Archive for the ‘Business Court Blast’ Category
By: Ashley Oldfield
Miller v. RedGoose, LLC, 2024 NCBC 74 (N.C. Super. Ct. Nov. 26, 2024) (Davis, J.)
Key Terms: motion to dismiss; fraud; computer trespass; N.C.G.S. § 14-458; tortious interference with contract, UDTP
Plaintiff Miller initiated this suit against his former employer, Defendant RedGoose, alleging claims under the N.C. Wage and Hour Act and for breach of contract. RedGoose counterclaimed, alleging that following Miller’s resignation from Defendant RedGoose, he agreed to assist during a transition period to ensure that other employees were aware of the location of key client information stored on the company’s computer system. However, Miller instead used his continued access to the computer system to sabotage RedGoose’s business and to access proprietary information which he then used to compete. Miller moved to dismiss several of the counterclaims.
Fraud. Miller argued that the fraud claim should be dismissed because RedGoose’s allegations failed to show a causal connection between Miller’s misrepresentation (that he would assist RedGoose in order to ensure continuous service to its client, when in reality he had no intention of doing so and instead sought to use his computer access for his own purposes) and the harm RedGoose allegedly suffered. The Court concluded that Miller read the claim too narrowly—RedGoose alleged that Miller’s representation was for the purpose of inducing its clients to leave and follow him to his new business. This was sufficient to allege a causal connection between the injury and Miller’s misrepresentation.
Computer Trespass. Miller argued that RedGoose’s computer trespass claim under N.C.G.S. § 14-458 failed because RedGoose voluntarily gave him access to its computer systems. The Court rejected this argument, concluding that RedGoose’s allegations that Miller had exceeded his authorized use was sufficient to plead a claim under the statute.
Tortious Interference with Contract. Miller argued that the tortious interference claim failed because 1) RedGoose failed to sufficiently identify the contracts allegedly interfered with; and 2) RedGoose didn’t allege that he was subject to a restrictive covenant and therefore failed to allege that he acted without justification. The Court found neither argument persuasive. First, RedGoose’s allegations regarding the contracts was sufficient to satisfy the notice pleading standard. Second, the Court noted that a competitor cannot escape liability by arguing that he acted with justification where the competitor competed through unlawful means. Here, RedGoose’s allegations that Miller fraudulently obtained continued access to its computer systems was sufficient to allege unlawful methods of competition.
UDTP. Miller argued that the UDTP claim should be dismissed because 1) RedGoose merely alleged that Miller breached a contract which is insufficient to give rise to a UDTP claim; and 2) RedGoose failed to adequately plead that Miller’s acts were in or affecting commerce because they took place within an employment relationship. The Court rejected these arguments as well. First, RedGoose’s allegations regarding fraud, embezzlement, tortious interference, etc. went far beyond a mere breach of contract claim and, in any event, some of the claims automatically served as a predicate for a UDTP claim to proceed. Second, the Court was satisfied that the allegations that Miller had induced RedGoose’s clients to leave RedGoose and follow him were sufficient to satisfy the “in or affecting commerce” element.
Accordingly, the Court denied Miller’s motion to dismiss.
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BioGas Corp. v. NC BioGas Dev., LLC, 2024 NCBC 75 (N.C. Super. Ct. Nov. 26, 2024) (Robinson, J.)
Key Terms: declaratory judgment; breach of contract; breach of fiduciary duty; negligence; economic loss rule; implied covenant of good faith and fair dealing; duty to mitigate
This case arose from a lending relationship where Defendants provided funding through various promissory notes to Plaintiffs related to multiple biogas projects. This funding and related conduct lead to other agreements, many of which Plaintiffs contend Defendants breached by failing to satisfy various duties. Defendants, in turn, contended that Plaintiffs are the ones who breached the agreements, including by failing to pay the promissory notes. Both sides moved for summary judgment, in whole or in part, as to Plaintiffs’ claims and Defendants’ counterclaims.
The Court first addressed those claims which hinged on the question of who had a legal ownership interest in the Monroe Project. Because no evidence was presented which definitively stated who held legal title to the Monroe Project, the Court denied summary judgment on the claims dependent on such a determination.
The Court next addressed Plaintiffs’ requests for declarations regarding the duties and obligations owed by Defendants in relation to the various agreements entered into between them. Plaintiffs first sought a declaration that Defendants owed them an implied duty of good faith and fair dealing under certain agreements. The Court granted the declaration in part, declaring that several of the agreements at issue contained an implied covenant of good faith and fair dealing as a matter of law. However, the Court refused to grant such a declaration regarding the remaining agreements because Plaintiffs had not asserted a breach of contract claim based on those agreements and therefore summary judgment would be inappropriate as it would not be determinative of any legal issue in the case. Plaintiffs also sought a declaration that Defendants had a duty to mitigate their damages relating to their counterclaim for breach of contract as to certain promissory notes. Because North Carolina law generally recognizes a duty to mitigate damages, the Court granted the requested declaration. Lastly, Plaintiffs sought a declaration that, if Defendants prevailed on certain of their counterclaims, they should be limited to nominal damages. The Court denied the request for such a declaration, as many facts remained in dispute as to the damages allegedly sustained by Defendants.
Finally, the Court addressed Defendants’ motion for summary judgment on Plaintiffs’ claims for breach of contract, breach of fiduciary duty, and negligence, and on Defendants’ claim for breach of contract related to the promissory notes. Regarding Plaintiffs’ breach of contract claim, Plaintiffs alleged that Defendants breached five separate agreements. However, because Plaintiffs did not present any evidence of Defendants’ breach of four of the agreements, the Court summarily dismissed the claim to the extent it was based on those agreements. As to the fifth agreement, the Court concluded that a genuine issue of material fact existed as to whether Defendant Leyline had breached the implied covenant of good faith and fair dealing by failing to pursue Plaintiffs’ offer to purchase the Tillamook Project. Accordingly, the Court denied summary judgment on this basis. Regarding the breach of fiduciary duty and negligence claims, Defendants sought summary judgment on the basis that the claims were barred by the economic loss rule because the injury and damages alleged arose solely under an agreement between the parties. The Court agreed and granted summary judgment to Defendant on these claims. Lastly, the Court granted summary judgment in Defendants’ favor as to Plaintiffs’ liability on Defendants’ claim for breach of the promissory notes as there was no dispute that the promissory notes were in default. However, the Court denied summary judgment as to damages because an issue of fact remained as to whether Defendants mitigated their damages and whether set-off was available.
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The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 11/26/24
By: Natalie E. Kutcher
Honeywell Safety Prods. USA, Inc. v. SVS LLC, 2024 NCBC 71 (N.C. Super. Ct. Nov. 14, 2024) (Conrad, J.)
Key Terms: motion to dismiss; Rule 12(b)(6); repudiation; UCC; N.C.G.S. § 25-2-609; adequate assurance
This case arises from Honeywell’s agreement to supply nitrile gloves to S2S Global. Following Honeywell’s decision to change suppliers, a dispute arose between the parties relating to the quality of the nitrile gloves. In April 2024, S2S Global ceased accepting the gloves and requested a termination of the supply contract. Honeywell refused and sent S2S Global a demand for assurance that S2S Global would honor its contractual obligation. S2S Global subsequently cancelled all purchase orders for the gloves, recalled all gloves sold to its end users, and communicated its intent to notify regulatory authorities of the recall. However, S2S Global communicated to Honeywell that it “remains ready to purchase” gloves which conform to their supply contract. Honeywell sent a second demand for assurance, in addition to a request to S2S Global’s parent company, Premier, to honor its payment guarantee.
After failing to receive assurance from S2S Global or payment from Premier, Honeywell filed the present lawsuit against Defendants, alleging S2S Global’s wrongful repudiation of the contract and Premier’s breach of the guarantee. S2S Global and Premier moved to dismiss the lawsuit under Rule 12(b)(6) on the basis that S2S Global did not “unequivocally state that it can’t or won’t perform” under the contract. The Court rejected this argument, noting that the agreement was governed by North Carolina’s UCC, which allows one party to demand adequate assurance from another when reasonable grounds for insecurity exist. Based upon the pleadings contained in the complaint, the Court held that Honeywell had adequately pleaded that: (i) reasonable grounds for insecurity existed; (ii) Honeywell made a demand for adequate assurance; and (iii) S2S Global failed to give adequate assurance. An allegation that S2S Global affirmatively and unequivocally renounced the contract wasn’t necessary to state a claim.
The Court additionally rejected Defendants’ arguments, made for the first time in their reply brief, that the claim failed because the complaint didn’t expressly cite section 25-2-609 or sufficiently allege that Honeywell’s demand for assurance was reasonable or that S2S Global’s attempted assurance was inadequate. The Court found these arguments untimely, and in any event, unpersuasive. The Court denied the motion in full.
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Whalen v. Tuttle, 2024 NCBC 72 (N.C. Super. Ct. Nov. 19, 2024) (Conrad, J.)
Key Terms: motion to strike; motion to dismiss; Rule 12(b)(6); breach of settlement agreement; breach of operating agreement; breach of oral contract; UDTPA; fraud
This case arises from a dispute between two investors in several restaurant businesses, including CU SOBE, LLC. Defendant Tuttle met Plaintiff Whalen in 2018 when he was a patron at Whalen’s restaurants. Tuttle expressed interest in investing in Whalen’s future restaurant endeavors and eventually made five investments in Whalen’s restaurants. In 2022, the parties entered into an oral agreement for Tuttle to provide a $2 million investment in twenty installment payments towards a new restaurant Whalen was opening, to be owned and operated by Plaintiff CU SOBE. In exchange for these payments, Tuttle would receive 25% of CU SOBE. Tuttle was unable to make the first installment payment when due, so the parties amended the agreement to provide Tuttle a two-month extension on the condition that CU SOBE would have the right to accelerate the unpaid balance at any time. After CU SOBE exercised this acceleration right, tensions grew between the parties, as Whalen accused Tuttle of making disparaging remarks to Whalen’s other investors and engaging in disruptive behavior at several restaurants. A fight for control over CU SOBE ensued, as Tuttle attempted to fire a lawyer retained by Whalen to represent CU SOBE.
The parties mediated their dispute, resulting in a settlement agreement. Whalen and CU SOBE filed the present lawsuit, asserting that Tuttle had breached the settlement agreement and engaged in misconduct relating to CU SOBE’s funding and operations. Tuttle moved to strike certain allegations from the complaint and dismiss all claims.
Motion to Strike: Tuttle sought to strike allegations two groups of allegations in the complaint: 1) those alleging that he engaged in disruptive behavior at the restaurants, on the basis that such allegations were irrelevant to the claims; and 2) those alleging that he disparaged and defamed Whalen, on the grounds that the allegations were conclusory and insufficient to satisfy the heightened pleading standard for defamation. The Court rejected both arguments, noting that while the allegations were not necessarily sufficient to state a claim for relief, Tuttle had failed to show that they have “no possible bearing upon the litigation.” In its discretion, the Court denied the motion.
Breach of Settlement Agreement: The Court dismissed the claim for breach of the settlement agreement, concluding that the allegations were too conclusory to state a claim. While the complaint alleged that Tuttle had materially breached the settlement agreement by repudiation “as evidenced by his words and conduct,” it failed to identify which material term Tuttle allegedly breached or any actions or inaction which constituted the failure to perform or repudiation.
Breach of Oral Contract: Tuttle moved to dismiss the claim for breach of the oral contract on the basis that CU SOBE lacked standing to enforce the agreement, as it did not exist at the time the contract was formed and was not a party thereto. The Court rejected this argument, noting that CU SOBE had been formed long before the oral agreement was amended and was a party to the amended agreement. Tuttle further argued that the claim should be dismissed, as the subsequent settlement agreement contained a general release. As questions relating to the settlement agreement’s enforceability remained, the Court found a dismissal on this basis was premature and denied dismissal.
Breach of CU SOBE’s Operating Agreement: Tuttle argued that this claim should be dismissed because he never assented to the terms of the operating agreement at issue, thereby invalidating the contract. The Court held that the complaint sufficiently alleged that Tuttle was a party to the operating agreement by showing that Tuttle was a member of the company, received a printed copy of the operating agreement, and agreed to be bound by its terms. The Court also pointed to the statutory default rule, which holds that “[a] person who becomes an interest owner is deemed to assent to, and is bound by . . . and is otherwise deemed to be a party to, the operating agreement.” N.C.G.S. § 57D-2-31(b). As such, dismissal was denied.
Fraudulent Inducement: Tuttle moved to dismiss Whalen’s fraud claim on the basis that the pleadings did not satisfy the heightened pleading standards for fraud. Specifically, Tuttle noted that the complaint did not allege that he made any specific representation. The Court granted Tuttle’s motion, noting that the complaint “does not come close to meeting the heightened standard.”
UDTPA: Because Whalen’s claims for fraud and breach of the settlement agreement had been dismissed and none of the remaining claims could support a UDTPA claim, the Court dismissed this claim. The Court further noted that the alleged misconduct all involved internal company disputes or extraordinary events and thus did not satisfy the “in or affecting commerce” requirement.
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McCarron v. Howell, 2024 NCBC 73 (N.C. Super. Ct. Nov. 19, 2024) (Davis, J.)
Key Terms: Rule 12(b)(6); breach of fiduciary duty; constructive fraud; fraudulent transfer; civil conspiracy; facilitation of fraud; UDTP; alter ego
After obtaining a monetary judgment in a prior lawsuit against Defendant Risk Solutions, Plaintiff brought the current action asserting that the owner and director of Risk Solutions, Harold Howell, fraudulently transferred the assets of the company to newly formed companies for the purpose of preventing McCarron from being able to collect on the judgment. Defendants (Howell, Risk Solutions, and the two newly formed companies) moved to dismiss all claims.
Breach of Fiduciary Duty. The Court determined that the complaint’s allegations that 1) Howell owed a fiduciary duty to Plaintiff as a judgment creditor of Risk Solutions based on the dissolution and insolvency of the company for which Howell served as a director, 2) Howell breached that duty by transferring the assets of Risk Solutions to other entities, and 3) Plaintiff suffered a resulting injury, were sufficient to state a claim. Further, Plaintiff’s failure to allege that he was treated differently than other creditors in the same class was not a bar to his standing because the claim at issue was based on an injury personal to him as an individual creditor.The Court dismissed the claim against Risk Solutions though, since there was no basis by which a corporation owes a fiduciary duty to its creditors.
Constructive Fraud. This claim survived against Howell because the complaint contained sufficient allegations that Howell’s breach of fiduciary duty was undertaken for his personal benefit. The claim was dismissed as to Risk Solutions for the same reasons as the fiduciary duty claim was dismissed against it.
Fraudulent Transfer. The Court dismissed this claim because it was not pleaded with the requisite Rule 9(b) specificity regarding what assets were transferred, which Defendant received any specific transfer, when the transfers were made, or what consideration, if any, was received for the transfers.
Facilitation of Fraud/Civil Conspiracy. The Court dismissed these claims, which were essentially the same, because 1) the underlying fraudulent transfer claim had been dismissed and thus there was no wrongful act; and 2) Plaintiff had alleged that the three Defendant companies had no separate existence apart from Howell, which equated to a non-existent conspiracy of one.
UDTP. The UDTPA claim against Howell survived based on the surviving breach of fiduciary duty and constructive fraud claims against him. The UDTP claims against the three Defendant companies were dismissed because there were no surviving claims against them and no other acts were alleged which could form the basis of a UDTP claim against them.
Alter Ego. Plaintiff alleged that Howell was the alter ego of the three Defendant companies and thus he should be able to pierce the corporate veil and hold Howell liable for the companies’ wrongful acts. However, because all claims against the companies were dismissed, piercing the corporate veil was not applicable.
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Value Health Sols. Inc. v. Pharm. Rsch. Assocs., Inc., 2024 NCBC Order 67 (N.C. Super. Ct. Nov. 6, 2024) (Davis, J.)
Key Terms: choice of law; jury waiver; public policy; Rule 38, Rule 39; N.C.G.S. § 22B-10
This case arises from Defendant’s acquisition of Plaintiff and its proprietary software. The asset purchase agreement entered into between the parties provided that: (i) the APA would be construed in accordance with Delaware law; and (ii) each party waived its right to a trial by jury. Despite both sides’ request for a trial by jury in their initial pleadings, Defendants moved to enforce the contractual jury trial waiver under Delaware law, notwithstanding North Carolina law (N.C.G.S. § 22B-10) deeming contractual jury trial waivers unconscionable and unenforceable.
