwell’s breach of contract claim to the extent that Maxwell alleged that a price based on live weight constituted a breach, but the Court further concluded that Smithfield was not entitled to summary judgment on the breach of contract claim to the extent Maxwell alleged Smithfield failed to pay full price based on live weight for particular deliveries.
*******
Vincelette v. Court, 2024 NCBC Order 77 (N.C. Super. Ct. Oct. 8, 2024) (Bledsoe, C.J.)
Key Terms: disqualify counsel; North Carolina Rule of Professional Conduct 1.9(a); former client; confidentiality; substantially related matter; materially adverse; engagement letter; scope of representation
Plaintiff Amy Vincelette and Defendant Melissa Peirce were 50/50 owners of Wellspring Group, Inc. Vincelette and Peirce later joined with Defendant Kelly Court to start Defendant Wellspring Nurse Source, LLC. In 2020, Vincelette, on behalf of Wellspring, and Vincelette and Court, on behalf of Nurse Source, brought suit against Peirce and her husband, asserting various claims arising from the Peirces’ alleged improper transfers of Wellspring and Nurse Source’s funds (the “Prior Litigation”).
Vincelette retained Moore & Van Allen, PLLC to represent Wellspring and Nurse Source in the Prior Litigation. Vincelette also retained MVA to represent her in her capacity as owner of Wellspring and member-manager of Nurse Source. MVA and counsel for the Peirces negotiated a settlement agreement in the Prior Litigation. Pursuant to the agreement, Peirce was supposed to relinquish her ownership interests in Wellspring and Nurse Source, but Vincelette alleges that Peirce failed to relinquish her interest in Nurse Source. This litigation followed.
In this action, Vincelette brought derivative claims on behalf of Nurse Source against Court and Peirce, direct claims against Court and Peirce, and direct claims against Nurse Source. After Vincelette retained MVA to represent her in the second action, Defendants moved to disqualify MVA under North Carolina Rule of Professional Conduct 1.9(a).
Applying the three-pronged test established by the Supreme Court of North Carolina, the Court concluded that (1) the attorney-client relationship between Nurse Source and MVA in the Prior Litigation was one in which confidential information was shared; (2) this action involved matters that were substantially related to those in the Prior Litigation—namely, the alleged improper intercompany transfers by the Peirces and the settlement agreement negotiated by MVA—such that the confidential information shared in the Prior Litigation was material to this action; and (3) Vincelette’s interests were materially adverse to those of Nurse Source. The Court granted Defendants’ motion and disqualified MVA from representing Vincelette in this action.
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 01/14/25
By: Ashley Oldfield and Austin Webber
In re Se. Eye Ctr. (Pending Matters); In re Se. Eye Ctr. (Judgments), 2024 NCBC 83 (N.C. Super. Ct. Dec. 19, 2024) (Bledsoe, C.J.)
Key Terms: receivership; N.C.G.S. § 1-507.6; Rule 12(b)(1); Rule 12(h)(3); subject matter jurisdiction
This action represents a long-running group of cases involving numerous parties. On 28 April 2016, the Court appointed a Receiver for JDPW Trust and contemporaneously approved a settlement between the Receiver and Plaintiff NFI, which settlement allowed, inter alia, NFI’s $2.1 million claim against JDPW Trust. Eight years later, Defendant Harris moved to dismiss NFI’s claim for lack of subject matter jurisdiction.
Relying on N.C.G.S. § 1-507.6, which provides that “all claims against an insolvent corporation must be presented to the receiver,” Harris argued that because NFI did not re-assert its claim after the Receiver was appointed, the Court never obtained jurisdiction over the claim and therefore the Court’s approval of the claim was void. The Court disagreed and denied the motion. There was no dispute that the Court had subject matter jurisdiction over the claim when the action was initially filed; thus, since a court retains jurisdiction once acquired, the subsequent appointment of the Receiver did not divest the Court of jurisdiction. Harris’s other contentions were similarly without merit. The Court certified the order as a final judgment pursuant to Rule 54(b) to permit immediate appellate review.
*******
In re Se. Eye Ctr. (Pending Matters); In re Se. Eye Ctr. (Judgments), 2024 NCBC 84 (N.C. Super. Ct. Dec. 19, 2024) (Bledsoe, C.J.)
Key Terms: Rule 54(b); motion for reconsideration; clear error
This action represents a long-running group of cases involving numerous parties. Here, Defendant Harris moved for reconsideration, pursuant to Rule 54(b), of various rulings made by the Court in orders entered in 2016 and 2022. Harris argued that the rulings constituted clear error.
The Court denied the motion, concluding that Harris’s arguments were merely a repackaging of previous arguments that the Court had already considered and rejected. The Court certified the order as a final judgment pursuant to Rule 54(b) to permit immediate appellate review.
*******
In re Se. Eye Ctr. (Pending Matters); In re Se. Eye Ctr. (Judgments), 2024 NCBC 85 (N.C. Super. Ct. Dec. 19, 2024) (Bledsoe, C.J.)
Key Terms: accounting proceeding; master in equity; right to a jury trial; North Carolina Constitution
This action represents a long-running group of cases involving numerous parties. As relevant here, the Court had previously determined that Defendant Doug Harris had breached his fiduciary duty as trustee of JDPW and ordered him to provide an accounting. After Harris filed his accounting, the Court noticed an evidentiary hearing in which it would sit as a master in equity to consider the accounting and the objections thereto. Here, the Court addressed Harris’s contention that he was entitled to a jury trial on all factual issues remaining in the cases, including in the accounting proceeding.
With regard to the accounting proceeding, the Court rejected Harris’s argument that he was entitled to a jury trial under the North Carolina Constitution. The North Carolina Supreme Court has long held that the constitutional right to a jury trial exists only where it existed at the time the Constitution was adopted in 1868. Since the right to a jury trial in an accounting proceeding did not exist in 1868, Harris did not have a constitutional right to a jury trial now.
Regarding the remaining “issues,” the Court also determined that a jury trial was not warranted because the issues raised were either irrelevant, immaterial, or had already been decided by settlement or on summary judgment. The Court certified the order as a final judgment pursuant to Rule 54(b) to permit immediate appellate review.
*****
In re Se. Eye Ctr. (Pending Matters); In re Se. Eye Ctr. (Judgments); In re The Foreclosure of Deed of Tr. Executed by Historic Castle McCulloch, LLC Dated September 30, 2004, 2024 NCBC 86 (N.C. Super. Ct. Dec. 19, 2024) (Bledsoe, C.J.)
Key Terms: foreclosure proceeding; power of sale; deed of trust; clerk of court; valid debt; N.C.G.S. § 45-21; de novo hearing; statute of limitations; holder in due course
This action represents a long-running group of cases involving numerous parties. As relevant here, the JDPW Receiver previously initiated a non-judicial foreclosure proceeding to exercise the power of sale in a deed of trust on the Castle McCulloch Property which secured a promissory note held by JDPW. Following a hearing, the clerk of court entered an order denying foreclosure on the ground that the Receiver did not hold a valid debt. The Receiver appealed and the Court held a de novo evidentiary hearing.
The Court concluded that JDPW had satisfied the criteria to establish a prima facie right to foreclose under N.C.G.S. § 45-21. Historic Castle McCulloch LLC (“HCM”), the owner of the Castle McCulloch Property, opposed the foreclosure. HCM first argued that the 2012 payment to the bank on behalf of JDPW paid off, rather than purchased, the note. The Court found that the documentary evidence did not support this argument. HCM also argued that the foreclosure was barred by the 10-year statute of limitations for foreclosure by power of sale because the foreclosure action was not filed until more than ten years after the note transactions at issue. The Court disagreed. To qualify as a holder in due course of an instrument, the holder must take the instrument in good faith. Since the transactions involving the instruments were undertaken by Doug Harris (the initial trustee for JDPW) for the benefit of himself and his brother, rather than for JDPW’s benefit, the Court concluded that there was no holder in due course of the instruments until the Court set aside certain transactions in 2021. Thus, the commencement of the foreclosure action in 2023 was within the statute of limitations because the statute of limitations did not run while there was no good faith holder of the instruments. HCM’s remaining arguments were equitable based and therefore not properly considered in a foreclosure proceeding.
Accordingly, the Court reversed the clerk of court and authorized the foreclosure to proceed. The Court certified the order as a final judgment pursuant to Rule 54(b) to permit immediate appellate review.
*******
In re Se. Eye Ctr. (Pending Matters); In re Se. Eye Ctr. (Judgments); In re The Foreclosure of Deed of Tr. Executed by Historic Castle McCulloch, LLC Dated September 30, 2004, 2024 NCBC 87 (N.C. Super. Ct. Dec. 19, 2024) (Bledsoe, C.J.)
Key Terms: accounting; master in equity; breach of duty as trustee; damages; final judgment
This action represents a long-running group of cases involving numerous parties. As relevant here, the Court had previously determined that Defendant Doug Harris had breached his fiduciary duty as trustee of JDPW and ordered him to provide an accounting. Harris thereafter filed his accounting, which effectively stated that while he was trustee, JDPW did not hold any funds or property, had no receipts or income, and made no disbursements. The JDPW Receiver and the Nivison Parties objected to the accounting, contending that Harris failed to account for four notes obtained by JDPW. The Court conducted an evidentiary hearing in which it sat as a master in equity to consider the accounting and the objections thereto.
The Court entered findings of fact as follows: 1) that in 2012, JDPW, acting through its trustee Doug Harris, purchased four notes (the CM Note and the CCSEA Notes) from the bank, which purchase was funded by a loan from the Nivison Parties; 2) that Doug Harris never intended to (and made no effort to) collect on the notes for the benefit of JDPW, but instead intended to use his position as trustee of JDPW over the notes, the other instruments, and the collateral for the benefit of his brother and his brother’s companies; 3) that Doug Harris thereafter transferred the CM Note and related documents and collateral to his brother, pursuant to which JDPW lost all rights thereto but remained obligated on the loan from the Nivison Parties; and 4) that Doug Harris failed to account for these transactions in his accounting. The Court concluded that Doug Harris’s actions described above were a breach of his duty to JDPW, that these actions damaged JDPW, and that Doug Harris failed to properly account for JDPW’s assets during the time he was trustee. The Court adopted one of the Receiver’s proposed damages theories and entered judgment against Doug Harris for approximately $7 million. The Court certified the order as a final judgment pursuant to Rule 54(b) to permit immediate appellate review.
*******
In re Se. Eye Ctr. (Pending Matters); In re Se. Eye Ctr. (Judgments); In re The Foreclosure of Deed of Tr. Executed by Historic Castle McCulloch, LLC Dated September 30, 2004, 2024 NCBC 88 (N.C. Super. Ct. Dec. 19, 2024) (Bledsoe, C.J.)
Key Terms: summary judgment; notice pleading; aiding and abetting breach of fiduciary duty; agency relationship
This action represents a long-running group of cases involving numerous parties. Here, the Court addressed the Castle McCulloch Defendants’ motion for summary judgment on paragraph 504 of the JDPW Receiver’s 8th cross claim and the Receiver’s motion for summary judgment on several of JDPW’s cross claims which purportedly sought to hold the Castle McCulloch Defendants liable for Doug Harris’s breach of fiduciary duty as trustee of JDPW.
Regarding JDPW’s fourth and sixth cross claims, which sought relief based on Doug Harris’s breach of duty as trustee, the Court denied summary judgment because those cross claims failed to mention the Castle McCulloch Defendants and therefore failed to put them on notice of their potential liability.
Regarding paragraph 504 of JDPW’s eighth cross claim, which sought to hold the Castle McCulloch Defendants liable for aiding and abetting Doug Harris’s breach of duty, the Court granted the Castle McCulloch Defendants’ motion and dismissed the claim with prejudice. First, North Carolina does not recognize a claim for aiding and abetting a breach of fiduciary duty. And second, notwithstanding the Receiver’s arguments to the contrary, the allegations that the Castle McCulloch Defendants aided Doug Harris and accepted benefits from his breach were not sufficient to allege an agency relationship by which liability could attach to the Castle McCulloch Defendants.
*******
Cherry v. Mauck, 2024 NCBC Order 75 (N.C. Super. Ct. Dec. 18, 2024) (Conrad, J.)
Key Terms: preliminary injunction; breach of contract; LLC operating agreement; unauthorized distribution; unclean hands
This case arose out of management disputes in two family businesses, AJAL Investments, LLC and C-Gas, LLC. As relevant here, in 2013 and pursuant to the companies’ operating agreements, Plaintiff Jay Cherry and Defendant Armistead Mauck agreed that the companies would make regular distributions to their families. However, after Armistead continued making distributions after Jay withdrew his consent, Plaintiffs filed suit and moved for a preliminary injunction seeking to bar Armistead from making future distributions and to force him to return the unauthorized distributions.
The Court granted the motion. The Court held that Plaintiffs were likely to succeed on the merits of their claim for breach of the companies’ operating agreements. Both operating agreements gave the members the right to decide when and whether to distribute company cash, and absent approval of a majority of the members, the managers of each respective company had no authority to make distributions. The Court rejected Armistead’s argument that majority approval to distribute company cash was established in 2013, and that the parties must continue distributing company cash accordingly until a vote of the majority of members altered this arrangement. As the Court explained, consent at one time is not consent for all time; under the operating agreements, Plaintiffs had the right to veto any proposed distributions at any time.
The Court also held that Plaintiffs had shown a likelihood of irreparable harm because without an injunction, Armistead would continue to make unauthorized distributions depriving Plaintiffs of their contractual rights to participate in management decisions. Additionally, the nature of such unauthorized distributions was of such a continuous and frequent recurrence that no reasonable redress could be had in a court of law. Lastly, the Court held that the grant of an injunction outweighed any potential harm to Armistead. While Plaintiffs may have unclean hands based on other conduct, the harm caused was not personal to Armistead, and the defense of unclean hands is only available to a party injured by the alleged wrongful conduct.
*******
Gordon v. Gordon Recyclers, Inc., 2024 NCBC Order 76 (N.C. Super. Ct. Dec. 18, 2024) (Davis, J.)
Key Terms: preliminary injunction; irreparable harm; shareholder meeting; notice of meeting; non-voting shareholder rights; articles of incorporation; bylaws; N.C.G.S. § 55-2-06
Plaintiff is a non-voting minority shareholder in Defendants GRI and GII. After Defendants refused to provide Plaintiff with either notice of, or the opportunity to attend, shareholders’ meetings, Plaintiff brought suit seeking a judgment declaring his rights as a shareholder regarding meetings. Plaintiff moved for a preliminary injunction enjoining Defendants from holding shareholder meetings unless they provided notice to Plaintiff and allowed him to attend.
Defendants opposed the injunctive relief arguing that their bylaws made clear that only voting shareholders are entitled to notice and attendance regarding shareholder meetings. Because N.C.G.S. § 55-2-06(b) only allows bylaws to contain provisions which are “not inconsistent with law or the articles of incorporation,” the Court began by examining the articles of incorporation and bylaws of each company. Regarding GRI, although the bylaws only required that notice of meetings be given to voting shareholders, the articles of incorporation provided that the rights of shareholders were identical in all respects, except as to voting. Accordingly, since the articles of incorporation provided non-voting shareholders the same right to receive notice of, and attend, meetings as a voting shareholder, any provision in the bylaws purporting to take away such right could not be given effect. In contrast, since GII’s articles of incorporation did not provide for identical rights among shareholders and its bylaws were not otherwise inconsistent with law, the bylaw provision requiring notice only to voting shareholders controlled. Thus, Plaintiff had shown a likelihood of success on the merits as to GRI, but not as to GII.
The Court next determined that Plaintiff had met his burden to show irreparable harm. Plaintiff’s receipt of the desired information regarding GRI’s financial condition was not a valid substitute for attending shareholders’ meetings. And, once Plaintiff was denied the right to attend the next meeting, that right would be gone forever.
Lastly, the Court concluded that the balancing of the equities weighed in favor of injunctive relief and dispensed with any bond requirement. Plaintiff had shown that a denial of his right to attend GRI shareholders’ meetings during the pendency of the litigation would irreparably deprive him of a right he appeared entitled to possess and GRI failed to show any harm it would incur as a result of an injunction.
For the foregoing reasons, the Court granted the injunction as against GRI.
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 12/31/24
By: Rachel Brinson, Ashley Oldfield, and Natalie Kutcher
Howard v. IOMAXIS, LLC, 2024 NCBC 76 (N.C. Super. Ct. Nov. 27, 2024) (Earp, J.)
Key Terms: motion to dismiss; Rule 12(b)(6); Rule 12(b)(2); Rule 12(b)(1); specific jurisdiction; corporate successors; successor jurisdiction; standing; breach of contract; breach of covenant of good faith and fair dealing; fraud; UVTA
As previously 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. The Court considered the Defendants’ motions to dismiss challenging the Court’s jurisdiction over two of the parties, the Plaintiffs’ standing, and the sufficiency of the claims pleaded.
12(b)(2)
The Court first addressed Burleson and Five Insight’s motion to dismiss for lack of personal jurisdiction. The burden was on Plaintiff to establish the Court’s personal jurisdiction over the parties by a preponderance of the evidence.
Burleson. Determining that jurisdiction over Burleson depended on his own contacts with North Carolina, whether in his individual or corporate capacity and utilizing the Calder effects test, the Court concluded that the nature of Burleson’s contacts, the connection between those contacts and the harm the Plaintiff, a North Carolina trust, allegedly suffered and continues to suffer, and North Carolina’s interest in protecting its citizens from tortious acts, were sufficient to satisfy due process requirements and to subject Burleson to the jurisdiction of the Court. The Court denied Burleson’s motion to dismiss on personal jurisdiction grounds.
Five Insights. Five Insights contended that the Court lacked jurisdiction over it because it is a Delaware limited liability company without systematic or continuous connections to North Carolina. Plaintiffs responded that the Court had specific jurisdiction over Five Insights because each of IOMAXIS’s owners traded his ownership interest for an ownership interest in Five Insights, effectively making Five Insights IOMAXIS’s successor-in-interest. Therefore, Plaintiffs argued, IOMAXIS’s contacts with the state of North Carolina should be imputed to Five Insights.
Holding that Five Insights exercised control over IOMAXIS’s assets and was profiting from them to the exclusion of the North Carolina Trust, the Court determined Five Insights was subject both to personal jurisdiction under a successor theory and based on the factors of the Calder effects test. The Court therefore denied its motion to dismiss based on personal jurisdiction.
12(b)(1)
Because the Court considered matters outside the pleadings in reaching its decision on the motion to dismiss for lack of standing, the Court analyzed the motion pursuant to Rule 12(b)(1) rather than 12(b)(6). In short, Moving Defendants argued that the Trust lacked standing to sue because (a) newly discovered evidence establishes that the Texas Operating Agreement, not the North Carolina Operating Agreement, controlled, and (b) the Estate’s transfer of Mr. Howard’s interest to the Trust in accordance with the terms of Mr. Howard’s Will was not ratified by Buhr, IOMAXIS’s manager, in accordance with the Texas Operating Agreement. With respect to the N.C. Operating Agreement, the Moving Defendants’ standing argument reprises arguments the Court had previously considered and rejected. The newly discovered evidence did not change that result. Accordingly, the Court denied the motion to dismiss challenging Plaintiff’s standing, determining that Plaintiff had sufficiently alleged standing based on the evidence currently before the Court.
12(b)(6)
Breach of Buy-Sell Agreement. Finding that failure to timely exercise the purchase option in the N.C. Operating Agreement terminated the buy-sell provision and therefore such a provision could not then be breached, the Court held that Plaintiffs failed to state a claim to the extent Plaintiffs alleged that IOMAXIS and/or its members breached the buy-sell provisions of the N.C. Operating Agreement by failing to give timely notice of their election to exercise an option to purchase Mr. Howard’s interest. The Court granted the motion to this extent, but denied it with respect to the alleged breach by IOMAXIS to retain RSM to value Mr. Howard’s interest pursuant to the N.C. Operating Agreement.
Good Faith and Fair Dealing. The Court further found that Plaintiffs’ allegations that IOMAXIS failed to pay distributions to the Trust as an economic interest holder and instead improperly paid the Trust’s share of distributions to the IOMAXIS Defendants supported a claim for breach of the implied covenant of good faith and fair dealing in the N.C. Operating Agreement.
Fraudulent Concealment. IOMAXIS argued that the Trust’s fraudulent concealment claim should be dismissed because (1) the Trust has not sufficiently alleged a duty to disclose or detrimental reliance; and (2) the Trust lacks standing to assert fraud claims because they are derivative in nature. Plaintiffs responded that this Court has already determined that the fraudulent concealment claim is direct, not derivative, and that the allegations in the Second Amended Complaint sufficiently plead both a duty to disclose and detrimental reliance. Finding that Plaintiffs alleged that the Trust had been harmed, not IOMAXIS itself or other defendants claiming an interest in IOMAXIS, and that Plaintiffs sufficiently pleaded a duty to disclose, the Court denied the motion to dismiss the fraudulent concealment claim.
UVTA. Since there were no allegations that any of the IOMAXIS Defendants or Five Insights were located in North Carolina when an allegedly voidable transfer was made or obligation incurred, the Court found that the allegations did not establish that they were debtors under the North Carolina UVTA and therefore dismissed the claim (except as to Defendant Spade because the complaint alleged he was a North Carolina resident during the relevant period).
*******
VIP Universal Med. Ins. Grp., Ltd v. Trinity Comput. Servs., Inc., 2024 NCBC 77 (N.C. Super. Ct. Dec. 5, 2024) (Earp, J.)
Key Terms: motion for judgment on the pleadings; Rule 12(c); breach of contract; software agreement; negligence; punitive damages; attorneys’ fees; declaratory judgment
The parties entered into a contract wherein Defendant was to provide a certain on-line clinical workflow system to Plaintiff in exchange for payment. Dissatisfied with many aspects of Defendant’s software services, Plaintiff terminated the contract and filed this action. Following the hearing on Defendant’s motion for judgment on the pleadings, Plaintiff voluntarily dismissed certain claims, leaving the Court only to determine the claims set forth below.
Negligence, Punitive Damages, Attorneys’ Fees. Plaintiff conceded it did not assert a claim for negligence therefore the Court denied the motion as moot. Since Plaintiff had voluntarily dismissed its tort claims, the Court found any claims for punitive damages without merit. Lastly, the Court denied Defendant’s motion with respect to Plaintiff’s request for attorneys’ fees finding dismissal premature.
Declaratory Judgment. Plaintiff’s declaratory judgment claim sought a declaration that the Termination Fee set forth in the contract was not owed because (1) Defendant materially breached the contract and (2) it was an unenforceable penalty and not a permissible liquidated damages clause. The Court determined that the plain language of the contract established that the Termination Fee is triggered only when Defendant has not breached the agreement, but Plaintiff nevertheless wishes to be released from its contractual obligations. The Court found that Plaintiff stated a claim for declaratory judgment to the extent it seeks a declaration that the Termination Fee is not owed due to Defendant’s material breach of contract and denied Defendant’s motion related thereto. However, finding that the Termination Fee provision was not intended to be a liquidated damages provision at all, let alone an unenforceable one, the Court granted Defendant’s motion relating to the declaratory judgment claim to that extent.
*******
Stein v. MH Master Holdings, LLLP, 2024 NCBC 78 (N.C. Super. Ct. Dec. 6, 2024) (Earp, J.)
Key Terms: motion to dismiss; attorneys’ fees; sovereign immunity; Rule 12(b)(2); personal jurisdiction; waiver of sovereign immunity; advisory opinion; declaratory judgment; defensive mirror
The Attorney General brought this action on behalf of and in the name of Dogwood Health Trust, a nonprofit corporation, relating to an asset purchase agreement memorializing Defendant’s acquisition of Mission Health, a hospital system serving western North Carolina. Pursuant to the APA, the Attorney General was granted contractual enforcement rights under certain circumstances and filed this action alleging that Defendant violated the APA by failing to provide the requisite level of emergency and trauma care and oncology services. Defendant filed counterclaims seeking opposite declaratory judgments. Plaintiff moved to dismiss the counterclaims for lack of jurisdiction on sovereign immunity grounds and moved to dismiss Defendant’s request for attorneys’ fees pursuant to Rule 12(b)(6).
Defendant argued sovereign immunity did not apply because the Attorney General brought this action as a third-party beneficiary to the APA rather than in his official capacity as North Carolina’s chief law enforcement officer. The Court disagreed, finding that Mr. Stein has been sued in his official capacity and was entitled to sovereign immunity, unless that immunity had been waived. Finding no express waiver of sovereign immunity, the Court analyzed an implicit waiver of sovereign immunity by the State becoming a signatory to a private contract. Finding that the State has not undertaken an obligation that it was trying to avoid by claiming immunity from suit in this case, the Court found no implicit waiver of immunity resulting from the contract. The Court also rejected Defendant’s arguments that sovereign immunity was waived because the claims at issue sought declarations of the parties’ rights and obligations under the APA. The Court determined that the Defendant’s declaratory judgment counterclaims were mere denials of Plaintiff’s claims and attempts to elicit improper advisory opinions from the Court. The Court granted Plaintiff’s motion to dismiss Defendant’s counterclaims on the basis of sovereign immunity and lack of in personam jurisdiction.
Plaintiff also sought dismissal of Defendant’s request for attorneys’ fees pursuant to Rule 12(b)(6); however, the Court determined that the issue was not ripe for determination at this stage of the proceedings and denied dismissal.
*******
Window World of Baton Rouge, LLC v. Window World, Inc.; Window World of St.
Louis, Inc. v. Window World, Inc., 2024 NCBC 79 (N.C. Super. Ct. Nov. 26, 2024) (Bledsoe, C.J.)
Key Terms: cross motions for summary judgment; choice of law; declaratory judgment; franchisee; franchise agreement; licensing agreement; recission; franchise disclosure laws; fraud; continuing wrong doctrine; Franchise Rule; negligent misrepresentation; Federal Trade Commission Act; contract reformation; unfair and deceptive trade practices; N.C.G.S. § 75-1.1; lex loci; fraudulent transfer; N.C.G.S. §§ 39-23.4(a)(1) and 39-23.4(a)(2); piercing the corporate veil; damages calculations
Plaintiffs, franchisees of Defendant Window World (“WW”) brought suit in 2015, alleging, inter alia, WW’s fraudulent concealment of information relating to its status as a franchise. Defendants sought summary judgment on Plaintiffs’ causes of action for two declaratory judgments regarding the agreements between the parties, fraud, and negligent misrepresentation. Plaintiffs, in their cross-motion, sought offensive summary judgment on their negligent misrepresentation and fraud-based claims.
Fraud. Plaintiffs allege that WW failed to disclose, and in fact concealed, information from Plaintiffs to induce them to operate as Window World franchisees, assume debt owed by prior franchisees, continue to operate as WW franchisees, pay substantial amounts advertising WW trademarks, and make purchases from various suppliers. Plaintiffs contended WW committed fraud in at least five distinct ways:
(1) grossly misrepresenting the royalties or ‘rebates’ Plaintiffs would pay through WW-designated suppliers to WW to do business as WW dealers;
The Court granted summary judgment in favor of Defendants as to those Plaintiffs which failed to provide substantial evidence of a false representation of a material fact relating to the rebate amount. As to the other Plaintiffs, the Court found that they had met their burden to survive summary judgment by providing substantial evidence to support a conclusion that WW misrepresented the rebate amounts these Plaintiffs would pay to Window World, that such misrepresentations were material and intentional, and that a reasonable factfinder could conclude Plaintiffs were harmed in an amount equal to the difference between the rebates promised and the rebates paid. The Court also denied summary judgment based on the statute of limitations finding that a genuine issue remained regarding when Plaintiffs discovered the fraud.
(2) falsely promising that Plaintiffs would receive best pricing on the products they purchased from WW-designated suppliers;
Similarly to the previous theory, the Court granted summary judgment against those Plaintiffs who failed to forecast substantial evidence that Defendants made a false representation concerning best pricing. The Court otherwise denied the cross-motions for summary judgment on this theory, finding triable issues of fact. The Court also largely denied Defendants’ motion related to the statute of limitations finding that Plaintiffs provided substantial evidence that most of them did not discover the facts constituting fraud as it relates to best pricing until after the lawsuit was filed.