Defendants argued that, since Delaware law did not prohibit contractual waivers of a jury trial, the North Carolina statute should not apply. Plaintiffs, on the other hand, argued that North Carolina’s Constitution, statutes, and case law all protect a party’s right to a jury trial as a fundamental right. The Court determined that, while Delaware law may govern substantive issues here, the right to a jury trial was a procedural issue governed by North Carolina law and therefore the waiver was unenforceable.
The Court also determined that, even if the contractual jury waiver had been enforceable, Defendants had waived their rights to enforce the provision by: (i) filing two responsive pleadings containing jury demands; (ii) failing to expressly withdraw their request for a jury trial; and (iii) failing to move to strike Plaintiffs’ jury demand. Pursuant to Rules 38 and 39 of the North Carolina Rules of Civil Procedure, a demand for trial by jury may not be withdrawn without the consent of the parties, and once a case is designated as a jury matter, it remains on the jury docket absent a withdrawal of the demand.
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State of N.C. v. MV Realty PBC, LLC, 2024 NCBC Order 68 (N.C. Super. Ct. Nov. 8, 2024) (Davis, J.)
Key Terms: discovery dispute; timeliness, BCR 10.9; BCR 10.4
This order arises from Plaintiff’s submission pursuant to Business Court Rule 10.9 of alleged deficiencies in Defendants’ production of documents. In March 2024, the Court issued an Amended Case Management Order, providing that all fact discovery in the case would close on September 30, 2024. On July 1, 2024, Plaintiffs noticed a deposition and issued a document subpoena to a factual witness in the case. The subpoena required the witness to produce documents by July 18, 2024. On that date, Defendants served an objection to certain document requests in the subpoena on the basis that the documents were protected by the work product privilege. The parties conferred multiple times during August and September of 2024, but were unable to resolve their dispute over the documents.
Plaintiffs filed its submission under BCR 10.9 on October 11, 2024, eleven days after the discovery deadline provided under the Amended Case Management Order. The Court interpreted BCR 10.4 as requiring that any discovery disputes be brought to the Court’s attention via the BCR 10.9 process before the applicable discovery deadline. Thus, since Plaintiff had been aware of Defendants’ objections since July 18, 2024, but had failed to submit the discovery issue to the Court until after the discovery deadline had passed, Plaintiff’s submission was untimely.
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Mauck v. Cherry Oil Co., 2024 NCBC Order 69 (N.C. Super. Ct. Nov. 8, 2024) (Davis, J.)
Key Terms: attorneys’ fees; block billing; reasonableness of rates; clerical work; redacted billing entries
As summarized here and here, this suit arose from a dispute over the ownership and management of a family business, Cherry Oil. This order arises from Plaintiffs’ filing of a costs application, seeking reimbursement for $65,761.73 in costs and attorneys’ fees incurred in obtaining a court-ordered inspection of corporate documents. Cherry Oil filed a brief in opposition to Plaintiffs’ costs application. The Court reviewed the invoices submitted on the following grounds:
Reasonableness of Rates: Taking judicial notice of the rates customarily charged by local attorneys, the Court determined that the rate of one of the paralegals, billing at $275 per hour, was unreasonable. The Court, in its discretion, reduced the hourly rate for the paralegal to $225 per hour. One timekeeper, labelled as “AMM,” was not identified by Plaintiffs. As the Court was not provided information on this person’s role in the litigation or information to determine a reasonable rate for that role, the Court held that no fees would be awarded for that timekeeper’s entries.
Window of Time for Billing Entries: Cherry Oil argued that the applicable window of time for calculating fees should begin on the date work on Plaintiffs’ supplemental complaint was initiated, and end on the date of the hearing which resulted in the inspection order. The Court found the first argument unduly restrictive, as the filing of the supplemental complaint “did not occur in a vacuum.” Rather, the Court held that under the unique circumstances of this case, the “start date” for Plaintiffs’ recoverable costs occurred when Cherry Oil formally denied Plaintiffs’ document inspection request. This date was chosen as it marked the point in which Plaintiffs became aggrieved shareholders pursuant to N.C.G.S. § 55-16-04. However, the Court agreed that costs incurred after the hearing on the inspection order should be excluded.
Redacted Entries and Block Billing: The Court rejected Cherry Oil’s objection to Plaintiffs’ redacted entries, on the basis that the Court had been given the opportunity to review unredacted copies of the invoice in camera. The Court further analyzed the submitted invoices for block billing, and after extensive review of which tasks within those blocks were recoverable, reduced Plaintiffs’ recoverable fees accordingly.
Excess and Duplicative Billing and Client Consultations: Cherry Oil objected to Plaintiffs’ fees to the extent that they reflect: (i) time entries from attorneys who have not made a formal appearance in the case; (ii) multiple attorneys working on the same task; and (iii) time spent conducting client communications and internal attorney conferences. The Court noted Cherry Oil cited no caselaw in support of the proposition that attorneys’ fees may only be awarded for those attorneys who have appeared formally in the proceedings. The Court further noted that there is no per se rule against more than one attorney working on the same task, nor against recovery for communications with clients. However, the Court clarified that “merely ministerial” calls to clients are not recoverable. The Court conducted a review of the records submitted and reduced or disallowed any non-recoverable entries accordingly.
Billing for Clerical Work: Noting that “merely clerical” tasks are not recoverable, the Court reviewed the billing entries attributable to paralegals and found some, but not all, of their entries were for clerical tasks. The Court excluded the entries for clerical tasks from Plaintiffs’ recovery.
Lastly, Cherry Oil argued that Plaintiffs’ recovery should be reduced “based on the Plaintiffs’ limited success” of the claims alleged. Of the twenty-two categories of documents Plaintiffs sought to inspect, the Court ultimately determined that Plaintiffs were only entitled to inspect one. After analyzing the relationship between the costs requested to the prevailing claim, the Court exercised its discretion to reduce Plaintiffs’ fees by thirty-five percent (35%). The Court ultimately awarded Plaintiffs $29,198.98.
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Whalen v. Tuttle, 2024 NCBC Order 70 (N.C. Super. Ct. Nov. 19, 2024) (Conrad, J.)
Key Terms: motion to seal; public access; settlement agreement
In connection with his motion to dismiss, summarized above, Defendant moved to seal a copy of the settlement agreement attached to his motion as an exhibit. Plaintiffs also moved to seal portions of their brief in opposition to Defendant’s motion which discussed the agreement. Both parties argued the document and references thereto should be sealed because the agreement contained a confidentiality clause. After noting that the confidentiality provision alone was insufficient to warrant sealing, the Court provided the parties an opportunity to submit supplemental briefings on the issue. Defendant declined to do so, while Plaintiff Whalen submitted a supplemental brief arguing that information in the settlement agreement, namely the settlement amount, the payment schedule, and the percentage of his ownership in certain entities, warranted sealing, or at least redaction.
The Court rejected the parties’ arguments, noting that the presumption in favor of public access was strong, whereas the parties’ countervailing interest was weak. The Court noted that Defendant provided no substantial interest in keeping the agreement’s contents confidential, while Whalen’s “vague assertions” that disclosure could result in competitive harm failed to warrant sealing. Holding that the parties had failed to rebut the public’s presumptive right of access, the Court denied the motion and ordered the documents to be unsealed.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 11/20/24
By: Lauren Schantz
Egan v. Buena Vista, Inc., 2024 NCBC 69 (N.C. Super. Ct. Oct. 9, 2024) (Earp, J.)
Key Terms: motion to enforce settlement agreement; criminal prosecution; representations of counsel; contract formation; attorney communications with client; authority to settle; sanctions; BCR 7.2
Plaintiff Michael Egan and Defendant Timothy Anderson are shareholders in Defendant Buena Vista, Inc. Two years ago, Egan was arrested and charged with embezzlement from Buena Vista. Egan subsequently sued Anderson and Buena Vista alleging that he had been excluded from the business and not received distributions. While the criminal and civil cases were pending, Egan’s counsel communicated to Defendants’ counsel that Egan would dismiss the case upon receipt of $25,000 and a dismissal of the criminal charges. Defendants’ counsel accepted the offer and contacted Egan’s criminal attorney regarding the disposition of the criminal charges.
The DA would not agree to dismiss the charges but offered Egan a deferred prosecution. Defendants confirmed that this outcome was acceptable and that they would not seek restitution in the criminal matter. Egan’s counsel agreed to Defendants’ counteroffer and then represented to the Court that the matter had been settled.
The parties exchanged a draft settlement agreement, which Egan’s counsel forwarded to Egan’s criminal attorney for review. When Egan’s criminal attorney expressed concern about conditioning the settlement of the civil case on the outcome of the criminal case, Egan’s counsel forwarded an opinion he received from ethics counsel at the State Bar to Egan’s criminal attorney and Defendants’ counsel.
Defendants executed the settlement agreement and Defendants’ counsel sent the agreement and $25,000 to Egan’s counsel. After sending several communications to his client, Egan’s counsel learned that Egan refused to sign the settlement agreement because the criminal charges had not been dismissed. Egan’s counsel then filed a notice of dismissal without prejudice, explaining his misunderstanding of his client’s position. A year later, Egan initiated this action, alleging the same facts as those in the prior action.
Defendants moved to enforce the settlement agreement, strike the complaint, and impose sanctions. Egan opposed the motions, arguing no agreement had been reached. The Court concluded that the correspondence between Egan’s counsel and Defendants’ counsel constituted a valid settlement agreement and, because Egan had given his attorney authority to settle the case, Egan was bound by his attorney’s representations to Defendants’ counsel and the Court that the case was settled.
The Court concluded that Egan’s claims were barred based on the terms of the settlement agreement and dismissed the case but declined to impose sanctions. The Court also reminded counsel to set out each motion in a separate document in compliance with BCR 7.2.
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Bui v. Phan, 2024 NCBC 70 (N.C. Super. Ct. Oct. 22, 2024) (Conrad, J.)
Key Terms: motion to dismiss; LLC; member; manager; breach of operating agreement; declaratory judgment; individual claim; derivative claim; standing; injury; actual controversy; BCR 7.2
This case involves a dispute between the two 50/50 member-managers of Golden Rooster, LLC: Plaintiff Bui and Defendant Phan. Phan moved to dismiss Bui’s claims for breach of Golden Rooster’s operating agreement and declaratory judgment, arguing that Bui lacked standing to assert the claims because they were derivative, rather than individual claims.
Breach of Operating Agreement. The Court denied dismissal of this claim, holding that Bui, as a member of Golden Rooster, had standing to sue individually to enforce rights granted to her under the LLC’s operating agreement: namely, Bui’s right as a manager to participate in the management of Golden Rooster. The Court also disagreed with Phan’s argument that Bui suffered no injury, concluding that, in addition to potential financial harm, Bui’s loss of managerial rights is itself a recognized injury entitling her to nominal damages.
Declaratory Judgment. The Court also denied dismissal of this claim, concluding that Bui had standing to seek declaratory relief because the parties had an actual, genuine controversy regarding the interpretation of Golden Rooster’s operating agreement and its application to Phan’s actions.
The Court declined to consider an additional ground for dismissal that Phan raised in her motion but failed to address in her brief as required by BCR 7.2.
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Culverhouse-Steadman v. Gömböc Ventures, LLC, 2024 NCBC Order 63 (N.C. Super. Ct. Oct. 11, 2024) (Bledsoe, C.J.)
Key Terms: designation; LLC; operating agreement; declaratory judgment; contract
Gömböc Ventures, LLC is comprised of six members, five of whom are parties to this action. Plaintiff Culverhouse-Steadman sought injunctive relief as well as a declaratory judgment that first interpreted the amendment provisions of Gömböc’s prior operating agreement and then determined the enforceability of the amended operating agreement based on Defendants’ alleged noncompliance with the amendment provisions in the prior operating agreement. Plaintiff sought to designate the action as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(1); however, the Court declined to designate the matter because resolution of the claims required only the application of contract law principles and did not implicate the law governing LLCs.
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Elhulu v. Alshalabi, 2024 NCBC Order 64 (N.C. Super. Ct. Oct. 14, 2024) (Conrad, J.)
Key Terms: BCR 10.9; Rule 45; quash; subpoena; non-party; discovery dispute
Plaintiffs served a non-party with a subpoena pursuant to Rule 45 of the North Carolina Rules of Civil Procedure. The non-party moved to quash, but the Court held the motion in abeyance and directed the non-party to comply with the pre-filing requirements for discovery disputes in BCR 10.9. After consultation, the parties reached a compromise on all but three requests: bank account statements, any emails having anything to do with Defendants, and documentation of any ownership interest the non-party held in an entity in which Defendant Alshalabi also held an interest. The Court concluded that the requests were overly broad, quashed the subpoena as to the three requests, and otherwise denied the motion to quash as moot.
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Brakebush Bros., Inc. v. Certain Underwriters at Lloyd’s of London – Novae 2007 Syndicate Subscribing to Pol’y No. 93PRX17F157, 2024 NCBC Order 65 (N.C. Super. Ct. Oct. 16, 2024) (Davis, J.)
Key Terms: reptile theory; golden rule; motion to exclude; expert opinions; Rules of Evidence; Daubert; motion in limine; admissibility; weight; relevance; prior insurance claims; agency; probative value; discovery disputes; prior lawsuits; disclosure of witnesses; lay opinion testimony; expert reports
As summarized here, this case arose out of an insurance coverage dispute following a fire at a chicken processing plant. The Court previously denied Brakebush’s motion for summary judgment. In anticipation of trial, the Court resolved the parties’ eighteen pre-trial motions.
Defendants moved to exclude Plaintiffs’ expert, arguing that (1) the expert was unqualified as an expert on the subject matter; (2) his opinions were unreliable due to his failure to conduct an independent investigation; and (3) his opinions “parroted” those of Brakebush representatives. The Court denied the motion, concluding that (1) the expert was qualified based on his work experience; (2) the expert could rely on information provided by others in forming his opinions; and (3) Defendants failed to show the expert’s opinions simply “vouched” for those of Brakebush representatives.
Plaintiffs moved to prohibit Defendants’ experts from (1) testifying about Brakebush’s motivations for filing its insurance claim; (2) testifying as to their experiences with prior, unrelated fire insurance claims at Plaintiff House of Raeford Farms’ other facilities; and (3) offering duplicative testimony. The Court granted the motion, determining that (1) expert testimony regarding a party’s state of mind, intent, or motive was improper; (2) any probative value associated with evidence of Raeford’s prior insurance claims for the purpose of contrasting them with the instant insurance claim was substantially outweighed by the danger of undue prejudice; and (3) an expert may not offer opinions that simply repeat the opinions of another expert.
The Court then disposed of the various motions in limine in summary fashion as follows:
Plaintiffs’ First Motion: Granted; evidence of prior insurance claims lacked probative value and/or was outweighed by the likelihood of undue prejudice.
Plaintiffs’ Second Motion: Denied; Court declined to determine as a matter of law whether certain consultants were acting as Defendants’ agents.
Plaintiffs’ Third Motion: Granted in part and denied in part; evidence of prior discovery disputes was irrelevant to resolution of factual issues but may be used for impeachment.
Plaintiffs’ Fourth Motion: Denied; terms of an Asset Purchase Agreement admissible, relevant, and not outweighed by danger of unfair prejudice.
Defendants’ First Motion: Granted; evidence of prior claims, lawsuits, or complaints alleging improper handling of claims by Defendants was inadmissible because it lacked relevance and its probative value was outweighed by danger of unfair prejudice.
Defendants’ Second Motion: Granted; evidence of parties’ financial condition was inadmissible.
Defendants’ Third Motion: Granted; witnesses not previously identified and disclosed during discovery may not testify.
Defendants’ Fourth Motion: Granted; expert witnesses not previously identified and disclosed during discovery may not testify.
Defendants’ Fifth Motion: Granted; expert witnesses may not offer opinions not previously disclosed in discovery.
Defendants’ Sixth Motion: Granted; parties may not use documentary evidence of damages not previously identified and disclosed in discovery.
Defendants’ Seventh Motion: Granted in part and denied in part; parties may not make “reptile theory” or “golden rule” arguments, but the Court will rule on the admissibility of evidence of “general safety rules” at trial.
Defendants’ Eighth Motion: Granted; parties may not introduce deposition testimony not identified pursuant to the Pre-Trial Scheduling Order.
Defendants’ Ninth Motion: Denied; the Court will rule on the admissibility of lay witnesses offering opinion testimony at trial.
Defendants’ Tenth Motion: Granted in part and denied in part; parties may not admit evidence that inaccurately represents information, but motion was phrased too broadly to grant in its entirety.
Defendants’ Eleventh Motion: Denied; the Court will rule on the admissibility of evidence relating to USDA regulations at trial.
Defendants’ Twelfth Motion: Granted; expert report may not be admitted into evidence in its entirety, but statements and exhibits may be used for impeachment or to show how the expert formed his opinions.
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Health Logix, LLC v. US Radiology Specialists, Inc., 2004 NCBC Order 66 (N.C. Super. Ct. Oct. 18, 2024) (Bledsoe, C.J.)
Key Terms: designation; opposition; intellectual property; software; contract
Health Logix provided radiology software services to US Radiology pursuant to a contract. Prior to its expiration, the parties engaged in negotiations to extend the term of the contract. Health Logix executed an amendment extending the term of the contract and, relying on US Radiology’s representation that it would likewise execute the amendment, expended additional time and resources. But US Radiology did not sign the amendment, instead informing Health Logix that the contract would expire at the end of the current term.
Health Logix initiated this lawsuit, asserting claims against US Radiology for declaratory judgment and anticipatory repudiation/breach of contract. US Radiology filed a Notice of Designation, contending that designation as a mandatory complex business case was proper pursuant to N.C.G.S. §§ 7A-45.4(a)(5), (a)(9), and (b)(2). After the case was designated to the Business Court, Health Logix opposed designation.
The Court concluded that designation under Section 7A-45.4(a)(5) was improper because Health Logix’s claims neither required an examination of nor were closely tied to the intellectual property aspects of the software at issue; instead, resolution of the lawsuit required only the application of contract principles. As a result, designation under N.C.G.S. § 7A-45.4(b)(2) was also improper and US Radiology refused to consent to designation pursuant to N.C.G.S. § 7A-45.4(a)(9). The Court therefore allowed the opposition.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 10/22/24
By: Ashley Oldfield
Dapper Dev., L.L.C., Cordell, 2024 NCBC 63 (N.C. Super. Ct. Sept. 25, 2024) (Bledsoe, C.J.)
Key Terms: Rule 12(b)(6); breach of contract, breach of consent order; duty of good faith and fair dealing; declaratory judgment
The Individual Plaintiffs and Defendant were the sole members and managers of two companies. After the Individual Plaintiffs’ attempt to negotiate a buyout of Defendant’s interest failed, the Individual Plaintiffs voted to terminate Defendant from the companies and remove him as a member and manager pursuant to the companies’ operating agreements. Defendant disputed the effect of the vote and this litigation followed. Defendant moved to dismiss pursuant to Rule 12(b)(6).
Breach of Contract. Plaintiffs alleged that Defendant breached the companies’ operating agreements by 1) refusing to accept a buyout offer in breach of Section 10; and 2) causing the bank to freeze the companies’ funds in breach of Article 5. Defendant argued that 1) Section 10’s buyout provision was only triggered if he had been terminated as an employee and Plaintiffs did not (and could not) allege that he was an employee; and 2) Plaintiffs had not pleaded the claim for breach of Article 5 with enough detail. The Court rejected both arguments. Plaintiffs had alleged termination of Defendant’s employment which allowed for a reasonable inference that he was an employee. With regards to breach of Article 5, Plaintiffs had alleged the existence of valid agreements, the provision breached, the facts constituting the breach, and the resulting damages. Nothing further was required.
Declaratory Judgment. Plaintiffs sought a determination of the rights, duties, and liabilities as between them and Defendant under the operating agreements. The Court concluded that Plaintiffs’ allegations that Defendant was terminated as both a member and manager of the companies were sufficient to establish the existence of an actual controversy and survive the pleadings stage.
Breach of Consent Order. In response to Plaintiffs’ claim that he had breached the terms of a consent order entered in previous litigation between the parties, Defendant argued that the consent order was not a legal contract and had no legal effect following the voluntary dismissal of the prior lawsuit. The Court rejected this argument because, under North Carolina law, a consent order which recites the parties’ agreement but does not adjudicate any rights is enforceable through a breach of contract action.
Breach of Duty of Good Faith and Fair Dealing. Of the twelve separate allegations underlying Plaintiffs’ breach of duty claim, the Court held that six of them were sufficient to state a claim because they showed that Defendant had taken actions which injured Plaintiffs’ right to receive the benefit of the agreement. The remaining allegations, however, merely involved Defendant’s assertion of his rights under the operating agreements, and, therefore, did not support the claim. Accordingly, the motion was granted as to those allegations but otherwise denied.
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Auto Provisions, LLC v. G1.34 Holdings, 2024 NCBC 64 (N.C. Super. Ct. Sept. 25, 2024) (Robinson, J.)
Key Terms: Rule 12(b)(6); breach of contract; duty of good faith and fair dealing; unjust enrichment; conversion
Plaintiff Auto Provisions and Defendant G1.34 formed Plaintiff Recon Partners for the purpose of developing and marketing proprietary software for auto dealerships. After the business relationship between Auto and Defendant deteriorated, Plaintiffs filed this lawsuit. Defendant answered and asserted nine counterclaims arising largely from Plaintiffs’ alleged breaches of Recon’s operating agreement and their failure to pay back a loan and other funds extended to Recon by Defendant. Plaintiffs moved to dismiss most of the counterclaims.
Breach of Contract and Duty of Good Faith and Fair Dealing. Noting the low bar for pleading a breach of contract claim, the Court held that Defendant had adequately pleaded Recon’s breach of a loan agreement, as Defendant had pleaded the existence of a valid contract and the breach thereof. Likewise, the Court held that Defendant had adequately pleaded Auto’s breach of Recon’s operating agreement, by pleading the existence of a valid contract, the satisfaction of all conditions precedent to performance, and the breach of Auto’s obligations. Because the claims for breach of the duty of good faith and fair dealing were based on the same facts as the adequately pleaded breach of contract claims, they survived as well. Accordingly, the motion to dismiss was denied as to each of these claims.
Unjust Enrichment. Plaintiffs contended that Defendant’s unjust enrichment claim, which was based on allegations that Recon would be unjustly enriched by retaining certain wrongfully held monies, should be dismissed because all parties agreed that the operating agreement was a valid and enforceable contract which barred an unjust enrichment claim. The Court disagreed. In support of their assertion that all parties agreed as to the validity of the operating agreement, Plaintiffs cited to their complaint and their answer to the counterclaims; however, at the 12(b)(6) stage, the Court could not consider those documents. Further, it appeared that Plaintiffs disputed the validity of the loan agreement at issue. Thus, the unjust enrichment claim, which was pleaded in the alternative, could proceed.
Conversion. Defendant asserted that Plaintiffs converted the loan and other funds provided to Recon by Defendant, as well as the value of certain software. The Court dismissed the claim to the extent it was based on the nonpayment of the loan and other funds, because the failure to pay a debt does not constitute conversion. The Court also dismissed the claim as to the value of the software, because it was undisputed that Defendant had no ownership interest in the software, and, therefore, a claim for conversion could not lie.
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Vitaform, Inc. v. Aeroflow, Inc., 2024 NCBC 65 (N.C. Super. Ct. Sept. 25, 2024) (Bledsoe, C.J.)
Key Terms: Rule 12(c); collateral estoppel; trade secrets; fraud
In a previous action between the parties, Plaintiff asserted various claims, including claims for misappropriation of trade secrets, Lanham Act violations, fraud, and unfair and deceptive trade practices, against Defendants. In that action, the Court entered a summary judgment order which dismissed many of the claims and made a number of determinations regarding Defendants’ knowledge of Plaintiff’s alleged trade secret. The remaining fraud-related claims were set for trial; however, the parties voluntarily dismissed the suit shortly before the trial was set to begin. Eleven months later, Plaintiff filed the present action, asserting the same claims that were pending for trial in the prior action. Defendants moved for judgment on the pleadings, contending that Plaintiff could not establish proximate cause on any of its claims due to the collateral estoppel effect of the Court’s findings in the summary judgment order in the previous action.
The Court denied the motion. Although it agreed that collateral estoppel barred Plaintiff from relitigating factual issues previously determined, the Court concluded that its previous findings did not necessarily preclude Plaintiff from establishing proximate cause and actual damages arising from Defendants’ alleged conduct.
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A Distrib. Co. v. Mood Product Grp. LLC, 2024 NCBC 66 (N.C. Super. Ct. Sept. 26, 2024) (Robinson, J.)
Key Terms: Rule 12(b)(6); hemp; Lanham Act; passing off; reverse passing off; unfair and deceptive trade practices; common law unfair competition; conversion; unjust enrichment;
This action arose out of a business arrangement whereby Plaintiff GFF grew and delivered hemp product to Plaintiff ADC, which ADC then supplied to Defendant Mood for sale on Mood’s website. In connection with the transactions, GFF provided to ADC, who then provided to Mood, Certificates of Analysis regarding the composition of the GFF-grown hemp products. Plaintiffs filed suit alleging seven claims relating to Mood’s alleged alteration and use of the Certificates. The claims between ADC and Mood were ordered to arbitration. Mood then moved to dismiss all of GFF’s claims.
Standing. Mood challenged GFF’s standing, arguing that GFF’s principal, not GFF itself, held the required USDA license to grow hemp, and, therefore, GFF did not have standing to bring claims relating to the license or the Certificates. The Court disagreed, determining that GFF’s allegations that the license was GFF’s through its principal were sufficient to demonstrate standing.
Common Law Unfair Competition. GFF asserted that Mood violated unfair competition principles by fraudulently altering GFF’s Certificates and leveraging GFF’s license and the Certificates to sell product, thereby deceiving and endangering the consuming public. The Court dismissed this claim with prejudice because common law unfair competition claims are limited to claims between business competitors and the complaint showed that GFF and Mood were grower and seller, respectively, not business competitors.
Violation of the Lanham Act. GFF alleged that Mood violated the Lanham Act by committing both reverse passing off and passing off relating to GFF’s license and Certificates. The Court dismissed the claim as to reverse passing off because the complaint did not allege that Mood represented that any of the goods it sold were Mood’s own goods. However, it denied dismissal of the claim as to passing off, finding that GFF had sufficiently alleged that Mood had represented its own goods or services as GFF’s.
Unfair and Deceptive Trade Practices. The UDTPA claim survived to the same extent as the Lanham Act claim survived.
Conversion. GFF alleged that Mood converted GFF’s Certificates by altering them to show Mood as the owner of the testing results for GFF’s hemp. The Court dismissed the claim with prejudice because 1) Mood came into possession of the Certificates lawfully when ADC emailed copies of them to Mood, and GFF did not allege that it had demanded, and been denied, their return; and 2) GFF did not allege that it no longer had access to the original Certificates and thus had not shown that it was wrongfully deprived of access to them.
Unjust Enrichment. GFF alleged that a benefit had been conferred on Mood by its fraudulent use of GFF’s Certificates. The Court, however, dismissed the claim with prejudice because the complaint alleged that any benefit obtained by Mood was taken by Mood, not conferred upon Mood by GFF.
Punitive Damages/Attorneys’ Fees. Because attorneys’ fees and punitive damages are remedies rather than standalone claims, the Court dismissed these claims without prejudice to GFF’s ability to seek them as remedies if warranted.
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Greentouch USA, Inc. v. Lowe’s Cos., 2024 NCBC 67 (N.C. Super. Ct. Oct. 2, 2024) (Davis, J.)
Key Terms: Rule 12(b)(6); conversion; economic loss rule; defamation; tortious interference with existing contract; tortious interference with prospective economic advantage; unfair and deceptive trade practices; punitive damages
Plaintiff designed and supplied various fixtures and furniture to Defendant Lowe’s pursuant to a three-year supplier contract. However, after the relationship took a “cattywampus turn” during the COVID-19 pandemic, Plaintiff filed suit alleging various claims arising from Lowe’s purported efforts to undermine and destroy Plaintiff to enable it to take over product manufacturing itself or find cheaper vendors. Defendants moved to dismiss a number of the claims under Rule 12(b)(6).
Conversion. Plaintiff alleged that Lowe’s converted two categories of property: 1) property that Lowe’s wrongfully declared defective and then re-sold to third parties; and 2) over a dozen freight containers of products that Lowe’s received but refused to pay for. Defendants argued that the conversion claim was based on matters within the scope of the parties’ contract, and, therefore, it should be dismissed under the economic loss rule. The Court concluded that dismissal under the economic loss rule would be premature at this stage. The contract was not attached to the complaint, and without it, the Court was unable to determine whether Plaintiff’s allegations were fully capable of being redressed through its pending breach of contract claim.
Defamation. Plaintiff alleged that Defendants made defamatory statements regarding Plaintiff’s financial condition. The Court, however, dismissed the claim because in each instance, Plaintiff either failed to specifically identify the speaker or failed to describe the statements themselves with sufficient particularity.
Tortious Interference with Existing Contract. This claim was based on Plaintiff’s allegations that Defendants intentionally induced a third-party to repudiate its existing services contract with Plaintiff. Defendants argued that the claim failed because it lacked specificity and failed to allege a lack of justification. The Court rejected both arguments. Plaintiff’s allegations satisfied the notice pleading standard and were rife with statements that Defendants intentionally and maliciously interfered with Plaintiff’s contractual relationships for the purpose of destroying its business.
Tortious Interference with Prospective Economic Advantage. The Court concluded that Plaintiff’s allegations that 1) Defendants were aware of Plaintiff’s efforts to enter into a supplier relationship with a specific third-party; 2) Defendants maliciously induced that third-party not to enter into such a relationship; and 3) the third-party would have entered into a supplier relationship with Plaintiff absent Defendants’ interference, were sufficient to survive the 12(b)(6) motion.
Violation of the UDTPA. Because Plaintiff’s tortious interference claims survived dismissal, the UDTPA claim survived as well.
Punitive Damages. Because punitive damages are a remedy rather than a standalone claim, the Court dismissed this claim without prejudice to Plaintiff’s ability to seek punitive damages as a remedy if warranted.
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Knowles v. Conerly, 2024 NCBC 68 (N.C. Super. Ct. Oct. 3, 2024) (Earp, J.)
Key Terms: Rule 12(c); breach of contract; statute of frauds; unjust enrichment; constructive trust; declaratory judgment; reformation of will; quiet title; easement; latent ambiguity; estate administration; non-claim statute
Plaintiffs are renters of lots in a mobile home park previously owned by Defendant Sea Manor Enterprises, LLC. Plaintiff contend that during his life, William Powell, the sole member and manager of the LLC, agreed that he would arrange for the mobile home park and certain access rights to be conveyed to Plaintiffs and that he later executed a codicil to effect that agreement. However, following Mr. Powell’s death, Plaintiffs were informed that Mr. Powell’s church had inherited his membership interest in the LLC and now owned the mobile home park. This lawsuit followed. Defendants moved for judgment on the pleadings.
Breach of Contract (against LLC). Plaintiffs alleged that 1) they entered into an oral agreement with the LLC whereby it would arrange for the Plaintiffs to receive title to the mobile home park and access rights to certain docks; 2) that this agreement was memorialized in a codicil by Mr. Powell acting in his capacity as manager of the LLC; 3) that the LLC breached the agreement by failing to ensure that the mobile home park and certain access rights were conveyed to Plaintiffs; and 4) they were damaged as a result. The Court found that these allegations sufficiently stated a claim for breach of contract. Defendants argued that the statute of frauds nonetheless barred the claim because the codicil did not sufficiently identify the property to be conveyed. The Court disagreed, concluding that the description of the property was not patently ambiguous and could potentially be clarified by reference to external evidence.
Breach of Contract and Unjust Enrichment (against Estate). Plaintiffs alleged that 1) they had an agreement with Mr. Powell whereby he would ensure that they received a right of access to certain docks in exchange for their improvements to the docks, and 2) if the codicil failed to accomplish this agreement, then Mr. Powell was in breach. The Court concluded, however, that the claim was barred by the non-claim statute for estate administration, N.C.G.S. 28A-19-3(b)(1)(2), because it was not timely filed. Plaintiffs’ unjust enrichment claim, which was based on Mr. Powell being unjustly enriched by Plaintiffs’ improvement of the docks, was barred on the same basis.
Breach of LLC’s Operating Agreement (against Church). Plaintiffs alleged that the codicil served as the LLC’s operating agreement and that the Church, as the LLC’s manager, breached it by not conveying the mobile home park and the access rights to Plaintiffs. The Court disagreed and concluded that, while the codicil may direct the disposition of some of the LLC’s property, it could not be considered a document that governs the affairs of the LLC, i.e., its operating agreement. Thus, this claim was dismissed with prejudice.