(3) knowingly concealing material facts it was legally-bound to disclose under franchise and other law;
Considering the continuing wrong doctrine’s impact on the statute of limitations, the Court found, as it did at the motion to dismiss stage, that Plaintiffs provided substantial evidence to support a finding that many of WW’s wrongful acts are demonstrably continued wrongs, most particularly WW’s repeated breaches of its pricing and rebate promises. Thus, Defendants’ motion on statute of limitation grounds was denied. The Court otherwise denied the cross-motions as well; although Plaintiffs provided substantial evidence that WW made incomplete and inaccurate disclosures, material issues of fact remained.
(4) falsely disclaiming application of franchise law in the licensing agreements it presented to Plaintiffs to sign after June 2008; and
The Court granted Defendants’ motion as it pertained to this theory because the facts were clear that the disclaimer did not factor into any Plaintiff’s decision to join or remain a part of the Window World system since they all conceded that they either did not read the Licensing Agreements, did not seek legal advice, or did not understand what it meant to be a franchisee.
(5) in 2009, misrepresenting increases in the already-fraudulent rebates Plaintiffs paid.
The Court granted Defendants’ motion as it pertained to this theory because Plaintiffs failed to produce substantial evidence explaining what injury purportedly follows from the alleged misrepresentation.
Negligent Misrepresentation. The Court dismissed this claim because it was solely based upon a failure to disclose information and not on an affirmative misrepresentation, as required to state a negligent misrepresentation claim. The Court further rejected Plaintiffs’ arguments in their briefing that their fraud theories applied to their negligent misrepresentation claim because they did not assert those affirmative misrepresentation theories in any of their three complaints.
Declaratory Judgment. Plaintiffs sought two declaratory judgments: first, that all prior written Licensing Agreements between the parties were null, invalid, and unenforceable against Plaintiffs; and second, that they have the right to continue to operate on the same terms established by the parties’ course of dealings that existed independent of any prior written Licensing Agreements or Franchise Agreement.
Plaintiffs alleged several theories for their first D/J claim: 1) that the written agreements were unenforceable because the object of the agreement was illegal and the enforcement of them would be against public policy as expressed in the Franchise Disclosure Rule; 2) they were unenforceable because they were induced by fraud; and 3) they were unenforceable because they arose from adhesionary contracts. The Court disagreed with Plaintiffs’ first theories, concluding that a violation of the disclosure requirements of the Rule did not provide the basis to render a subsequent agreement void as illegal or contrary to public policy, because to do so would essentially allow a plaintiff to circumvent the bar on private actions to enforce the FTCA and create a private right of action under section 5. Regarding the second theory, the Court had already determined that genuine issues of material fact existed regarding whether Plaintiffs were fraudulently induced to contract with WW. Regarding the third theory, the Court concluded that there were competing proofs concerning procedural and substantive unconscionability regarding the Licensing Agreements that could not be resolved on summary judgment and must be resolved by a jury. Accordingly, the Court granted Defendants’ motion and dismissed the first declaratory judgment claim to the extent it was based on Plaintiffs’ illegality and public policy theories, but otherwise denied it.
As to the second D/J claim, the Court denied summary judgment because genuine issues of material fact existed at least regarding whether the written agreements were null, invalid, and unenforceable because they were induced by WW’s fraud.
Reformation and Injunction. Plaintiffs sought various injunctive relief and to reform the prior Licensing Agreements and Franchise Agreements to reflect the actual meeting of the minds between the parties as reflected in the parties’ course of dealings. Defendants argued that the written agreements were enforceable as a matter of law and controlled the parties’ relationship. The Court found that Plaintiffs offered sufficient evidence to show at least a genuine issue of material fact as to each element of their claim for reformation and injunction and denied Defendants’ motion for summary judgment on these claims.
Breach of Contract. Finding sufficient evidence of the parties’ competing views that either the written agreements or the oral agreements and course of dealings formed the contract between the parties and sufficient evidence of Defendants’ breach of the contractual best pricing promise, the Court denied Defendants’ motion for summary judgment on the breach of contract claims except as to the Jones/Shumate Plaintiffs, which it granted.
Breach of Covenant of Good Faith and Fair Dealing. The Court denied Defendants’ motion on Plaintiffs’ claim for breach of the implied covenant of good faith and fair dealing in the same manner and to the same extent as the Court denied Defendants’ motion on Plaintiffs’ breach of contract claim, and granted them to the same extent as against the Jones/Shumate Plaintiffs.
Unjust Enrichment. Defendants argued that they were entitled to summary judgment on Plaintiffs’ unjust enrichment claim due to the existence of an express contract. However, since Plaintiffs had provided substantial evidence that the written Licensing Agreements were induced by Window World’s fraud and thereby void and unenforceable and since genuine issues of material fact remained concerning whether a valid contract, whether it be oral or written, was in effect between the parties, the Court determined summary judgment was inappropriate.
Unfair and Deceptive Trade Practices. Applying the lex loci test and finding that Plaintiffs failed to provide evidence of injury or business operations in North Carolina as required to prevail on a NC UDTP claim, the Court granted summary judgment for Ms. Whitworth and Defendants, and denied summary judgment for Plaintiffs, on Plaintiffs’ section 75-1.1 claim.
Fraudulent Transfer. Plaintiffs alleged that WW transferred all its intellectual property assets, including but not limited to WW trademarks, to an insider, WWI, with the intent to hinder, delay or defraud Plaintiffs, and other current or future creditors and therefore that Plaintiffs were entitled to avoidance of WW’s transfers to WWI to the extent necessary to satisfy Plaintiff’s claims. Finding that the Non-Tolling Plaintiffs’ fraudulent transfer claims were barred by the statute of repose and not permitting those Plaintiffs to raise a new theory of their fraudulent transfer claim at the summary judgment stage, the Court entered summary judgment against the Non-Tolling Plaintiffs on their fraudulent transfer claims under section 39-23.4(a)(1).
As to the Tolling Plaintiffs fraudulent transfer claims, the Court found that they had provided sufficient evidence to permit a reasonable jury to conclude that the 2010 Transfer was made with intent to hinder, delay, or defraud any creditor of the debtor and thus in violation of section 39-23.4(a)(1). The Court further determined that a genuine dispute of material fact remained as to whether WW received a reasonably equivalent value in exchange for the 2010 Transfer and whether WW’s remaining assets were ‘unreasonably small’ at the time of the transfer. Thus, the Court denied the cross motions for summary judgment on the Tolling Plaintiffs’ fraudulent transfer claims under sections 39-23.4(a)(1) and (2).
Alter Ego/Piercing the Corporate Veil. Plaintiffs contended that 1) Window World and Window World I were alter egos; and 2) they were entitled to pierce the corporate veil between Ms. Whitworth and Window World. Finding that Plaintiffs had produced sufficient evidence at the summary judgment stage to sustain their claim that Window World and WWI were alter egos, the Court denied the parties’ cross-motions on Plaintiffs’ claim that Window World and WWI are alter egos and on the Tolling Plaintiffs’ claims against WWI under sections 39-23.4(a)(1) and (a)(2).
Finding that Plaintiffs failed to product substantial evidence of complete domination over Window World or the other disputed transactions by Ms. Whitworth, and that Defendants offered undisputed evidence that she did not have complete dominion over Window World, the Court granted Defendants’ motion and dismissed Plaintiffs’ veil piercing claim against Ms. Whitworth. Accordingly, the Court found that the Tolling Plaintiffs’ claims against Ms. Whitworth under sections 39-23.4(a)(1) and (a)(2) claims were time-barred by the applicable statute of repose.
Plaintiffs’ Damages Calculations. The Court denied Plaintiffs’ offensive summary judgment motion on their alleged rebate overpayment and best pricing damages because they had not met their burden of proof and shown no gaps or inconsistencies in their evidence. Plaintiffs’ testimony varied significantly concerning the rebate and best pricing representations and how Plaintiffs understood those representations.
Defendants’ Counterclaims. Plaintiffs sought summary judgment on each of Defendants’ counterclaims seeking declarations regarding the Licensing Agreements. Having already determined the existence of genuine issues of material fact precluding summary judgment for any party on the validity and enforceability of the Licensing Agreements, the Court denied Plaintiffs’ summary judgment motion on Defendants’ counterclaims.
WW’s and Ms. Whitworth’s Additional Defenses. Determining that Defendants did not address Plaintiffs’ arguments with respect to Defendants’ affirmative defenses that Plaintiff attacked in its summary judgment briefing, the Court granted Plaintiffs’ motion with respect thereto.
*******
Pathos Ethos, Inc. v. Braintap Inc., 2024 NCBC 80 (N.C. Super. Ct. Dec. 9, 2024) (Davis, J.)
Key Terms: motion to dismiss; Rule 12(b)(6); Rule 12(b)(1); subject matter jurisdiction; exclusive jurisdiction; Del. Code Ann. tit. 8, § 205; Delaware Court of Chancery; UDTPA; Securities Exemption; breach of contract; aggravating circumstances
Plaintiff Pathos Ethos, Inc. and Defendant Braintap Inc. entered into various contracts wherein Pathos was to perform certain product development and software engineering services related to Braintap’s mobile application. Disputes arose among the parties and Pathos brought this action. Here, the Court considered the Plaintiff’s and Third-Party Defendant’s motions to dismiss challenging Braintap’s counterclaims and third-party claims for lack of subject matter jurisdiction. Plaintiff also moved to dismiss Defendant’s counterclaim for unfair and deceptive trade practices pursuant to Rule 12(b)(6).
12(b)(1). Braintap is a Delaware corporation and Pathos and Third-Party Defendant, Zaldastani, Braintap’s former CEO, argued that the Court lacks subject matter jurisdiction over Braintap’s claims for declaratory judgment and breach of fiduciary duty because Delaware’s Court of Chancery possesses exclusive jurisdiction over such claims pursuant to Del. Code Ann. tit. 8, § 205. Pathos and Zaldastani argued that Braintap’s claims are subject to § 205(e) because they require a judicial determination as to the alleged invalidity of corporate acts by a Delaware corporation within the scope of § 205(a). The Court found that the Delaware statute was inapplicable because (1) no claims were brought under the statute or Delaware law in general, (2) the statute itself indicates the Court of Chancery’s exclusive jurisdiction only over claims brought in Delaware courts, and (3) exclusive jurisdiction in Delaware would violate the Full Faith and Credit Clause of the Constitution. Thus, the Court denied the motions to dismiss based on lack of subject matter jurisdiction.
12(b)(6). The Court found that Braintap’s UDTP claim failed to the extent it was based on the alleged issuance to Pathos of shares or equity in Braintap because securities transactions are not in or affecting commerce for purposes of the UDTPA. Furthermore, the remainder of the claim failed because it concerned Pathos’s performance of its various contracts with Braintap, and there were no allegations of substantial aggravating circumstances as required to sustain an action under the UDTPA.
*******
Talley v. Earth Fare 2020, Inc., 2024 NCBC 81 (N.C. Super. Ct. Dec. 12, 2024) (Robinson, J.)
Key Terms: new trial; JNOV; Rule 59(a); inconsistent affirmative defenses; unjust enrichment; breach of contract; Wage and Hour Act; jury instructions; misstatement of law
After a trial, the jury found against Plaintiff on his breach of contract and Wage and Hour Act claims but found for Plaintiff on his unjust enrichment claim. Defendants moved for JNOV on the unjust enrichment claim and Plaintiff moved for JNOV, or alternatively a new trial, on his breach of contract and WHA claims.
Defendants’ JNOV Motion. At trial, the jury found that Defendant Hulsing was unjustly enriched by the services rendered by Plaintiff and awarded Plaintiff $195,000 to be paid by Hulsing. Defendants sought JNOV on the unjust enrichment claim, arguing that Hulsing could not be unjustly enriched by Plaintiff’s services because Plaintiff was expressly employed to perform those very tasks. Plaintiff argued that since Defendants had asserted in their answer that Plaintiff was not employed by Defendants, they should be judicially estopped from taking an inconsistent position now. The Court rejected this argument because Defendants were permitted under Rule 8(e)(2) to assert inconsistent affirmative defenses. Nevertheless, the Court determined that the jury’s verdict was sufficiently supported by evidence that Plaintiff rendered services to Hulsing with the expectation that he would receive additional compensation separate from his base salary. Accordingly, Defendants’ JNOV motion was denied.
Plaintiff’s JNOV Motion. At trial, the jury found that Defendants did not enter into any agreement with Plaintiff and therefore did not reach Plaintiff’s WHA claim. Plaintiff sought JNOV on his breach of contract and WHA claims arguing that there was conclusive evidence at trial of an agreement between the parties. The Court disagreed, finding that the jury’s conclusion to the contrary was well supported by the evidence presented. Thus, Plaintiff’s JNOV motion was denied.
Plaintiff’s Motion for a New Trial. Plaintiff argued that he was entitled to a new trial on his breach of contract claim because 1) there was insufficient evidence to support the verdict against Plaintiff; 2) the jury was likely confused by Defendants’ counsel’s misstatement of law during closing arguments; and 3) the Court did not include Plaintiff’s requested instruction to the jury. The Court rejected all three arguments. First, there was sufficient evidence to support the jury’s conclusion that either there was no additional agreement or even if there was, it was not breached. Second, Plaintiff’s failure to specify or properly document an objection to Defendants’ closing argument precluded his requested relief on this basis. Third, although the Court did not give the exact instruction Plaintiff requested, the instruction given to the jury was, in substance, the same. Plaintiff also sought a new trial on his WHA claim, contending that the Court gave an incorrect instruction on the law because the WHA does not require the employee to prove the existence of a contract for the employee to be entitled to unpaid wages. The Court disagreed, concluding that plaintiff was justly compensated for the work he contracted to perform and the jury determined that there was no other agreement for additional compensation.
*******
Mary Annette, LLC v. Crider, 2024 NCBC 82 (N.C. Super. Ct. Dec. 13, 2024) (Conrad, J.)
Key Terms: summary judgment; misrepresentation; fraud; reasonable reliance; reformation; breach of contract; merger; quiet title; conversion
This case arose out of disputes concerning the creation, ownership, and management of Plaintiff Mary Annette, LLC, which was formed to develop a resort property as a planned unit development. The parties in this action are Mary Annette’s three entity-members and their principals. Defendants’ counterclaims are primarily based on allegations that Plaintiffs deceived Defendant Terri Crider regarding the creation and funding of Mary Annette and breached various oral agreements. Plaintiffs moved for summary judgment on Defendants’ counterclaims.
Intentional Misrepresentation and Fraud. Defendants based their fraud counterclaim on two alleged misrepresentations relating to the funding to buy a third-party’s interest in the property and pay for the development. However, because the undisputed evidence established that Terri was fully aware of the funding terms at the time she signed the closing documents, she could not have reasonably relied on any earlier, contrary representations. Further, Plaintiffs’ alleged statement that “they would make things right” was not sufficiently definite to support a fraud claim. Accordingly, the Court granted summary judgment against Defendants on their fraud counterclaim.
Reformation. The Court also granted summary judgment against Defendants on their reformation claim, which sought to reform Mary Annette’s operating agreement regarding the allocation of membership interests. The undisputed evidence showed that Terri received a copy of the agreement and had a free and fair opportunity to review it, but ultimately signed without reading it. Thus, there was no basis for reformation.
Breach of Contract. Defendants alleged that Plaintiffs breached an oral contract regarding 1) funding the development and dividing the proceeds; 2) Terri’s right to rent the individual units until they were sold; and 3) who would hold title to the real property. Regarding the funding and proceeds, the Court determined that these were plainly within the subject matter of the operating agreement and therefore any oral agreement with different terms would have merged into the operating agreement pursuant to its merger clause. The remaining issues, however, were outside the subject matter of the operating agreement or were not foreclosed by the merger clause. Therefore, summary judgment was denied in part and granted in part on this claim.
Quiet Title. Defendants sought to quiet title to the individual units that make up the development. Having already determined in a previous order that the ownership of the units was a live issue in the case with genuine issues of material fact, the Court denied summary judgment on this claim.
Conversion. Defendants alleged conversion of personal property that Terri used in her vacation rental business. Because Plaintiffs presented no evidence to support summary judgment, the motion was denied as to this claim.
*******
Window World of Baton Rouge, LLC v. Window World, Inc.; Window World of St.
Louis, Inc. v. Window World, Inc., 2024 NCBC Order 71 (N.C. Super. Ct. Nov. 27, 2024) (Bledsoe, C.J.)
Key Terms: motion to seal; trade secrets; confidential and proprietary business information
The Window World Defendants filed various motions seeking to seal or partially seal certain documents and exhibits that were filed in connection with the parties’ summary judgment motions and allegedly containing (i) trade secrets; (ii) other confidential and proprietary business information; (iii) sensitive personal and family matters; (iv) inadvertently produced banking information; and (v) other miscellaneous exhibits.
The Court denied as moot the motions as to those exhibits which WW no longer wished to seal and which no other party or interested non-party sought to maintain under seal. The Court deferred ruling on the motions as to those exhibits which WW no longer wished to seal but which other parties or interested non-parties did seek to maintain under seal. The Court contemporaneously entered orders addressing those parties’ and interested non-parties’ motions to seal. Turning to the remaining exhibits and documents, the Court considered each of the above-mentioned categories of information and granted the motions, determining that sealing was appropriate as to each.
*******
Wilmington Tr. v. TM Northlake Mall, L.P., 2024 NCBC Order 72 (N.C. Super. Ct. Dec. 10, 2024) (Conrad, J.)
Key Terms: receivership; personal liability; immunity; leave to maintain claims
Spinoso Real Estate Group has served as the general receiver for Defendant in this action since 2021. The receivership order provides that no one may sue Spinoso with respect to the receivership absent the Court’s permission. Nevertheless, earlier this year, two non-parties sued Spinoso, in its official and personal capacity, in Mecklenburg County Superior Court without getting the Court’s permission. After Spinoso moved to dismiss their claims on that basis, they moved for leave to maintain their claims. Spinoso opposed the motion.
The Court denied the motion with regards to their claims for ordinary negligence and premises liability against Spinoso in its personal capacity because the receivership order expressly immunized Spinoso from personal liability for all but gross negligence.
The Court otherwise granted the motion because the claimants had no other way to seek relief since a claims process had yet to be established and any delay may jeopardize their right to seek relief in the future due to the statute of limitations. Further, the tort actions were recently designated to the Business Court, eliminating the possibility that the claimants would have an unfair advantage over other claimants by litigating in a different forum.
*******
Window World of Baton Rouge, LLC v. Window World, Inc; Window World of St. Louis, Inc. v. Window World, Inc., 2024 NCBC Order 73 (N.C. Super. Ct. Dec. 12, 2024) (Bledsoe, C.J.)
Key Terms: Rule 54(b); Rule 60; sua sponte; amendment of previous order
This matter was before the Court sua sponte pursuant to Rules 54(b) and 60 to reconsider certain portions of the Court’s recently-filed order on the parties cross-motions for partial summary judgment (summarized above). The Rules allow a judge to correct or otherwise revise an order prior to entry of final judgment. After careful review, the Court determined it was necessary to amend certain paragraphs to clarify that Plaintiffs had advanced multiple theories of breach of contract liability and to reflect that all of those theories would proceed to trial except for certain Plaintiffs’ claims based on the superior wholesale pricing theory and the undisclosed C pricing theory.
*******
Howard v. IOMAXIS, LLC, 2024 NCBC Order 74 (N.C. Super. Ct. Dec. 17, 2024) (Earp, J.)
Key Terms: receivership; extension; N.C.G.S § 1-507.30(b)
As summarized here, this case arises from a dispute between the Ronald E. Howard Revocable Trust (a purported 51% economic interest holder in IOMAXIS) and members of IOMAXIS regarding the Trust’s right to economic benefits from its interest. During discovery, allegations relating to the propriety of certain transfers made by IOMAXIS were raised by the Trust. A receiver was appointed by the Court on January 25, 2024 and tasked with investigating the whereabouts of certain assets, the reason for their transfers, and maintaining the status quo of IOMAXIS’ financial affairs. The receiver filed a motion to (i) extend the term of the receivership and (ii) compel production of information.
The Court granted the motion in full. The Court noted that the six reports filed by the receiver during the initial receivership detailed that the receiver had been unable to obtain the information sought from IOMAXIS in a timely manner, or had failed to receive the information at all. The receiver further reported that it was unable to complete its Court-assigned duties as a result of the general uncooperativeness of IOMAXIS’ representatives. IOMAXIS countered that it was the receiver, rather than IOMAXIS, who refused to cooperate. The Court noted that regardless of “where the fault lies,” the receiver’s duties had yet to be fulfilled, and millions of dollars in transfers from IOMAXIS remained unaccounted for. The receiver further raised concerns about the management of IOMAXIS, which warranted further investigation of the company.
The Court extended the receivership on a month-to-month basis, to be revisited after six months. At the end of that six-month period, the receiver shall either: (a) file a final report and request discharge; or (b) file a status report identifying the reasons the receivership should be continued. The Court further ordered the IOMAXIS parties to fully comply with N.C.G.S § 1-507.30(b), and reasonably cooperate with the receiver in the administration of the receivership. The Court enjoined the IOMAXIS parties from knowingly interfering with the receiver’s duties. Lastly, the Court ordered the IOMAXIS parties to provide the receiver with certain information and documents requested by the receiver, which had yet to be produced.
*******
Philip Morris USA, Inc. v. N.C. Department of Revenue, 2024 N.C. LEXIS 972, 2024 WL 5101173 (2024) (Barringer, J.)
Key Terms: reversed; contested tax case; N.C.G.S. § 105-130.45; cigarettes; export credits; “credit allowed”; statutory interpretation
As summarized here, the Business Court previously held that N.C.G.S. § 105-130.45, which governs certain tax credits available to manufacturers of cigarettes for exportation (“Export Credits”), unambiguously limited the amount of Export Credit which could be generated in any one year to $6 million. Accordingly, the Business Court found that Philip Morris had improperly claimed excess Export Credits, carried forward from 2005 and 2006, on its 2013 and 2014 tax returns. Philip Morris appealed.
The Supreme Court reversed and remanded. The Court held that the use of “credit allowed” in subsections (b) and (c) was inconsistent and created an ambiguity. Considering the term’s technical use and understanding, the Court adopted an interpretation of “credit allowed” in subsection (c) as the amount of credit which may be claimed in a tax year. Employing the “whole text” canon, the Court determined the plain meaning of “credit allowed” in subsection (b) to be the amount of credit which may be generated in a tax year. Further, the Department’s current contrary position was inconsistent with its prior representations and actions, which Philip Morris was entitled to rely on.
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 12/18/24
By: Ashley Oldfield
Miller v. RedGoose, LLC, 2024 NCBC 74 (N.C. Super. Ct. Nov. 26, 2024) (Davis, J.)
Key Terms: motion to dismiss; fraud; computer trespass; N.C.G.S. § 14-458; tortious interference with contract, UDTP
Plaintiff Miller initiated this suit against his former employer, Defendant RedGoose, alleging claims under the N.C. Wage and Hour Act and for breach of contract. RedGoose counterclaimed, alleging that following Miller’s resignation from Defendant RedGoose, he agreed to assist during a transition period to ensure that other employees were aware of the location of key client information stored on the company’s computer system. However, Miller instead used his continued access to the computer system to sabotage RedGoose’s business and to access proprietary information which he then used to compete. Miller moved to dismiss several of the counterclaims.
Fraud. Miller argued that the fraud claim should be dismissed because RedGoose’s allegations failed to show a causal connection between Miller’s misrepresentation (that he would assist RedGoose in order to ensure continuous service to its client, when in reality he had no intention of doing so and instead sought to use his computer access for his own purposes) and the harm RedGoose allegedly suffered. The Court concluded that Miller read the claim too narrowly—RedGoose alleged that Miller’s representation was for the purpose of inducing its clients to leave and follow him to his new business. This was sufficient to allege a causal connection between the injury and Miller’s misrepresentation.
Computer Trespass. Miller argued that RedGoose’s computer trespass claim under N.C.G.S. § 14-458 failed because RedGoose voluntarily gave him access to its computer systems. The Court rejected this argument, concluding that RedGoose’s allegations that Miller had exceeded his authorized use was sufficient to plead a claim under the statute.
Tortious Interference with Contract. Miller argued that the tortious interference claim failed because 1) RedGoose failed to sufficiently identify the contracts allegedly interfered with; and 2) RedGoose didn’t allege that he was subject to a restrictive covenant and therefore failed to allege that he acted without justification. The Court found neither argument persuasive. First, RedGoose’s allegations regarding the contracts was sufficient to satisfy the notice pleading standard. Second, the Court noted that a competitor cannot escape liability by arguing that he acted with justification where the competitor competed through unlawful means. Here, RedGoose’s allegations that Miller fraudulently obtained continued access to its computer systems was sufficient to allege unlawful methods of competition.
UDTP. Miller argued that the UDTP claim should be dismissed because 1) RedGoose merely alleged that Miller breached a contract which is insufficient to give rise to a UDTP claim; and 2) RedGoose failed to adequately plead that Miller’s acts were in or affecting commerce because they took place within an employment relationship. The Court rejected these arguments as well. First, RedGoose’s allegations regarding fraud, embezzlement, tortious interference, etc. went far beyond a mere breach of contract claim and, in any event, some of the claims automatically served as a predicate for a UDTP claim to proceed. Second, the Court was satisfied that the allegations that Miller had induced RedGoose’s clients to leave RedGoose and follow him were sufficient to satisfy the “in or affecting commerce” element.
Accordingly, the Court denied Miller’s motion to dismiss.
*******
BioGas Corp. v. NC BioGas Dev., LLC, 2024 NCBC 75 (N.C. Super. Ct. Nov. 26, 2024) (Robinson, J.)
Key Terms: declaratory judgment; breach of contract; breach of fiduciary duty; negligence; economic loss rule; implied covenant of good faith and fair dealing; duty to mitigate
This case arose from a lending relationship where Defendants provided funding through various promissory notes to Plaintiffs related to multiple biogas projects. This funding and related conduct lead to other agreements, many of which Plaintiffs contend Defendants breached by failing to satisfy various duties. Defendants, in turn, contended that Plaintiffs are the ones who breached the agreements, including by failing to pay the promissory notes. Both sides moved for summary judgment, in whole or in part, as to Plaintiffs’ claims and Defendants’ counterclaims.
The Court first addressed those claims which hinged on the question of who had a legal ownership interest in the Monroe Project. Because no evidence was presented which definitively stated who held legal title to the Monroe Project, the Court denied summary judgment on the claims dependent on such a determination.
The Court next addressed Plaintiffs’ requests for declarations regarding the duties and obligations owed by Defendants in relation to the various agreements entered into between them. Plaintiffs first sought a declaration that Defendants owed them an implied duty of good faith and fair dealing under certain agreements. The Court granted the declaration in part, declaring that several of the agreements at issue contained an implied covenant of good faith and fair dealing as a matter of law. However, the Court refused to grant such a declaration regarding the remaining agreements because Plaintiffs had not asserted a breach of contract claim based on those agreements and therefore summary judgment would be inappropriate as it would not be determinative of any legal issue in the case. Plaintiffs also sought a declaration that Defendants had a duty to mitigate their damages relating to their counterclaim for breach of contract as to certain promissory notes. Because North Carolina law generally recognizes a duty to mitigate damages, the Court granted the requested declaration. Lastly, Plaintiffs sought a declaration that, if Defendants prevailed on certain of their counterclaims, they should be limited to nominal damages. The Court denied the request for such a declaration, as many facts remained in dispute as to the damages allegedly sustained by Defendants.
Finally, the Court addressed Defendants’ motion for summary judgment on Plaintiffs’ claims for breach of contract, breach of fiduciary duty, and negligence, and on Defendants’ claim for breach of contract related to the promissory notes. Regarding Plaintiffs’ breach of contract claim, Plaintiffs alleged that Defendants breached five separate agreements. However, because Plaintiffs did not present any evidence of Defendants’ breach of four of the agreements, the Court summarily dismissed the claim to the extent it was based on those agreements. As to the fifth agreement, the Court concluded that a genuine issue of material fact existed as to whether Defendant Leyline had breached the implied covenant of good faith and fair dealing by failing to pursue Plaintiffs’ offer to purchase the Tillamook Project. Accordingly, the Court denied summary judgment on this basis. Regarding the breach of fiduciary duty and negligence claims, Defendants sought summary judgment on the basis that the claims were barred by the economic loss rule because the injury and damages alleged arose solely under an agreement between the parties. The Court agreed and granted summary judgment to Defendant on these claims. Lastly, the Court granted summary judgment in Defendants’ favor as to Plaintiffs’ liability on Defendants’ claim for breach of the promissory notes as there was no dispute that the promissory notes were in default. However, the Court denied summary judgment as to damages because an issue of fact remained as to whether Defendants mitigated their damages and whether set-off was available.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 11/26/24
By: Natalie E. Kutcher
Honeywell Safety Prods. USA, Inc. v. SVS LLC, 2024 NCBC 71 (N.C. Super. Ct. Nov. 14, 2024) (Conrad, J.)
Key Terms: motion to dismiss; Rule 12(b)(6); repudiation; UCC; N.C.G.S. § 25-2-609; adequate assurance
This case arises from Honeywell’s agreement to supply nitrile gloves to S2S Global. Following Honeywell’s decision to change suppliers, a dispute arose between the parties relating to the quality of the nitrile gloves. In April 2024, S2S Global ceased accepting the gloves and requested a termination of the supply contract. Honeywell refused and sent S2S Global a demand for assurance that S2S Global would honor its contractual obligation. S2S Global subsequently cancelled all purchase orders for the gloves, recalled all gloves sold to its end users, and communicated its intent to notify regulatory authorities of the recall. However, S2S Global communicated to Honeywell that it “remains ready to purchase” gloves which conform to their supply contract. Honeywell sent a second demand for assurance, in addition to a request to S2S Global’s parent company, Premier, to honor its payment guarantee.
After failing to receive assurance from S2S Global or payment from Premier, Honeywell filed the present lawsuit against Defendants, alleging S2S Global’s wrongful repudiation of the contract and Premier’s breach of the guarantee. S2S Global and Premier moved to dismiss the lawsuit under Rule 12(b)(6) on the basis that S2S Global did not “unequivocally state that it can’t or won’t perform” under the contract. The Court rejected this argument, noting that the agreement was governed by North Carolina’s UCC, which allows one party to demand adequate assurance from another when reasonable grounds for insecurity exist. Based upon the pleadings contained in the complaint, the Court held that Honeywell had adequately pleaded that: (i) reasonable grounds for insecurity existed; (ii) Honeywell made a demand for adequate assurance; and (iii) S2S Global failed to give adequate assurance. An allegation that S2S Global affirmatively and unequivocally renounced the contract wasn’t necessary to state a claim.
The Court additionally rejected Defendants’ arguments, made for the first time in their reply brief, that the claim failed because the complaint didn’t expressly cite section 25-2-609 or sufficiently allege that Honeywell’s demand for assurance was reasonable or that S2S Global’s attempted assurance was inadequate. The Court found these arguments untimely, and in any event, unpersuasive. The Court denied the motion in full.
*******
Whalen v. Tuttle, 2024 NCBC 72 (N.C. Super. Ct. Nov. 19, 2024) (Conrad, J.)
Key Terms: motion to strike; motion to dismiss; Rule 12(b)(6); breach of settlement agreement; breach of operating agreement; breach of oral contract; UDTPA; fraud
This case arises from a dispute between two investors in several restaurant businesses, including CU SOBE, LLC. Defendant Tuttle met Plaintiff Whalen in 2018 when he was a patron at Whalen’s restaurants. Tuttle expressed interest in investing in Whalen’s future restaurant endeavors and eventually made five investments in Whalen’s restaurants. In 2022, the parties entered into an oral agreement for Tuttle to provide a $2 million investment in twenty installment payments towards a new restaurant Whalen was opening, to be owned and operated by Plaintiff CU SOBE. In exchange for these payments, Tuttle would receive 25% of CU SOBE. Tuttle was unable to make the first installment payment when due, so the parties amended the agreement to provide Tuttle a two-month extension on the condition that CU SOBE would have the right to accelerate the unpaid balance at any time. After CU SOBE exercised this acceleration right, tensions grew between the parties, as Whalen accused Tuttle of making disparaging remarks to Whalen’s other investors and engaging in disruptive behavior at several restaurants. A fight for control over CU SOBE ensued, as Tuttle attempted to fire a lawyer retained by Whalen to represent CU SOBE.
The parties mediated their dispute, resulting in a settlement agreement. Whalen and CU SOBE filed the present lawsuit, asserting that Tuttle had breached the settlement agreement and engaged in misconduct relating to CU SOBE’s funding and operations. Tuttle moved to strike certain allegations from the complaint and dismiss all claims.
Motion to Strike: Tuttle sought to strike allegations two groups of allegations in the complaint: 1) those alleging that he engaged in disruptive behavior at the restaurants, on the basis that such allegations were irrelevant to the claims; and 2) those alleging that he disparaged and defamed Whalen, on the grounds that the allegations were conclusory and insufficient to satisfy the heightened pleading standard for defamation. The Court rejected both arguments, noting that while the allegations were not necessarily sufficient to state a claim for relief, Tuttle had failed to show that they have “no possible bearing upon the litigation.” In its discretion, the Court denied the motion.
Breach of Settlement Agreement: The Court dismissed the claim for breach of the settlement agreement, concluding that the allegations were too conclusory to state a claim. While the complaint alleged that Tuttle had materially breached the settlement agreement by repudiation “as evidenced by his words and conduct,” it failed to identify which material term Tuttle allegedly breached or any actions or inaction which constituted the failure to perform or repudiation.
Breach of Oral Contract: Tuttle moved to dismiss the claim for breach of the oral contract on the basis that CU SOBE lacked standing to enforce the agreement, as it did not exist at the time the contract was formed and was not a party thereto. The Court rejected this argument, noting that CU SOBE had been formed long before the oral agreement was amended and was a party to the amended agreement. Tuttle further argued that the claim should be dismissed, as the subsequent settlement agreement contained a general release. As questions relating to the settlement agreement’s enforceability remained, the Court found a dismissal on this basis was premature and denied dismissal.
Breach of CU SOBE’s Operating Agreement: Tuttle argued that this claim should be dismissed because he never assented to the terms of the operating agreement at issue, thereby invalidating the contract. The Court held that the complaint sufficiently alleged that Tuttle was a party to the operating agreement by showing that Tuttle was a member of the company, received a printed copy of the operating agreement, and agreed to be bound by its terms. The Court also pointed to the statutory default rule, which holds that “[a] person who becomes an interest owner is deemed to assent to, and is bound by . . . and is otherwise deemed to be a party to, the operating agreement.” N.C.G.S. § 57D-2-31(b). As such, dismissal was denied.
Fraudulent Inducement: Tuttle moved to dismiss Whalen’s fraud claim on the basis that the pleadings did not satisfy the heightened pleading standards for fraud. Specifically, Tuttle noted that the complaint did not allege that he made any specific representation. The Court granted Tuttle’s motion, noting that the complaint “does not come close to meeting the heightened standard.”
UDTPA: Because Whalen’s claims for fraud and breach of the settlement agreement had been dismissed and none of the remaining claims could support a UDTPA claim, the Court dismissed this claim. The Court further noted that the alleged misconduct all involved internal company disputes or extraordinary events and thus did not satisfy the “in or affecting commerce” requirement.
*******
McCarron v. Howell, 2024 NCBC 73 (N.C. Super. Ct. Nov. 19, 2024) (Davis, J.)
Key Terms: Rule 12(b)(6); breach of fiduciary duty; constructive fraud; fraudulent transfer; civil conspiracy; facilitation of fraud; UDTP; alter ego
After obtaining a monetary judgment in a prior lawsuit against Defendant Risk Solutions, Plaintiff brought the current action asserting that the owner and director of Risk Solutions, Harold Howell, fraudulently transferred the assets of the company to newly formed companies for the purpose of preventing McCarron from being able to collect on the judgment. Defendants (Howell, Risk Solutions, and the two newly formed companies) moved to dismiss all claims.
Breach of Fiduciary Duty. The Court determined that the complaint’s allegations that 1) Howell owed a fiduciary duty to Plaintiff as a judgment creditor of Risk Solutions based on the dissolution and insolvency of the company for which Howell served as a director, 2) Howell breached that duty by transferring the assets of Risk Solutions to other entities, and 3) Plaintiff suffered a resulting injury, were sufficient to state a claim. Further, Plaintiff’s failure to allege that he was treated differently than other creditors in the same class was not a bar to his standing because the claim at issue was based on an injury personal to him as an individual creditor.The Court dismissed the claim against Risk Solutions though, since there was no basis by which a corporation owes a fiduciary duty to its creditors.
Constructive Fraud. This claim survived against Howell because the complaint contained sufficient allegations that Howell’s breach of fiduciary duty was undertaken for his personal benefit. The claim was dismissed as to Risk Solutions for the same reasons as the fiduciary duty claim was dismissed against it.
Fraudulent Transfer. The Court dismissed this claim because it was not pleaded with the requisite Rule 9(b) specificity regarding what assets were transferred, which Defendant received any specific transfer, when the transfers were made, or what consideration, if any, was received for the transfers.
Facilitation of Fraud/Civil Conspiracy. The Court dismissed these claims, which were essentially the same, because 1) the underlying fraudulent transfer claim had been dismissed and thus there was no wrongful act; and 2) Plaintiff had alleged that the three Defendant companies had no separate existence apart from Howell, which equated to a non-existent conspiracy of one.
UDTP. The UDTPA claim against Howell survived based on the surviving breach of fiduciary duty and constructive fraud claims against him. The UDTP claims against the three Defendant companies were dismissed because there were no surviving claims against them and no other acts were alleged which could form the basis of a UDTP claim against them.
Alter Ego. Plaintiff alleged that Howell was the alter ego of the three Defendant companies and thus he should be able to pierce the corporate veil and hold Howell liable for the companies’ wrongful acts. However, because all claims against the companies were dismissed, piercing the corporate veil was not applicable.
*******
Value Health Sols. Inc. v. Pharm. Rsch. Assocs., Inc., 2024 NCBC Order 67 (N.C. Super. Ct. Nov. 6, 2024) (Davis, J.)
Key Terms: choice of law; jury waiver; public policy; Rule 38, Rule 39; N.C.G.S. § 22B-10
This case arises from Defendant’s acquisition of Plaintiff and its proprietary software. The asset purchase agreement entered into between the parties provided that: (i) the APA would be construed in accordance with Delaware law; and (ii) each party waived its right to a trial by jury. Despite both sides’ request for a trial by jury in their initial pleadings, Defendants moved to enforce the contractual jury trial waiver under Delaware law, notwithstanding North Carolina law (N.C.G.S. § 22B-10) deeming contractual jury trial waivers unconscionable and unenforceable.
Defendants argued that, since Delaware law did not prohibit contractual waivers of a jury trial, the North Carolina statute should not apply. Plaintiffs, on the other hand, argued that North Carolina’s Constitution, statutes, and case law all protect a party’s right to a jury trial as a fundamental right. The Court determined that, while Delaware law may govern substantive issues here, the right to a jury trial was a procedural issue governed by North Carolina law and therefore the waiver was unenforceable.
The Court also determined that, even if the contractual jury waiver had been enforceable, Defendants had waived their rights to enforce the provision by: (i) filing two responsive pleadings containing jury demands; (ii) failing to expressly withdraw their request for a jury trial; and (iii) failing to move to strike Plaintiffs’ jury demand. Pursuant to Rules 38 and 39 of the North Carolina Rules of Civil Procedure, a demand for trial by jury may not be withdrawn without the consent of the parties, and once a case is designated as a jury matter, it remains on the jury docket absent a withdrawal of the demand.
*******
State of N.C. v. MV Realty PBC, LLC, 2024 NCBC Order 68 (N.C. Super. Ct. Nov. 8, 2024) (Davis, J.)
Key Terms: discovery dispute; timeliness, BCR 10.9; BCR 10.4
This order arises from Plaintiff’s submission pursuant to Business Court Rule 10.9 of alleged deficiencies in Defendants’ production of documents. In March 2024, the Court issued an Amended Case Management Order, providing that all fact discovery in the case would close on September 30, 2024. On July 1, 2024, Plaintiffs noticed a deposition and issued a document subpoena to a factual witness in the case. The subpoena required the witness to produce documents by July 18, 2024. On that date, Defendants served an objection to certain document requests in the subpoena on the basis that the documents were protected by the work product privilege. The parties conferred multiple times during August and September of 2024, but were unable to resolve their dispute over the documents.
Plaintiffs filed its submission under BCR 10.9 on October 11, 2024, eleven days after the discovery deadline provided under the Amended Case Management Order. The Court interpreted BCR 10.4 as requiring that any discovery disputes be brought to the Court’s attention via the BCR 10.9 process before the applicable discovery deadline. Thus, since Plaintiff had been aware of Defendants’ objections since July 18, 2024, but had failed to submit the discovery issue to the Court until after the discovery deadline had passed, Plaintiff’s submission was untimely.
*******
Mauck v. Cherry Oil Co., 2024 NCBC Order 69 (N.C. Super. Ct. Nov. 8, 2024) (Davis, J.)
Key Terms: attorneys’ fees; block billing; reasonableness of rates; clerical work; redacted billing entries
As summarized here and here, this suit arose from a dispute over the ownership and management of a family business, Cherry Oil. This order arises from Plaintiffs’ filing of a costs application, seeking reimbursement for $65,761.73 in costs and attorneys’ fees incurred in obtaining a court-ordered inspection of corporate documents. Cherry Oil filed a brief in opposition to Plaintiffs’ costs application. The Court reviewed the invoices submitted on the following grounds:
Reasonableness of Rates: Taking judicial notice of the rates customarily charged by local attorneys, the Court determined that the rate of one of the paralegals, billing at $275 per hour, was unreasonable. The Court, in its discretion, reduced the hourly rate for the paralegal to $225 per hour. One timekeeper, labelled as “AMM,” was not identified by Plaintiffs. As the Court was not provided information on this person’s role in the litigation or information to determine a reasonable rate for that role, the Court held that no fees would be awarded for that timekeeper’s entries.
Window of Time for Billing Entries: Cherry Oil argued that the applicable window of time for calculating fees should begin on the date work on Plaintiffs’ supplemental complaint was initiated, and end on the date of the hearing which resulted in the inspection order. The Court found the first argument unduly restrictive, as the filing of the supplemental complaint “did not occur in a vacuum.” Rather, the Court held that under the unique circumstances of this case, the “start date” for Plaintiffs’ recoverable costs occurred when Cherry Oil formally denied Plaintiffs’ document inspection request. This date was chosen as it marked the point in which Plaintiffs became aggrieved shareholders pursuant to N.C.G.S. § 55-16-04. However, the Court agreed that costs incurred after the hearing on the inspection order should be excluded.
Redacted Entries and Block Billing: The Court rejected Cherry Oil’s objection to Plaintiffs’ redacted entries, on the basis that the Court had been given the opportunity to review unredacted copies of the invoice in camera. The Court further analyzed the submitted invoices for block billing, and after extensive review of which tasks within those blocks were recoverable, reduced Plaintiffs’ recoverable fees accordingly.
Excess and Duplicative Billing and Client Consultations: Cherry Oil objected to Plaintiffs’ fees to the extent that they reflect: (i) time entries from attorneys who have not made a formal appearance in the case; (ii) multiple attorneys working on the same task; and (iii) time spent conducting client communications and internal attorney conferences. The Court noted Cherry Oil cited no caselaw in support of the proposition that attorneys’ fees may only be awarded for those attorneys who have appeared formally in the proceedings. The Court further noted that there is no per se rule against more than one attorney working on the same task, nor against recovery for communications with clients. However, the Court clarified that “merely ministerial” calls to clients are not recoverable. The Court conducted a review of the records submitted and reduced or disallowed any non-recoverable entries accordingly.
Billing for Clerical Work: Noting that “merely clerical” tasks are not recoverable, the Court reviewed the billing entries attributable to paralegals and found some, but not all, of their entries were for clerical tasks. The Court excluded the entries for clerical tasks from Plaintiffs’ recovery.
Lastly, Cherry Oil argued that Plaintiffs’ recovery should be reduced “based on the Plaintiffs’ limited success” of the claims alleged. Of the twenty-two categories of documents Plaintiffs sought to inspect, the Court ultimately determined that Plaintiffs were only entitled to inspect one. After analyzing the relationship between the costs requested to the prevailing claim, the Court exercised its discretion to reduce Plaintiffs’ fees by thirty-five percent (35%). The Court ultimately awarded Plaintiffs $29,198.98.
*******
Whalen v. Tuttle, 2024 NCBC Order 70 (N.C. Super. Ct. Nov. 19, 2024) (Conrad, J.)
Key Terms: motion to seal; public access; settlement agreement
In connection with his motion to dismiss, summarized above, Defendant moved to seal a copy of the settlement agreement attached to his motion as an exhibit. Plaintiffs also moved to seal portions of their brief in opposition to Defendant’s motion which discussed the agreement. Both parties argued the document and references thereto should be sealed because the agreement contained a confidentiality clause. After noting that the confidentiality provision alone was insufficient to warrant sealing, the Court provided the parties an opportunity to submit supplemental briefings on the issue. Defendant declined to do so, while Plaintiff Whalen submitted a supplemental brief arguing that information in the settlement agreement, namely the settlement amount, the payment schedule, and the percentage of his ownership in certain entities, warranted sealing, or at least redaction.
The Court rejected the parties’ arguments, noting that the presumption in favor of public access was strong, whereas the parties’ countervailing interest was weak. The Court noted that Defendant provided no substantial interest in keeping the agreement’s contents confidential, while Whalen’s “vague assertions” that disclosure could result in competitive harm failed to warrant sealing. Holding that the parties had failed to rebut the public’s presumptive right of access, the Court denied the motion and ordered the documents to be unsealed.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 11/20/24
By: Lauren Schantz
Egan v. Buena Vista, Inc., 2024 NCBC 69 (N.C. Super. Ct. Oct. 9, 2024) (Earp, J.)
Key Terms: motion to enforce settlement agreement; criminal prosecution; representations of counsel; contract formation; attorney communications with client; authority to settle; sanctions; BCR 7.2
Plaintiff Michael Egan and Defendant Timothy Anderson are shareholders in Defendant Buena Vista, Inc. Two years ago, Egan was arrested and charged with embezzlement from Buena Vista. Egan subsequently sued Anderson and Buena Vista alleging that he had been excluded from the business and not received distributions. While the criminal and civil cases were pending, Egan’s counsel communicated to Defendants’ counsel that Egan would dismiss the case upon receipt of $25,000 and a dismissal of the criminal charges. Defendants’ counsel accepted the offer and contacted Egan’s criminal attorney regarding the disposition of the criminal charges.
The DA would not agree to dismiss the charges but offered Egan a deferred prosecution. Defendants confirmed that this outcome was acceptable and that they would not seek restitution in the criminal matter. Egan’s counsel agreed to Defendants’ counteroffer and then represented to the Court that the matter had been settled.
The parties exchanged a draft settlement agreement, which Egan’s counsel forwarded to Egan’s criminal attorney for review. When Egan’s criminal attorney expressed concern about conditioning the settlement of the civil case on the outcome of the criminal case, Egan’s counsel forwarded an opinion he received from ethics counsel at the State Bar to Egan’s criminal attorney and Defendants’ counsel.
Defendants executed the settlement agreement and Defendants’ counsel sent the agreement and $25,000 to Egan’s counsel. After sending several communications to his client, Egan’s counsel learned that Egan refused to sign the settlement agreement because the criminal charges had not been dismissed. Egan’s counsel then filed a notice of dismissal without prejudice, explaining his misunderstanding of his client’s position. A year later, Egan initiated this action, alleging the same facts as those in the prior action.
Defendants moved to enforce the settlement agreement, strike the complaint, and impose sanctions. Egan opposed the motions, arguing no agreement had been reached. The Court concluded that the correspondence between Egan’s counsel and Defendants’ counsel constituted a valid settlement agreement and, because Egan had given his attorney authority to settle the case, Egan was bound by his attorney’s representations to Defendants’ counsel and the Court that the case was settled.
The Court concluded that Egan’s claims were barred based on the terms of the settlement agreement and dismissed the case but declined to impose sanctions. The Court also reminded counsel to set out each motion in a separate document in compliance with BCR 7.2.
*******
Bui v. Phan, 2024 NCBC 70 (N.C. Super. Ct. Oct. 22, 2024) (Conrad, J.)
Key Terms: motion to dismiss; LLC; member; manager; breach of operating agreement; declaratory judgment; individual claim; derivative claim; standing; injury; actual controversy; BCR 7.2
This case involves a dispute between the two 50/50 member-managers of Golden Rooster, LLC: Plaintiff Bui and Defendant Phan. Phan moved to dismiss Bui’s claims for breach of Golden Rooster’s operating agreement and declaratory judgment, arguing that Bui lacked standing to assert the claims because they were derivative, rather than individual claims.
Breach of Operating Agreement. The Court denied dismissal of this claim, holding that Bui, as a member of Golden Rooster, had standing to sue individually to enforce rights granted to her under the LLC’s operating agreement: namely, Bui’s right as a manager to participate in the management of Golden Rooster. The Court also disagreed with Phan’s argument that Bui suffered no injury, concluding that, in addition to potential financial harm, Bui’s loss of managerial rights is itself a recognized injury entitling her to nominal damages.
Declaratory Judgment. The Court also denied dismissal of this claim, concluding that Bui had standing to seek declaratory relief because the parties had an actual, genuine controversy regarding the interpretation of Golden Rooster’s operating agreement and its application to Phan’s actions.
The Court declined to consider an additional ground for dismissal that Phan raised in her motion but failed to address in her brief as required by BCR 7.2.
*******
Culverhouse-Steadman v. Gömböc Ventures, LLC, 2024 NCBC Order 63 (N.C. Super. Ct. Oct. 11, 2024) (Bledsoe, C.J.)
Key Terms: designation; LLC; operating agreement; declaratory judgment; contract
Gömböc Ventures, LLC is comprised of six members, five of whom are parties to this action. Plaintiff Culverhouse-Steadman sought injunctive relief as well as a declaratory judgment that first interpreted the amendment provisions of Gömböc’s prior operating agreement and then determined the enforceability of the amended operating agreement based on Defendants’ alleged noncompliance with the amendment provisions in the prior operating agreement. Plaintiff sought to designate the action as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(1); however, the Court declined to designate the matter because resolution of the claims required only the application of contract law principles and did not implicate the law governing LLCs.
*******
Elhulu v. Alshalabi, 2024 NCBC Order 64 (N.C. Super. Ct. Oct. 14, 2024) (Conrad, J.)
Key Terms: BCR 10.9; Rule 45; quash; subpoena; non-party; discovery dispute
Plaintiffs served a non-party with a subpoena pursuant to Rule 45 of the North Carolina Rules of Civil Procedure. The non-party moved to quash, but the Court held the motion in abeyance and directed the non-party to comply with the pre-filing requirements for discovery disputes in BCR 10.9. After consultation, the parties reached a compromise on all but three requests: bank account statements, any emails having anything to do with Defendants, and documentation of any ownership interest the non-party held in an entity in which Defendant Alshalabi also held an interest. The Court concluded that the requests were overly broad, quashed the subpoena as to the three requests, and otherwise denied the motion to quash as moot.
*******
Brakebush Bros., Inc. v. Certain Underwriters at Lloyd’s of London – Novae 2007 Syndicate Subscribing to Pol’y No. 93PRX17F157, 2024 NCBC Order 65 (N.C. Super. Ct. Oct. 16, 2024) (Davis, J.)
Key Terms: reptile theory; golden rule; motion to exclude; expert opinions; Rules of Evidence; Daubert; motion in limine; admissibility; weight; relevance; prior insurance claims; agency; probative value; discovery disputes; prior lawsuits; disclosure of witnesses; lay opinion testimony; expert reports
As summarized here, this case arose out of an insurance coverage dispute following a fire at a chicken processing plant. The Court previously denied Brakebush’s motion for summary judgment. In anticipation of trial, the Court resolved the parties’ eighteen pre-trial motions.
Defendants moved to exclude Plaintiffs’ expert, arguing that (1) the expert was unqualified as an expert on the subject matter; (2) his opinions were unreliable due to his failure to conduct an independent investigation; and (3) his opinions “parroted” those of Brakebush representatives. The Court denied the motion, concluding that (1) the expert was qualified based on his work experience; (2) the expert could rely on information provided by others in forming his opinions; and (3) Defendants failed to show the expert’s opinions simply “vouched” for those of Brakebush representatives.
Plaintiffs moved to prohibit Defendants’ experts from (1) testifying about Brakebush’s motivations for filing its insurance claim; (2) testifying as to their experiences with prior, unrelated fire insurance claims at Plaintiff House of Raeford Farms’ other facilities; and (3) offering duplicative testimony. The Court granted the motion, determining that (1) expert testimony regarding a party’s state of mind, intent, or motive was improper; (2) any probative value associated with evidence of Raeford’s prior insurance claims for the purpose of contrasting them with the instant insurance claim was substantially outweighed by the danger of undue prejudice; and (3) an expert may not offer opinions that simply repeat the opinions of another expert.
The Court then disposed of the various motions in limine in summary fashion as follows:
Plaintiffs’ First Motion: Granted; evidence of prior insurance claims lacked probative value and/or was outweighed by the likelihood of undue prejudice.
Plaintiffs’ Second Motion: Denied; Court declined to determine as a matter of law whether certain consultants were acting as Defendants’ agents.
Plaintiffs’ Third Motion: Granted in part and denied in part; evidence of prior discovery disputes was irrelevant to resolution of factual issues but may be used for impeachment.
Plaintiffs’ Fourth Motion: Denied; terms of an Asset Purchase Agreement admissible, relevant, and not outweighed by danger of unfair prejudice.
Defendants’ First Motion: Granted; evidence of prior claims, lawsuits, or complaints alleging improper handling of claims by Defendants was inadmissible because it lacked relevance and its probative value was outweighed by danger of unfair prejudice.
Defendants’ Second Motion: Granted; evidence of parties’ financial condition was inadmissible.
Defendants’ Third Motion: Granted; witnesses not previously identified and disclosed during discovery may not testify.
Defendants’ Fourth Motion: Granted; expert witnesses not previously identified and disclosed during discovery may not testify.
Defendants’ Fifth Motion: Granted; expert witnesses may not offer opinions not previously disclosed in discovery.
Defendants’ Sixth Motion: Granted; parties may not use documentary evidence of damages not previously identified and disclosed in discovery.
Defendants’ Seventh Motion: Granted in part and denied in part; parties may not make “reptile theory” or “golden rule” arguments, but the Court will rule on the admissibility of evidence of “general safety rules” at trial.
Defendants’ Eighth Motion: Granted; parties may not introduce deposition testimony not identified pursuant to the Pre-Trial Scheduling Order.
Defendants’ Ninth Motion: Denied; the Court will rule on the admissibility of lay witnesses offering opinion testimony at trial.
Defendants’ Tenth Motion: Granted in part and denied in part; parties may not admit evidence that inaccurately represents information, but motion was phrased too broadly to grant in its entirety.
Defendants’ Eleventh Motion: Denied; the Court will rule on the admissibility of evidence relating to USDA regulations at trial.
Defendants’ Twelfth Motion: Granted; expert report may not be admitted into evidence in its entirety, but statements and exhibits may be used for impeachment or to show how the expert formed his opinions.
*******
Health Logix, LLC v. US Radiology Specialists, Inc., 2004 NCBC Order 66 (N.C. Super. Ct. Oct. 18, 2024) (Bledsoe, C.J.)
Key Terms: designation; opposition; intellectual property; software; contract
Health Logix provided radiology software services to US Radiology pursuant to a contract. Prior to its expiration, the parties engaged in negotiations to extend the term of the contract. Health Logix executed an amendment extending the term of the contract and, relying on US Radiology’s representation that it would likewise execute the amendment, expended additional time and resources. But US Radiology did not sign the amendment, instead informing Health Logix that the contract would expire at the end of the current term.
Health Logix initiated this lawsuit, asserting claims against US Radiology for declaratory judgment and anticipatory repudiation/breach of contract. US Radiology filed a Notice of Designation, contending that designation as a mandatory complex business case was proper pursuant to N.C.G.S. §§ 7A-45.4(a)(5), (a)(9), and (b)(2). After the case was designated to the Business Court, Health Logix opposed designation.
The Court concluded that designation under Section 7A-45.4(a)(5) was improper because Health Logix’s claims neither required an examination of nor were closely tied to the intellectual property aspects of the software at issue; instead, resolution of the lawsuit required only the application of contract principles. As a result, designation under N.C.G.S. § 7A-45.4(b)(2) was also improper and US Radiology refused to consent to designation pursuant to N.C.G.S. § 7A-45.4(a)(9). The Court therefore allowed the opposition.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 10/22/24
By: Ashley Oldfield
Dapper Dev., L.L.C., Cordell, 2024 NCBC 63 (N.C. Super. Ct. Sept. 25, 2024) (Bledsoe, C.J.)