Declaratory Judgment. Plaintiffs requested a declaratory judgment that the codicil conveys ownership of the LLC and easement rights to Plaintiffs, or alternatively, that the codicil is ambiguous and was executed my Mr. Powell under a mistaken belief of its effect. The Court determined that Plaintiffs had sufficiently stated a declaratory judgment claim and that issues of fact regarding Mr. Powell’s intent and the legal effect of the codicil remained and required discovery.
Reformation of Will. Plaintiffs contended that the codicil was ambiguous and should be reformed to conform to Mr. Powell’s intent. Because reformation is a remedy rather than a claim, the Court dismissed this claim without prejudice to Plaintiff’s ability to pursue reformation as a remedy if warranted.
Unjust Enrichment/Constructive Trust. Plaintiffs alleged the Church had been unjustly enriched by receiving the mobile home park and therefore, a constructive trust should be imposed over the property. But because a constructive trust is a remedy, not a claim, the Court dismissed the claim but without prejudice to Plaintiffs’ right to pursue a constructive trust as a remedy, if warranted.
Quiet Title. Plaintiffs sought to quiet title to a purported easement they contend is identified in the codicil. The description in the codicil, although ambiguous on its face, suggested that extrinsic evidence may be able to provide the missing detail regarding the location of the easement. Accordingly, dismissal was not appropriate at this stage.
Alter Ego. Plaintiffs alleged that the LLC was an alter ego of Mr. Powell and that the veil between them should be pierced to make the LLC liable for his actions. However, because Plaintiffs did not allege that Mr. Powell engaged in fraud or used the LLC to perpetrate dishonest or unjust acts, the Court dismissed the claim with prejudice.
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Griffin v. Advisors Fin. Ctr., L.L.P., 2024 NCBC Order 60 (N.C. Super. Ct. Aug. 13, 2024) (Bledsoe, C.J.)
Key Terms: BCR 10.9 dispute; expert disclosures; deposition
After Plaintiff objected to Defendants’ efforts to depose Plaintiff’s experts prior to Defendants’ expert disclosure deadline, the parties submitted a BCR 10.9 dispute summary to the Court. Plaintiff argued that requiring her experts to be deposed now may result in her experts having to be re-deposed and, further, that this was litigation by ambush. The Court found that neither the case management order, the Rules of Civil Procedure, nor the Business Court Rules required that expert depositions occur after all parties had disclosed their experts and produced expert reports. Further, it was common practice for a party opposing the party with the burden of proof to take the opening expert’s deposition prior to disclosing its own expert. Lastly, Plaintiff’s concern that her expert may have to be re-deposed was unfounded because the CMO provided that each expert is subject to a single deposition and therefore any attempt to conduct a second deposition would have to be approved by the Court. Accordingly, the Court ordered Plaintiff to make her expert witnesses available for deposition prior to the Defendants’ expert disclosure deadline.
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Murphy-Brown, LLC v. Ace Am. Ins. Co., 2024 NCBC Order 61 (N.C. Super. Ct. Sept. 25, 2024) (Davis, J.)
Key Terms: hog farm; insurance coverage; indemnification; defense costs; reasonableness of attorneys’ fees; burden of proof
As summarized here, Plaintiffs sued various insurers who provided them with primary and excess insurance coverage contending that the insurers were obligated to indemnify Plaintiffs for amounts paid to settle certain nuisance actions relating to Plaintiffs’ hog farms and to reimburse Plaintiffs for their defense costs for such underlying lawsuits. Presently before the Court was the parties’ request that the Court resolve three legal issues prior to trial: 1) which party bears the burden of proving the reasonableness of Plaintiffs’ defense costs in the underlying lawsuits; 2) whether Defendant may conduct a “line-by-line” challenge to the billing entries of Plaintiffs’ attorneys in the underlying lawsuits; and 3) whether the jury may be informed of the Court’s prior determination that Defendant breached its duty to defend Plaintiffs in the underlying lawsuits.
Regarding the first issue, the Court found no controlling precedent but adopted the majority view in other jurisdictions that once a party has shown that it incurred and paid the defense costs at issue, the costs are presumed reasonable and the burden shifts to the opposing party to rebut that presumption.
As to the second issue, the Court declined to restrict Defendant’s ability to challenge the reasonableness of Plaintiff’s defense costs as it sees fit, provided it does so consistent with Rule 1.5 of the Rules of Professional Conduct which govern the reasonableness of attorneys’ fees.
Lastly, the Court held that the jury could be informed of the Court’s previous determination that Defendant breached its duty to defend Plaintiffs in the underlying lawsuits because that information was relevant to the jury’s understanding of what they were being asked to decide.
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CRH E., LLC, Berastain, 2024 NCBC Order 62 (N.C. Super. Ct. Oct. 7, 2024) (Earp, J.)
Key Terms: preliminary injunction; extraordinary relief; third-party; likelihood of success on the merits; irreparable harm
As summarized here, this action involves a dispute arising from the sale of a business and the previous owners’ alleged involvement in a competing business. The former owners, Counterclaim-Plaintiffs Berastain and Moreau, moved for a preliminary injunction enjoining 1) a third-party, Robertson Real Estate, from selling certain real property, and 2) the Counterclaim-Defendants from transferring funds associated with such a sale or otherwise transferring tangible assets outside the regular course of business. Berastain and Moreau asserted that Robertson Real Estate was co-owned by individuals connected with the Counterclaim-Defendants and that the real property at issue may be necessary to satisfy any judgment they obtained in the present litigation
The Court denied the motion. First, Berastain and Moreau had not shown a likelihood of success on the merits. Since the third-party LLC was not a party to the action, there were no claims pending against it to evaluate for purposes of determining whether Berastain and Moreau were likely to prevail on the merits. As to the Counterclaim-Defendants, Berastain and Moreau failed to present any evidence, as opposed to mere speculation, that the Counterclaim-Defendants had threatened or were about to dispose of any property with the intent to defraud them. Second, Berastain and Moreau also failed to provide sufficient evidentiary support that they were about to suffer irreparable harm.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 10/09/24
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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 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.
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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.
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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.
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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.
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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.
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The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 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.
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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.
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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.
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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.
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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.
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The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 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.
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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.
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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.
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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.
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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.
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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.
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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.
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The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 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.
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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.
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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.
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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.
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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.
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Yoder v. Verm, 2024 NCBC 24 (N.C. Super. Ct. April 19, 2024) (Bledsoe, C.J.)
Key Terms: Rule 12(b)(6); Rule 12(b)(1); settlement agreement; declaratory judgment; lack of a justiciable controversy; subject matter jurisdiction
Plaintiff was previously involved in litigation which was resolved by a written settlement agreement. The parties to the current action, with the exception of Defendant Healthcare VII, were all signatories to the settlement agreement. Plaintiff filed the current action alleging that the settlement agreement had not been complied with, seeking a declaratory judgment regarding the parties rights and obligations under the agreement, and asserting four causes of action for breach of the agreement. Plaintiff did not assert any claims for relief against Healthcare VII, alleging instead that it was joined as a party “to ensure a complete resolution of the issues in controversy.” Healthcare VII moved to dismiss pursuant to Rule 12(b)(6).
The Court concluded that Healthcare VII should be dismissed from the action under Rule 12(b)(1) because Plaintiff had failed to allege a justiciable controversy with Healthcare VII and the Court, therefore, lacked subject matter jurisdiction. Although the settlement agreement made reference to Healthcare VII and certain actions it might need to take, Healthcare VII was not a party to the agreement and therefore was not bound by its provisions.
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BIOMILQ, Inc. v. Guiliano, 2024 NCBC 25 (N.C. Super. Ct. April 19, 2024) (Robinson, J.)
Key Terms: fiduciary duty; tortious interference; alienation of affection; loss of consortium; conversion; slander of title; defamation; trade secrets; property interference; UDTPA; false advertising; false passing off claim; fraud; fraudulent conveyance
This lawsuit arises out of a dispute between BIOMILQ and Defendants regarding certain human cell-cultured technologies and products. Defendant Guiliano and his wife, Strickland, previously formed 108Labs to explore biosynthesis of human milk and human milk immunoglobins. They subsequently began working with Counterclaim Defendant Egger and developed various intellectual property. BIOMILQ was later formed and began seeking funding. Relationships eventually deteriorated resulting in Strickland resigning from 108Labs. After BIOMILQ brought suit against Guiliano and 108Labs, they filed numerous counterclaims against BIOMILQ, as well as against new Counterclaim Defendants Egger and BEV, alleging, inter alia, that 108Labs had been divested of its intellectual property rights. BIOMILQ, Egger, and BEV (“Movants”) moved to dismiss most of the claims.
Claims against BIOMILQ only
Injunctive Relief. Since there is no standalone claim for injunctive relief in North Carolina, the Court dismissed this counterclaim without prejudice to Defendants’ ability to seek injunctive relief by motion, if appropriate.
Claims against Egger only
Breach of Fiduciary Duty. The Court dismissed this counterclaim because Defendants did not allege facts that supported a contention that Egger owed Defendants a fiduciary duty. Although Defendants argued that Egger owed a fiduciary duty as a “partner” with 108Labs, a careful review of the allegations showed that Defendants described Egger as an interloper into 108Labs’ affairs, not a partner.
Tortious Interference with Contract . This counterclaim was dismissed because the allegations failed to satisfy the pleading requirements for the fourth element of the claim–acting without justification. Defendants alleged only generally that Egger had no motive other than malice. Moreover, the counterclaim expressly provided a basis for Egger’s actions: competition.
Breach of Contract. Although Defendants adequately alleged a claim for breach of contract against Egger, the allegations demonstrated that the claim was time barred. The statute of limitations ran in March 2023, which was one month before Egger and BEV were added as third-party defendants.
Alienation of Affection. The Court dismissed this counterclaim due to Defendants’ failure to allege malicious conduct by Egger designed to alienate the affections of Guiliano’s wife. Defendants’ allegations focused only on Strickland and Egger’s business dealings and did not suggest that Egger was the cause of the dissolution of Strickland and Guiliano’s marriage.
Claims against BIOMILQ and Egger
Declaratory Relief. The Court dismissed this counterclaim as to Egger because it made no mention of her and, therefore, presented no actual controversy between her and 108Labs. The Court allowed the counterclaim to proceed as to BIOMILQ, because, although the allegations were not entirely clear, the Court was able to identify an existing controversy between Defendants and BIOMILQ regarding the ownership of certain intellectual property.
Constructive Fraud. The Court dismissed this counterclaim because Defendants made no allegations regarding BIOMILQ owing anyone a fiduciary duty and, as already determined above, Defendants alleged no cognizable basis on which Egger owed a fiduciary duty to them.
Conversion. This counterclaim failed to the extent it was based on intangible interests, such as trademarks and other intellectual property, because North Carolina does not recognize a claim for conversion of intangible interests. Regarding the tangible materials, the Court allowed the counterclaim to proceed as to BIOMILQ, but dismissed it as to Egger because the only allegation regarding her was alleged in a conclusory fashion and was contradicted by other allegations.
Slander of Title. The Court dismissed this counterclaim because a slander of title claim only applies to statements made regarding real property and thus was inapplicable to the patents and trademark rights at issue here.
Defamation. Defendants asserted a defamation counterclaim based on statements from February 2020 and 21 March 2021. Because the action was not initiated against Egger until April 2023, the counterclaim against her was time-barred by the one year statute of limitations for a defamation claim. However, because the counterclaims against BIOMILQ were deemed filed as of 4 March 2022, the counterclaim survived with regard to the statements made on 21 March 2021 but failed as to the February 2020 statements.
Claims against Movants
Constructive Trust. Because a constructive trust is not a standalone claim, the Court dismissed this counterclaim, but did so without prejudice to Defendants’ right to pursue the remedy on any surviving claims, if applicable.
Fraudulent Conveyance. This counterclaim concerned Strickland’s assignment of her interest in certain intellectual property to BIOMILQ. The Court dismissed this counterclaim because 1) Defendants did not allege the existence of a creditor-debtor relationship as required by N.C.G.S. § 39-23.4(a)(1); and 2) the allegations did not satisfy the pleading requirements of Rule 9(b).
Misappropriation of Trade Secrets. Defendants asserted that Movants had shared trade secret information with third-parties on or before March 20, 2020. Accordingly, the claim was time barred by the three-year statute of limitations as to Egger and BEV since the action was not initiated against them until April 2023. However, the counterclaim was otherwise minimally sufficient to meet the requirements of alleging the existence of a trade secret and efforts to maintain secrecy and therefore survived as to BIOMILQ.
Federal Misappropriation of Trade Secrets. This counterclaim was dismissed as to Egger and BEV because it was time-barred. It was also dismissed as to BIOMILQ because it did not sufficiently allege that the trade secrets implicated interstate or foreign commerce as required by the Defend Trade Secrets Act.
False Designation of Origin. This counterclaim, which equated to a reverse passing off claim under the Lanham Act, failed because Defendants did not allege that the ideas in question had been reduced to the actual production and sale of a product or good.
False Advertising. The Court dismissed this counterclaim because Defendants failed to identify a commercial, physical product or a statement made by any Movant that amounted to a commercial advertisement.
Fraud. This counterclaim was dismissed because it failed to allege one or more of the elements with the requisite particularity as to each Movant.
Civil Conspiracy. This counterclaim failed because Defendants’ allegations that Movants undertook unlawful acts in a “combined effort” was insufficient to satisfy the required allegation that Movants had an agreement.
Unjust Enrichment. The Court dismissed this counterclaim because, although Defendants alleged that Movants had received benefits, they did not allege that Defendants had conferred any benefit on Movants, a required element of the claim.
Loss of Consortium. A loss of consortium claim can only be maintained if it is joined with a suit the other spouse may have instituted to recover for personal injuries. Since Guiliano had not alleged an underlying personal injury claim that Strickland could have made, the Court dismissed the counterclaim.
Punitive Damages. Because a claim for punitive damages is not a standalone claim, the Court dismissed this counterclaim, but did so without prejudice to Defendants’ ability to seek punitive damages as a remedy.
Property Interference. The Court dismissed this counterclaim because Defendants failed to allege that Movants received stolen property, a required element of a claim under the applicable statute, N.C.G.S. § 99A-1.
Violation of the UDTPA. Defendants’ UDTPA claim appeared to be based on its claims for misappropriation of trade secrets, conversion, tortious interference with contract, and fraud. Because all of those claims had been dismissed as to Egger and BEV, the Court also dismissed the UDTPA claim against them, except to the extent it was based on the conduct underlying the misappropriation of trade secrets claim because such conduct could potentially support a claim for violation of the UDTPA against Egger since a UDTPA claim has a four-year statute of limitations. The claim also survived against BIOMILQ to the extent that the underlying claims survived against BIOMILQ.
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Griffin v. Advisors Fin. Ctr., L.L.P., 2024 NCBC 26 (N.C. Super. Ct. April 22, 2024) (Bledsoe, C.J.)
Key Terms: partnership; goodwill; estate; intangible interest; conversion
Defendant Neal Griffin and his brother Chris Griffin formed and operated Defendant Advisors Financial Center pursuant to a limited liability Partnership Agreement. After Chris Griffin passed away, his Estate brought suit against Defendants, alleging claims for breach of fiduciary duty against Neal and for breach of contract and conversion against both Defendants, based on Neal’s purported failure to comply with the Partnership Agreement by failing to purchase Chris’s interest or liquidate the Partnership “as a whole,” including goodwill. Defendants moved for partial judgment on the pleadings.
Defendants argued that the Estate could not recover for their failure to account for goodwill in determining the value of the Partnership’s assets upon liquidation or sale because, as a professional partnership, the Partnership did not have goodwill that survived Chris’s death. In response, the Estate argued that it was not a professional partnership because 1) it was organized as a limited liability partnership; and 2) financial services are not listed as a licensed professional service in the Professional Corporation Act. The Court found both of these arguments unpersuasive. Nevertheless, the Court was unable to determine as a matter of law at this stage that the Partnership was a professional partnership whose reputation rested solely on the individual skill of the two partners. The Estate alleged that the Partnership had an internal team; thus, a factfinder could conclude that the Partnership’s reputation was based, at least in part, on the skill of the internal team members and not just that of the two partners. Accordingly, the Court denied the motion to the extent it sought judgment on the Estate’s claims for goodwill.