Key Terms: Rule 12(b)(6); breach of contract, breach of consent order; duty of good faith and fair dealing; declaratory judgment
The Individual Plaintiffs and Defendant were the sole members and managers of two companies. After the Individual Plaintiffs’ attempt to negotiate a buyout of Defendant’s interest failed, the Individual Plaintiffs voted to terminate Defendant from the companies and remove him as a member and manager pursuant to the companies’ operating agreements. Defendant disputed the effect of the vote and this litigation followed. Defendant moved to dismiss pursuant to Rule 12(b)(6).
Breach of Contract. Plaintiffs alleged that Defendant breached the companies’ operating agreements by 1) refusing to accept a buyout offer in breach of Section 10; and 2) causing the bank to freeze the companies’ funds in breach of Article 5. Defendant argued that 1) Section 10’s buyout provision was only triggered if he had been terminated as an employee and Plaintiffs did not (and could not) allege that he was an employee; and 2) Plaintiffs had not pleaded the claim for breach of Article 5 with enough detail. The Court rejected both arguments. Plaintiffs had alleged termination of Defendant’s employment which allowed for a reasonable inference that he was an employee. With regards to breach of Article 5, Plaintiffs had alleged the existence of valid agreements, the provision breached, the facts constituting the breach, and the resulting damages. Nothing further was required.
Declaratory Judgment. Plaintiffs sought a determination of the rights, duties, and liabilities as between them and Defendant under the operating agreements. The Court concluded that Plaintiffs’ allegations that Defendant was terminated as both a member and manager of the companies were sufficient to establish the existence of an actual controversy and survive the pleadings stage.
Breach of Consent Order. In response to Plaintiffs’ claim that he had breached the terms of a consent order entered in previous litigation between the parties, Defendant argued that the consent order was not a legal contract and had no legal effect following the voluntary dismissal of the prior lawsuit. The Court rejected this argument because, under North Carolina law, a consent order which recites the parties’ agreement but does not adjudicate any rights is enforceable through a breach of contract action.
Breach of Duty of Good Faith and Fair Dealing. Of the twelve separate allegations underlying Plaintiffs’ breach of duty claim, the Court held that six of them were sufficient to state a claim because they showed that Defendant had taken actions which injured Plaintiffs’ right to receive the benefit of the agreement. The remaining allegations, however, merely involved Defendant’s assertion of his rights under the operating agreements, and, therefore, did not support the claim. Accordingly, the motion was granted as to those allegations but otherwise denied.
*******
Auto Provisions, LLC v. G1.34 Holdings, 2024 NCBC 64 (N.C. Super. Ct. Sept. 25, 2024) (Robinson, J.)
Key Terms: Rule 12(b)(6); breach of contract; duty of good faith and fair dealing; unjust enrichment; conversion
Plaintiff Auto Provisions and Defendant G1.34 formed Plaintiff Recon Partners for the purpose of developing and marketing proprietary software for auto dealerships. After the business relationship between Auto and Defendant deteriorated, Plaintiffs filed this lawsuit. Defendant answered and asserted nine counterclaims arising largely from Plaintiffs’ alleged breaches of Recon’s operating agreement and their failure to pay back a loan and other funds extended to Recon by Defendant. Plaintiffs moved to dismiss most of the counterclaims.
Breach of Contract and Duty of Good Faith and Fair Dealing. Noting the low bar for pleading a breach of contract claim, the Court held that Defendant had adequately pleaded Recon’s breach of a loan agreement, as Defendant had pleaded the existence of a valid contract and the breach thereof. Likewise, the Court held that Defendant had adequately pleaded Auto’s breach of Recon’s operating agreement, by pleading the existence of a valid contract, the satisfaction of all conditions precedent to performance, and the breach of Auto’s obligations. Because the claims for breach of the duty of good faith and fair dealing were based on the same facts as the adequately pleaded breach of contract claims, they survived as well. Accordingly, the motion to dismiss was denied as to each of these claims.
Unjust Enrichment. Plaintiffs contended that Defendant’s unjust enrichment claim, which was based on allegations that Recon would be unjustly enriched by retaining certain wrongfully held monies, should be dismissed because all parties agreed that the operating agreement was a valid and enforceable contract which barred an unjust enrichment claim. The Court disagreed. In support of their assertion that all parties agreed as to the validity of the operating agreement, Plaintiffs cited to their complaint and their answer to the counterclaims; however, at the 12(b)(6) stage, the Court could not consider those documents. Further, it appeared that Plaintiffs disputed the validity of the loan agreement at issue. Thus, the unjust enrichment claim, which was pleaded in the alternative, could proceed.
Conversion. Defendant asserted that Plaintiffs converted the loan and other funds provided to Recon by Defendant, as well as the value of certain software. The Court dismissed the claim to the extent it was based on the nonpayment of the loan and other funds, because the failure to pay a debt does not constitute conversion. The Court also dismissed the claim as to the value of the software, because it was undisputed that Defendant had no ownership interest in the software, and, therefore, a claim for conversion could not lie.
*******
Vitaform, Inc. v. Aeroflow, Inc., 2024 NCBC 65 (N.C. Super. Ct. Sept. 25, 2024) (Bledsoe, C.J.)
Key Terms: Rule 12(c); collateral estoppel; trade secrets; fraud
In a previous action between the parties, Plaintiff asserted various claims, including claims for misappropriation of trade secrets, Lanham Act violations, fraud, and unfair and deceptive trade practices, against Defendants. In that action, the Court entered a summary judgment order which dismissed many of the claims and made a number of determinations regarding Defendants’ knowledge of Plaintiff’s alleged trade secret. The remaining fraud-related claims were set for trial; however, the parties voluntarily dismissed the suit shortly before the trial was set to begin. Eleven months later, Plaintiff filed the present action, asserting the same claims that were pending for trial in the prior action. Defendants moved for judgment on the pleadings, contending that Plaintiff could not establish proximate cause on any of its claims due to the collateral estoppel effect of the Court’s findings in the summary judgment order in the previous action.
The Court denied the motion. Although it agreed that collateral estoppel barred Plaintiff from relitigating factual issues previously determined, the Court concluded that its previous findings did not necessarily preclude Plaintiff from establishing proximate cause and actual damages arising from Defendants’ alleged conduct.
*******
A Distrib. Co. v. Mood Product Grp. LLC, 2024 NCBC 66 (N.C. Super. Ct. Sept. 26, 2024) (Robinson, J.)
Key Terms: Rule 12(b)(6); hemp; Lanham Act; passing off; reverse passing off; unfair and deceptive trade practices; common law unfair competition; conversion; unjust enrichment;
This action arose out of a business arrangement whereby Plaintiff GFF grew and delivered hemp product to Plaintiff ADC, which ADC then supplied to Defendant Mood for sale on Mood’s website. In connection with the transactions, GFF provided to ADC, who then provided to Mood, Certificates of Analysis regarding the composition of the GFF-grown hemp products. Plaintiffs filed suit alleging seven claims relating to Mood’s alleged alteration and use of the Certificates. The claims between ADC and Mood were ordered to arbitration. Mood then moved to dismiss all of GFF’s claims.
Standing. Mood challenged GFF’s standing, arguing that GFF’s principal, not GFF itself, held the required USDA license to grow hemp, and, therefore, GFF did not have standing to bring claims relating to the license or the Certificates. The Court disagreed, determining that GFF’s allegations that the license was GFF’s through its principal were sufficient to demonstrate standing.
Common Law Unfair Competition. GFF asserted that Mood violated unfair competition principles by fraudulently altering GFF’s Certificates and leveraging GFF’s license and the Certificates to sell product, thereby deceiving and endangering the consuming public. The Court dismissed this claim with prejudice because common law unfair competition claims are limited to claims between business competitors and the complaint showed that GFF and Mood were grower and seller, respectively, not business competitors.
Violation of the Lanham Act. GFF alleged that Mood violated the Lanham Act by committing both reverse passing off and passing off relating to GFF’s license and Certificates. The Court dismissed the claim as to reverse passing off because the complaint did not allege that Mood represented that any of the goods it sold were Mood’s own goods. However, it denied dismissal of the claim as to passing off, finding that GFF had sufficiently alleged that Mood had represented its own goods or services as GFF’s.
Unfair and Deceptive Trade Practices. The UDTPA claim survived to the same extent as the Lanham Act claim survived.
Conversion. GFF alleged that Mood converted GFF’s Certificates by altering them to show Mood as the owner of the testing results for GFF’s hemp. The Court dismissed the claim with prejudice because 1) Mood came into possession of the Certificates lawfully when ADC emailed copies of them to Mood, and GFF did not allege that it had demanded, and been denied, their return; and 2) GFF did not allege that it no longer had access to the original Certificates and thus had not shown that it was wrongfully deprived of access to them.
Unjust Enrichment. GFF alleged that a benefit had been conferred on Mood by its fraudulent use of GFF’s Certificates. The Court, however, dismissed the claim with prejudice because the complaint alleged that any benefit obtained by Mood was taken by Mood, not conferred upon Mood by GFF.
Punitive Damages/Attorneys’ Fees. Because attorneys’ fees and punitive damages are remedies rather than standalone claims, the Court dismissed these claims without prejudice to GFF’s ability to seek them as remedies if warranted.
*******
Greentouch USA, Inc. v. Lowe’s Cos., 2024 NCBC 67 (N.C. Super. Ct. Oct. 2, 2024) (Davis, J.)
Key Terms: Rule 12(b)(6); conversion; economic loss rule; defamation; tortious interference with existing contract; tortious interference with prospective economic advantage; unfair and deceptive trade practices; punitive damages
Plaintiff designed and supplied various fixtures and furniture to Defendant Lowe’s pursuant to a three-year supplier contract. However, after the relationship took a “cattywampus turn” during the COVID-19 pandemic, Plaintiff filed suit alleging various claims arising from Lowe’s purported efforts to undermine and destroy Plaintiff to enable it to take over product manufacturing itself or find cheaper vendors. Defendants moved to dismiss a number of the claims under Rule 12(b)(6).
Conversion. Plaintiff alleged that Lowe’s converted two categories of property: 1) property that Lowe’s wrongfully declared defective and then re-sold to third parties; and 2) over a dozen freight containers of products that Lowe’s received but refused to pay for. Defendants argued that the conversion claim was based on matters within the scope of the parties’ contract, and, therefore, it should be dismissed under the economic loss rule. The Court concluded that dismissal under the economic loss rule would be premature at this stage. The contract was not attached to the complaint, and without it, the Court was unable to determine whether Plaintiff’s allegations were fully capable of being redressed through its pending breach of contract claim.
Defamation. Plaintiff alleged that Defendants made defamatory statements regarding Plaintiff’s financial condition. The Court, however, dismissed the claim because in each instance, Plaintiff either failed to specifically identify the speaker or failed to describe the statements themselves with sufficient particularity.
Tortious Interference with Existing Contract. This claim was based on Plaintiff’s allegations that Defendants intentionally induced a third-party to repudiate its existing services contract with Plaintiff. Defendants argued that the claim failed because it lacked specificity and failed to allege a lack of justification. The Court rejected both arguments. Plaintiff’s allegations satisfied the notice pleading standard and were rife with statements that Defendants intentionally and maliciously interfered with Plaintiff’s contractual relationships for the purpose of destroying its business.
Tortious Interference with Prospective Economic Advantage. The Court concluded that Plaintiff’s allegations that 1) Defendants were aware of Plaintiff’s efforts to enter into a supplier relationship with a specific third-party; 2) Defendants maliciously induced that third-party not to enter into such a relationship; and 3) the third-party would have entered into a supplier relationship with Plaintiff absent Defendants’ interference, were sufficient to survive the 12(b)(6) motion.
Violation of the UDTPA. Because Plaintiff’s tortious interference claims survived dismissal, the UDTPA claim survived as well.
Punitive Damages. Because punitive damages are a remedy rather than a standalone claim, the Court dismissed this claim without prejudice to Plaintiff’s ability to seek punitive damages as a remedy if warranted.
*******
Knowles v. Conerly, 2024 NCBC 68 (N.C. Super. Ct. Oct. 3, 2024) (Earp, J.)
Key Terms: Rule 12(c); breach of contract; statute of frauds; unjust enrichment; constructive trust; declaratory judgment; reformation of will; quiet title; easement; latent ambiguity; estate administration; non-claim statute
Plaintiffs are renters of lots in a mobile home park previously owned by Defendant Sea Manor Enterprises, LLC. Plaintiff contend that during his life, William Powell, the sole member and manager of the LLC, agreed that he would arrange for the mobile home park and certain access rights to be conveyed to Plaintiffs and that he later executed a codicil to effect that agreement. However, following Mr. Powell’s death, Plaintiffs were informed that Mr. Powell’s church had inherited his membership interest in the LLC and now owned the mobile home park. This lawsuit followed. Defendants moved for judgment on the pleadings.
Breach of Contract (against LLC). Plaintiffs alleged that 1) they entered into an oral agreement with the LLC whereby it would arrange for the Plaintiffs to receive title to the mobile home park and access rights to certain docks; 2) that this agreement was memorialized in a codicil by Mr. Powell acting in his capacity as manager of the LLC; 3) that the LLC breached the agreement by failing to ensure that the mobile home park and certain access rights were conveyed to Plaintiffs; and 4) they were damaged as a result. The Court found that these allegations sufficiently stated a claim for breach of contract. Defendants argued that the statute of frauds nonetheless barred the claim because the codicil did not sufficiently identify the property to be conveyed. The Court disagreed, concluding that the description of the property was not patently ambiguous and could potentially be clarified by reference to external evidence.
Breach of Contract and Unjust Enrichment (against Estate). Plaintiffs alleged that 1) they had an agreement with Mr. Powell whereby he would ensure that they received a right of access to certain docks in exchange for their improvements to the docks, and 2) if the codicil failed to accomplish this agreement, then Mr. Powell was in breach. The Court concluded, however, that the claim was barred by the non-claim statute for estate administration, N.C.G.S. 28A-19-3(b)(1)(2), because it was not timely filed. Plaintiffs’ unjust enrichment claim, which was based on Mr. Powell being unjustly enriched by Plaintiffs’ improvement of the docks, was barred on the same basis.
Breach of LLC’s Operating Agreement (against Church). Plaintiffs alleged that the codicil served as the LLC’s operating agreement and that the Church, as the LLC’s manager, breached it by not conveying the mobile home park and the access rights to Plaintiffs. The Court disagreed and concluded that, while the codicil may direct the disposition of some of the LLC’s property, it could not be considered a document that governs the affairs of the LLC, i.e., its operating agreement. Thus, this claim was dismissed with prejudice.
Declaratory Judgment. Plaintiffs requested a declaratory judgment that the codicil conveys ownership of the LLC and easement rights to Plaintiffs, or alternatively, that the codicil is ambiguous and was executed my Mr. Powell under a mistaken belief of its effect. The Court determined that Plaintiffs had sufficiently stated a declaratory judgment claim and that issues of fact regarding Mr. Powell’s intent and the legal effect of the codicil remained and required discovery.
Reformation of Will. Plaintiffs contended that the codicil was ambiguous and should be reformed to conform to Mr. Powell’s intent. Because reformation is a remedy rather than a claim, the Court dismissed this claim without prejudice to Plaintiff’s ability to pursue reformation as a remedy if warranted.
Unjust Enrichment/Constructive Trust. Plaintiffs alleged the Church had been unjustly enriched by receiving the mobile home park and therefore, a constructive trust should be imposed over the property. But because a constructive trust is a remedy, not a claim, the Court dismissed the claim but without prejudice to Plaintiffs’ right to pursue a constructive trust as a remedy, if warranted.
Quiet Title. Plaintiffs sought to quiet title to a purported easement they contend is identified in the codicil. The description in the codicil, although ambiguous on its face, suggested that extrinsic evidence may be able to provide the missing detail regarding the location of the easement. Accordingly, dismissal was not appropriate at this stage.
Alter Ego. Plaintiffs alleged that the LLC was an alter ego of Mr. Powell and that the veil between them should be pierced to make the LLC liable for his actions. However, because Plaintiffs did not allege that Mr. Powell engaged in fraud or used the LLC to perpetrate dishonest or unjust acts, the Court dismissed the claim with prejudice.
*******
Griffin v. Advisors Fin. Ctr., L.L.P., 2024 NCBC Order 60 (N.C. Super. Ct. Aug. 13, 2024) (Bledsoe, C.J.)
Key Terms: BCR 10.9 dispute; expert disclosures; deposition
After Plaintiff objected to Defendants’ efforts to depose Plaintiff’s experts prior to Defendants’ expert disclosure deadline, the parties submitted a BCR 10.9 dispute summary to the Court. Plaintiff argued that requiring her experts to be deposed now may result in her experts having to be re-deposed and, further, that this was litigation by ambush. The Court found that neither the case management order, the Rules of Civil Procedure, nor the Business Court Rules required that expert depositions occur after all parties had disclosed their experts and produced expert reports. Further, it was common practice for a party opposing the party with the burden of proof to take the opening expert’s deposition prior to disclosing its own expert. Lastly, Plaintiff’s concern that her expert may have to be re-deposed was unfounded because the CMO provided that each expert is subject to a single deposition and therefore any attempt to conduct a second deposition would have to be approved by the Court. Accordingly, the Court ordered Plaintiff to make her expert witnesses available for deposition prior to the Defendants’ expert disclosure deadline.
*******
Murphy-Brown, LLC v. Ace Am. Ins. Co., 2024 NCBC Order 61 (N.C. Super. Ct. Sept. 25, 2024) (Davis, J.)
Key Terms: hog farm; insurance coverage; indemnification; defense costs; reasonableness of attorneys’ fees; burden of proof
As summarized here, Plaintiffs sued various insurers who provided them with primary and excess insurance coverage contending that the insurers were obligated to indemnify Plaintiffs for amounts paid to settle certain nuisance actions relating to Plaintiffs’ hog farms and to reimburse Plaintiffs for their defense costs for such underlying lawsuits. Presently before the Court was the parties’ request that the Court resolve three legal issues prior to trial: 1) which party bears the burden of proving the reasonableness of Plaintiffs’ defense costs in the underlying lawsuits; 2) whether Defendant may conduct a “line-by-line” challenge to the billing entries of Plaintiffs’ attorneys in the underlying lawsuits; and 3) whether the jury may be informed of the Court’s prior determination that Defendant breached its duty to defend Plaintiffs in the underlying lawsuits.
Regarding the first issue, the Court found no controlling precedent but adopted the majority view in other jurisdictions that once a party has shown that it incurred and paid the defense costs at issue, the costs are presumed reasonable and the burden shifts to the opposing party to rebut that presumption.
As to the second issue, the Court declined to restrict Defendant’s ability to challenge the reasonableness of Plaintiff’s defense costs as it sees fit, provided it does so consistent with Rule 1.5 of the Rules of Professional Conduct which govern the reasonableness of attorneys’ fees.
Lastly, the Court held that the jury could be informed of the Court’s previous determination that Defendant breached its duty to defend Plaintiffs in the underlying lawsuits because that information was relevant to the jury’s understanding of what they were being asked to decide.
*******
CRH E., LLC, Berastain, 2024 NCBC Order 62 (N.C. Super. Ct. Oct. 7, 2024) (Earp, J.)
Key Terms: preliminary injunction; extraordinary relief; third-party; likelihood of success on the merits; irreparable harm
As summarized here, this action involves a dispute arising from the sale of a business and the previous owners’ alleged involvement in a competing business. The former owners, Counterclaim-Plaintiffs Berastain and Moreau, moved for a preliminary injunction enjoining 1) a third-party, Robertson Real Estate, from selling certain real property, and 2) the Counterclaim-Defendants from transferring funds associated with such a sale or otherwise transferring tangible assets outside the regular course of business. Berastain and Moreau asserted that Robertson Real Estate was co-owned by individuals connected with the Counterclaim-Defendants and that the real property at issue may be necessary to satisfy any judgment they obtained in the present litigation
The Court denied the motion. First, Berastain and Moreau had not shown a likelihood of success on the merits. Since the third-party LLC was not a party to the action, there were no claims pending against it to evaluate for purposes of determining whether Berastain and Moreau were likely to prevail on the merits. As to the Counterclaim-Defendants, Berastain and Moreau failed to present any evidence, as opposed to mere speculation, that the Counterclaim-Defendants had threatened or were about to dispose of any property with the intent to defraud them. Second, Berastain and Moreau also failed to provide sufficient evidentiary support that they were about to suffer irreparable harm.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 10/09/24
By: Rachel Brinson
Yoder v. Verm, 2024 NCBC 60 (N.C. Super. Ct. Sept. 10, 2024) (Bledsoe, C.J.)
Key Terms: judgment on the pleadings; Rule 12(c); breach of settlement agreement; reasonable time to perform; contract interpretation
The parties here were previously involved in three lawsuits which resulted in a Settlement Agreement and the dismissal of those suits in late 2022. About a year later, Plaintiff filed the current lawsuit asserting five claims arising from Defendants’ purported breaches of the Settlement Agreement. Defendants moved for judgment on the pleadings seeking dismissal of Plaintiff’s fourth claim and judgment in their favor on a counterclaim, both of which centered on the parties’ competing interpretations of a section of the settlement agreement relating to the procedure for buying out the Plaintiff’s interests in an LLC.
Defendants argued that the relevant contract provision was subject to North Carolina’s reasonable time to perform doctrine. However, the Court found that although the provision contemplated the sale of real estate, neither it nor the Settlement Agreement more broadly created a contract for the purchase and sale of real property and therefore the “reasonable time to perform rule” was inapplicable. Interpreting the Settlement Agreement as written, the Court concluded that the sale procedure outlined in the first paragraph of the relevant section, as argued by Plaintiff, controlled. Under that interpretation, judgment on the pleadings was not warranted and therefore, the motion was denied.
*******
Trail Creek Invs. LLC v. Warren Oil Holding Co., 2024 NCBC 61 (N.C. Super. Ct. Sept. 11, 2024) (Davis, J.)
Key Terms: motion to amend; derivative demand; Rule 15; counterclaims; inspection rights; minority member; breach of contract
Following initial pleadings, Defendant Minority Member simultaneously amended its answer, asserted counterclaims, and sent a derivative demand letter to Plaintiff Warren Oil. After Warren Oil declined to take the action requested in the derivative demand letter, the Minority Member moved to amend its answer and counterclaims to add factual allegations and a derivative counterclaim for Warren Oil’s causing a breach of the Management Fee Agreement. Plaintiffs opposed the addition of the derivative counterclaim on the grounds of undue delay, prejudice, and futility.
The Court rejected Plaintiffs’ arguments related to undue delay. The Defendant’s board representative’s receipt of certain financial documents years earlier did not conclusively alert him to the alleged violations of the Management Fee Agreement. Furthermore, the Minority Member sought to amend to add the derivative claim shortly after the expiration of the ninety-day waiting period required by N.C.G.S. § 57D-8-01(a)(2). Thus, there was no undue delay.
The Court further found that the Minority Member’s existing counterclaims contain the same basic allegation that forms the basis of the proposed derivative claim and that therefore Plaintiffs would not be prejudiced by its inclusion.
With regard to futility, the Court concluded that it would benefit from a more factually developed record in assessing the parties’ competing contentions as opposed to attempting to resolve their disputes at the Rule 15 stage. The Court further found that the Special Committee’s Report determining that derivative action was not in the best interest of the company and submitted by Plaintiffs prior to the hearing on the Motion to Amend did not preclude the Defendants’ derivative counterclaim because Section 57D-8-03(a) contemplates the filing of a motion by the LLC to dismiss a pending derivative claim and no motion to dismiss has yet been filed.
The Court granted the Motion to Amend.
*******
Vista Horticultural, Inc. v. Johnson Price Sprinkle, PA, 2024 NCBC 62 (N.C. Super. Ct. Sept. 17, 2024) (Bledsoe, C.J.)
Key Terms: motion for summary judgment; out-of-state sales tax liability; Wayfair decision; breach of contract; tax advice; malpractice; professional negligence; contributory negligence; breach of fiduciary duty; gross negligence; punitive damages
Plaintiff’s claims arose out of its engagement of Defendants to, according to Plaintiff, provide accounting, bookkeeping, and business consulting services. Consistent with Defendant JPS’s advice to Plaintiff in 2017, Plaintiff paid sales taxes from 2017 until 2021 only to North Carolina, the state of its physical operations, in accordance with the applicable law in 2017. On 21 June 2018, however, the United States Supreme Court ruled in South Dakota v. Wayfair, Inc., that states could assess taxes to out-of-state online retailers for sales to in-state residents. Plaintiff contends that Defendants failed to advise it of the Wayfair decision until 2021, preventing Plaintiff from passing its sales tax liability on to its online customers for three years and thereby causing the company to incur an unexpected $2 million tax liability. Defendants argue that they had no legal duty to advise Plaintiff of the Wayfair decision and that Plaintiff is responsible for its losses. Defendants moved for summary judgment on all claims.
Breach of Contract. Plaintiff alleged that JPS breached its contracts with Vista by failing to update its tax advice. Viewing the evidence of record in the light most favorable to Plaintiff, the Court determined that a factfinder could reasonably conclude that Defendant agreed to provide services beyond the scope of the written agreements between it and Plaintiff and that providing and updating sales tax advice concerning out-of-state sales was included within the wide-ranging financial, tax, accounting, and bookkeeping services that Defendant had agreed to provide. The Court denied summary judgment on the breach of contract claim.
Professional Negligence/Malpractice and Common Law Negligence. Defendants sought to dismiss Plaintiff’s claims for professional negligence/malpractice and common law negligence on grounds that Plaintiff’s contributory negligence bars these claims as a matter of law. Defendants argued that Plaintiff did not tend to its ordinary business affairs in a diligent manner and failed to send requested out-of-state sales data to Defendants. Plaintiff however refuted this evidence by demonstrating that the request for out-of-state sales data was one of numerous requests for various information that Defendants failed to follow up on. Plaintiff also demonstrated that Defendants failed to respond to their inquiry regarding a sales tax notice from the Arizona Department of Revenue. Based on the record, the Court could not conclude that Plaintiff was contributorily negligent as a matter of law in not learning about and acting upon the Wayfair decision before the spring of 2021. The Court denied summary judgment as to Plaintiff’s claims for professional negligence/malpractice and common law negligence.
Breach of Fiduciary Duty. Because North Carolina does not recognize a de jure fiduciary relationship between accountants and their clients, any fiduciary relationship here must be a de facto one. However, the Court found that Plaintiff failed to offer evidence showing the existence of a de facto fiduciary relationship between Plaintiff and Defendants. The parties’ relationship was governed by their contracts and Defendants did not figuratively hold all the cards. Accordingly, the Court dismissed Plaintiff’s claim for breach of fiduciary duty with prejudice.
Gross Negligence/Punitive Damages. Lastly, Defendants sought dismissal of Plaintiff’s claims for gross negligence and punitive damages, arguing that Plaintiff failed to offer evidence that Defendants engaged in reckless, intentional, willful, or wanton conduct. Defendants argued that Plaintiff’s evidence—consisting of Defendants “doing nothing, failing to advise, and failing to follow up”—is not evidence of willfulness or wantonness and instead only gives rise to a claim in simple negligence. The Court agreed and while noting that Plaintiff offered sufficient evidence to support its claims sounding in negligence, the NC Supreme Court has held that the difference between ordinary negligence and gross negligence is “substantial.” Thus, the Court dismissed these claims with prejudice.
*******
Dapper Dev., L.L.C. v. Cordell, 2024 NCBC Order 58 (N.C. Super. Ct. Sept. 13, 2024) (Bledsoe, C.J.)
Key Terms: ESI protocol; metadata; reasonableness; discovery dispute; Rule 26(b)(1)
The parties filed separate proposed ESI protocols reflecting their disagreement over how the production of metadata should or should not be limited. The Court found that the dispute over whether the ESI Protocol specifically limits a metadata request to one that is “reasonable” was immaterial because under Rules 26 and 34, any request for metadata must be reasonable as a matter of law. To avoid further confusion however, the Court specifically required that any request for metadata be “reasonable.” The Court also reminded the parties that where the case management order requires collaboration, they should not wait until the last day to begin discussions.
*******
Swim Club Mgmt. Grp. of Raleigh, LLC v. Calvin, 2024 NCBC Order 59 (N.C. Super. Ct. Sept. 17, 2024) (Davis, J.)