The Court dismissed with prejudice the Estate’s conversion claim, which was based on Defendants’ allegedly converting the Estate’s interest in the partnership. Both a partnership interest and contract rights under the Partnership Agreement are intangible interests which cannot form the basis for a conversion claim.
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Elior, Inc. v. Thomas, 2024 NCBC 27 (N.C. Super. Ct. Apr. 22, 2024) (Earp, J.)
Key Terms: breach of contract; restrictive covenants; noncompete; nonsolicit; blue pencil rule; implied covenant of good faith and fair dealing; conversion; choice of law; lex loci; Trade Secret Protection Act; UDTPA
Defendant worked in business development for Plaintiff, a corporation operating in the food service management industry for schools. After Defendant resigned and became employed by one of Plaintiff’s competitors, Plaintiff sued Defendant asserting a number of claims arising from Defendant’s purported breach of certain covenants in his employment agreement. Defendant moved to dismiss Plaintiff’s claims pursuant to Rules 12(b)(1) and 12(b)(6).
Breach of Contract. As the last party to sign Defendant’s employment agreement was located in North Carolina, the Court determined that North Carolina law applied. The Court rejected Defendant’s argument that the employment agreement was not supported by consideration because even though the agreement was signed after Defendant’s employment began, Plaintiff alleged that Defendant received additional consideration at the time the employment agreement was signed.
Defendant moved to dismiss Plaintiff’s claim for breach of the employment agreement’s confidentiality provisions under Rule 12(b)(6). The Court denied Defendant’s motion, based on Plaintiff’s allegations that Defendant had emailed himself documents containing confidential information and had used the confidential information to “undercut Plaintiff’s contract terms” with its current customers.
Defendant likewise moved to dismiss Plaintiff’s claim for breach of the employment agreement’s noncompetition provision, contending that the provision was overbroad and unenforceable. The Court rejected this argument and denied the motion, noting that the restriction was for a 12-month period and only applied to territories linked to Defendant’s former duties.
The Court also denied Defendant’s motion to dismiss Plaintiff’s claim for breach of the employment agreement’s nonsolicitation provision. However, the Court determined that the provision, as written, was impermissibly broad, as it prohibited solicitation of any of Plaintiff’s current or prospective customers. The Court applied the blue pencil doctrine to narrow the provision, resulting in a restriction against soliciting customers Defendant performed work for in the 24 months preceding his resignation.
Breach of the Covenant of Good Faith and Fair Dealing. Plaintiff alleged that Defendant’s purported violations of the employment agreement constituted a breach of the covenant of good faith and fair dealing. The Court noted that, when based upon the same actions as a breach of contract claim, the fate of an implied covenant claim is inextricably linked to the success of the underlying breach of contract claim. As the breach of contract claim survived dismissal, the Court denied Defendant’s motion to dismiss Plaintiff’s breach of implied covenant claim as well.
Conversion. The Court dismissed Plaintiff’s conversion claim without prejudice, as Plaintiff did not allege that the emails forwarded by Defendant to himself were deleted or that Plaintiff was otherwise deprived of the emails and documents.
Violation of the NCTSPA. Defendant moved to dismiss Plaintiff’s NCTSPA claim, arguing that under the lex loci test, Illinois law governed the claim, rather than North Carolina law. The Court agreed and dismissed the claim without prejudice, noting that Plaintiff failed to allege any fact which would support the inference that the last act giving rise to the injury occurred anywhere other than Illinois.
Violation of the UDTPA. This claim failed to the extent it was based on the dismissed misappropriation of trade secrets claim. It also failed to the extent it was based on any breach of the confidentiality provisions in the employment agreement because any resulting injury was sustained in Illinois (where the last act had occurred) and, therefore, the North Carolina UDTPA did not apply.
Tortious Interference with Prospective Economic Advantage. Applying Illinois law under the lex loci rule, the Court determined that Plaintiff had not adequately pleaded the “reasonable expectancy” element of the claim and therefore dismissed it.
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Pathos Ethos, Inc. v. BrainTap Inc., 2024 NCBC Order 29 (N.C. Super. Ct. April 16, 2024) (Davis, J.)
Key Terms: Rule 22(b); interplead escrowed funds; clerk of court
The parties filed a joint motion requesting that the Court allow Defendant Ward & Smith to interplead escrowed funds pursuant to Rule 22(b) of the North Carolina Rules of Civil Procedure. Ward & Smith was holding the funds in escrow pursuant to an escrow agreement which tasked Ward & Smith with releasing the funds to Plaintiff once certain conditions were met, but also authorized Ward & Smith to deposit the funds with the clerk of superior court if in doubt regarding the proper course of action with respect to the funds. Because the proper disposition of the funds was at issue in the current lawsuit, the Court granted the motion, directed the clerk of superior court to accept the funds, and, upon payment to the clerk, dismissed Ward & Smith from the suit.
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Radiance Cap. Receivables Eighteen, LLC v. Roberts, 2024 NCBC Order 30 (N.C. Super. Ct. April 17, 2024)
Key Terms: order on designation; determination order; piercing the corporate veil; N.C.G.S. § 7A-45.4(a)(1)
Plaintiff brought suit asserting claims for civil conspiracy by fraudulent conveyance and piercing the corporate veil arising from Defendant Thomas’s alleged attempts to shield certain real estate from a South Carolina judgment. Defendant BPIM, LLC filed a notice of designation asserting that designation was proper under N.C.G.S. § 7A-45.4(a)(1), based on the veil piercing claim. The Court, however, concluded that the action was not properly designated as a mandatory complex business case because a veil piercing claim, standing alone, is insufficient to support designation and Plaintiff’s claims did not otherwise implicate the law governing LLCs.
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
By: Rachel E. Brinson
Atl. Coast Conf. v. Bd. of Trs. of Fla. State Univ., 2024 NCBC 21 (N.C. Super. Ct. April 4, 2024) (Bledsoe, C.J.)
Key Terms: Atlantic Coast Conference; Florida State University; ESPN; motion to dismiss; motion to stay; media rights agreements; 12(b)(1); 12(b)(2); 12(b)(6); 12(b)(7); declaratory judgment; breach of contract; standing; condition precedent; sovereign immunity; confidential information; breach of fiduciary duty; breach of implied duty of good faith; first to file
Following months of rumblings that Florida State University was considering leaving the Atlantic Coast Conference because it believed it was entitled to an unequal distribution of revenue from the ACC, and upon learning that FSU’s Board of Trustees (“FSU”) intended to file a lawsuit the next day to challenge the enforceability of two media rights agreements (the “Agreements”) between the ACC and its members, the ACC filed this action in Mecklenburg County seeking a judicial determination that the Agreements were valid and enforceable and a declaration that FSU is estopped from challenging or has waived any right to challenge the Agreements by accepting the benefits thereunder. FSU filed suit against the ACC in Florida the following day, allegedly breaching the Agreements. Thereafter, the ACC amended its complaint to assert additional claims for monetary relief. FSU moved to dismiss the amended complaint under Rules 12(b)(1), 12(b)(2), 12(b)(6), and 12(b)(7), or, alternatively, to stay the case in favor of the pending Florida action.
12(b)(1) and 12(b)(2)
FSU challenged the ACC’s standing to bring suit based on (1) lack of a justiciable controversy, (2) failure to satisfy a condition precedent, and (3) sovereign immunity. The Court found that a justiciable controversy existed because at the time of filing, FSU’s initiation of litigation over the Agreements was unavoidable and a practical certainty and FSU presented no evidence to the contrary. The Court also rejected FSU’s contention that the ACC failed to plead that it had taken all necessary steps prior to bringing suit because the ACC was required only to “make an affirmative averment showing its legal existence and capacity to sue,” which it did. The Court also found that the ACC Board of Directors’ ratification of the initiation of the lawsuit cured any alleged defect in the ACC’s authorization to bring suit. Lastly, the Court concluded that although FSU was entitled to sovereign immunity as part of the executive branch of the state government, it had explicitly waived its sovereign immunity to suit in North Carolina by choosing to be a member of a North Carolina unincorporated nonprofit association subject to the Uniform Unincorporated Nonprofit Association Act and its sue and be sued clause and by engaging in extensive commercial activity in North Carolina. For each of these reasons, the Court denied the motion to dismiss under Rules 12(b)(1) and 12(b)(2).
12(b)(7)
FSU also argued that the action should be dismissed for failure to join Florida State University as a necessary party. However, since “Florida State University” has no independent corporate existence and since Florida courts have held that the FSU Board is the proper party to answer claims against “Florida State University,” the Court denied the motion to dismiss pursuant to Rule 12(b)(7).
12(b)(6)
Breach of Agreements. The ACC alleged that, by initiating the Florida Action, FSU breached its obligation under the Agreements. In response, FSU did not challenge that it breached the Agreements but instead contended that it never entered into the Agreements in the first place. The Court, however, concluded that the ACC had sufficiently pleaded that FSU approved the execution of both Agreements and should be estopped from challenging the Agreements by its conduct in accepting the benefits of the Agreements for years without protest. Thus, the Court denied the motion to dismiss the claim for breach of the Agreements.
Declaratory Judgment Claims. The ACC sought a judicial declaration that (i) the Agreements were valid and enforceable contracts; and (ii) FSU was estopped from making or has waived by its conduct any challenge to the Agreements. FSU sought dismissal of these claims on the same basis that it sought dismissal of the ACC’s breach of contract claim. Because the Court concluded that the ACC’s claim for breach of the Agreements should survive, the Court also allowed the ACC’s declaratory judgment claims to proceed.
Breach of Obligation to Protect Confidential Information. FSU next sought to dismiss the ACC’s claim that FSU breached its obligation to keep confidential the terms of certain ESPN Agreements by disclosing some of those terms at its December 22, 2023 meeting and by publicly filing the complaint containing some of those terms in the Florida Action. FSU argued that it was never a party to the ESPN Agreements and had not entered into any confidentiality agreement with the ACC, and, furthermore, that FSU does not owe any duties to the ACC beyond those reflected in the ACC’s Constitution and Bylaws. The Court found that the ACC had alleged that it made a legally binding, conditional offer to FSU, which FSU accepted by its counsel’s reviewing the agreements, and thus, although FSU was not a party to the ESPN Agreements or the confidentiality provisions contained therein, the ACC sufficiently pleaded at least an implied-in-fact contract between the ACC and FSU to maintain the confidentiality of the terms of the ESPN Agreements as well as FSU’s breach thereof. Accordingly, the Court denied the motion to dismiss this claim.
Breach of Fiduciary Duties Owed by FSU to the ACC. FSU next sought dismissal of the ACC’s claim that FSU has breached, and continued to breach, its fiduciary obligations to the Conference under the ACC’s Constitution and Bylaws as well as under North Carolina law. The Court determined that the UUNAA does not contain provisions imposing fiduciary duties on members of an unincorporated nonprofit association, and an unincorporated nonprofit association does not qualify as a joint venture preventing the ACC from establishing the existence of a de jure fiduciary relationship with FSU under a joint venture theory. The Court also found that the ACC had not alleged sufficient facts to establish either the existence of a de facto fiduciary relationship or a contractual imposition of fiduciary duties under the ACC’s Constitution and Bylaws. The Court therefore dismissed with prejudice the ACC’s claim for breach of fiduciary duty.
Breach of Implied Duty of Good Faith and Fair Dealing. Finally, FSU sought dismissal of the ACC’s claim for breach of the implied duty of good faith and fair dealing under the ACC’s Constitution and Bylaws. The Court found that the ACC sufficiently alleged the existence of a valid contract (the ACC’s Constitution and Bylaws), breach of the same by FSU, and that FSU’s actions violated its duty to deal in good faith with the ACC. Thus, the Court denied the motion to dismiss the ACC’s claim against FSU for breach of its obligation of good faith and fair dealing.
Motion to Stay
FSU moved in the alternative to stay this first-filed action under N.C.G.S. § 1-75.12 in favor of its second-filed Florida Action because the Florida Action was more comprehensive, and in the true proper forum for this case, and also because the ACC deserved no first-filing deference as a result of its improper forum shopping. The ACC responded that a North Carolina court, not a Florida court, should determine the claims of a North Carolina organization concerning the validity and breach of contracts governed by North Carolina law and further that FSU had failed to offer any evidence that FSU would suffer “substantial injustice” should this litigation proceed in North Carolina. The Court found that the nature of the case, the convenience of the witnesses, the relative ease of access to sources of proof, the applicable law, the burden of litigating matters not of local concern, the desirability of litigating matters of local concern in local courts, and the ACC’s choice of the North Carolina forum decisively outweighed FSU’s choice of Florida for the determination of the enforceability of the Agreements and the resolution of the ACC’s damages claims against FSU. Accordingly, the Court, in the exercise of its discretion, denied FSU’s motion to stay under section 1-75.12(a).
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Atl. Coast Conf. v. Bd. of Trs. of Fla. State Univ., 2024 NCBC 22 (N.C. Super. Ct. April 5, 2024) (Bledsoe, C.J.)
Key Terms: Atlantic Coast Conference; Florida State University; ESPN; motion to seal; confidential information; trade secrets; third-party harm; public record
The ACC sought to seal excerpts from or relating to certain agreements to which the ACC and ESPN were parties, which contained historical and prospective financial data and other material terms. The FSU Board opposed sealing arguing that (1) the agreements were public records because the terms had been shared with the ACC’s members, including nine public universities, (2) the agreements did not qualify for the trade secret exemption under North Carolina’s or Florida’s public record laws, (3) the information was already public, and (4) the ACC’s proposed redactions were overbroad and inconsistent. The ACC and ESPN opposed the FSU Board’s arguments. The ACC argued that disclosure would harm the ACC’s ability to compete with other conferences by allowing them to use the information as leverage in negotiations, thus gaining an unfair advantage.
The Court concluded that partial sealing as requested by the ACC and ESPN was appropriate for several reasons. First, financial information, pricing terms, and internal business strategies are included within the categories that North Carolina courts have treated as confidential and proprietary trade secrets that may warrant protection. Second, the ACC and ESPN contended that the terms of the Agreements were trade secrets, which N.C.G.S. § 66-156 requires the court to protect. Third, numerous other courts, when considering requests to seal these and similar agreements, have concluded that they constitute trade secrets that warrant sealing. Fourth, the privacy interests of non-party ESPN deserved special consideration and weighed in favor of sealing. The Court concluded that sealing the excerpts of the agreements and those portions of the pleadings in the North Carolina action and the Florida Action that quote from or refer to the agreements was appropriate but found that certain of the ACC’s redactions were arbitrary, inconsistent, and overbroad. Accordingly, the Court predominately granted the motions to seal but ordered the ACC to revise certain inconsistent redactions.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 04/09/24
By: Natalie E. Kutcher and Ashley B. Oldfield
Sears Farm, LLC v. Samaritan Hous. Found., Inc., 2024 NCBC 19 (N.C. Super. Ct. Mar. 19, 2024) (Davis, J.)
Key Terms: motion to dismiss; Rule 12(b)(1); Rule 12(b)(6); motion to strike; Rule 12(f); breach of contract; covenant of good faith and fair dealing
This case arises from a series of transactions between the parties relating to the financing and construction of a retirement community. Beginning in 1998, Plaintiffs began their efforts to develop a luxury retirement community. In the early 2000’s, Plaintiffs involved Defendant Samaritan Housing Foundation, to assist with securing the requisite financing for the project and ultimately own and operate the retirement community. At some point thereafter, Plaintiffs and Defendant entered into a Site Transfer Agreement whereby Plaintiffs agreed to sell the site to Defendant once Defendant secured the financing required to complete the first phase of the project. The parties later entered into a Pre-Construction Funding and Development Agreement, which was restated and amended multiple times over the following decade (the “PCFD Agreements”). As construction of the project progressed, Defendant entered into a Master Trust Indenture with Wells Fargo (the “2012 MTI”), which purported to memorialize Defendant’s obligations to repay various parties, but which Plaintiffs did not sign. The retirement community eventually filed for bankruptcy in 2018. A settlement agreement between the parties resulted from the bankruptcy proceedings.
Plaintiffs filed suit alleging eight claims against Defendant and its president, which were eventually reduced to two claims solely against Defendant: (i) breach of contract and (ii) breach of implied covenant of good faith and fair dealing. Defendant moved to dismiss pursuant to Rules 12(b)(1) and 12(b)(6), or alternatively, to strike certain allegations relating to Defendant’s president on the grounds that the allegations were irrelevant, immaterial, and scandalous.