Key Terms: preliminary injunction; irreparable harm; restrictive covenants; non-compete; non-solicit; employment agreement
Plaintiff, a provider of professional aquatic services, sought a preliminary injunction against two former employees seeking an order enjoining them from directly competing with Plaintiff or soliciting any of Plaintiff’s customers or prospective customers in violation of the non-competition and non-solicitation covenants in their respective employment agreements.
The Court denied the motion because Plaintiff failed to show irreparable harm would exist but for the entry of a preliminary injunction. Noting that Plaintiff’s failure to address the irreparable harm prong in its principal brief would normally result in the Court’s refusal to consider it, the Court nonetheless considered Plaintiff’s arguments from its reply brief and the hearing but found that Plaintiff’s conclusory assertions and testimony based on hearsay were insufficient to support the extraordinary relief of a preliminary injunction. Plaintiff did not establish that defendants’ alleged breaches of their employment agreements caused Plaintiff to lose customers. Further, because Plaintiff’s slate of customers was already set for 2025 and the restrictive covenants were set to expire shortly, the Court found that Plaintiff would suffer no irreparable harm by the denial of a preliminary injunction. The Court also noted that the Plaintiff’s lack of urgency in seeking the preliminary injunction weighed against a finding of irreparable harm.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 09/24/24
By: Natalie Kutcher
Intersal, Inc. v. Wilson, 2024 NCBC 56 (N.C. Super. Ct. Aug. 30, 2024) (Earp, J.)
Key Terms: pirate ship; summary judgment; Emoluments Clause; North Carolina State Constitution; Monopolies Clause; Umstead Act; N.C. Gen. Stat. § 143-162.2
As summarized here, this case arises from a series of agreements between Plaintiff and Defendants relating to ownership rights over two sunken pirate ships located off the North Carolina coast. Following additional discovery, Defendants made a renewed motion for summary judgment related to certain issues affecting damages. Specifically, Defendants moved for a judgment holding that: (i) the 2013 Settlement Agreement’s language did not intend the term “commercial narrative” to include commercial tours; and (ii) Defendants were not required to pay Plaintiff for access to the pirate ship the Queen Anne’s Revenge, as requiring such would be a violation of the North Carolina Constitution and other state law. The Court granted in part and denied in part Defendants’ motion.
The Court had previously denied summary judgment on the interpretation of the term “commercial narrative,” reserving the matter as an issue of fact for the jury. Following Plaintiff’s production of a series of images, transcripts, and audio recordings of meetings held between the parties in 2014, the Court revisited the issue and concluded that a material issue of fact still existed as to the parties’ intended meaning of the term “commercial narrative.”
The Court rejected Plaintiff’s argument that Defendants were precluded from raising their constitutional arguments as untimely and barred by judicial estoppel and the law of the case doctrine. The arguments related to a specific interpretation of the 2013 Agreement, rather than the general enforceability of the 2013 Agreement. As the constitutional issues had yet to be raised, the Court held that Defendants were not estopped from doing so at this time.
Nevertheless, the Court rejected Defendants’ arguments that the Emoluments Clause or N.C. Gen. Stat. § 143-162.2 (which restricts the State’s ability to charge any fee when it makes real property available to a production company) were implicated by Section 16 of the 2013 Agreement. The Court also concluded that Defendants failed to establish that the rights afforded to Intersal by the 2013 Agreement violated the Monopolies Clause or the Umstead Act. Accordingly, Defendants’ motion was denied to the extent it was based on these arguments. The Court did, however, hold that the 2013 Agreement did not obligate Defendants to enforce Plaintiff’s terms of service and that since N.C. Gen. Stat. § 121-7.3 prohibits Defendants from sharing with Intersal a portion of the admission fees charged by the state-run museums that hosted a Queen Anne’s Revenge exhibit, the State was entitled to summary judgment on Plaintiff’s claim that it had suffered damages in the form of lost admission fees.
*******
Fairleigh v. Wegner, 2024 NCBC 57 (N.C. Super. Ct. Sept. 6, 2024) (Davis, J.)
Key Terms: amended complaint; motion for leave to amend; unfair prejudice; Rule 15
This matter came before the Court on Plaintiff’s motion for leave to file a second amended complaint. Plaintiff’s proposed second amended complaint asserted a new claim for constructive fraud and for punitive damages and contained several new factual additions in support of Plaintiff’s existing claims. Defendants argued that Plaintiff’s motion should be denied, as it was filed in bad faith and would result in unfair prejudice to Defendants.
The Court granted Plaintiff’s motion, noting the “liberal canon in the rules that leave to amend shall be freely given when justice so requires.” The motion was timely under the case management order and no written discovery or depositions had yet been conducted. Because Defendants failed to demonstrate how they would be prejudiced by the amendment, the Court granted Plaintiff’s motion.
*******
LFF IV Timber Holding LLC, v. Heartwood Forestland Fund IV, LLC, 2024 NCBC 58 (N.C. Super. Ct. Sept. 6, 2024) (Davis, J.)
Key Terms: Rule 12(b)(6); motion to dismiss; indemnification claim; breach of contract; contract interpretation; unjust enrichment
This case arises from an indemnification dispute between the purchasers and sellers of several large timberlands. The purchasers of the timberlands initiated this suit against the sellers, alleging that the sellers overstated carbon stocking data regarding the timberlands to a state agency in connection with a government program, exposing the purchasers to millions of dollars of potential liability. The purchasers sought declaratory and monetary relief in connection with the sellers’ alleged duty to indemnify the purchasers, in addition to a claim for unjust enrichment. Sellers moved to dismiss the action.
The Court began its analysis by addressing: (i) which documents the Court could consider in ruling upon the motion to dismiss; (ii) whether the complaint was impermissibly vague; and (iii) whether purchasers’ use of estimates of carbon deposits could form the basis for an indemnification claim by the purchasers. First, the Court held that it could consider only the three documents explicitly incorporated or referenced in the complaint. A fourth document, which was executed at the same time as one of the three referenced in the complaint, was excluded as it was neither attached to nor expressly referenced in the complaint. Second, the Court determined that the complaint was not impermissibly vague, noting the “low bar” for stating a claim for breach of contract. Third, the Court held that the purchasers’ reliance on estimates did not warrant dismissal at the current pleadings stage of the case, as these estimates were alleged to have been made under oath and were sufficiently formalized.
In regard to the indemnity claims, the Court denied sellers’ motion to dismiss, finding that the ambiguity in the purchase agreement’s language prevented a dispositive ruling at the pleadings stage. Since both sides’ interpretation of the indemnification provision was plausible, the Court declined to adopt one party’s interpretation over another at the Rule 12(b)(6) stage.
The Court, however, granted sellers’ motion as it related to the unjust enrichment claim, as no party disputed that the purchase agreement was an enforceable contract. Since a contract governed the dispute, it would make little sense to hold that a party unsuccessful at seeking indemnification under explicit contractual provisions could nevertheless obtain the same relief under an equitable theory of recovery.
*******
Chi v. N. Riverfront Marina & Hotel LLLP, 2024 NCBC 59 (N.C. Super. Ct. Sept. 10, 2024) (Earp, J.)
Key Terms: summary judgment; confidentiality provision; breach of contract; conversion
As summarized here, this case arises from a limited partnership agreement entered into between Plaintiffs and Defendant Wilmington Riverfront Development, LLC (“WRD”). Following a series of dismissals, only two claims remained: (i) breach of contract against Defendant WRD and (ii) conversion against WRD and its principal. Defendants moved for summary judgment on these remaining claims and also moved for affirmative summary judgment on their counterclaim for breach of the confidentiality provision contained in a subscription agreement between the parties.
The Court granted Defendants’ motion as it related to Plaintiff’s claim for breach of contract because the subscription agreement at issue contained explicit disclosures pertaining to the inherent risk of the investment and disclaimed all guarantees of a return. Further, Plaintiff had admitted in his deposition that he was unable to identify any term of the agreement that had been breached and was aware of the risks of investing in the project. Under the plain language of the agreement, the Court determined that no genuine issue of material fact existed in regard to the contract claim.
The Court also granted summary judgment in favor of Defendants on the conversion claim. A conversion claim under North Carolina law requires the plaintiff to show both ownership in himself and the wrongful possession or conversion of the property by the defendant. As Plaintiff admitted to voluntarily investing the money with WRD and having knowledge of the risks of doing so, the Court determined that Plaintiff’s conversion claim failed.
Lastly, the Court granted Defendants’ motion for affirmative summary judgment on their counterclaim for breach of contract. Plaintiff published the contents of the subscription agreement, which were subject to a confidentiality agreement, by attaching the subscription agreement to Plaintiff’s publicly filed complaint. The Court determined that Plaintiff’s decision to file the agreements not under seal and without redaction constituted a breach of the subscription agreement’s confidentiality provisions and ruled in Defendants’ favor. The Court reserved the issue of damages for this counterclaim for jury trial.
*******
Gallinaro v. Eager to Motivate Fitness, LLC, 2024 NCBC Order 55 (N.C. Super. Ct. Aug. 30, 2024) (Bledsoe, C.J.)
Key Terms: order on designation; N.C.G.S. § 7A-45.4(a); intellectual property; proposed class action
Plaintiff, on behalf of herself and all others similarly situated, filed suit against Eager to Motivate Fitness, LLC, alleging that Defendant sold her and thousands of others a lifetime membership to an online diet and fitness Facebook community for a one-time enrollment fee, but later implemented an additional $19.99 monthly subscription fee to access its content. Plaintiff timely filed a notice of designation, contending that designation to the Business Court was proper under N.C.G.S. § 7A-45.4(a)(5) because Defendant had sold perpetual access to its online intellectual property content.
The Court held that the case was improperly designated under N.C.G.S. § 7A-45.4(a)(5), which permits designation of disputes involving the ownership, use, licensing, lease, installation, or performance of intellectual property. Finding that the complaint’s allegations focused on the breach of contract, rather than the intellectual property aspects of the dispute, the Court ruled that the case was not properly designated to the Business Court, subject to the parties’ rights to seek designation on a different basis.
*******
CLC (US) Invs., Inc. v. Gramcor Corp., 2024 NCBC Order 56 (N.C. Super. Ct. Aug. 30, 2024) (Bledsoe, C.J.)
Key Terms: Rule 6(b); extension of time; ESI protocol
The parties filed a joint stipulation extending their time to file an ESI protocol, purportedly pursuant to Rule 6(b) of the North Carolina Rules of Civil Procedure, which allows parties to stipulate to certain extensions of time without court approval. However, because the deadline to file the ESI protocol was originally set by the Court’s case management order, Rule 6(b) did not grant the parties authority to unilaterally extend the deadline. Accordingly, the Court struck the joint stipulation, but without prejudice to the parties’ right to file a consent motion seeking the same relief.
*******
Tree Sprout, LLC v. Brilliance LED, LLC, 2024 NCBC Order 57 (N.C. Super. Ct. Sept. 5, 2024) (Bledsoe, C.J.)
Key Terms: modification of case management order; discovery; BCR 10.9 dispute summary; requests for production of documents; punitive damages
Before the Court was Defendants’ motion to modify the case management order and their BCR 10.9 dispute. Defendants sought a 90-day extension of certain discovery deadlines due to: (i) scheduling conflicts of Defendants’ counsel; (ii) the pending discovery dispute; and (iii) a desire to consolidate a recently-filed related case with this action. Plaintiffs opposed the motion, arguing that Defendants had failed to exercise reasonable diligence to conduct discovery since the case management order was entered in January 2024. In its discretion, the Court granted Defendants’ motion to modify the case management order, but cautioned the parties that it did not intend to extend the deadlines further absent exceptional good cause.
In regard to Defendants’ BCR 10.9 dispute, Defendants argued that Plaintiffs had willfully failed to fulfill their discovery obligations by refusing to produce certain documents. The Court analyzed each of the disputed requests for production and provided clarification on Plaintiffs’ duties to produce. Among other things, the Court noted that information sought to assist in the execution and satisfaction of a judgment later obtained was not appropriate at this stage of the litigation and that a party may not withhold documents on the grounds that the opposing party already has those documents in its possession, custody, or control. The Court also ordered the parties to file supplemental briefs on whether information relating to the computation of punitive damages was discoverable at the present stage of litigation.
*******
North Carolina ex rel. Stein v. MV Realty PBC, LLC, No. 38A24, 2024 N.C. LEXIS 665, 2024 WL 3913656 (Aug. 21, 2024) (Riggs, J.)
Key Terms: preliminary injunction; interlocutory appeal
As summarized here, the Business Court previously granted the State’s request for a preliminary injunction against MV Realty relating to Homeowner Benefit Agreements entered into between MV Realty and North Carolina homeowners. MV Realty subsequently appealed, asserting that the preliminary injunction orders affected a substantial right and were therefore immediately appealable. On August 21, 2024, the Supreme Court dismissed the appeal ex mero motu as interlocutory.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 09/11/24
By: Lauren Schantz
ALCOF III NUBT, L.P. v. Chirico, 2024 NCBC 52 (N.C. Super. Ct. Aug. 21, 2024) (Conrad, J.)
Key Terms: failure to state a claim; fraudulent omission; duty to disclose; officer; affirmative acts; silence
Plaintiffs, investors in Avaya, Inc., brought suit against three of Avaya’s officers, alleging that the officers induced them to invest in Avaya by making misleading representations about the current and future financial condition of the company. Plaintiffs asserted a claim for fraudulent omission against Defendant Stephen D. Spears, Avaya’s former chief revenue officer, and Spears moved to dismiss for failure to state a claim.
Spears argued that he had no duty to speak and the Court agreed. The Court rejected each of Plaintiffs’ arguments, determining that (i) Spears was not liable for the acts of the company or other officers simply because he was an officer; (ii) Plaintiffs failed to allege that Spears had engaged in any specific affirmative acts to conceal information; and (iii) Spears’s alleged silence was insufficient to create a duty to disclose.
For these reasons, the Court granted Spears’s motion and dismissed Plaintiffs’ claim against him with prejudice.
*******
ALCOF IIII NUBT, L.P. v. Chirico; Brigade Cavalry Fund Ltd. v. Chirico, 2024 NCBC 53 (N.C. Super. Ct. Aug. 21, 2024) (Conrad, J.)
Key Terms: venue; forum-selection clause; exclusive forum; agency relationship; equitable enforcement
Plaintiffs, investors in Avaya, Inc., brought suit against Avaya’s officers, alleging that the officers induced them to invest in Avaya by making misleading representations about the current and future financial condition of the company. The Brigade Plaintiffs asserted claims against Defendant James M. Chirico, Avaya’s former president and chief executive officer, and Kieran J. McGrath, Avaya’s former executive vice president and chief financial officer, for negligent misrepresentation, fraudulent inducement, and related securities violations. The Canyon Plaintiffs intervened in Brigade and asserted similar claims against Chirico and McGrath. The ALCOF Plaintiffs initiated a separate lawsuit and asserted claims for negligent misrepresentation, fraudulent inducement, and fraudulent omission against Chirico and McGrath. Chirico and McGrath moved to dismiss for failure to state a claim and improper venue in both lawsuits.
Chirico and McGrath argued that, although they were not parties to Plaintiffs’ contracts with Avaya, they could nevertheless enforce the exclusive New York forum-selection clauses in the contracts as agents of Avaya. Plaintiffs, however, argued that the language of the contracts foreclosed Chirico and McGrath’s equitable rights to enforce the forum-selection clauses. The Court rejected Plaintiffs’ argument, concluding that, as non-signatory agents rather than third-party beneficiaries, Chirico and McGrath may enforce the forum-selection clauses in their principal’s (Avaya) agreement, especially because all of their alleged conduct occurred in their capacities as Avaya’s officers and agents. A contrary rule would upset the expectations of agents and signatories, undermine the purpose of forum selection clauses, and make it too easy for a plaintiff to evade forum-selection clauses by suing the agents rather than the corporation.
As a result, the Court granted Chirico and McGrath’s motions and dismissed Plaintiffs’ claims against them without prejudice to their right to refile in an appropriate venue.
*******
Vernon v. Trs. of Gaston Coll.; Archie v. Trs. of Gaston Coll.; Eppes v. Trs. of Gaston Coll., 2024 NCBC 54 (N.C. Super. Ct. Aug. 21, 2024) (Robinson, J.)
Key Terms: sovereign immunity; data breach; personal jurisdiction; waiver; unjust enrichment; unfair and deceptive trade practices; negligence; declaratory judgment; tort; State Tort Claims Act; breach of contract
Plaintiffs are former students of Gaston College, a public community college. Plaintiffs each initiated separate purported class actions in the wake of a 2023 data breach of Gaston College’s computer systems that allegedly compromised their private information. Plaintiffs each asserted claims for breach of contract, breach of implied contract, and unjust enrichment; Archie and Vernon each asserted claims for negligence and negligence per se; and Eppes asserted additional claims for declaratory judgment and unfair and deceptive trade practices. Gaston College moved to dismiss all three actions in their entirety on grounds of sovereign immunity.
The Court first determined that, as a public education institution, Gaston College was entitled to sovereign immunity from suit unless it waived such immunity. The Court then considered whether Gaston College had waived its sovereign immunity or otherwise consented to suit.
Unjust Enrichment. The Court dismissed Plaintiffs’ claims for unjust enrichment with prejudice, concluding that the State can only waive its sovereign immunity when it expressly enters into a contract.
Unfair and Deceptive Trade Practices. The Court dismissed Eppes’s UDTP claim with prejudice because the UDTPA only applies to claims against a “person, firm, or corporation” and state institutions are neither a person, firm, or corporation.
Negligence, Negligence per se, and Declaratory Judgment. The Court concluded that, although the State Tort Claims Act partially waives the State’s sovereign immunity for negligent conduct, jurisdiction over all tort claims against the State are subject to the exclusive jurisdiction of the North Carolina Industrial Commission. The Court therefore dismissed these claims without prejudice to the Plaintiffs’ right to bring those claims in the Industrial Commission.
Breach of Contract. The Court concluded that Plaintiffs sufficiently alleged claims for breach of express contract but failed to allege one or more of the elements to establish a claim for breach of implied in fact contract, and dismissed the latter claims with prejudice.
Thus, the Court granted Gaston College’s motion to dismiss as to all but Plaintiffs’ breach of express contract claims.
*******
Airtron, Inc. v. Heinrich, 2024 NCBC 55 (N.C. Super. Ct. Aug. 22, 2024) (Conrad, J.)
Key Terms: final judgment; pro se litigants; misappropriation of trade secrets; unfair and deceptive trade practices; actual damages; nominal damages; punitive damages; treble damages; attorneys’ fees; injunction
As summarized here, the Court previously sanctioned pro se Defendant Bradley Heinrich for disobeying court orders and failing to comply with discovery requests by striking his answer and entering default judgment against him as to liability on Plaintiff’s claims for misappropriation of trade secrets and unfair or deceptive trade practices.
After an evidentiary hearing, the Court entered final judgment against Heinrich. The Court concluded that Airtron was not entitled to actual damages on its trade secret claim because Airtron failed to show by a preponderance of the evidence that it lost profits as a result of Heinrich’s misappropriation; the Court did, however, award Airtron one dollar in nominal damages. The Court further concluded that Airtron was not entitled to punitive damages because it had not shown that willful and malicious misappropriation occurred, but granted Airtron’s request for treble damages under N.C.G.S. § 75-16 (for a total of three dollars). The Court denied Airtron’s request for attorneys’ fees, concluding that Heinrich’s conduct was not willful nor did he make an “unwarranted refusal” to resolve the matter since he had, in fact, previously agreed to a settlement but was just unable to obtain the necessary funds. The Court enjoined Heinrich from any further use of Airtron’s trade secrets.
*******
BIOMILQ, Inc. v. Guiliano, 2024 NCBC Order 54 (N.C. Super. Ct. Aug. 15, 2024) (Robinson, J.)
Key Terms: gatekeeper order; pro se litigants; false representations; abusive language; show cause; Rule 11 sanctions; voluminous filings; inherent authority; rule violations; violation of court orders; unauthorized practice of law
The Court’s indulgence of pro se litigants has its limits. Defendant and Counterclaim Plaintiff Shayne Guiliano finally exceeded them. Shortly after this action was initiated in March 2022, Guiliano’s counsel of record withdrew and he proceeded pro se. Guiliano retained new counsel in November 2022, but that counsel moved to withdraw a year later. Plaintiffs’ counsel opposed the motion, citing several email communications sent by Guiliano to Plaintiffs’ counsel while Guiliano was represented by counsel that contained abusive language and false accusations. The Court granted the motion to withdraw but set forth clear expectations for Guiliano’s future communications with counsel and the Court.
Guiliano’s disrespectful behavior persisted, however, even after the entry of a show cause order. Guiliano continued to use abusive and combative rhetoric in communications with counsel and the Court, impugning the integrity of the Court. He violated several Business Court Rules, filing unpermitted “responses” to Court orders and other filings, engaging in voluminous and duplicative filing, and using various tactics to circumvent word limits. Guiliano also persisted in attempting to represent the interests of Defendant and Counterclaim Plaintiff 108Labs, LLC, even when the company was represented by counsel.
The Court, through its inherent authority, determined that sanctions in the form of a gatekeeper order were warranted. Prior to filing any document in this or a related action, Guiliano must obtain the certification of an attorney licensed to practice in this State. Violations will result in the striking of the filings and may result in the dismissal of Guiliano’s claims and striking his defenses. Pursuant to Rule 11, the Court permitted the other parties to seek attorneys’ fees and costs associated with Guiliano’s misconduct.
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 08/27/24
By: Ashley Oldfield
United Therapeutics Corp. v. Liquidia Techs., Inc., 2024 NCBC 47 (N.C. Super. Ct. July 31, 2024) (Earp, J.)
Key Terms: summary judgment; trade secret misappropriation; reasonable measures; three-year restriction
Plaintiff, a biotech company, brought suit against Roscigno (a former executive) and Liquidia (a competing biotech company) for misappropriation of trade secrets and unfair and deceptive trade practices arising from Roscigno’s alleged taking of trade secrets and confidential information relating to the development of certain medical treatments. Roscigno moved for summary judgment on the claim against him for trade secret misappropriation.
Roscigno first argued that since the confidentiality provisions of his employment agreement expired three years post-employment (which had long since passed), Plaintiff had failed to take reasonable measures to protect the secrecy of its information, an essential requirement for the existence of a trade secret. The Court rejected this argument noting a number of other measures Plaintiff had taken to maintain the secrecy of its information, including restrictions in Plaintiff’s employee handbook and technology policy. Roscigno next argued that no misappropriation occurred because, in his employment agreement, Plaintiff impliedly consented to his use of trade secret information by only restricting his use of Confidential Information for three years. The Court found the employment agreement ambiguous on this point and the intent of the parties unclear; thus, it was up to the jury to determine. The Court also concluded that even if the employment agreement permitted Roscigno to disclose Plaintiff’s trade secrets three years after termination of his employment, Plaintiff had presented sufficient evidence that Roscigno’s taking of the information in the first place was misappropriation.
For these reasons, the Court denied Roscigno’s motion for summary judgment.
*******
B&D Software Holdings, LLC v. InfoBelt, Inc., 2024 NCBC 48 (N.C. Super. Ct. Aug. 1, 2024) (Davis, J.)
Key Terms: summary judgment; fraud; Rule 9(b); North Carolina Securities Act; negligent misrepresentation; breach of fiduciary duty; constructive fraud; conversion
In 2019, Plaintiff invested $3.6 million in InfoBelt, a company which develops and licenses software and provides associated consulting services relating to data management and retention at financial institutions. After InfoBelt’s sole customer ceased using its consulting services in 2021, InfoBelt’s revenue suffered a major decline. Plaintiff subsequently sued InfoBelt and its founder, Mannava, asserting various claims relating to Defendants’ alleged failure to disclose key information to Plaintiff prior to its investment in InfoBelt. Both sides moved for summary judgment on all claims.
Fraud and Fraudulent Inducement. In its summary judgment briefing, Plaintiff asserted two theories in support of its fraud-based claims. The Court concluded, however, that since the first theory had not been alleged in the complaint or disclosed during discovery, Plaintiff was barred from asserting it now in its fraud-based claims or in connection with any other claim. With regard to the second theory—that InfoBelt had provided it with inflated revenue figures and projections based on fraudulent billings practices—the Court found that the evidence did not support this theory, and, further, that Plaintiff did not show a causal link between InfoBelt’s billing practices and any injury to Plaintiff. Accordingly, the Court granted summary judgment in favor of Defendants and dismissed these claims.
North Carolina Securities Act. The Court concluded that, for the same reasons stated above, the fraudulent billing theory could not support a claim under either N.C.G.S. § 78A-56 (a)(1) or (a)(2).
Negligent Misrepresentation. In support of this claim, Plaintiff contended that, despite Mannava knowing about InfoBelt’s fraudulent billing practices, he told Plaintiff that there were “no issues with [InfoBelt’s] revenue and we’re very optimistic about the revenue continuing to grow.” The Court concluded that this claim failed because 1) the Court had already determined that the fraudulent billing theory failed; 2) the “no issues with revenue” statement was too vague to be actionable; and 3) the “optimistic about future revenue” statement was a mere expression of opinion regarding future conditions and was therefore not actionable either.
Breach of Fiduciary Duty and Constructive Fraud. The Court granted summary judgment on these claims as the only arguments advanced by Plaintiff in its briefing were based on the two theories the Court had already rejected. The Court concluded that Plaintiff abandoned any other bases for the claims by failing to argue them at the summary judgment stage.
Conversion. Plaintiff argued that Defendants converted its investment by using the money to pay Mannava’s salary after InfoBelt was no longer profitable. The Court rejected this argument and granted summary judgment in favor of InfoBelt. There was no caselaw allowing a conversion claim to go forward on similar facts and, in any event, the Court had determined that no fraud occurred in connection with Plaintiff’s investment in InfoBelt.
Thus, the Court granted Defendants’ motion for summary judgment in its entirety and dismissed all of Plaintiff’s claims with prejudice.
*******
BluSky Restoration Contractors, LLC v. Brown, 2024 NCBC 49 (N.C. Super. Ct. Aug. 7, 2024) (Robinson, J.)
Key Terms: unjust enrichment; Wage and Hour Act; breach of contract, restrictive covenants; nominal damages; Delaware law; misappropriation of trade secrets
Plaintiff BluSky Restoration performs restoration services in response to natural disasters and other catastrophes. BluSky sued its former employee, Steven Brown, contending that Brown left the company for a competitor in violation of various restrictive covenants, took trade secret information, and solicited BluSky employees. Brown asserted counterclaims for unjust enrichment and violation of the N.C. Wage and Hour Act. Both sides moved for partial summary judgment.
Brown’s Unjust Enrichment Claim. Brown alleged that BluSky was unjustly enriched by its continued operations using Brown as their licensed “qualifying agent” in Florida and Louisiana after his resignation. However, the Court concluded that no benefit was conferred by Brown upon BluSky because the evidence showed that Florida and Louisiana had been informed that Brown and his licenses were no longer affiliated with BluSky. Thus, the Court granted summary judgment in BluSky’s favor and dismissed the unjust enrichment claim.
BluSky’s Breach of Contract Claims. Pursuant to the various agreements allegedly breached, these claims were governed by Delaware law. BluSky’s first breach of contract claim was based on a restrictive covenant in Brown’s Employment Agreement. Brown argued that the claim failed because BluSky was not actually damaged from any alleged breach, as required by Delaware law. The Court rejected this argument, concluding that BluSky had provided at least a minimally reasonable estimate of damages, and, in any event, may be entitled to nominal damages. Summary judgment was therefore denied as to this claim. BluSky’s other breach of contract claims were based on confidentiality, non-competition, and non-solicitation provisions in the LP Agreement and the LLC Agreement. The Court concluded that these provisions were overbroad and unenforceable under Delaware law because 1) they were not reasonable in geographic scope and temporal duration and 2) they did not advance BluSky’s legitimate economic interests. These claims were dismissed.
BluSky’s Misappropriation of Trade Secrets Claim. This claim was based, in part, on BluSky’s “CAT Vendor List,” which contained detailed information regarding the best vendors for various services used in the restoration business. The Court concluded that this collection had potential commercial value from not being generally known and therefore, a genuine issue of material fact existed for jury determination. Similarly, BluSky’s efforts to protect its trade secrets through, among other things, an employee handbook, password protection, and confidentiality agreements for high-ranking employees, were sufficient to create a jury question regarding reasonableness. Thus, the Court denied summary judgment on this claim.
Brown’s Wage and Hour Act Claim. Brown asserted this claim based on BluSky’s failure to pay him his annual bonus. However, because the Employment Agreement notified Brown of the conditions of forfeiture of his bonus and Brown did not provide evidence of any other basis for a bonus, the Court concluded that Brown was not entitled to a bonus because he was not employed by BluSky on the day bonuses were paid as required by the Employment Agreement. Accordingly, the Court granted summary judgment in BluSky’s favor and dismissed the WHA claim.
*******
BluSky Restoration Contractors, LLC v. Sasser Cos., 2024 NCBC 50 (N.C. Super. Ct. Aug. 9, 2024) (Robinson, J.)
Key Terms: tortious interference; civil conspiracy; injunctive relief; judgment on the pleadings
In this action, the BluSky plaintiffs asserted claims against Sasser Companies, a local competitor in the restoration industry, for tortious interference with contract and civil conspiracy arising from Sasser’s hiring of Steven Brown, a BluSky employee. Sasser moved for judgment on the pleadings.
Tortious Interference with Contract Claim. BluSky alleged that Sasser induced Brown to breach various restrictive covenants and his contractually imposed fiduciary duties. The Court denied judgment on the pleadings, finding that the pleadings created at least a question as to whether Sasser’s alleged actions, including offering Brown an artificially inflated compensation package, making an effort to conceal Brown’s plan to work for Sasser, and asking Brown to gather information regarding BluSky employees, were related to its legitimate interest in competition or were done to harm Plaintiffs.
Tortious Interference with Prospective Economic Advantage Claim. BluSky alleged that Sasser interfered with a proposed part-time employment agreement between Brown and BluSky which would have provided BluSky time to find license holders to replace Brown. The Court found that BluSky had sufficiently identified the contract at issue and alleged that Sasser’s conduct was the but-for cause of Brown declining to enter into the agreement. Accordingly, the Court denied judgment on the pleadings.
Civil Conspiracy Claims. BluSky asserted claims for conspiracy to breach fiduciary duty, conspiracy to commit fraudulent concealment, and conspiracy to commit fraud. However, because BluSky did not plead standalone claims for the underlying torts, the Court granted the motion and dismissed the conspiracy claims without prejudice.
Injunctive Relief. BluSky requested a permanent injunction enjoining Sasser from any future misappropriation of BluSky’s trade secrets and from encouraging Brown to violate the restrictive covenants at issue. The Court dismissed this claim because injunctive relief is not an independent cause of action.
*******
Wheeler v. Geist, 2024 NCBC 51 (N.C. Super. Ct. Aug. 12, 2024) (Conrad, J.)
Key Terms: Rule 12(b)(6); constructive fraud; fiduciary duty; standing; pizza franchise
Plaintiff Wheeler and Defendant Geist previously co-owned several pizza franchises. After selling his interests, Wheeler sued Geist, his four companies (which provided management services to the restaurants and owned the underlying real property), and a related trust, asserting a single claim for constructive fraud based on allegations that Geist had cheated Wheeler by siphoning money from the restaurants to Geist’s other companies by charging excessive management fees and rent. Defendants moved to dismiss the complaint.
The Court first determined that Wheeler failed to allege the existence of either a de jure or de facto fiduciary relationship. Although the complaint referred to Wheeler and Geist as “partners,” the complaint did not allege that a legal partnership existed. Further, there were no allegations of a shareholder relationship; Wheeler alleged only that he had an “ownership interest.” Finally, Wheeler’s allegations that he was unfamiliar with restaurant management and relied on Geist to handle day-to-day operations did not rise to the level of “control and domination” necessary for a de facto fiduciary relationship.
Second, the Court concluded that Wheeler also lacked standing because the basis for his claim was that Defendants’ actions harmed the restaurants and, in turn, harmed him by decreasing his distributions. Because the complaint did not allege either a special duty or a separate injury, Wheeler lacked standing. Accordingly, the Court granted the motion but dismissed the case without prejudice for lack of standing.
*******
Green v. EmergeOrtho, P.A., 2024 NCBC Order 51 (N.C. Super. Ct. Aug. 2, 2024) (Bledsoe, C.J.)
Key Terms: class action settlement; attorneys’ fees; common fund; percentage-of-the-fund; lodestar method; Rule 1.5 of the Rules of Professional Conduct; reasonable rate
This order addressed Plaintiff’s motion for an award of attorneys’ fees and expenses following the settlement of a class action suit, as well as a service award for the Plaintiff/class representative. Plaintiff’s counsel sought fees of $183,315.00 (one-third of the settlement fund) under the percentage-of-the-fund method. The Court elected to consider the fees according to the percentage-of-the-fund method and the lodestar method, in combination with the relevant factors in Rule 1.5 of the Rules of Professional Conduct.
The Court first concluded that the time expended was reasonable and that the suit involved complex and novel questions involving data security and privacy that required high legal skill to satisfactorily resolve.
Next, the Court considered whether the rates charged were comparable to those charged in North Carolina for similar services. Although the rates charged here were higher than those approved by the Court in other cases, the Court recognized that hourly rates have risen substantially since many of those cases were decided. Accordingly, the Court approved rates of $575 to $725 for the partners and $325 to $500 for the associates. Applying these rates, the total fee award for professional services under the lodestar method was $206,094.40.
The Court also noted that the settlement achieved was very favorable to the purported class and that the experience, reputation, and ability of the attorneys weighed in favor of the requested fee. The remaining Rule 1.5 factors weighed neither for nor against the award.
Since the amount requested was substantially lower than the fees under the lodestar method, the Court concluded, in its discretion, that the requested award of one-third of the common fund was reasonable and should be approved. The Court also approved the request for payment of expenses and a $5,000 service award to the class representative.
*******
Williams v. Monarch, 2024 NCBC Order 50 (N.C. Super. Ct. Aug. 2, 2024) (Bledsoe, C.J.)
Key Terms: class action settlement; attorneys’ fees; common fund; percentage-of-the-fund; lodestar method; Rule 1.5 of the Rules of Professional Conduct; reasonable rate
Like in the above-summarized Green v. EmergeOrtho case, this order addressed Plaintiff’s motion for an award of attorneys’ fees and expenses following the settlement of a class action suit, as well as a service award for the Plaintiff/class representative. Plaintiff’s counsel sought fees of $366,630.00 (one-third of the settlement fund) under the percentage-of-the-fund method.
The Court’s analysis was substantially similar to that in Green, except that since the amount requested here was substantially higher than the fees calculated under the lodestar method, the Court concluded, in its discretion, that an award of one-fourth of the common fund, i.e., $275,000.00, was reasonable and should be approved.
*******
Rel. Ins., Inc. v. Pilot Risk Mgmt. Consulting, LLC, 2024 NCBC Order 52 (N.C. Super. Ct. July 31, 2024) (Davis, J.)
Key Terms: BCR 10.9; motion to allocate discovery costs; electronically stored information; digital imaging; Rule 26(b)(1b)
In this action, Plaintiff sued a group of its Former Employees and their new employer, contending that Defendants unlawfully used Plaintiff’s confidential information and trade secrets to solicit Plaintiff’s employees and clients. Certain discovery procedures were agreed to or ordered early in the case, including the digital imaging of certain electronic devices of the Former Employees. A number of disputes regarding discovery arose, which ultimately resulted in Plaintiffs’ incurring additional expenses relating to discovery of Defendants’ electronically-stored information. Plaintiffs subsequently moved to allocate ESI-related discovery costs between the parties.
The Court began by noting that Rule 26(b)(1b) provides the Court with both authority and discretion to allocate costs incurred in connection with ESI discovery and that it was further guided by notions of fairness and equity based on the facts and circumstances of the case. Plaintiffs proposed two ways in which the Court could allocate costs, both of which included fees incurred by counsel in connection with the discovery. The Court concluded that there was no clear statutory basis for awarding attorneys’ fees and so it eliminated those amounts from consideration. The Court also excluded the fees of Plaintiff’s’ digital forensics expert to the extent those fees related to the initial imaging of the Former Employees’ devices because Plaintiffs had previously agreed to bear those costs. However, the Court concluded that considering the circumstances of the case, including the Court’s previous conclusion that Former Employees had engaged in spoliation of evidence, the remaining ESI-related costs should be allocated on a 50/50 basis between Plaintiffs and Defendants.
*******
Cadwalader, Wickersham & Taft LLP v. Certain Underwriters at Lloyd’s of London, Beazley Syndicates 623 and 263, 2024 NCBC Order 53 (N.C. Super. Ct. Aug. 12, 2024) (Davis, J.)
Key Terms: motion to seal; ex parte order; Rule 27(b)(3); BCR 7.3; BCR 5.2; motion to reconsider
On July 1, 2024, Plaintiff initiated this action by filing a complaint in Mecklenburg County Superior Court. The complaint and its accompanying exhibit was filed provisionally under seal and accompanied by a motion to seal. The motion to seal was granted ex parte on July 8 and the case was designated to the Business Court on July 25. Defendants then moved for reconsideration of the ex parte sealing order and argued that the sealing order was improper because 1) they did not have time to respond as provided by Rule 27(b)(3) before the order was entered; 2) the order did not have the required findings of fact; and 3) the order was overbroad and unjustifiable because the motion failed to provide a sufficient basis for sealing. Plaintiff responded that the motion should be denied because 1) Defendants did not comply with BCR 7.3’s consultation requirement; 2) the information filed under seal met the test for sealing and there was no clear error warranting reconsideration; and 3) Defendants’ procedural arguments were without merit.
The Court began by acknowledging (and admonishing counsel for) the violation of BCR 7.3, but declined to summarily deny the motion on that basis. Noting that both Rule 27(b)(3) and BCR 5.2 allow for a twenty-day response period for motions to seal and that sealing entire documents is generally disfavored, the Court concluded that the parties should have the opportunity to submit memoranda before the Court rules on the motion for reconsideration. Specifically, Plaintiff was directed to submit proposed redacted versions of the complaint and exhibit with a brief explaining why the proposed redactions were necessary and limited to the fullest extent possible. Defendants could then file a responsive brief.
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 08/14/24
Langley v. Autocraft, 2024 NCBC 45 (N.C. Super. Ct. July 23, 2024) (Earp, J.)
Key Terms: breach of contract; summary judgment; illusory consideration
Prior to beginning his employment with Autocraft, Plaintiff and Autocraft’s principal executed an agreement regarding the terms of Plaintiff’s employment. The agreement provided, among other terms, that after five years of employment, Plaintiff would receive 10% ownership in Autocraft. After Plaintiff’s employment was terminated over five years later, he brought suit for breach of contract seeking the value of the 10% interest. Defendants moved for summary judgment.
The Court granted the motion, concluding that the agreement was not an enforceable contract because it provided that Plaintiff had complete discretion to alter the terms of the agreement, thereby rendering his consideration illusory. The Court distinguished the N.C. Supreme Court’s recent opinion in Canteen v. Charlotte Metro Credit Union, in which the Supreme Court held that a change-of-terms provision permitting unilateral amendments to the credit union’s membership agreement was enforceable so long as the changes reasonably related back to the universe of terms discussed and anticipated in the original agreement. In contrast to the standardized consumer contract at issue in Canteen, the agreement here was individually negotiated and contained no restrictions on Plaintiff’s ability to change the agreement’s terms.
*******
Rel. Ins., Inc. v. Pilot Risk Mgmt. Consulting, LLC, 2024 NCBC 46 (N.C. Super. Ct. July 12, 2024) (Davis, J.)
Key Terms: adverse interest; summary judgment; misappropriation of trade secrets; non-solicitation clause; blue-pencil rule; confidentiality agreement; computer trespass; UDTPA; Wage and Hour Act; unjust enrichment
Plaintiff Relation Insurance sued a group of its Former Employees and their new employer, Pilot Risk, contending that they unlawfully used Relation’s confidential information and trade secrets to solicit employees and clients for Pilot Risk’s benefit. The Former Employees counterclaimed for Relation’s alleged failure to pay them correct wages. Both sides moved for partial summary judgment. Plaintiffs also moved for an adverse inference based on spoliation of evidence.
Motion for Adverse Inference. Plaintiffs argued that the individual Defendants spoliated evidence and therefore, an adverse inference should be drawn against Defendant on summary judgment and at trial. Upon review of the evidence, the Court agreed. Various of the Former Employees had, after notice of the lawsuit, reset or switched out the SIM cards in their cell phones and/or wiped or deleted files from their computers. The Court found that the Defendants had, at a minimum, failed to preserve potentially relevant evidence to which the Plaintiffs did not have equal access; thus, Plaintiffs were entitled to an adverse inference against Defendants at the summary judgment stage and an adverse inference jury instruction at trial.
Defendant’s Motion for Partial Summary Judgment on Plaintiff’s Claims
Misappropriation of Trade Secrets. Relation contended that each Defendant misappropriated its trade secrets in violation of both federal and state law. Of the eight documents identified as trade secrets by Relation, the Court concluded that three of them—the FS-1 List (containing FS-1 codes for insurance companies) and the Customer List and Client Renewal List (containing basic compilations of client information)—were not protectable as trade secrets. The trade secret status of the remaining five documents required determination by a jury. The reasonableness of Relation’s safety measures, which included things like a confidentiality provision in the employee handbook, employee-specific credentials, multifactor authentication, and role-based permissions, also required jury determination. Lastly, there was sufficient evidence of misappropriation by three of the Former Employees to allow the claim against them to go to the jury.
Breach of Non-Solicitation Clauses of Employment Agreements. The Court had already thoroughly analyzed the non-solicitation clauses at issue at the preliminary injunction stage and determined that they were likely unenforceable because they were too broad to protect the legitimate business interests of Relation. No new information obtained during discovery changed that analysis. Accordingly, the Court concluded that the non-solicitation clauses were unenforceable as a matter of law. The Court also rejected Relation’s request to apply the blue pencil doctrine because Relation did not specify how the doctrine should be applied here.
Breach of Confidentiality Provisions of Employment Agreements. In contrast, the Court was satisfied that the confidentiality provisions in the employment agreements were intended to protect Relation’s confidential business information as opposed to being restrictive covenants in disguise. Further, Relation had put forth evidence that the Former Employees violated the confidentiality provisions. The Court, therefore, denied Defendants summary judgment on this claim.
Unjust Enrichment. Relation’s unjust enrichment claim was based on Defendants’ alleged use of Relation’s confidential information for the benefit of Pilot Risk. The Court granted summary judgment in favor of Defendants on this claim because 1) Relation did not voluntarily confer a benefit on Pilot Risk since the Former Employees were alleged to have wrongfully taken the information; and 2) the Former Employees’ alleged misuse was encompassed by Relation’s claims for breach of the confidentiality provisions.
Computer Trespass. The Former Employees sought summary judgment on Relation’s federal and state law computer trespass claims against them. Regarding the federal claim, the Court determined that there was no violation of the Computer Fraud and Abuse Act because the Former Employees were authorized to access the computers and had permission to obtain the information at issue; thus, there was no unauthorized access or access in excess of authorization as required for a claim under the CFFA. However, the claim survived under North Carolina law because a genuine issue of material fact existed as to whether the Former Employees used Relation’s computers in a manner exceeding their permission by, inter alia, making unauthorized copies, deleting files, and taking screenshots of information.
Tortious Interference with Existing or Prospective Contract. The Court granted summary judgment in Defendants’ favor on the tortious interference claims to the extent that the claims were based on contractual relationships with vendors because there was no evidence in the record that Defendants had tortiously interfered with such relationships. However, summary judgment was denied as to tortious interference with client relationships because a jury question existed regarding whether Defendants tortiously used Relation’s confidential information, misappropriated its trade secrets, and engaged in computer trespass and thereby acted “without justification.”
UDTPA Violation. Since the Court determined that Relation’s claims for tortious interference and misappropriation of trade secrets survived summary judgment, the UDTPA claim based on those claims survived as well.
Plaintiff’s Motion for Summary Judgment on Defendants’ Counterclaims
N.C. Wage and Hour Act. Each of the Former Employees asserted NCWHA claims based on Relation’s failure to pay them commissions or bonuses they claim they were owed. Two of the Former Employees contended that they were entitled to receive a 27% commission rate for certain years if their book of business met a $500,000 threshold but were only paid a 25% commission rate. Relation argued that it was entitled to summary judgment on those claims because it changed its commission rates prior to the years when the employees met the threshold; however, because Relation had not provided notice of the change to the Former Employees, regardless of whether they met the threshold, the Court denied summary judgment. Summary judgment was granted in part and denied in part on the remaining Former Employees’ NCWHA claims.
Breach of Contract. The Former Employees also asserted breach of contract claims for unpaid compensation based on the same arguments as their NCWHA claims. The Court’s rulings on these claims mirrored those on the NCWHA claims, except that one claim that had been barred by the NCWHA’s two-year statute of limitations survived under the three-year statute of limitations for breach of contract claims.
Breach of the Implied Covenant of Good Faith and Fair Dealing. As these claims went hand in hand with the breach of contract claims, the Court’s rulings on them were the same as for the breach of contract claims.
UDTPA Violation. Pilot Risk contended that Relation engaged in unfair and deceptive trade practices by telling third-parties that the Former Employees were bound by non-competition agreements and telling insurance carriers that it preferred they not use Pilot Risk as an insurance agency. The Court concluded that these statements were insufficient to support a UDTPA claim, and, therefore, granted summary judgment in Relation’s favor.
*******
rFactr, Inc. v. McDowell, 2024 NCBC Order 47 (N.C. Super. Ct. July 18, 2024) (Bledsoe, C.J.)
Key Terms: motion to supplement and/or amend counterclaims; Rule 15(a), (d); Rule 13(h); Rule 20(a)
After six years of discovery delays, motions practice, trial continuations, and a year-long stay, this case was set for trial for November 2024. However, on May 9, 2024, the Defendants moved to supplement or amend their counterclaims to add Megan Brasser, wife of rFactr CEO Richard Brasser, as a party plaintiff and to add a counterclaim for defamation based on the Brassers’ alleged creation of a website containing defamatory statements about the Defendants.
The Court granted the motion. The Defendants had not unduly delayed in filing the motion because the supplemental counterclaim was premised on conduct which occurred within the past year, well after the genesis of the action in 2018 and during the period the case was stayed. Further, Plaintiffs had not shown that the additional claim would result in substantial injustice as it did not appear that the new claim would require extensive additional discovery or excessively delay the trial, especially in comparison to the two trial continuations already caused by Plaintiffs themselves. Further, as Plaintiffs conceded, their existing defamation claim and the supplemental counterclaim overlapped in certain respects, thereby establishing that the claims arose out of the same transaction or occurrence.
*******
Trail Creek Invs. LLC v. Warren Oil Co. LLC, 2024 NCBC Order 48 (N.C. Super. Ct. July 11, 2024) (Davis, J.)
Key Terms: petition for writ of mandamus, N.C. LLC Act, N.C.G.S. § 57D-3-04, document inspection request, operating agreement rights, discovery procedures
As summarized here, this suit concerns allegations by Plaintiffs that Defendants fraudulently failed to disclose substantial existing environmental liabilities in connection with the sale of Warren Oil Co. to Trail Creek Investments. Larry Sanderson is a defendant in the action, but also occupies a seat on the board of directors of Warren Oil as a minority member board representative. On January 5 and February 7, 2024, Sanderson made two document inspection requests to Warren Oil, which were refused. Petitioners subsequently filed two Petitions for Writs of Mandamus compelling Warren Oil to produce the requested documents. Warren Oil opposed the petitions.
The Court began by noting that North Carolina courts have not previously addressed the intersection of an LLC member’s document inspection rights and North Carolina’s rules of discovery. Relying on decisions from Delaware’s courts that determined that document inspection rights, whether statutory or contractual, are rights independent of litigation, the Court determined that Sanderson’s statutory and contractual inspection rights were not diminished by the availability of the discovery process.
The Court next turned to the interplay between the default provisions of the LLC Act and the provisions of Warren Oil’s operating agreement. The Court agreed with Sanderson that the operating agreement authorized inspection rights far broader than those conferred by the LLC Act; however, since the operating agreement did not provide any safeguards to protect the company from a member’s inspection of confidential information that could adversely affect the company, the Court found that the LLC Act’s safeguards in that regard were incorporated into the operating agreement. Nevertheless, Sanderson’s requests were not precluded by these safeguards because the fact that the requested documents may be used to assert counterclaims against the company was not the type of adverse effect contemplated by the LLC Act.
Lastly, the Court considered Warren Oil’s argument that Sanderson’s requests would require the exercise of too much discretion in determining which documents to produce, and therefore they were not sufficiently ministerial for a writ of mandamus to be proper. However, since Warren Oil did not separately address each of Sanderson’s requests for production, the Court deferred ruling and directed the parties to meet and confer on the issue in order to preserve judicial efficiency. If the parties could not come to an agreement, the Court authorized supplemental briefing by the parties.
*******
Eco Fiber, Inc. v. Yukon Packaging, LLC, 2024 NCBC Order 49 (N.C. Super. Ct. July 23, 2024) (Conrad, J.)
Key Terms: motion for preliminary injunction; breach of fiduciary duty; preparing to compete; tortious interference with prospective economic advantage; UDTPA; N.C.G.S. § 75-1.1; cold-chain packaging; patent infringement
Defendants Heeralall, Poore, and Vance are former Eco Fiber employees, who formed Defendant Yukon Packaging, and, according to Eco Fiber, poached its most substantial customer, Veritiv. Eco Fiber brought suit asserting claims for breach of fiduciary duty against Heeralall, its former president, and for tortious interference and unfair or deceptive trade practices against all Defendants. After the Court initially denied Eco Fiber’s motion for a temporary restraining order, Defendants removed the case to federal court. The case was remanded and presently before the Court is Eco Fiber’s motion for a preliminary injunction enjoining Defendants from selling certain products to Veritiv.
Breach of Fiduciary Duty. Although it was undisputed that Heeralall owed a fiduciary duty to Eco Fiber and had made plans to compete against Eco Fiber before his employment terminated, Plaintiffs failed to present any evidence that Heeralall’s conduct had crossed the line into a breach of fiduciary duty. Further, Eco Fiber did not present any convincing evidence that Heeralall had used Eco Fiber’s resources for Yukon Packaging’s benefit. Finally, Eco Fiber appeared to have released Heeralall from any claims related to Heeralall’s employment, whether known or unknown, which encompassed the breach of fiduciary duty claim. Accordingly, Eco Fiber failed to show a likelihood of success on the merits of its breach of fiduciary duty claim.
Tortious Interference with Prospective Economic Advantage. Eco Fiber also failed to show that it was likely to succeed on its tortious interference claim. Its brief failed to mention, let alone present evidence on, the essential element of the claim–that its business with Veritiv would have continued but for Defendants’ interference. Moreover, Defendants provided plausible evidence that Eco Fiber’s own conduct caused the loss of its business with Veritiv.
UDTP. The Court found some support for Eco Fiber’s UDTP claim based on its allegations that Vance allegedly threatened to sue Veritiv for patent infringement related to its purchases from Eco Fiber and by Poore hiding his involvement with Yukon Packaging and allegedly inducing Eco Fiber to raise its prices to push Veritiv away. However, even if Eco Fiber’s allegations were true, they did not warrant the requested injunctive relief. The alleged misconduct was all in the past and was unlikely to recur; thus, prospective injunctive relief was unnecessary.
For the foregoing reasons, the Court denied the motion for preliminary injunction.
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 07/30/24
By: Ashley Oldfield and Jack Reynolds
Atl. Coast Conf. v. Clemson Univ., 2024 NCBC 44 (N.C. Super. Ct. July 10, 2024) (Bledsoe, C.J.)
Key Terms: motion to stay; first-filed; sovereign immunity; waiver; personal jurisdiction; declaratory judgment; justiciable controversy; implied covenant of good faith and fair dealing; fiduciary duty
Following the initiation of litigation between the Atlantic Coast Conference (a North Carolina nonprofit association) and Florida State University in both North Carolina (the “FSU Action”) and Florida regarding the validity of certain Grant of Rights Agreements between the ACC and its members, Clemson University filed suit against the ACC in South Carolina seeking a declaration regarding, inter alia, the scope of the Grant of Rights Agreements (the “South Carolina Action”). The ACC filed the present suit against Clemson the following day. Two weeks later, the Court entered an order in the FSU Action (the “FSU Order,” summarized here) dismissing the ACC’s breach of fiduciary duty claim, but otherwise denying FSU’s motion to dismiss, including FSU’s argument that the Court lacked personal jurisdiction over FSU on sovereign immunity grounds, and denying FSU’s motion to stay. Clemson then moved to dismiss the present action under Rules 12(b)(1), 12(b)(2), and 12(b)(6), contending that it was situated differently from FSU and thus the claims and arguments in the FSU Action had “little bearing on this case.” Clemson also moved to stay the case in favor of the South Carolina Action.
Lack of Personal Jurisdiction. Clemson argued that the Court lacked personal jurisdiction because Clemson was entitled to, and had not waived, sovereign immunity in North Carolina. As in the FSU Order, the Court concluded that although Clemson was entitled to sovereign immunity, it had explicitly waived such immunity in North Carolina by choosing to remain a member of the ACC after the ACC became subject to the Uniform Unincorporated Nonprofit Association Act and its sue and be sued clause in 2006 and by engaging in extensive commercial activity in North Carolina. Accordingly, the Court denied the motion to dismiss for lack of personal jurisdiction.
Lack of Subject Matter Jurisdiction. Clemson next argued that the ACC’s two declaratory judgment claims should be dismissed because they did not present an actual and justiciable controversy. The Court agreed in part. Because the South Carolina Action did not challenge the enforceability or validity of the Grant of Rights Agreement, but instead only sought a declaratory judgment regarding the scope of the rights granted, no current controversy existed as to the validity and enforceability of the Grant of Rights Agreement. Thus, the declaratory judgment claims were dismissed to the extent they sought a declaration regarding the enforceability of the Grant of Rights Agreement.
Failure to State a Claim.
Breach of the Grant of Rights Agreements. The ACC alleged that Clemson’s filing of the South Carolina Action violated the Grant of Rights Agreement on three bases, each of which the Court rejected. First, the Court determined that the South Carolina Action did not violate the warranty provision of the Grant of Rights Agreements because the warranty provision only prohibited ACC Members from taking any action that would affect the validity and enforcement of the granted rights, but the South Carolina Action only sought to determine the meaning of a disputed term. Second, the South Carolina Action did not challenge the “irrevocability” or “exclusivity” of the Grant of Rights Agreements but instead sought a determination of the scope of the rights. Third, since no breach of contract claim arose from Clemson’s filing of the South Carolina Action, any claim for breach of the implied covenant of good faith and fair dealing based on the same acts failed as well.
Breach of Implied Covenant of Good Faith and Fair Dealing. The ACC alleged that Clemson’s filing of the South Carolina Action also violated its implied duties under the ACC’s Constitution and Bylaws. The Court dismissed the claim concluding that the South Carolina Action simply sought to clarify the scope of the ACC’s rights but did not seek to interfere with those rights.
Fiduciary Duties. The ACC sought a declaration that Clemson owes fiduciary duties to the ACC under the ACC’s Constitution and Bylaws and under North Carolina law. However, because the allegations pleaded in support of this claim were substantively identical to those pleaded in the FSU Action, the Court dismissed the claim for the same reasons as stated in the FSU Order—namely, that no de jure fiduciary duty existed as a matter of law and that the ACC had failed to plead the existence of a de facto fiduciary duty.
Motion to Stay. The Court denied Clemson’s motion to stay the case, concluding that the continuation of the action would not work a substantial injustice upon Clemson. The Court gave substantial weight to the “practical considerations” presented by this action, along with the other pending actions—namely, that only a North Carolina court had jurisdiction over all three parties to the pending actions (FSU, Clemson, and the ACC), and thus only a North Carolina court could assure a uniform interpretation of the Grant of Rights Agreements at issue in each pending action.
*******
Ur-Rehman v. KT Fin. LLC, 2024 NCBC Order 41 (N.C. Super. Ct. July 3, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; N.C.G.S. § 7A-45.4(a)(1); collection action; promissory note; piercing the corporate veil
Plaintiffs Ur-Rehman and Zaara Investments LLC sued Defendants on June 21, 2024, asserting claims for payment on a promissory note, money had and received, and piercing the corporate veil. Plaintiffs filed a Notice of Designation on the same day contending that designation was proper under N.C.G.S. § 7A-45.4(a)(1), which allows for designation if the action involves a material issued relating to the law governing corporations, partnerships, and LLCs. Plaintiffs alleged that a promissory note held by Ur-Rehman has matured, and that Defendants have used a complex corporate structure to shield assets which would otherwise be available to repay the promissory note.