In support of its motion, Defendant argued that (i) any contractual obligations arising from the PCFD Agreements were nullified by the execution of the 2012 MTI; (ii) Plaintiffs failed to satisfy the requisite conditions precedent to obtain standing to assert claims under the 2012 MTI; and (iii) Plaintiffs released Defendant from any remaining obligations in the bankruptcy-related settlement agreement. In response, Plaintiffs argued that they never signed the 2012 MIT, and the release of claims in the settlement agreement did not affect their rights to pursue the claims at issue. The Court denied the motion to dismiss on the basis that the numerous agreements created “too many moving parts” and too many gaps in information to warrant a dismissal at this early stage of litigation.
The Court granted Defendant’s motion to strike to the extent it related to allegations pertaining to the six claims voluntarily dismissed by Plaintiffs, but otherwise denied it.
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Golden Triangle #3, LLC v. RMP-Mallard Pointe, LLC, 2024 NCBC Order 26 (N.C. Super. Ct. Mar. 15, 2024) (Earp, J.)
Key Terms: motion in limine; expert testimony; Rule 702(a); lost profits; Daubert standard
Plaintiff, seeking damages arising out of Defendants’ alleged breaches of contract, designated two experts to testify on the issue of damages. Plaintiff’s first expert witness, David Knoble, was expected to testify about Plaintiff’s past and future damages. Plaintiff’s second expert witness, Damon Bidencope, was expected to testify on the value of the intended completed project. Defendants moved to (i) exclude all evidence of lost profits on the basis that they are inherently speculative; and (ii) exclude the opinions of Knoble and Bidencope under Rule of Evidence 702.
The Court denied Defendant’s motion. The Court rejected Defendants’ argument that evidence of lost profits was inherently speculative, highlighting that both parties have significant experience in the commercial real estate industry in the Charlotte area and the intended mixed-use development was not novel. Thus, in light of the relevant information available, Plaintiff’s damages in the form of lost profits were not impermissibly speculative. The Court also rejected Defendants’ argument to exclude the expert witnesses, finding that the proposed expert witness’ methodology passed the Daubert standard and that any issues with their methodology could be explored on cross-examination and would go to the testimony’s weight rather than its reliability.
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Davis v. Davis Funeral Serv., Inc., 2024 NCBC Order 27 (N.C. Super. Ct. Mar. 15, 2024) (Conrad, J.)
Key Terms: show cause; court deadlines; sanctions; dismissal
The factual and procedural background of this case is summarized here and here. Upon the parties’ joint motion, the Court scheduled a jury trial for March 11 on the claims and counterclaims between Davis and Davis Funeral Service to be followed by a bench trial on the damages that Tedder is entitled to recover from Davis Funeral Service. The Court subsequently issued a pretrial scheduling order which required the parties, excluding Tedder, to submit their proposed pretrial order by February 5 and their proposed verdict forms and jury instructions by February 19. The parties did not submit their pretrial order on time, and despite the Court’s warning, also missed the deadline to submit proposed verdict forms and jury instructions. The Court canceled the pre-trial hearing and the trial and directed the parties to appear and show cause why they should not be sanctioned for disregarding the Court’s orders. Finding that the parties failed to provide a satisfactory explanation for their failure to comply with the deadlines and that their conduct wasted the Court’s resources and prejudiced Third-Party Defendant Tedder, the Court dismissed Plaintiff’s complaint and Defendants’ counterclaims without prejudice.
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Intersal, Inc. v. Wilson, 2024 NCBC Order 28 (N.C. Super. Ct. Mar. 15, 2024) (Earp, J.)
Key Terms: pirate ship; attorney-client privilege; protective order; Public Records Act; Electronics Surveillance Act
As summarized here, this case arises from a series of agreements entered into between Plaintiff and Defendants relating to the rights over two sunken ships located off the North Carolina coast. Originally calendared for trial on February 19, 2024, the trial was postponed following the discovery of previously undisclosed images and recordings from a meeting in 2014.
On February 3, 2014, representatives and counsel for Plaintiff, Defendants, and Nautilus Productions, LLC met to discuss issues arising from a 2013 settlement agreement between the parties. Unbeknownst to the other parties, Nautilus’s CEO created two sound recordings of the meeting on his laptop. The recordings continued during breaks in the meeting when, at times, Defendants were left alone in the meeting room with their counsel. The recording was not disclosed to Plaintiff’s counsel until February 1, 2024, and was subsequently forwarded to Defendants’ counsel on February 7, 2024.
Defendants moved for a protective order on the basis that the recordings contained communications subject to the attorney-client privilege. Plaintiff argued that the North Carolina Public Records Act required the production of attorney-client communications from a governmental agency such as the North Carolina Department of Natural and Cultural Resources. Prior to 2023, the Public Records Act required a communication to be “by an attorney at law” and to have been made within the last three years to qualify for exemption from disclosure. The Act was amended in October 2023 to remove these two conditions. As a result, the current Act exempts from public disclosure all written communications made within the scope of the attorney-client relationship, regardless of its age. Plaintiff argued that since the recording was made in 2004, the prior version of the Act applied to the recordings, and the three-year limitation had expired.
The Court concluded that the Act did not require disclosure of the recordings because the definition of “public records” did not encompass the recordings since they were not made pursuant to law. The Court also held that since Defendants did not have possession of the recordings until February 7, 2024, the current Act applied, which eliminated the three-year limitation on attorney-client privileged communications. After an in camera review of the recording transcripts, the Court determined that certain portions of the transcript were privileged and ordered such portions to be redacted by March 22, 2024. The Court declined to rule on other grounds for the exclusion of the recordings until the parties had sufficient opportunity to conduct discovery and engage in further motions practice.
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Bradshaw v. Maiden, No. 52A23, 2024 N.C. LEXIS 155, 2024 WL 1222541 (Mar. 22, 2024) (per curiam)
Key Terms: appeal; N.C.G.S. § 7A-30(2); dissent; 12(b)(6); summary judgment; hedge fund
This suit commenced in 2014 when Plaintiffs—several investors in a hedge fund run by Defendant Maiden—brought suit against Maiden, Maiden Capital, LLC, and SS&C (the fund’s administrator) for claims arising out of Plaintiffs’ injuries from investing in the fund. In 2015, the Business Court granted a 12(b)(6) dismissal, in part, of Plaintiffs’ claim against SS&C for gross negligence. In 2020, the Business Court granted summary judgment to SS&C on Plaintiffs’ remaining claims. Once the remaining claims involving the other parties were disposed of, Plaintiffs appealed the orders dismissing their claims against SS&C. The Court of Appeals affirmed in an unpublished decision; however, Plaintiffs then appealed to the Supreme Court based on a dissent.
The members of the Court were evenly split, with three voting to affirm, three voting to reverse, and one not participating. Accordingly, the decision of the Court of Appeals was left undisturbed and stands without precedential value.
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Slattery v. Appy City, LLC, No. 218A22, 2024 N.C. LEXIS 161, 2024 WL 1222648 (Mar. 22, 2024) (Newby, C.J.)
Key Terms: entry of default; summary judgment; personal jurisdiction; service of process; general appearance; motion to claim exempt property; affirmed
This appeal arose from the entries of default and summary judgment against Defendant Barber after she failed to appear in the case. To enforce the judgment, Plaintiff served a notice of right to claim exemption on Barber; she then appeared for the first time and moved to claim exempt property. Three months later, she moved, under Rules 55 and 60, to set aside the entries of default and summary judgment, arguing that the judgment was void for lack of personal jurisdiction because she had not been served with process or appeared prior to entry of summary judgment. The Business Court denied the motion, concluding that while Plaintiff had failed to show that Barber was served, Barber had made a general appearance by moving to claim exempt property and therefore, had waived any objection to personal jurisdiction and sufficiency of service of process. Barber appealed.
The Supreme Court affirmed and held that Barber made a general appearance in the action when she moved to claim exempt property without simultaneously objecting to the Court’s personal jurisdiction. The Supreme Court’s decision was informed by the Court of Appeal’s 1991 decision in Faucette v. Dickerson, which presented similar facts. To the extent other decisions of the Court of Appeals suggest that a general appearance must be made before entry of judgment to waive objections to personal jurisdiction and sufficiency of service of process, such decisions are overruled.
Justice Riggs, joined by Justice Earls, dissented, on the basis that since the judgment was entered without personal jurisdiction over Barber, it was null and void on entry and could not be resurrected by a subsequent general appearance.
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 03/27/24
JT Russell and Sons, Inc. v. Russell, 2024 NCBC 13 (N.C. Super. Ct. Feb 28, 2024) (Conrad, J.)
Key Terms: Rule 12(b)(6); UDTPA; misuse of corporate resources; in or affecting commerce; breach of contract; statute of frauds; N.C.G.S. § 22-1; account stated; statute of limitations; constructive trust
In this action, Plaintiff JT Rusell and Sons, an asphalt and road construction business, alleged that Defendant Jim Russell, its former officer, abused his position by channeling company resources toward his other personal and business interests, including Defendants Tillery Tradition and Mid-Eastern Asphalt. Defendants moved to dismiss some of the claims pursuant to Rule 12(b)(6).
UDTPA Claim. Defendants argued that the UDTPA claim should be dismissed because it was based on Jim’s alleged misuse of corporate resources, which were matters internal to JT Russell and therefore not “in or affecting commerce.” The Court agreed and dismissed the claim since, as alleged, the unfairness of Jim’s conduct was wholly internal to JT Russell and did not occur in the broader marketplace.
Breach of Contract. The Court denied dismissal of the claim for breach of contract against Jim, determining that JT Russell had met the low bar necessary to allege breach of contract based on its allegations that Jim had offered to pay back certain sums, that JT Russell had accepted that offer, and that Jim failed to make the promised payments. The Court rejected Jim’s argument that any promise by him to repay Tillery Tradition’s debt was barred by the statute of frauds pursuant to N.C.G.S. § 22-1. Construed liberally, the complaint alleged Jim’s promise to repay his own debts and therefore, the statute’s requirement regarding contracts to repay the debts of another was inapplicable.
Account Stated. The Court denied dismissal of the claim for account stated against Tillery Tradition, finding that JT Russell had adequately alleged the necessary elements: that it had calculated the balance due, that it submitted a statement of account to Tillery Tradition, that Tillery Tradition had acknowledged the statement’s correctness, and that Tillery Tradition had made a promise to pay the balance due. Tillery Tradition’s arguments that 1) JT Russell had sent a demand for repayment and an invitation to negotiate, rather than a true statement of account, and 2) the claim was barred by the statute of limitations were both questions for discovery.
Constructive Trust. Because a constructive trust is not a standalone claim, the Court dismissed this claim, but without prejudice to JT Russell’s right to seek a constructive trust as a remedy at a later stage.
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JT Russell and Sons, Inc. v. Russell, 2024 NCBC 14 (N.C. Super. Ct. Feb. 28, 2024) (Conrad, J.)
Key Terms: Rule 12(b)(6); derivative claims; presuit demand; N.C.G.S. § 55-7-42; dissolution; N.C.G.S. § 55-14-30(2); equitable accounting
This action involves a dispute between the shareholders of JT Russell and Sons, a family-owned business. After JT Russell brought suit against Jim Russell, one of its shareholders and a former officer, Jim sought dissolution of JT Russell and asserted derivative claims against some of the other current or former officers. The counterclaim-defendants moved to dismiss these claims.
Derivative Claims. The Court dismissed all of Jim’s derivative claims without prejudice for lack of subject matter jurisdiction based on Jim’s failure to comply with the presuit demand requirement of N.C.G.S. § 55-7-42. Although Jim contended that the list of potential claims he had provided to JT Russell prior to filing suit satisfied this requirement, the Court determined that the document was insufficient because it did not demand that JT Russell take any action.
Dissolution. Jim sought the dissolution of JT Russell on the grounds that his reasonable expectation to participate in the management of the family business had been frustrated and that the individual counterclaim defendants had mismanaged the company and misused its assets for personal gain. JT Russell conceded at the hearing that Jim had adequately stated a claim for dissolution but nonetheless sought partial dismissal to the extent the claim was based on alleged misconduct which Jim failed to object to while an officer and director. However, since Rule 12(b)(6) operates to dismiss claims, not allegations, the Court rejected this argument and denied dismissal of the dissolution claim.
Accounting. Because an equitable accounting is not an independent cause of action, the Court dismissed the claim, but did so without prejudice to Jim’s right to seek an accounting as a remedy.
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Kumar v. Patel, 2024 NCBC 15 (N.C. Super. Ct. Feb. 28, 2024) (Robinson, J.)
Key Terms: conversion; eBay account; breach of contract; condition precedent; unjust enrichment; equitable accounting; fraud; negligent misrepresentation; Rule 9(b); reasonable reliance; breach of fiduciary duty; judicial dissolution; standing
This action arose out of Plaintiff Kumar and Defendant Patel’s formation of Defendant Empower Tomorrow, a nonprofit, and the events that followed. Plaintiffs contended that they provided the nonprofit startup funds with the understanding that the funds would eventually be repaid and that Kumar would be paid back-pay for his work at the nonprofit between 2019 and 2023. When the funds failed to materialize, Plaintiffs filed suit alleging eleven claims for relief. Defendants moved to dismiss most of the claims under Rules 12(b)(1) and 12(b)(6).
Conversion. Plaintiffs asserted a claim for conversion contending that 1) Defendants wrongfully converted loans and purchased inventory; and 2) Patel converted Kumar’s eBay account. The Court dismissed the claim on both grounds with prejudice. The Court determined first, that a failure to pay a debt does not amount to a civil claim for conversion, and second, that preventing access to an online electronics store platform such as eBay did not give rise to a claim for conversion either, particularly where the account still existed and Defendants had not caused a complete deprivation.
Accounting. The Court dismissed the accounting claim without prejudice because Plaintiffs did not allege or argue any reason why discovery procedures would be insufficient to obtain the desired account information.
Breach of Contract. Kumar’s breach of contract claim was based on breach of an alleged agreement that Empower Tomorrow would pay him a back-owed salary as soon as Empower Tomorrow became profitable and surpassed monthly net revenue of $10,000. However, because Kumar did not allege that either of the conditions precedent–profitability and $10,000 in revenue–had been met, the Court dismissed the claim without prejudice.
Unjust Enrichment. Kumar asserted an unjust enrichment claim based on his expectation to receive a salary once Empower Tomorrow became profitable. The Court determined, however, that the claim was insufficient because Kumar’s work appeared to be conferred gratuitously based on his allegation that he and Patel had not decided to receive salaries until years after the work had been completed.
Member Judicial Dissolution. The Court granted dismissal under Rule 12(b)(1) of Kumar’s claim for judicial dissolution of Empower Tomorrow because Empower Tomorrow’s articles of incorporation, which were attached to the complaint, contradicted and negated any allegation that Kumar was a member of the company.
Breach of Fiduciary Duty and Constructive Fraud. The Court dismissed Plaintiffs’ fiduciary duty claims against Patel with prejudice. No de jure fiduciary duty existed between Patel and Plaintiffs because any fiduciary duty she owed ran to Empower Tomorrow, not Plaintiffs. Moreover, Plaintiffs had not alleged any facts sufficient to establish the existence of a de facto fiduciary relationship.
Fraud and Negligent Misrepresentation. The Court dismissed these claims without prejudice based on Plaintiffs’ failure to plead the time, place, or specific content of any of the alleged misstatements of Patel or to allege facts constituting reasonable reliance.
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BIOMILQ, INC. v. Guiliano, 2024 NCBC 16 (N.C. Super. Ct. Feb. 29, 2024) (Robinson, J.)
Key Terms: pro se; Rule 60; interlocutory order; Rule 12(b)(6); Rule 12(g); Rule (12(h)
Following entry of an Order denying Defendants’ motion to dismiss, Defendant Guiliano, proceeding pro se, filed a “Motion for Rule 60 Relief from Judgment” requesting that the Court reconsider its Order, reconsider the Rule 12(b) motions already filed, and consider a new 12(b)(6) motion to dismiss based on Rules 12(g) and (h)(2). The Court denied the motion without a hearing. Because the Order was an interlocutory order, the Court did not have authority to grant relief pursuant to Rule 60(b), which applies only to relief from a final judgment. Furthermore, consideration of Guiliano’s new motion under Rule 12(b)(6) pursuant to Rules 12(g) and (h)(2) was not appropriate because the Rules do not permit a party to make a pre-trial motion under Rule 12(b)(6) after the party has answered.
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Found. Bldg. Materials, LLC v. Conking & Calabrese, Co., 2024 NCBC 17 (N.C. Super. Ct. Mar. 4, 2024) (Earp., J.)