The Court determined that the case did not qualify for designation under N.C.G.S. § 7A-45.4(a)(1), because a claim for piercing the corporate veil is insufficient on its own to support mandatory designation.
*******
BITCO Gen. Ins. Corp. v. SAS Retail Servs. LLC, 2024 NCBC Order 42 (N.C. Super. Ct. July 3, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; untimely designation; N.C.G.S. § 7A-45.4(a)(1)
Plaintiffs filed a complaint against Defendant on July 1, 2024, but did not file a Notice of Designation until the following day. N.C.G.S. § 7A-45.4(d) requires that a Notice of Designation be filed contemporaneously with the complaint. Thus, the complaint was not properly designated as a complex business case. Furthermore, even if the Notice of Designation was timely filed, Plaintiffs made claims only for indemnification and contribution, which do not pertain to the law governing corporations, partnerships, or limited liability companies.
*******
Trail Creek Invs. LLC v. Warren Oil Holding Co., 2024 NCBC Order 43 (N.C. Super. Ct. July 5, 2024) (Davis, J.)
Key Terms: discovery referee; BCR 10.9; Rule 53
As previously summarized here, Plaintiff Trail Creek brought suit against Defendant after discovering serious environmental compliance issues which were not disclosed prior to Plaintiff’s purchase of Warren Oil. Upon the parties’ joint consent motion for appointment of a discovery referee and due to the large number of discovery disputes between the parties, the Court appointed Alan W. Duncan of Turning Point Litigation as the Discovery Referee under N.C. R. Civ. P. 53. The Discovery Referee was granted the authority to oversee and resolve discovery disputes, direct and supervise compliance with discovery orders, interpret discovery agreements, and otherwise facilitate the discovery process. Finally, the Court directed the Discovery Referee to schedule the first meeting of the parties within 20 days, and to produce a report to be filed on the Electronic Case Filing docket within seven days of the briefing or hearing of any disputes.
*******
Stein v. HCA Mgmt. Servs., LP, 2024 NCBC Order 44 (N.C. Super. Ct. July 9, 2024) (Earp, J.)
Key Terms: motion to intervene; emergency medical services; asset purchase agreement; hospital system; Rule 24; attorney general
In January 2019, Defendant HCA acquired Mission Health, a hospital system in western North Carolina, pursuant to an Asset Purchase Agreement which set forth HCA’s obligations regarding the continuation of certain medical services until 2029. In December 2023, the N.C. Attorney General filed suit alleging that HCA failed to provide adequate emergency, trauma, and oncology services as required by the APA. Buncombe County subsequently moved to intervene and submitted a proposed complaint seeking damages and equitable relief arising from the allegedly excessive wait times its EMS crews have experienced. Defendants opposed intervention.
Intervention as of Right. The Court concluded that intervention as of right was not warranted because the County had failed to show a direct interest in the suit. The County’s claims for past wages due to increased wait times would exist regardless of the existence of the APA and the County’s general interest in safe healthcare was insufficient to require intervention in the AG’s enforcement action. The Court also saw no merit in the County’s argument that the AG did not adequately represent its interest based on speculation that the AG’s office might not continue the action after the current AG left office.
Permissive Intervention. The Court also declined to allow permissive intervention because 1) although there was some overlap of facts regarding wait times, the AG’s action was much broader; 2) intervention would require additional discovery and motion practice, delay the case, and increase HCA’s litigation burden; and 3) the County’s jury demand conflicted with the APA’s provision for a bench trial.
Accordingly, the County’s motion to intervene was denied.
*******
Worley v. Ormond, 2024 NCBC Order 45 (N.C. Super. Ct. July 11, 2024) (Robinson, J.)
Key Terms: motion for appointment of receiver; injunctive relief; N.C.G.S. §§ 1-507.20; N.C.G.S. § 55-14-32
As summarized here, Plaintiffs, the minority shareholders of the Ormond Companies, brought suit against Ormond, the majority shareholder, challenging certain of Ormond’s actions and asserting claims for breach of fiduciary duty and judicial dissolution. Here, Plaintiffs moved for appointment of a general receiver and for injunctive relief enjoining Ormond from creating new entities in the fuel distribution business until the litigation is resolved.
Injunctive Relief. The Court denied the motion for an injunction because Plaintiffs failed to cite any controlling authority or present any record evidence in support of their motion and therefore failed to meet their burden of showing that threatened or impending harm would occur absent an injunction.
Receivership. The Court concluded that a limited receiver for an initial four-week term was appropriate based upon the parties’ disputes regarding 1) Ormond’s willingness to produce the Ormond Companies’ financial records; 2) Ormond’s alleged use of company funds for personal use; and 3) the Ormond Companies’ ability to continue doing business. The receiver was directed to investigate and report weekly to the Court regarding the financial records and status of the Ormond Companies, specified transactions, and Ormond’s alleged self-dealing, among other things. The management of the Ormond Companies remained vested with the Plaintiffs and Ormond; however, they were directed to assist and cooperate in the receiver’s duties.
*******
Guiliano v. Strickland, 2024 NCBC Order 46 (N.C. Super. Ct. July 16, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; N.C.G.S. § 7A-45.4(a)(5), (a)(8), and (b)(2); motion to transfer; equitable distribution
Plaintiff Guiliano has been involved in related litigation with several of the Defendants in this action for the past two years, including a case currently pending before the Business Court and an equitable distribution action related to his divorce from Defendant Strickland pending in Orange County District Court. On April 5, 2024, Guiliano filed this action in Orange County District Court asserting a claim for equitable distribution against Strickland and claims for declaratory relief, fraudulent conveyance, unjust enrichment, and injunctive relief against Strickland and one or more other Defendants. Shortly after, Guiliano initiated a related suit in Orange County Superior Court, asserting a number of claims against mostly the same defendants as here. That action has since been designated to the Business Court. In the present action, Defendant Goodwin Proctor moved to transfer all but the equitable distribution claim to the Superior Court division and filed a Notice of Designation. Goodwin Proctor asserted that designation was proper under N.C.G.S. § 7A-45.4(a)(5), (a)(8), and (b)(2). However, because the District Court division has exclusive jurisdiction over equitable distribution claims, the Court concluded that it was unable to transfer the action to the Superior Court division to resolve the motion to transfer. The Court noted that its ruling was without prejudice to the right of any other party to seek designation should the District Court sever the equitable distribution claim from the remaining claims.
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 07/16/24
By: Rachel Brinson and Jack Reynolds
BCORE Timber EC Owner LP v. Qorvo US, Inc., 2024 NCBC 42 (N.C. Super. Ct. June 21, 2024) (Earp, J.)
Key Terms: summary judgment; statute of limitations; breach of lease; repudiation; sealed instruments; declaratory judgment; waste
Plaintiff BCORE leased Defendant Qorvo an industrial building in Greensboro, North Carolina for manufacturing semiconductors. After Tenant failed and refused to restore the building to its shell condition when it moved out at the end of the lease term on 30 September 2022, Landlord brought suit in June 2023 alleging claims for breach of contract, waste, and a declaratory judgment. Tenant moved for summary judgment on statute of limitations grounds.
Breach of Contract. The Court rejected Landlord’s argument that the 10-year statute of limitations for sealed instruments applied here, finding that the evidence of the corporate seal and the testimony of Landlord’s former employee stating that the Landlord intended the Lease to be afforded the additional protections of documents filed under seal was insufficient. Nevertheless, the claim survived even under the three-year statute of limitations. Although Tenant argued that the breach of contract claim accrued no later than January 2020 when it purported to repudiate the lease term at issue, the Court concluded that Tenant’s January 2020 statements did not constitute a repudiation of the entire lease but rather an expression of its interpretation of one term of the lease.
Declaratory Judgment. Since the declaratory judgment claim was most closely related to the breach of contract claim, the Court found that it was also subject to a three-year statute of limitations and survived as well.
Waste. Since a tenant does not commit waste if the property can be returned to its original position before the lease is terminated, the Court concluded that the claim for waste did not accrue until the lease ended in September 2022 and therefore the claim was filed within the three-year limitations period.
Accordingly, Tenant’s motion for summary judgment was denied.
*******
Carolina Med. Partners, PLLC v. Shah, 2024 NCBC 43 (N.C. Super. Ct. June 27, 2024) (Conrad, J.)
Key Terms: motion to dismiss; Rule 12(b)(6); breach of contract; notice pleading; fraud; punitive damages; tortious interference; unjust enrichment; civil conspiracy
As summarized here, Plaintiffs Nimish and Shephali Patel previously practiced with Defendant Shah as physicians in Palmetto Medical Group. When their professional relationship soured, the parties attempted to mediate their dispute and entered into a Practice Separation Agreement. Unfortunately, their disputes continued and culminated in this suit where both sides asserted various claims against the other. This order addresses the Patels’ 12(b)(6) motion to dismiss the counterclaims against them.
Breach of Contract Counterclaims. Arguing that the allegations of breach were too vague, the Patels moved to dismiss the breach of contract counterclaims, which were based on fourteen alleged breaches of an employment agreement and the Practice Separation Agreement. The Court largely rejected this argument, determining that the Defendants had satisfied the notice pleading standard for breach of contract claims for all but two of the alleged breaches. The Court dismissed the claim which failed to allege any breaching conduct occurring after the relevant agreement was formed, as well as another barred by a subsequent agreement containing a waiver for the breach, but otherwise denied the motion as to the breach of contract counterclaims.
Fraud Counterclaim. The Court also denied the motion to dismiss the fraud counterclaim, finding that the allegations that Defendants had relied upon specific misrepresentations made by the Patels during the mediation leading to the Practice Separation Agreement were sufficient to satisfy the Rule 9(b) pleading standard. Because the Patels’ only argument to dismiss the punitive damages demand relied on the dismissal of the fraud claim, the Court denied the motion to dismiss the punitive damages demand as well.
Tortious Interference Counterclaim. The counterclaim for tortious interference was based on allegations that the Patels contacted a client of Palmetto before their separation and induced the client to terminate its contract in violation of the notice period required, allowing the Patels to take them as a new client upon their separation from Palmetto. The Patels argued that they had become competitors of Palmetto by the time they interfered and therefore the interference was justified. The Court, however, held that the counterclaim adequately alleged that the Patels’ actions were not lawful because they involved fraudulent misrepresentations, and therefore denied the motion to dismiss the tortious interference counterclaim.
Unjust Enrichment Counterclaims. Palmetto brought two counterclaims for unjust enrichment: one for unauthorized use of a company credit card and one regarding distributions Palmetto paid to the Patels. The Court dismissed the first claim because Palmetto alleged that Patel had taken money through the unauthorized credit card charge, not that Palmetto had conferred a benefit upon him. The second claim survived dismissal because Defendants could plead unjust enrichment in the alternative to their related breach of contract claim.
Civil Conspiracy. Finally, Shah and PMG adequately pleaded the elements of civil conspiracy by naming the conspirators, the time and purpose of the conspiracy, the actions taken to carry it out, and the resulting injury. Therefore, the Court denied dismissal of the conspiracy claim.
*******
M.D. Claims Grp., LLC v. Bagley, 2024 NCBC Order 40 (N.C. Super. Ct. July 1, 2024) (Earp, J.)
Key Terms: motion for preliminary injunction; employment contract; non-disclosure agreement; breach of restrictive covenants; trade secrets; choice of law; Louisiana law
Defendant Bagley, a North Carolina resident, worked for Plaintiff MDCG, a Louisiana-based independent adjuster firm, as its claims manager and director of operations beginning in May 2021. Bagley and MDCG entered into an employment contract and a non-disclosure agreement, each of which contained certain restrictive covenants and specified that Louisiana law controls. Following Bagley resignation effective February 23, 2024, MDCG filed suit asserting, inter alia, claims arising from Bagley’s alleged breaches of restrictive covenants and misappropriation of trade secrets. In the present motion, MDCG moved for a preliminary injunction enjoining Bagley from soliciting and doing business with certain of its clients and adjusters and using its forms.
First, the Court assessed whether the law of Louisiana or North Carolina controlled MDCG’s claims. The parties agreed that North Carolina law applied to MDCG’s tort claims, and the Court agreed because the alleged injury occurred in North Carolina, where Bagley resided. Bagley, however, asserted that North Carolina law also applied to MDCG’s contract-based claims because he signed the contracts in North Carolina and this was the last act needed to effectuate the contracts. The Court disagreed, though, because the contracts explicitly stated that both parties’ signatures were required to effectuate the contracts and MDCG signed the contracts after Bagley, and did so in Louisiana. Separately, the Court determined that the choice of law provision controlled. Thus, Louisiana law applied to the contract claims.
The Court concluded that MDCG failed to establish a reasonable likelihood of success on its claims for breach of the restrictive covenants, disclosure of confidential information, or trade secret misappropriation. Accordingly, the motion for a preliminary injunction was denied. The restrictive covenants did not comply with Louisiana’s requirements that restrictive covenants contain a specific geographic limitation and be limited two years; thus, they were unenforceable under Louisiana law. Further, MDCG did not plead the existence of a trade secret or its misappropriation with the required specificity or present evidence (rather than mere speculation) that Bagley had disclosed any confidential information. Even if Bagley remembered the contact information of some clients, that information was publicly available or, if memorized by the employee, not a trade secret under North Carolina law.
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 07/02/24
By: Jack Reynolds and Ashley Oldfield
Johnson Bros. Corp. v. City of Charlotte, 2024 NCBC 37 (N.C. Super. Ct. June 7, 2024) (Bledsoe, C.J.)
Key Terms: motion for reconsideration; Rule 54(b); motion to amend; Rule 15(a); CityLYNX Streetcar; public transportation; breach of contract; statute of limitations; futility; undue delay
As previously summarized here, Plaintiff Johnson Bros. Corp. brought ten claims against the City of Charlotte relating to the parties’ contract to extend the City’s CityLYNX Gold Line, a streetcar system. JBC’s contract claims were dismissed with prejudice to the extent they arose from conduct occurring outside the statute of limitations. JBC then moved for reconsideration, or in the alternative, to amend the complaint, pursuant to Rules 54(b) and 15(a), respectively.
JBC asked the Court to reconsider its ruling that JBC’s contract claims are partially time-barred and deny the motion to dismiss in its entirety. The Court, in its discretion, agreed to modify the dismissal order to reflect that the claims were dismissed without prejudice, which would allow JBC to replead its contract claims as to all relevant time periods on a non-payment theory of breach of contract.
In support of its motion to amend, JBC provided a proposed Second Amended Complaint which alleged new facts supporting its theory of breach of contract. JBC’s theory posited that the City required work beyond the scope of the contract, that JBC was due additional compensation and time extensions based on that work, that the City had breached the contract by denying the requests for additional compensation and time extensions, that the City’s conduct waived all conditions precedent to claims under the contract, and that the City should be estopped from asserting the statute of limitations to limit JBC’s claims. The Court found the new allegations sufficient to survive Rule 12(b)(6) dismissal and therefore rejected the City’s opposition on futility grounds. The Court also determined that JBC had not unduly delayed in seeking leave to amend since the Court had only issued its dismissal order a few months ago. Therefore, the Court granted JBC’s motion to amend.
*******
China Constr. Am. of S.C., Inc. v. Sycamore at Christenbury, LLC, 2024 NCBC 38 (N.C. Super. Ct. June 10, 2024) (Conrad, J.)
Key Terms: breach of contract; quantum meruit; negligent misrepresentation; mechanic’s lien; apartment construction; N.C.G.S. § 44A-16(6); uncontested motion
Plaintiff China Construction brought claims against Defendant Sycamore and U.S. Specialty relating to its construction of an apartment complex. Plaintiff’s only claim against U.S. Specialty was to compel payment of a bond U.S. Specialty provided to discharge a mechanic’s lien against Sycamore’s property. U.S. Specialty moved to dismiss this claim and Plaintiff did not file an opposition brief. Under N.C.G.S. § 44A-16(6), a lien discharge bond simply takes the place of the land. Since the lien is only enforceable upon final judgment, the Court determined that the claim against U.S. Specialty was not ripe. Therefore, the Court dismissed without prejudice the claim against U.S. Specialty for payment on the lien discharge bond.
*******
McFee v. Presley, 2024 NCBC 39 (N.C. Super. Ct. June 10, 2024) (Conrad, J.)
Key Terms: default judgment; inconsistent judgment
As summarized here and here, Plaintiff McFee brought claims pertaining to her employment with and membership interest in Defendant CPP. McFee’s claims against the Presley Defendants were dismissed on a motion for summary judgment, some on the merits and some based on timeliness. McFee moved here for default judgment on the same claims against Defendants Stacks and CPP, who did not appear. McFee argued that the dismissal of her claims against the Presley Defendants did not preclude a default judgment against Stacks and CPP.
The Court noted that it would be inconsistent to allow a default judgment against a defendant whose similarly situated codefendant prevailed on the merits. Since the Presley Defendants had already prevailed on the merits on the same claims and McFee did not plead any additional facts differentiating her claims against Stacks and CPP from those against Presley, the Court denied McFee’s motion for default judgment and dismissed her claims against Stacks and CPP with prejudice.
*******
Worley v. Ormond, 2024 NCBC 40 (N.C. Super. Ct. June 11, 2024) (Robinson, J.)
Key Terms: writ of mandamus; partial summary judgment; declared dividends; N.C.G.S. §55-6-40
Ormond Oil and Gas is wholly owned by three siblings, Worley, Massengill, and Ormond. Ormond is the majority owner, and all three are directors of the company. In September 2023, Plaintiffs Worley and Massengill noticed a meeting of OOG’s Board of Directors, which was held on September 27, 2023; Ormond did not attend. At the meeting, Worley and Massengill resolved that OOG pay a dividend to its shareholders in the amount of $850,000, to be paid on September 29, 2023. After the dividend was not paid, Plaintiffs filed suit. In November 2023, Ormond noticed meetings of the Shareholders and Board of Directors of OOG. At the shareholders meeting, he voted alone to replace Massengill with Ronald Walters as a director, and at the subsequent board meeting, he and Walters voted to rescind the dividend declared at the September meeting. Plaintiffs moved for issuance of a writ of mandamus, or alternatively for partial summary judgment, to compel OOG to pay the dividend.
The Court denied without prejudice Plaintiffs’ motion for a writ of mandamus because summary judgment on this issue was available to them, and a writ is only appropriate when no alternative remedy is available. However, the Court granted Plaintiffs’ motion for summary judgment, entitling Plaintiffs to their proportional share of the dividend as well as reasonable expenses related to the motion. There was no dispute of material fact that OOG was solvent and would remain solvent upon payment of the dividend, that Plaintiffs were directors of OOG at the time they declared the dividend and had properly noticed the meeting and approved the dividend, and that any purported rescission thereof came too late and was therefore legally ineffective. Moreover, the Court determined that Massengill’s removal as director was invalid because Ormond’s notice of the shareholders meeting did not specify which director was to be removed. Accordingly, payment of the dividend was proper under N.C.G.S. § 55-6-40.
*******
Extra Care, LLC v. Carolina All. for Residential Excellence, LLC, 2024 NCBC 41 (N.C. Super. Ct. June 18, 2024) (Earp, J.)
Key Terms: N.C.G.S. § 57D-3-04; record inspection rights; Rule 12(b)(1); lack of subject matter jurisdiction
Plaintiff, a member of each of the Defendant LLCs, filed suit to enforce its record inspection rights under N.C.G.S. § 57D-3-04 after the Defendants did not comply with Plaintiff’s November 2023 inspection demand. Defendants moved to dismiss under Rules 12(b)(1) and 12(b)(6).
The Court dismissed the complaint with prejudice under Rule 12(b)(1) because Plaintiff had not complied with the requirements of N.C.G.S. § 57D-3-04 in making the November 2023 demand. First, the request was signed by Plaintiff’s counsel rather than by Plaintiff itself, as required by the statute. That Defendants had responded to previous demands despite this same deficiency did not waive the requirement as to the November 2023 demand. Second, Plaintiff’s email of the November 2023 demand to Defendants’ counsel was improper because Plaintiff did not ensure that the email address it used was one that the Defendants had identified for that purpose.
*******
Trail Creek Invs. LLC v. Warren Oil Holding Co., 2024 NCBC Order 38 (N.C. Super. Ct. June 7, 2024) (Davis, J.)
Key Terms: deposition; on-the-record time; BCR 10.7(a); BCR 10.9
As summarized here, this suit was initiated after Plaintiff Trail Creek purchased Warren Oil and discovered serious environmental compliance issues which had not been disclosed prior to the sale. At issue before the Court here was Plaintiffs’ BCR 10.9 submission regarding how long Plaintiffs could depose Defendant Larry Sanderson. Under BCR 10.7(a), the default time limit is seven hours, but Plaintiffs requested to be permitted to depose Sanderson for up to fourteen hours due to his numerous roles, duties, and extensive involvement with the primary parties and events at issue. The Court agreed that Sanderson’s involvement warranted additional time and ordered that Plaintiffs were permitted to depose Sanderson for up to twelve hours of on-the-record time.
*******
Mauck v. Cherry Oil Co., 2024 NCBC Order 39 (N.C. Super. Ct. June 14, 2024) (Davis, J.)
Key Terms: corporate records; request for inspection; N.C.G.S. § 55-16-02; motion to dismiss; Rule 12(b)(1); Rule 12(b)(6); propane supplier
As summarized here and here, this suit arose from a dispute over the ownership and management of a family business, Cherry Oil. Here, Plaintiffs requested inspection of certain of Cherry Oil’s records and Cherry Oil moved to dismiss Plaintiffs’ supplemental complaint.
As an initial matter, the Court denied Cherry Oil’s motion to dismiss finding unpersuasive its arguments that Plaintiffs had no need to inspect documents since they were being bought out and that Plaintiffs had already had ample opportunity to obtain documents during discovery.
Turning to Plaintiffs’ right to inspect documents, the Court first addressed whether Plaintiffs had shown a proper purpose for their requests. Plaintiffs provided three purposes: to value their shares; to determine whether any improper transactions had occurred; and to ascertain whether any property or assets were improperly used. Although Cherry Oil argued that a records inspection to determine share value was superfluous given the ongoing appraisal process, the Court held that valuation of shares is a proper purpose regardless of other efforts to value the shares. The Court also determined that confirming the accuracy of Plaintiffs’ tax liability was a proper purpose. However, due to the extensive discovery that had already occurred and the resultant lack of evidence of wrongdoing, the Court held that Plaintiffs’ intent to identify any improper transactions or mismanagement of assets did not constitute a proper purpose.
The Court next assessed whether each category of documents requested pertained directly to the proper purposes and was otherwise subject to inspection under § 55-16-02(b). Plaintiffs’ document requests fell into four categories: (1) balance sheets, ledgers, P & L statements, and cash flow statements since 2019; (2) records of the use of grant funds from the government since 2021; (3) tax returns and filings since 2019; and (4) lease records between Cherry Oil and tenants. Since financial records are clearly subject to inspection and connected to the purposes stated, the Court granted the motion as to the first category, but limited the request to the past three years since corporations are only required to maintain financial statements for the previous three years. The Court denied the Plaintiffs’ request to inspect the remaining categories because the documents did not fall within the strictures of N.C. Gen. Stat. § 55-16-02(b).
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 06/18/24
By: Jack Reynolds and Ashley Oldfield
Merz Pharm., LLC v. Thomas, 2024 NCBC 35 (N.C. Super. Ct. May 22, 2024) (Davis, J.)
Key Terms: motion for partial summary judgment; restrictive covenants; nonsolicitation agreement; asset transfer agreement; change of employer; breach of contract; botulinum toxin
As summarized here, this suit arose from Defendant Andrew Thomas’s alleged breaches of certain restrictive covenants between him and his former employer, Plaintiff Merz Pharmaceuticals. Thomas moved for partial summary judgment on Merz Pharmaceuticals’ breach of contract claim based on his alleged violation of a nonsolicitation provision. Thomas argued that the provision’s one-year period began to run when his employment was transferred from Merz NA (a Merz Pharmaceuticals’ affiliate) when Merz Pharmaceuticals acquired all of Merz NA’s assets through an asset transfer agreement.
The Court has previously held that when an employee’s restrictive covenant is assigned from his original employer to a new employer in conjunction with an asset purchase agreement between the two entities, the clock begins to run immediately upon the termination of his employment with the original employer. However, the Court held that the asset transfer here did not trigger the restrictive covenant because the switch in employers was more akin to an administrative transfer of an employee between two affiliated entities and Thomas’s job had remained substantially the same. Moreover, continuing to apply Thomas’s nonsolicitation provision after the asset transfer would not result in any unfairness to Thomas, nor would it violate the public policy considerations of the Court’s previous decisions. Therefore, the Court denied Thomas’s motion and held that the one-year period of the nonsolicitation covenant began to run as of the date of Thomas’s termination, not the date of the asset transfer.
*******
Innovare, LTD. v. Sciteck Diagnostics, Inc., 2024 NCBC 36 (N.C. Super. Ct. May, 29, 2024) (Davis, J.)
Key Terms: motion for summary judgment; motion for judgment on the pleadings; Rule 12(c); breach of contract; unjust enrichment; Lanham Act; 15 U.S.C. § 1125(a); unfair and deceptive trade practices; FDA; emergency use authorization; research use only; COVID-19 test strips
As summarized here, this case revolves around disputes regarding a distributor agreement between Innovare and Sciteck involving COVID-19 test strips. Both Innovare and Sciteck moved for partial summary judgment while Innovare also moved for judgment on the pleadings. The Court denied as moot Sciteck’s motion for judgment on the pleadings because its summary judgment motion encompassed the same arguments.
Innovare’s and Sciteck’s Claims for Breach of Contract. The Court held that the distributor agreement, though ambiguous, could not be construed against either party given their mutual contributions to the final agreement. Next, the Court held that, contrary to Innovare’s assertions, Sciteck had not repudiated the distributor agreement because both parties continued to rely on the agreement even after the purported repudiation occurred. Finally, the Court concluded that significant questions of fact remained regarding both parties’ claims for breach of contract which needed to be resolved by a jury. Therefore, the Court denied both parties’ motions for summary judgment as to the breach of contract claims. The Court also denied summary judgment as to both parties’ claims for breach of the covenant of good faith and fair dealing on the same bases.
Innovare’s Unjust Enrichment Claim. Innovare asserted that it had provided services not contemplated by the distributor agreement for Sciteck’s benefit and that Sciteck promised to pay Innovare for those services, but never did so. The Court noted that the existence of a contract did not bar the unjust enrichment claim since the services at issue were extra-contractual. However, since factual disputes remained over whether Sciteck benefitted from the additional services, the Court denied summary judgment.
Sciteck’s Lanham Act Claim. Sciteck’s Lanham Act claim was based on its allegations that Innovare had continued to represent that it was authorized to distribute the product even after its license to do so ended; that Innovare misled consumers into believing that the product was distributed by Sciteck without full FDA approval; that Innovare continued to maintain a website referencing the product; and that Innovare engaged in a “relabeling” or “repackaging scheme.” The Court held that these contentions, if proven, were sufficient to show a violation of the Lanham Act but that genuine issues of fact remained requiring determination by a jury. Accordingly, the Court denied summary judgment.
Innovare’s and Sciteck’s Unfair and Deceptive Trade Practices Claims. The Court granted Sciteck’s motion for summary judgment as to Innovare’s unfair and deceptive trade practices claim because there was insufficient evidence of aggravating circumstances to raise Innovare’s breach of contract claim to a UDTP claim. The Court denied Innovare’s motion for summary judgment as to Sciteck’s unfair and deceptive trade practices claim because it was based on Sciteck’s surviving Lanham Act claim.
*******
CTS Metrolina, LLC v. Berastain, 2024 NCBC Order 36 (N.C. Super. Ct. May 31, 2024) (Earp, J.)
Key Terms: show cause order; preliminary injunction; civil contempt; N.C.G.S. § 5A-21(a); restrictive covenant agreement; noncompetition provision; property restoration services
As summarized here, the Business Court previously issued a preliminary injunction enjoining Defendants Berastain and Moreau from violating their restrictive covenants by engaging in “the commercial property restoration business.” Thereafter, Plaintiff filed a motion for order to show cause based on its belief that Berastain and Moreau were violating the injunction by continuing to perform restoration work for Defendant Inkwell.