Key Terms: tortious interference with business relations; without justification; unfair and deceptive trade practices; market power; monopoly; Noerr-Pennington doctrine
As summarized here, this lawsuit involves a dispute between Plaintiff FBM and Defendant Conking, who are competitors in the building material distribution industry. FBM moved to dismiss Conking’s counterclaims for tortious interference with business relations and unfair and deceptive trade practices.
The Court dismissed without prejudice Conkings’ claim for tortious interference with business relations because Conking failed to allege any facts showing that FBM/Henshaw acted without justification.
The Court also dismissed without prejudice Conking’s claim for unfair and deceptive trade practices under both N.C.G.S. § 75-1.1 and the common law. These claims were premised on 1) FBM’s alleged tortious interference; 2) FBM’s “exploitation” of its market power to convince others to place “holds” on doing business with Conking; and 3) the commencement and prosecution of the present lawsuit. Since the Court had already dismissed the tortious interference claim, the UDTP claim based on it failed as well. Further, FBM’s alleged misuse of its market power did not amount to an unfair trade practice since Conking did not allege a conspiracy or a monopoly. Lastly, Conking’s contention that the lawsuit itself constituted an unfair trade practice failed under the Noerr-Pennington doctrine because Conking had not shown that the lawsuit was objectively meritless.
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Airtron, Inc. v. Heinrich, 2024 NCBC 18 (N.C. Super. Ct. Mar. 12, 2024) (Conrad, J.)
Key Terms: motion for sanctions; discovery violations; pro se; BCR 10.9; default judgment
This order and opinion addresses Plaintiff’s motion to sanction Defendant for disobeying the Court’s discovery orders. Defendant, proceeding pro se, was previously ordered by the Court to serve full and complete discovery responses. Thereafter, Defendant still failed to fully respond to Plaintiff’s discovery requests, but, upon Plaintiff’s motion to compel, the Court gave Defendant a second chance to fully respond and required him to pay some of Plaintiff’s attorney’s fees. After Defendant again failed to comply, Plaintiff moved for sanctions, including striking Defendant’s answer and entering a default judgment. Determining that lesser sanctions were insufficient, the Court granted the motion. Defendant’s conduct had stalled the progress of the case, prejudiced Plaintiff, and wasted judicial resources. Moreover, Plaintiff’s allegations against Defendant for misappropriation of trade secrets and unfair or deceptive trade practices were adequate to state a claim and therefore default judgment as to liability on those claims was appropriate.
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Davis v. Davis Funeral Serv., Inc., 2024 NCBC Order 21 (N.C. Super. Ct. Mar. 4, 2024) (Conrad, J.)
Key Terms: attorneys’ fees; Rule 11; Rule 37(c); requests for admission
As summarized here, the Court previously granted summary judgment in favor of third-party defendant Tedder on Davis Funeral Service’s claims against her. Tedder then moved for an award of attorney’s fees under Rules 11 and 37(c) and N.C.G.S. § 1D-45. The Court granted the motion pursuant to Rule 11. The evidence showed that Davis Funeral Service knew or should have known at the time it filed its third-party complaint against Tedder that the allegations against her were false. Further, even if they hadn’t known at that time, they were previously put on notice of the dispositive evidence but continued to pursue the claims through summary judgment. The Court directed the parties to confer in an effort to agree to the amount due, but if the conference was unsuccessful Tedder could supplement her materials. The Court did not decide the motion under N.C.G.S. § 1D-45 since it provided a second basis to award the same fees. As for the request under Rule 37(c), Tedder sought attorneys’ fees incurred in conducting discovery related to her own counterclaims based on Davis Funeral Service’s denial of several requests for admission. The Court denied this request because it concluded that the admissions sought were of no substantial importance.
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Gvest Real Est., LLC v. JS Real Est. Invs., LLC, 2024 NCBC Order 22 (N.C. Super. Ct. Mar. 7, 2024) (Conrad, J.)
Key Terms: motion for reconsideration; Rule 54(b)
In a previous order, summarized here, the Court entered summary judgment against Plaintiff on each of its claims. Plaintiff moved, under Rule 54(b), for partial reconsideration, seeking to revive its declaratory judgment claim. The Court denied the motion. Plaintiff’s arguments were based on the same evidence previously considered and found wanting by the Court. Moreover, Plaintiff attempted to raise new arguments which it had waived by not raising earlier. Finally, Plaintiff’s interpretation of the operating agreement at issue did not comport with the agreement’s plain language.
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Bui v. Phan, 2024 NCBC Order 23 (N.C. Super. Ct. Mar. 8, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; N.C.G.S. § 7A-45.4(a)(1); opposition to designation
Plaintiff filed suit asserting claims for declaratory judgment and breach of Defendant Golden Rooster, LLC’s operating agreement, and timely filed a notice of designation. However, as summarized here, the Court determined that designation was improper. Thereafter, Defendants filed their answer and counterclaims asserting claims against Plaintiff for breach of fiduciary duty and involuntary withdrawal. Plaintiff timely filed a second notice of designation under N.C.G.S. § 7A-45.4(a)(1), but this time based on the counterclaims. Defendants opposed designation. The Court determined that designation was proper because Defendants’ counterclaims alleged that Plaintiff, as a managing member of Golden Rooster, breached fiduciary duties owed to the company, which duties are governed by Chapter 57D. Defendants’ argument that designation was improper under Rule 2.1(b) was irrelevant since Plaintiff sought designation under N.C.G.S. § 7A-45.4(a)(1). Furthermore, Defendants’ argument that designation was improper because the case was not complex or exceptional was without merit since designation does not require any particular complexity. Accordingly, the opposition was overruled.
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Caraballo-Lopez v. Retail Bus. Servs., LLC, 2024 NCBC Order 24 (N.C. Super. Ct. Mar. 11, 2024) (Bledsoe, C.J.)
Key Terms: order on designation; untimely; personal injury; N.C.G.S. § 7A-45.4(h)
Defendants sought designation of this case as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(1). However, the Court determined that designation was improper for two reasons. First, Defendants failed to file their notice of designation within thirty days of accepting service of the first amended complaint. Second, the case is a wrongful death action which is excluded from designation by N.C.G.S. § 7A-45.4(h).
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Howard v. IOMAXIS, LLC, 2024 NCBC Order 25 (N.C. Super. Ct. Mar. 12, 2024) (Earp, J.)
Key Terms: receiver; compensation; stay pending appeal; substantial right; N.C.G.S. § 1-294
The Court entered this order sua sponte to address the procedural posture of the case following IOMAXIS’s appeal of the Court’s Order on Receiver’s Application for Interim Compensation to Receiver and Counsel (the “Fee Order”), along with eight other interlocutory orders. IOMAXIS contended that a substantial right has been impacted because the Fee Order requires the immediate payment of a significant sum ($6,025.00) and that absent a stay of the Fee Order pending appeal, it is unclear whether IOMAXIS would be able to recoup the funds if the Supreme Court determines that the appointment of a receiver was improper.
The Court concluded that a stay of the Fee Order during the appeal was not appropriate. The attempted appeal was a nullity because IOMAXIS had failed to show a substantial right would be lost if the Fee Order was not reviewed before final judgment. The Court also acknowledged the Receiver’s policy arguments and agreed that permitting a party subject to a receivership to use an interlocutory appeal to delay the receiver’s compensation would jeopardize the receiver’s neutrality and discourage qualified individuals from accepting the assignments.
As for the other eight orders appealed, IOMAXIS had argued that the issues in those orders were “inextricably intertwined” with the issue regarding the Fee Order. However, since the Court determined that the appeal of the Fee Order was ineffective, so too was IOMAXIS’s attempt to appeal the other orders.
For these reasons, the Court held that N.C.G.S. § 1-294 did not stay the action pending the appeal. The Court also declined to exercise its discretion to issue a stay; however, to address IOMAXIS’s concern that the funds paid to the Receiver would be lost, the Court amended the previous Receiver Order to require Plaintiffs to post a bond with the clerk in the initial amount of $200,000.
By: Ashley B. Oldfield
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 03/13/24
Cutter v. Vojnovic, 2024 NCBC 7 (N.C. Super. Ct. Feb. 16, 2024) (Bledsoe, C.J.)
Key Terms: cross motions for summary judgment; motion to strike; personal knowledge; legal terms of art; common law partnership; indicia of an enforceable partnership; tortious interference with prospective economic advantage
As previously summarized here, Plaintiff filed suit alleging that he and Defendant had entered into a common law partnership agreement in relation to the purchase of a restaurant business and that Defendant’s closing of the purchase of the business without Plaintiff’s participation gave rise to numerous claims. Following dismissal of certain claims, both sides moved for summary judgment on Plaintiff’s remaining claims.
Motion to Strike. Defendants moved to strike certain portions of Plaintiff’s affidavit challenging Plaintiff’s personal knowledge of the facts alleged therein and his use of legal terms of art. The Court struck the portions of the affidavit describing Plaintiff’s opinions on available financing and investor interest in the purchased business because they without any factual support. The Court also struck Plaintiff’s use of the terms “partnership” and “misappropriation” because they were inadmissible legal conclusions. However, the Court rejected Defendants’ challenge to Plaintiff’s assertion of personal knowledge in the affidavit because such challenge went to the veracity of Plaintiff’s assertion, not its admissibility. Defendants also challenged (at the summary judgment hearing) Plaintiff’s submission of an expert report from a lawyer which opined on partnership law and its application to the case. Because the report impermissibly opined on the legal effect of the facts at hand, the Court elected to disregard it in considering the motions for summary judgment.
Cross Motions for Summary Judgment. The parties sought summary judgment on Plaintiff’s remaining claims which the Court divided into two categories: those dependent on the existence of a common law partnership and those that were not.
The Court found that a common law partnership between Plaintiff and Defendant Vojnovic did not exist because there was no mutual agreement between the parties as to how to share losses, Plaintiff never assumed any risk of loss for the partnership, and the parties never reached an agreement as to the financing for the proposed purchase of the business. Moreover, the parties never registered a partnership name, made capital contributions to a partnership entity, set up bank accounts for the purported partnership, filed partnership tax returns, or agreed on other material terms of a partnership agreement. Because the Court concluded that a partnership did not exist, it denied Plaintiff’s motion for summary judgment and granted Defendants’ motion for summary judgment as to Plaintiff’s claims for breach of the alleged partnership agreement, breach of Defendant Vojnovic’s fiduciary duty as a member of the alleged partnership, and judicial dissolution of and an accounting of the alleged partnership. The Court dismissed the claims with prejudice.
Lastly, the Court dismissed Plaintiff’s claim for tortious interference with prospective economic advantage finding that Plaintiff’s contention that he could have purchased the restaurant but for Defendant Vojnovic’s interference was supported only by speculation and conjecture, not admissible evidence. The Court concluded that Plaintiff failed to offer any competent evidence that a contract would have resulted but for the defendant’s malicious intervention and dismissed the claim with prejudice.
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Stamatakos v. Carolina Urology Partners, PLLC, 2024 NCBC 8 (N.C. Super. Ct. Feb. 20, 2024) (Davis, J.)
Key Terms: motion to dismiss; motion to amend; futility; fraud; UDTP; commerce; learned profession exception
This lawsuit concerns the termination of Plaintiff Stamatakos from his employment with Defendant Carolina Urology Partners, PLLC (“CUP”). Before the Court were Plaintiff’s motion for leave to file a second amended complaint and Defendants’ partial motion to dismiss Plaintiff’s claims for fraud and unfair and deceptive trade practices.
Motion to Amend. Defendants opposed Plaintiff’s motion to amend on the grounds of futility arguing that the proposed amendments related solely to Plaintiff’s fraud claim and such additional allegations were still insufficient to state a claim for fraud. Plaintiff’s fraud claim is based on the theory that (1) Defendants desired to terminate his membership in CUP, take over his patients, and destroy his practice; and (2) they accomplished this goal via a scheme of deceptive acts intended to mask their true intentions and keep Plaintiff from exercising his rights under CUP’s operating agreement to voluntarily withdraw from CUP. Plaintiff alleges that as a result of Defendants’ fraudulent misrepresentations he was lulled into a state of complacency and thus did not exercise his rights to voluntarily withdraw. Despite Defendants’ arguments that Plaintiff’s amendment would be futile, the Court found that Plaintiff satisfied Rule 9(b) by alleging specific details with regard to the misrepresentations forming the basis for his fraud claim, including by identifying the individuals who made the alleged misrepresentations; the time, place, and manner in which the misrepresentations were made; and the benefit sought to be obtained by Defendants via the fraudulent representations. Accordingly, the Court granted Plaintiff’s motion to amend.
Motion to Dismiss. Noting that allowance of an amended complaint typically moots a pending motion to dismiss, the Court nonetheless considered the partial motion to dismiss because the proposed second amended complaint only added additional allegations of fraud and did not affect Plaintiff’s UDTPA claim. Because the Court already determined that Defendants’ futility arguments lacked merit with regard to the allegations in the proposed second amended complaint, it denied Defendants’ motion to dismiss the fraud claim. However, the Court granted the motion to dismiss the UDTP claim based on the learned profession exception. Plaintiff argued that the learned profession exception should not apply here because the action involves a business dispute rather than the provision of medical care, but citing numerous appellate decisions broadly interpreting the exception, the Court held that Plaintiff’s UDTP claim fell squarely within the learned profession exception. In reaching this determination, the Court highlighted the fact that the provision of medical care permeates every aspect of the lawsuit. The Court dismissed Plaintiff’s UDTP claim with prejudice.
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Lineage Logistics, LLC v. Primus Builders, Inc., 2024 NCBC 9 (N.C. Super. Ct. Feb. 23, 2024) (Bledsoe, C.J.)
Key Terms: motion to strike; Rule 12(f); affirmative defenses; statute of limitations; motion to dismiss; BCR 7.2; third-party complaint; indemnification
As summarized here, Plaintiff Lineage filed suit against certain insurers after they refused to provide defense and indemnification coverage for a tragic incident that occurred at Lineage’s storage facility. Following motions practice and various amendments to the pleadings, Lineage moved to strike certain of Defendants’ affirmative defenses and Third-Party Defendant P3 moved to dismiss the third-party complaint.
Motion to Strike Republic’s Affirmative Defenses. In response to the motion to strike, Republic withdrew several of its asserted affirmative defenses leaving only its 12(b)(6) “motion,” statute of limitations, and N.C.G.S. § 22B-1 defenses at issue. As to the 12(b)(6) “motion,” which was included in Republic’s answer, it did not comply with the Business Court rules requiring a separate motion and supporting brief. Therefore, the Court, in consultation with counsel, elected not to strike the motion to dismiss but to take no action on it unless and until Republic filed a motion and supporting brief in compliance with BCR 7.2.
The Court granted Lineage’s motion to strike as to Republic’ statute of limitations affirmative defense finding that Lineage’s claims in its second amended complaint related back to its first amended complaint which was filed within the statutory timeline and gave Republic notice of the transactions giving rise to the subsequent claims.
Regarding Republic’s argument that N.C.G.S. § 22B-1 rendered its subcontract indemnity provision void, since the Court had previously determined this defense failed as a matter of law and Republic represented that it was included only in order to preserve the issue for appeal, the Court struck this affirmative defense as well.
Motion to Strike Primus’s Affirmative Defenses. Here again, in response to the motion to strike, Primus withdrew several of its asserted affirmative defenses, leaving only waiver and equitable estoppel to be addressed. Although Lineage argued that Primus failed to allege facts showing each of the required elements for waiver or equitable estoppel, the Court found that Primus satisfied its pleading burden under Rule 8 to put Lineage on notice of the facts supporting the affirmative defenses and therefore denied the motion to strike Primus’s waiver and equitable estoppel affirmative defenses.
Motion to Dismiss Third-Party Complaint. P3 sought dismissal of Republic’s Third-Party Complaint on several grounds. First, P3 argued that because Republic failed to timely submit a summons for issuance by the Court, the action abated and service was improper, thereby requiring dismissal of the third-party action for insufficient process and lack of personal jurisdiction. However, despite the delay in having the summons issued, the Court found that the action revived upon the issuance and service of the summons on P3. Therefore, the Court denied P3’s motion to dismiss under Rules 12(b)(2), (4), and (5).