At the show cause hearing, Defendants testified that they understood the preliminary injunction to prohibit their involvement in the restoration of commercial property and, therefore, they had complied with the injunction by only engaging in restoration projects that involved residential properties. Berastain and Moreau also asserted that they were mere laborers in their new roles and did not act in a substantially similar capacity to their previous roles at Metrolina.
Based on the circumstances surrounding the issuance of the preliminary injunction, the Court was extremely skeptical of Defendants’ assertions; however, it was unable to conclude as a matter of law that Berastain’ and Moreau’s noncompliance with the order was willful. Thus, it declined to hold them in civil contempt and instead amended the prior order to make clear that Berastain and Moreau were prohibited from involvement in any property restoration services.
*******
Daedong-USA, Inc. v. KI Fin., Inc., 2024 NCBC Order 37 (N.C. Super. Ct. June 4, 2024) (Davis, J.)
Key Terms: temporary restraining order; likelihood of success on the merits; voidable transaction; conflict of interest transaction; N.C.G.S. § 55-8-31
Plaintiff, a manufacturer of groundskeeping equipment, filed suit against KI Finance and several of Plaintiff’s former executives, contending that the executives had wrongfully siphoned millions of dollars from Plaintiff through the creation of KI Finance and its eventual takeover of the functions of Plaintiff’s financing department. At issue here is Plaintiff’s motion for a temporary restraining order requiring KI Finance to restore Plaintiff’s access to its payment portal.
The Court denied the motion, concluding that Plaintiff had failed to show a reasonable likelihood of success on the merits of its declaratory judgment claim, which sought a determination pursuant to N.C.G.S. § 55-8-31 that certain agreements between Plaintiff and KI Finance were voidable because the transactions were effectuated by the executives despite their conflict of interest. However, since many of the key allegations of the complaint were alleged upon information and belief and were rebutted by affidavits submitted by Defendants, the Court determined that Plaintiff had not met its burden to show entitlement to a TRO.
*******
In re Southeastern Eye Center, No. 192A23, 2024 N.C. LEXIS 345, 2024 WL 2338335 (May 23, 2024) (per curiam)
Key Terms: interlocutory appeal; substantial right; lack of appellate jurisdiction; sanctions
Appellant appealed from an interlocutory order of the Business Court but failed to provide the Supreme Court with any basis by which the order affected a substantial right. Accordingly, the Supreme Court dismissed the appeal for lack of jurisdiction. The Supreme Court also noted that this was the fifth time that it had dismissed an appeal filed by appellant for failing to demonstrate grounds for appellate review and that sanctions would be appropriate if appellant continued flouting appellate rules.
*******
North Carolina Department of Revenue v. FSC II, LLC, No. 150A23, 2024 N.C. LEXIS 340, 2024 WL 2338190 (May 23, 2024) (per curiam)
Key Terms: N.C. Sales and Use Tax Act; Mill Machinery Exemption; hot mix asphalt; manufacturing
As summarized here, the Business Court previously affirmed the final decision of the Office of Administrative Hearings which granted summary judgment in favor of FSC II, LLC and concluded that FSC’s use of raw materials it purchased to produce hot mix asphalt constituted manufacturing under the N.C. Sales and Use Tax Act, thereby qualifying FSC for the Mill Machinery Exemption. On appeal by the NCDOR, the Supreme Court affirmed for the reasons stated in the Business Court’s order.
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 06/04/24
By: Natalie E. Kutcher
Atl. Coast Conf. v. Bd. of Trs. of Fla. State Univ., 2024 NCBC 31 (N.C. Super. Ct. May 10, 2024) (Bledsoe, C.J.)
Key Terms: automatic stay; appeal; interlocutory appeal; N.C. Gen. Stat. § 1-294
As summarized here, the Court previously denied Defendant’s motion to dismiss under Rule 12(b)(2), ruling that Defendant had waived its sovereign immunity to suit in North Carolina and was therefore subject to personal jurisdiction in the Court. Defendant appealed the Court’s 12(b)(2) ruling to the North Carolina Supreme Court. Thereafter, the Court ordered the parties to submit a status report regarding the effect of N.C. Gen. Stat. § 1-294 on the case.
While both parties agreed that the denial of Defendant’s 12(b)(2) motion to dismiss was immediately appealable, Plaintiff argued that the Court retained jurisdiction to require the parties to close the pleadings and proceed with discovery pending the appeal. Defendant, on the other hand, argued that N.C. Gen. Stat. § 1-294 required an automatic stay of all proceedings, because the matter on appeal would determine if Defendant could “even be sued in North Carolina.”
The Court noted that North Carolina’s courts routinely impose or enforce an automatic stay under N.C. Gen. Stat. § 1-294 when an interlocutory appeal is filed after the denial of a motion to dismiss on personal jurisdiction. As the issue on appeal was the Court’s jurisdiction over a party to the case, and not a separable or divisible claim, the Court determined that it was divested of jurisdiction and entered a stay of all proceedings, including discovery, pending the Supreme Court’s resolution of the appeal.
*******
Merz Pharm., LLC v. Thomas, 2024 NCBC 32 (N.C. Super. Ct. May 15, 2024) (Davis, J.)
Key Terms: preliminary injunction; misappropriation of trade secrets; confidentiality agreement; nonsolicitation provision; botulinum toxin; Economic Espionage Act
This order arises from Plaintiff’s motion for a preliminary injunction against its former employee, Defendant Thomas. Plaintiff is a pharmaceutical company that sells Xeomin, a botulinum toxin injection, primarily to government agencies. Defendant previously held the title of Director of Government and Federal Accounts with Plaintiff. At the onset of his employment with Plaintiff, Defendant signed an agreement containing confidentiality and nonsolicitation provisions. After Plaintiff terminated Defendant’s employment, it discovered that Defendant had transferred over 500 files containing “confidential” information to a thumb drive on the day of, or shortly after, his termination. Defendant began employment with one of Plaintiff’s competitors several weeks later. Plaintiff filed suit alleging various claims relating to Defendant’s alleged breaches of his employment agreement. Following expedited discovery, Plaintiff moved for a preliminary injunction to enjoin Defendant from: (a) accessing or using Plaintiff’s trade secrets; and (b) violating the confidentiality and nonsolicitation provisions of his employment agreement.
Beginning with Plaintiff’s claims for misappropriation of trade secrets and breach of the confidentiality provisions of the agreement, which the Court treated in tandem because they overlapped factually, the Court first concluded that the information taken by Defendant was protected under the employment agreement, and qualified, at least in part, as trade secrets under North Carolina law. The Court rejected Defendant’s argument that the information taken was subject to a safe harbor provision in the agreement, which provided immunity under the Economic Espionage Act of 1996, noting that most of the documents taken by Defendant were unrelated to Plaintiff’s alleged misconduct, and that Defendant had not provided the documents to an attorney prior to deleting them from the thumb drive. For these reasons, the Court concluded that Plaintiff had met its burden of showing a likelihood of success on the merits of these claims. The Court was also satisfied that Plaintiff had shown the likelihood of irreparable competitive harm to Plaintiff if an injunction was not issued and that such harm outweighed any potential harm to Defendant. As such, the Court granted Plaintiff’s motion for a preliminary injunction as to its confidential information and trade secrets.
The Court reached a different conclusion as to breach of the nonsolicitation provision, finding that Plaintiff had failed to show that it would suffer irreparable harm absent an injunction. Plaintiff partially premised its argument for irreparable harm on the possibility of Daxxify—the competitive drug offered by Defendant’s current employer—receiving formulary coverage under the VA National Formulary. However, during the briefing process for this motion, Daxxify obtained formulary coverage and therefore such “harm” had already occurred. Plaintiff’s remaining argument, that Defendant’s actions could result in Daxxify receiving preferential coverage at the expense of Plaintiff’s drug, was unpersuasive to the Court. After reviewing affidavits submitted by the parties, the Court concluded that no enhanced formulary coverage existed under the VHA for botulinum toxins, and no preferential treatment would arise. The Court therefore denied Plaintiff’s motion for a preliminary injunction as to the nonsolicitation provision.
*******
McClure v. Ghost Town in the Sky, LLC, 2024 NCBC 33 (N.C. Super. Ct. May 16, 2024) (Conrad, J.)
Key Terms: involuntary dissolution; operating agreement; winding-down; motion to strike; summary judgment; western-themed amusement park; litigation by ambush
This opinion arises from Plaintiff’s motion for summary judgment and to strike certain exhibits submitted by Defendant from the record. In 2020, Alaska Presley and Coastal Development LLC created Ghost Town in the Sky, LLC, with the goal of redeveloping a defunct western-themed amusement park owned by Presley. Presley and Coastal Development entered into a written operating agreement, whereby Coastal Development’s principal would act as manager with broad authority to handle all of the day-to-day operations of the LLC. Presley passed away in 2022, and her 50% membership interest in Ghost Town in the Sky was inherited by her niece, Plaintiff McClure. After reviewing the company’s books and records, McClure attempted to sell her interest in Ghost Town in the Sky to Coastal. After negotiations over the sale failed, McClure initiated the present action, seeking to dissolve Ghost Town in the Sky and wind up its affairs pursuant to N.C Gen. Stat. § 57D-06-02(02).
The Court noted that involuntary dissolution is an “extraordinary” equitable remedy, only appropriate when a member can show that “it is not practicable to conduct the LLC’s business in conformance with the operating agreement” or that liquidation is necessary to preserve the interests of the members. Plaintiff argued that involuntary dissolution was warranted due to the company’s lack of income, financing, or the ability to pay its property taxes. The Court rejected Plaintiff’s argument, noting that Ghost Town in the Sky was a young corporation with a valuable asset, and which was presently carrying out its contracted purpose of owning and managing real property. The Court also noted that the company’s “inability” to pay its property taxes stemmed from a disagreement between the members over who would bear the cost. Plaintiff’s arguments for liquidation were likewise rejected by the Court as she had not shown that her expectations had been frustrated or that her membership rights were actively being suppressed. The Court denied Plaintiff’s motion for summary judgment and granted Ghost Town in the Sky’s motion for summary judgment against her.
The Court also denied as moot Plaintiff’s motion to strike certain evidence submitted by Ghost Town in the Sky as the Court did not consider any of the evidence in deciding the motion for summary judgment. The Court noted, however, that Ghost Town in the Sky’s failure to identify witnesses and otherwise introduce evidence not previously disclosed was tantamount to litigation by ambush and was not appropriate.
*******
Compass Tax Servs. LLC v. Karki, 2024 NCBC 34 (N.C. Super. Ct. May 20, 2024) (Robinson, J.)
Key Terms: franchise sale; sales agreement; fraud; breach of fiduciary duty; UDTPA; breach of contract; condition precedent; duty of good faith and fair dealing
This lawsuit arose out of Defendant Karki’s sale of five Liberty Tax franchises to Plaintiffs. Plaintiffs alleged that Defendant breached their sales agreement by failing to transfer the franchises, while Defendant counterclaimed that Plaintiffs breached the sales agreement by failing to pay sums owed under the sales agreement and that Plaintiff Lamichhane made misrepresentations regarding his intent when entering into the sale agreement and breached his fiduciary duty as majority owner and manager of Compass Tax Services. Plaintiffs moved for summary judgment on most of the counterclaims and Defendant moved for summary judgment on Plaintiff’s claims and for affirmative summary judgment on his breach of contract claim.
Defendant’s Fraud Claim. The Court denied summary judgment on this claim as Defendant had submitted sufficient evidence to raise an issue of material fact as to whether the individual Plaintiffs had acted with fraudulent intent when entering in the sales agreement.
Defendant’s Claims for Breach of Fiduciary Duty and Constructive Fraud. Because Plaintiffs did not challenge Defendant’s contention that Lamichhane owed him a fiduciary duty, the Court focused solely on the issue of breach. The Court first determined that to the extent Defendant’s claim arose from Plaintiffs’ failure to meet its obligations under the sales agreement, the claim failed because it arose from contractual obligations rather than from any fiduciary relationship. However, to the extent the claim was based on Lamichhane’s alleged use of the franchises and their assets for his own benefit, the claim survived summary judgment as a genuine issue of material fact remained based on evidence that Lamicchhane may have paid himself excessive management fees.
Defendant’s Claim for Violation of the UDTPA. Because Plaintiffs’ only argument for dismissal of the UDTPA claim was that it was just a “repackaging” of Defendant’s other claims, the Court limited its analysis to this argument and determined that the claim survived because the underlying claims had survived, at least in part, and could support a claim under the UDTPA.
Breach of Contract. Defendant sought summary judgment on the parties’ respective breach of contract claims arising from the sales agreement. Defendant asserted that Plaintiffs breached the sales agreement by failing to pay the amount due thereunder in May 2022, while Plaintiffs asserted that Defendant breached the sales agreement by failing to facilitate the transfer of the franchises. The Court concluded that it was undisputed that Plaintiffs had failed to make the required payment and also determined that there were no conditions precedent to their obligation to perform. Accordingly, the Court granted summary judgment in favor of Defendant on its breach of contract claim to the extent the motion sought to establish the failure to pay. However, a genuine issue of material fact remained regarding who was obligated to make the payment and therefore summary judgment was denied in that regard. The Court also granted summary judgment in Defendant’s favor on Plaintiff’s breach of contract claim because Plaintiffs’ breach by failing to make the required payment had relieved Defendant of any pending obligations regarding transfer of the franchises.
Plaintiffs’ Claim for Breach of the Duty of Good Faith and Fair Dealing. Since this claim was based on Defendant’s alleged failure to facilitate the transfer of the franchises and the Court had already granted summary judgment in Defendant’s favor on that issue, the Court dismissed this claim as well.
*******
Fairleigh v. Wegner, 2024 NCBC Order 33 (N.C. Super. Ct. May 9, 2024) (Davis, J.)
Key Terms: preliminary injunction; operating agreement; default; limited liability company
This order arises from Plaintiff Ken Fairleigh’s motion for preliminary injunction. Fairleigh is a 24.5% owner of Defendant Secure Ventures Group, LLC, an entity established to own and lease three condominiums. Fairleigh is also the trustee of Plaintiff Louise Robertson’s trust, which owns an additional 24.5% interest in the company. Defendant Wegner owns the remaining 51% interest in Secure Ventures and operates as the company’s sole manager. Pursuant to the operating agreement, the income from the properties was to be used to fund Secure Venture’s distributions to Fairleigh, the Trust, and Wegner.
After the company’s distribution payments ceased in August 2023 and Wegner failed to provide Fairleigh with Secure Ventures’ books and financial records which Fairleigh had requested to inspect, Fairleigh filed suit, claiming (1) breach of contract; (2) breach of fiduciary duty; (3) accounting/access to company records; (4) declaratory judgment; and (5) dissolution of the company. Wegner then began to provide Fairleigh with financial documents. Fairleigh also moved for a preliminary injunction requesting the Court to remove Wegner as manager of Secure Ventures, and designating Fairleigh as manager in his place. Fairleigh alleged that the records produced reflected an event of default under the operating agreement. Specifically, that two of Secure Ventures’ tenants were paying reduced or modified rent without prior approval the members. Pursuant to the operating agreement, Wegner’s voting rights would be suspended in the event of a default.
The Court denied Fairleigh’s motion on the basis that he failed to show the likelihood of success on the merits. With the evidence available, the Court determined that Fairleigh was unlikely to prevail on his argument that the operating agreement’s default provision had been triggered. The Court heavily based this determination on Wegner’s testimony that Fairleigh had provided verbal approval for the tenants’ reduced rent. As Fairleigh did not show a likelihood of success on the merits, the Court did not analyze any argument for irreparable harm.
*******
Blusky Restoration Contractors, LLC v. Brown, 2024 NCBC Order 34 (N.C. Super. Ct. May 13, 2024) (Robinson, J.)
Key Terms: interlocutory appeal; substantial right; motion to stay; order striking defense; attorney-client privilege
After Defendant filed a notice of appeal in response to the Court’s order striking Defendant’s “good faith defense,” Defendant moved to stay all proceedings pending the appeal.
As an appeal from an interlocutory order which does not affect a substantial right does not divest a trial court of its jurisdiction, the Court performed a two-part test to determine if a substantial right was affected by the appealed order. Defendant argued that a substantial right was affected, as the Order striking his defense implicated his “right to raise and protect the attorney-client privilege.” The Court rejected this argument, noting that it had not yet issued an order or opinion on the parties’ cross-motions for summary judgment, that Defendant’s reliance on counsel was not the primary issue in the case, and that Defendant had a number of defenses and arguments remaining in the action. Further, even if a substantial right was at issue, Defendant had not shown that deprivation of the right would work injury to him if not corrected before appeal from a final judgment. Accordingly, the Court denied the motion to stay.
*******
James H.Q. Davis Tr. v. JHD Props., LLC, 2024 NCBC Order 35 (N.C. Super. Ct. May 15, 2024) (Bledsoe, C.J.)
Key Terms: appeal; writ of supersedeas; stay pending appeal; judicial dissolution
As summarized here, the Court previously granted Plaintiffs’ motion for summary judgment on their claim for judicial dissolution of JHD Properties and informed the parties that a separate order would be forthcoming to schedule a conference to establish the process for the dissolution. After Defendant filed a notice of appeal of the Court’s summary judgment order to the N.C. Court of Appeals, the Court determined that it had not been divested of jurisdiction by Defendant’s appeal (because it was not filed with the N.C. Supreme Court as required by statute) and could proceed with the dissolution of the two LLCs. Defendant subsequently filed a petition for writ of supersedeas pursuant to Appellate Rule 23, which the Supreme Court granted. Noting that the purpose of a writ of supersedeas is to preserve the status quo, the Court determined that any action to implement the summary judgment order, such as appointing a receiver, would violate the stay, and it therefore stayed all activities to implement the summary judgment order until resolution of the appeal.
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 05/22/24
By: Natalie E. Kutcher, Ashley Oldfield, and Rachel Brinson
Truist Fin. Corp. v. Rocco, 2024 NCBC 28 (N.C. Super. Ct. April 25, 2024) (Bledsoe, C.J.)
Key Terms: Rule 12(b)(6); breach of fiduciary duty; tortious interference with contract; misappropriation of trade secrets; unfair and deceptive trade practices; civil conspiracy; unjust enrichment; non-solicitation covenant; non-disclosure agreement; look-back rule
Plaintiff Truist Financial Corporation and its subsidiary Grandbridge brought suit against three former Grandbridge executives and Colliers Mortgage, a competitor, for allegedly devising and executing a scheme to take Grandbridge’s key employees, clients, and revenue. Defendants moved to dismiss all claims under Rule 12(b)(6).
Breach of Non-Solicitation Covenants and Non-Disclosure Agreements (against the Executives). Plaintiffs alleged that the Executives breached non-solicitation covenants which prohibited them from soliciting Plaintiffs’ employees both during the Executives’ employment and for 12 months thereafter. The Executives argued that the non-solicits did not protect a legitimate business interest and were unreasonable as to time because they included an extensive look-back period covering the entirety of the Executives’ employment. Although the Court agreed that the look-back rule may be applied to employee non-solicits, which in this case resulted in restricted periods ranging from 7 to 17 years, the Court ultimately was unable to conclude as a matter of law that the non-solicits did not protect a legitimate business interest of Plaintiffs, such as its client relationships, confidential information, and ability to compete. Accordingly, the motion to dismiss this claim was denied. Plaintiffs also alleged that the Executives had breached non-disclosure agreements. However, the claim was dismissed as against one of the Executives, since Plaintiffs did not allege that he had entered into or breached a non-disclosure agreement.
Breach of Fiduciary Duty (against the Executives). The Court dismissed this claim to the extent it was asserted by Truist because Plaintiffs failed to plead facts showing that the Executives owed a fiduciary duty to Truist. Regarding Grandbridge, however, the Court rejected the Executives’ argument that Grandbridge’s articles of organization eliminated any fiduciary duty, because, while the articles did purport to waive a manager’s liability, “manager” was not interchangeable with “officer.” Accordingly, the articles did not waive the Executives’ liability for any alleged breach of their duties as officers or company officials of Grandbridge and dismissal was therefore denied.
Tortious Interference with Contract (against Colliers). The Court denied dismissal of this claim, finding that the allegations of Defendants’ scheme to solicit Plaintiffs’ employees and clients en masse to cripple Plaintiffs’ ability to compete and destroy Grandbridge’s business were sufficient to satisfy both the inducement and without justification elements of the claim.
Misappropriation of Trade Secrets (against all Defendants). The Court also denied dismissal of this claim, which was based on the alleged misappropriation of compilations of proprietary financial information and employee information. The Court found that the compilations as alleged sufficiently identified protectible trade secrets at the 12(b)(6) stage. Further, Plaintiffs’ allegations that the information was shared on a need-to-know basis, that it was accessible to the Executives only due to their high-ranking positions, and that the Executives had agreed not to disclose confidential information (pursuant to either the Truist Code of Ethics or a non-disclosure agreement) were sufficient to allege reasonable efforts to protect the trade secrets.
Tortious Interference with Business Relations (against all Defendants). The Court dismissed this claim to the extent it was based on interference with Plaintiffs’ future contracts with existing and prospective customers and employees because Plaintiffs failed to allege any specific contractual opportunities that were lost. However, the Court denied dismissal of the claim to the extent it was based on Defendants’ alleged interference with existing contracts with employees and customers. That the employment contracts were “at will” was not a bar to the claim; moreover, the surviving misappropriation of trade secrets claim was sufficient to allege that Defendants acted without justification.
Unfair and Deceptive Trade Practices (against all Defendants). The Court denied dismissal of this claim based on the surviving underlying tort claims. Further, the solicitation of employees and customers as alleged here satisfied the “in or affecting commerce” requirement.
Unjust Enrichment (against all Defendants). Noting that an unjust enrichment claim does not require that the alleged benefit be conferred upon the defendant directly by the plaintiff, the Court denied dismissal of this claim, concluding that Plaintiffs’ allegations that Defendants had received benefits in the form of compensation or profits as a result of their unlawful conduct were sufficient to state a claim.
Civil Conspiracy (against all Defendants). The Court also denied dismissal of this claim, concluding that Plaintiffs had adequately alleged an agreement between the Defendants to commit an unlawful act.
*******
In re Radiator Specialty Co. et al., 2024 NCBC 29 (N.C. Super. Ct. May 1, 2024) (Conrad, J.)
Key Terms: receivership; asbestos; mass tort; liquidating trust; claim process; joint and several liability; pro tanto release
Radiator Specialty Company, Inc. entered into a receivership following a series of personal injury lawsuits filed against it by claimants alleging that long-term exposure to the company’s products caused them to develop cancer and other diseases. The appointed receiver moved for approval of a proposed claim process, which included a liquidating trust for payment of tort claims. Under the liquidating trust, claimants would receive amounts equivalent to 40% of what Radiator Specialty had previously paid on average to settle similar claims. United States Steel Corporation, who is a co-defendant in many of the lawsuits involving Radiator Specialty, objected to the proposed claim process. United Steel’s objection sought to change the form of the proposed release to prevent tort claimants from pursuing claim shortfalls from anyone else.
The Court overruled U.S. Steel’s objection and granted the receiver’s motion. The Court balanced the competing interests at stake in the present situation, and noted that the liquidating trust would provide an efficient method for providing for claimants’ compensation after the liquidation of the business. The Court further held that the 40% claim valuation was fair and based on data from settlements from past cases. By limiting the recovery to 40%, the liquidating trust would not create an “immediate run” on the trust’s assets and would ensure future claimants would not be unfairly prejudiced. The Court further approved the liquidating trust’s procedural rules, which only require a valid claim be submitted with a medical diagnosis and proof of the claimant’s exposure to the product. Finally, the Court held that handling all other (non-tort) claims through the receivership estate was reasonable.
U.S. Steel sought to require claimants to sign a standalone release, which U.S. Steel could then use in Pennsylvania courts to allocate fault to Radiator Specialty in certain tort cases. The Court rejected this request and held that a pro tanto release, which would offset any judgment by the amount of the distribution from the liquidating trust, was consistent with the traditional principles of joint and several liability.
*******
Design Gaps, Inc. v. Hall, 2024 NCBC 30 (N.C. Super. Ct. May 1, 2024) (Conrad, J.)
Key Terms: motion to dismiss; breach of contract; misappropriation of trade secrets; tortious interference with contract; unfair or deceptive trade practices; breach of fiduciary duty; fraud; embezzlement; constructive fraud; restrictive covenants
Plaintiff Design Gaps and its principals sued a former employee, Jocelyn Hall, and her new employer, Peters Custom Design, for a variety of claims relating to Hall’s purported breaches of restrictive covenants in her employment agreement with Design Gaps. All defendants moved to dismiss the complaint.
Breach of Contract. Design Gaps claimed that Hall breached the non-competition and non-solicitation clauses in her employment agreement. However, the Court found that the restrictive covenants’ purported restriction on direct or indirect competition were facially overbroad and unenforceable. Therefore, the Court granted Hall’s motion to dismiss the claim for breach of contract.
Misappropriation of Trade Secrets. The Court dismissed this claim, finding that Plaintiffs’ vague and conclusory identification of the trade secrets was insufficient to satisfy the particularity pleading requirements to bring such a cause of action.
Tortious Interference with Contract. Because the non-competition and non-solicitation clauses of Hall’s employment agreement were unenforceable, the Court also found that they could not support a claim for tortious interference with contract. Moreover, Design Gaps failed to adequately allege that Peters Custom Design acted without justification, since Peters Custom Design was justified in offering Hall a new job and Design Gaps did not adequately allege any unlawful method of competition.
UDTPA. Because the UDTPA claim was predicated entirely on the dismissed claims for breach of contract, misappropriation of trade secrets, and tortious interference with contract, the Court dismissed the UDTPA claim as well.
Breach of Fiduciary Duty & Constructive Fraud. Design Gaps alleged that Hall breached fiduciary duties arising from her employment. However, since employees who are not officers or directors typically do not owe their employers fiduciary duties and Design Gaps did not allege that Hall exercised dominion over Design Gaps, the Court found that Design Gaps had not adequately alleged the existence of a fiduciary relationship and therefore dismissed the claims.
Fraud. The Court dismissed this claim because it did not allege that Hall made any false representations to Plaintiffs nor that they had relied on any misrepresentations.
Embezzlement. The Court found that an embezzlement claim had been adequately pleaded based on the allegations that Hall received at least one check from a customer made out to Design Gaps that she destroyed and then instructed the customer to pay her directly. Thus, the Court denied Hall’s motion to dismiss the embezzlement claim.
*******
PreGel Am., Inc. v. Casol, 2024 NCBC Order 31 (N.C. Super. Ct. April 26, 2024) (Bledsoe, C.J.)
Key Terms: petition for expenses; Rule 1.5 of the Rules of Professional Conduct; indemnification; reasonableness of rates; attorneys’ fees
As summarized here, the Court previously granted summary judgment on Defendant Casol’s claim for indemnification, declaring that Casol was entitled to indemnification from Plaintiff PreGel for expenses incurred in a previous federal action and in obtaining court-ordered indemnification. In this order, the Court reviewed Casol’s petition for expenses and found that the rates charged and the number of hours expended were reasonable under the circumstances. Accordingly, the Court granted Casol’s petition, except as to those timekeepers not sufficiently identified such that the Court could not determine the reasonableness of the hours worked or rates charged.
*******
Chi v. N. Riverfront Marina & Hotel LLLP, 2024 NCBC Order 32 (N.C. Super. Ct. May 2, 2024) (Earp, J.)
Key Terms: motion for contempt; sanctions; uncontested; motion to compel; Rule 37; discovery; unresponsive; dismissal of claims; attorneys’ fees
After Plaintiff Yongjie failed to meaningfully participate in fact discovery for over two years, including by failing to comply with a court order compelling discovery and twice refusing to appear for his own deposition, Defendants moved for sanctions, requesting that the Court dismiss Yongjie’s claims and that judgment be entered against Yongjie on their counterclaim.
The Court found that Yongjie’s failure to meet his discovery obligations had prejudiced Defendants’ ability to defend the claims brought against them and that there was nothing else the Court could do to persuade Yongjie to participate in his own case. Therefore, the Court dismissed his claims without prejudice and awarded Defendants their attorneys’ fees and costs associated with preparing and scheduling Yongjie’s deposition and the current motion. The Court, however, declined to enter judgment against Yongjie on Defendants’ counterclaim because that claim was not dependent on Yongjie’s responses to discovery.
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 05/08/24
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.
*******
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.
*******
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.
*******
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.
*******
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.
*******
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.
*******
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.
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 04/24/24