P3 next sought dismissal of Republic’s negligence claim under Rule 12(b)(6), contending that the claim was barred by the applicable three-year statute of limitations under N.C.G.S. § 1-52 because the claim was based on P3’s alleged conduct in causing the injuries suffered on 10 January 2020 but the Third-Party Complaint was not filed until 1 November 2023. In response, Republic argued that its negligence claim was timely because it related back to Lineage’s negligence and indemnity claims in a separate lawsuit Lineage filed against P3 in January 2023 and that therefore P3 had long been on notice of the events or occurrences giving rise to Republic’s negligence claim. However, the Court found that Rule 15(c) contemplates relation back to the “original pleading” in the same action, not to a pleading in a separate action. The Court additionally noted that Republic cannot get the benefit of Rule 15(c)’s relation back provision since Republic is a newly added defendant in the present action. Accordingly, the negligence claim was barred by the applicable statute of limitations, and the Court dismissed it.
Lastly, P3 separately argued that because Lineage’s claims are grounded in contract, not tort, Republic’s third-party claims for negligence, indemnity, and contribution must be dismissed. The Court agreed. Republic’s failure to allege any underlying tortious injury or damages provided a separate ground for dismissal of its negligence claim. In addition, because there was no tort claim against Republic for which it seeks indemnity from P3, Republic’s indemnification claim did not fit the “active-passive tort-feasor framework” required to state a claim for a right to indemnity implied-in-law. The Court therefore dismissed Republic’s indemnification claim as well and dismissed the Third-Party Complaint with prejudice.
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Anderson v. Hobart Fin. Grp., Inc., 2024 NCBC 10 (N.C. Super. Ct. Feb. 26, 2024) (Robinson, J.)
Key Terms: registered investment advisor; registered broker; breach of fiduciary duty; constructive fraud; N.C. Securities Act; fraud; professional negligence; UDTPA; negligent misrepresentation; statute of limitations; Rule 12(b)(6); Rule 9(b)
This action arose out of Defendants’ alleged recommendation of unsuitable investment products to Plaintiffs (including Ms. Byrnes, Mr. Tanger, Dr. Zucker, the Wilshires, the Ostranders, and the Leshocks–all older adults who were retired or near retirement), who purchased some of those investments to their financial detriment. Plaintiffs’ second amended complaint alleged seven claims, primarily relating to alleged misrepresentations and breaches of fiduciary duties, against one or more of the Defendants, which include several related entities (the “Hobart Entities”) offering investment services and three of their employees who are registered investment advisors and/or FINRA registered brokers. Defendants moved to dismiss all claims pursuant to Rules 12(b)(6) and 9(b).
Statute of Limitations. The Court first addressed Defendants’ assertion that a number of the claims were barred by the applicable statute of limitations. Beginning with Ms. Byrnes’s claim for constructive fraud, the Court determined that this claim was time-barred because the act giving rise to the claim–Defendants’ recommendation that Ms. Byrnes purchase unsuitable investments–occurred more than ten years before the action was filed.
The Court also dismissed all of Mr. Tanger’s and Dr. Zucker’s claims, except for constructive fraud, as Plaintiffs’ counsel had previously conceded that the claims were untimely.
Regarding Plaintiffs’ claim for violation of the North Carolina Securities Act, the Court could not conclude that it was time-barred because although the sales of the securities had occurred more than five years before suit was filed, Plaintiffs alleged that Defendants actively concealed their violations.
Regarding Plaintiffs’ claims for breach of fiduciary duty, fraud, and negligent misrepresentation, all of which are subject to a three-year statute of limitations which begins to run when the claimant knew, or should have known, of the facts giving rise to the claim, the Court was also unable to conclude, at this stage, that the claims were time-barred. Whether Plaintiffs could have discovered Defendants’ alleged wrongdoing in the exercise of due diligence required a more fact-intensive inquiry that was inappropriate at the 12(b)(6) stage.
As for the professional negligence claims, the Ostranders’ claim was dismissed because the last act giving rise to their claim occurred outside the three-year statute of limitations. However, the Leshocks’ claim survived under the continuing wrong doctrine based on Defendants’ reinvestment of dividends in 2020.
Rule 9(b). The Court next considered whether Plaintiffs had pleaded their fraud and negligent misrepresentation claims with sufficient particularity as required by Rule 9(b). The fraud claims of the Leshocks and the Wilshires were dismissed with prejudice because they failed to sufficiently allege either the time and place of the representation, what was obtained as a result of it, or the exercise of reasonable diligence to independently investigate the truth of the representations. In contrast, the Ostranders’ allegations adequately stated the circumstances and included their attempts to investigate the veracity of the statements; therefore, their fraud claim survived. The reasonableness of their reliance would be best determined later in the litigation. With regard to the negligent misrepresentation claim, none of the Plaintiffs’ adequately alleged what information was deficiently prepared or reasonable reliance. Thus, these claims were dismissed with prejudice.
Sufficiency of Remaining Claims. Turning to the claims for breach of fiduciary duty and constructive fraud, the Court first determined that Plaintiffs had adequately alleged the existence of a fiduciary duty. The individual defendants were all registered investment advisors who were acting in furtherance of the business of the Hobart Entities, thereby giving rise to a de jure fiduciary relationship. In addition, Plaintiffs’ allegations that they were unsophisticated, vulnerable investors who were operating with less than complete information and relied on Defendants’ repeated assurances they were acting in Plaintiffs’ best interest were sufficient to plead the existence of a de facto fiduciary relationship. Because Plaintiffs alleged breach and that Defendants benefited by receiving undisclosed or misrepresented fees and commissions, the breach of fiduciary duty and constructive fraud claims survived.
Regarding the NCSA claim, which was based on Plaintiffs’ allegations of fraud, the Court dismissed the Leshocks’ and Wilshires’ claims for the same reasons their fraud and negligent misrepresentation claims failed. The Ostranders’ NCSA claim survived, though, since their fraud claim had survived.
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Johnson Bros. v. City of Charlotte, 2024 NCBC 11 (N.C. Super. Ct. Feb. 27, 2024) (Bledsoe, C.J.)
Key Terms: motion to dismiss; 12(b)(1); 12(b)(2); 12(b)(6); sovereign immunity; statute of limitations; N.C.G.S. § 1-53(a); governmental functions; proprietary functions; waiver; breach of contract; mutual mistake; breach of warranty; breach of implied covenant of good faith and fair dealing
This case involves a dispute between Plaintiff JBC, which served as the general contractor on Defendant City of Charlotte’s CityLYNX Gold Line Streetcar extension project, and the City over the City’s alleged breaches of the parties’ contract for construction of the Project. The City sought dismissal of JBC’s claims on the grounds that the claims were barred by sovereign immunity and by the applicable statute of limitations. After JBC’s voluntary dismissal of several claims and the City’s concession that JBC’s claim for violation of the Prompt Payment Act should survive, the claims subject to the motion to dismiss were (i) breach of contract, (ii) breach of expressed & implied warranties, (iii) breach of the implied covenant of good faith and fair dealing, (iv) mutual mistake, and (v) pass-through claims of subcontractors.
Sovereign Immunity. Addressing the City’s sovereign immunity defense on a claim-by-claim basis and under Rule 12(b)(2), the Court found that the City was not immune from these claims under the doctrine of sovereign immunity.
Breach of Contract and Pass-Through Claims. Utilizing the Estate of Williams test, the Court determined that the City’s provision of the streetcar system is a governmental function and therefore, absent waiver, the City would be entitled to governmental immunity against JBC’s claims. However, because JBC had adequately pleaded the existence of a valid contract with the City, such immunity was waived. The Court rejected the City’s argument that JBC’s failure to comply with the contractual procedures for recovery barred the claim under governmental immunity. Determining JBC’s compliance with conditions precedent was an inquiry into the merits of JBC’s claim and therefore not relevant to determining sovereign immunity.
Breach of Warranty. The Court found that the breach of warranty claim survived dismissal on the grounds of immunity because JBC had adequately pleaded breach of an implied warranty of plans and specifications by alleging that the City published the plans, that JBC relied on said plans in completing the project, and that as a result of the “inaccurate and inadequate” plans, JBC suffered injury.
Mutual Mistake. The City next sought dismissal of JBC’s claim for mutual mistake, arguing that since JBC’s claim for mutual mistake posits that a valid contract was never formed, and because the City’s waiver of sovereign immunity extends only to its agreements with JBC pursuant to the contract, JBC’s claim seeking to invalidate the Contract is not a claim on which the City has agreed to be sued. The Court disagreed, finding that JBC’s mutual mistake claim was not for invalidation of the contract as a whole, but for reformation of the contract. Since JBC has pleaded entry into a valid contract, it had adequately pleaded waiver of sovereign immunity for claims on that contract, including its claim for mutual mistake.
Statute of Limitations. The City also sought dismissal of JBC’s claims under Rule 12(b)(6) as barred by the two-year limitations periods set forth in N.C.G.S. § 1-53(a).
JBC responded that its claims were timely because it did not have the right to maintain a lawsuit for breach of contract until the relevant contract’s mediation process was completed, which did not occur until 27 January 2023. However, despite the contract’s mediation process requirement, under North Carolina law, absent a tolling agreement, only the applicable statute determines the limitations period and a claim for breach of contract accrues when the contract is breached. Accordingly, the Court found that JBC’s breach of contract claim accrued when the City allegedly breached the Contract.
The Court determined that the allegations of the complaint and the referenced documents demonstrated much of the conduct giving rise to JBC’s breach of contract claim occurred prior to January 31, 2021, and moreover, that JBC was aware of the conduct more than two years before it instituted this action. Therefore, the Court held that to the extent JBC’s breach of contract claim arises out of alleged breaches of the contract at issue that occurred prior to January 31, 2021, the claim is barred by the statute of limitations. Accordingly, JBC’s breach of contract claim would proceed to discovery only to the extent that it sought to recover for alleged breaches that occurred on or after January 31, 2021.
However, the Court determined that JBC’s claims for mutual mistake and breach of implied and express warranties were wholly barred by the statute of limitations because JBC’s complaint clearly demonstrated that JBC was aware of the alleged mistakes and plan inaccuracies more than two years prior to the initiation of the lawsuit.
Breach of the Implied Covenant. Lastly, the City argued that JBC’s claim for breach of the implied covenant of good faith and fair dealing should be dismissed because it is duplicative of and based on the same alleged facts as the breach of contract claim. The Court agreed and therefore denied and granted the motion to dismiss the implied covenant claim to the same extent as JBC’s breach of contract claim.
In conclusion, JBC’s remaining claims are the limited breach of contract, implied covenant of good faith and fair dealing, and pass-through claims, and the violation of the Prompt Payment Act claim. All others were dismissed with prejudice.
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Johnson Bros. v. City of Charlotte, 2024 NCBC 12 (N.C. Super. Ct. Feb. 27, 2024) (Bledsoe, C.J.)
Key Terms: breach of contract; negligence; professional negligence; economic loss doctrine; Rule 12(b)(6); statute of limitations; indemnification; active-passive tort-feasor framework
This case arises from a dispute between JBC, a general contractor, and the City of Charlotte relating to the parties’ contract to extend the City’s CityLYNX Gold Line, a streetcar system. In response to counterclaims filed by the City for breach of contract and breach of warranty, JBC filed third-party claims for indemnity, negligence, and professional negligence against URS Corporation, which had provided the engineering and design plans for the project. URS moved to dismiss the third-party claims.
URS first argued that the economic loss doctrine prevented JBC’s recovery on all claims. The Court rejected this argument, noting that North Carolina’s case law recognizes a duty of care imposed upon architects for the benefit of construction contractors in the absence of contractual privity. Since JBC had alleged that it was not in privity of contract with URS and that URS owed JBC a common law duty of reasonable care, dismissal on this ground was not appropriate.
URS next argued that the applicable three-year statute of limitations barred JBC’s recovery on the negligence and professional negligence claims to the extent they were based on communications made prior to July 31, 2020. However, because these communications weren’t referenced in the third-party complaint, but were instead found in JBC’s complaint against the City, the Court declined to consider them. Looking only at the allegations in the third-party complaint, the Court was unable to conclude the claims were barred by the statute of limitations and denied the motion on this basis.
Lastly, URS argued that JBC’s indemnification claim against URS should be dismissed, as the City’s claims against JBC were not based on tort. The Court agreed. JBC’s claim did not fit the “active-passive tort-feasor framework” required to state a claim for indemnity implied-in-law. Accordingly, the indemnification claim was dismissed.
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Ferguson Enters., LLC v. Wilkie, 2024 NCBC Order 15 (N.C. Super. Ct. Feb. 14, 2024) (Bledsoe, C.J.)
Key Terms: order on designation; N.C.G.S. § 7A-45.4(a)(8); trade secrets; confidential information
Plaintiff brought claims for violation of the UDTPA, tortious interference, and breach of various contracts related to an employment dispute with Defendants. Defendants sought designation as a mandatory complex business case under N.C.G.S. § 7A-45.4(a)(8), which covers material disputes related to trade secrets.
The Court found that designation was not proper because although the complaint used the words “trade secrets” it did not assert a claim for misappropriation of trade secrets and only alleged material disputes related to Plaintiff’s confidential information, not its trade secrets.
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Hosie v. 8 Rivers Cap., LLC, 2024 NCBC Order 16 (N.C. Super. Ct. Feb. 7, 2024) (Davis, J.)
Key Terms: BCR 10.9; discovery; privilege dispute; attorney-client privilege; internal affairs doctrine; joint client; entity-is-the-client; holder of privilege; choice of law; fiduciary exception; selective waiver
Plaintiffs filed a summary of a discovery dispute in accordance with BCR 10.9 and alleged that Defendant was improperly withholding documents on the basis of the attorney-client privilege. The Court engaged first in a choice-of-law analysis to determine whether North Carolina or Delaware law should apply since the Defendant is a Delaware LLC and its operating agreement contains a Delaware choice of law provision. The Court concluded that North Carolina law governs the attorney-client privilege issues raised by the parties because privilege is collateral to the underlying substantive issues. The Court also rejected Plaintiffs’ argument that the internal affairs doctrine should apply.
The Court next turned to the issue of who controlled the privilege: Defendant 8 Rivers or its former CEO (Plantiff Hosie), who was involved in many of the withheld communications. Without any North Carolina appellate precedent to follow, the Court reviewed the competing approaches of the “joint client” or the “entity-is-the-client” model. The Court determined that the Supreme Court of North Carolina, if presented with the issue, would join the majority of state and federal courts who utilize the “entity-is-the-client” approach and therefore found that Defendant 8 Rivers was the exclusive holder of the attorney-client privilege.
The Court lastly considered whether any existing attorney-client privilege with regard to the withheld documents had been wholly or partially waived by Defendant 8 Rivers and found that Plaintiffs’ argument that 8 Rivers selectively disclosed certain documents that supported its position in the case, while simultaneously withholding other documents containing similar communications that could support Plaintiffs’ position was persuasive. After conducting an in camera review of a sample of the withheld and produced documents to evaluate Plaintiffs’ “selective waiver” argument, the Court determined that the attorney-client privilege had been waived with respect to certain discrete topics and ordered Defendant to produce such documents.
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Charles Schwab & Co. v. Marilley, 2024 NCBC ORDER 17 (N.C. Super. Ct. Feb. 20, 2024) (Earp, J.)
Key Terms: arbitration provision; motion to stay; interpleader; Uniform Transfer to Minors Act
This case arises from a dispute relating to the ownership and release of funds formerly held in a joint brokerage account with Plaintiff by Defendants Peter and Lauren Marilley. Lauren’s grandfather opened two accounts for Lauren’s benefit during her minority. Prior to Lauren reaching adulthood, her father Peter replaced her grandfather as the custodian of the accounts and transferred the funds in the accounts to a joint account. Following Lauren’s twenty-first birthday, a dispute arose between Lauren and Peter regarding the ownership of the funds.
Pursuant to an arbitration clause contained in the client agreement between Peter, Lauren, and Plaintiff, Peter commenced an arbitration proceeding before FINRA in Florida asserting claims against Plaintiff and Lauren and seeking, among other things, a restriction on Lauren’s individual account. Plaintiff initiated the present suit by filing a Complaint for Interpleader and sought a stay of the FINRA arbitration. Lauren answered the complaint, filed cross-claims against Peter, and requested a stay of the FINRA arbitration. Peter countered by filing a motion to stay proceedings and compel arbitration.
The Court first concluded that under governing Nebraska law, the client agreement contained a valid agreement to arbitrate. Turning to the scope of the arbitration clause, the Court determined that the arbitration clause covered disputes between Plaintiff and Defendants, but not disputes between Defendants themselves. Accordingly, Peter’s claims against Plaintiff could proceed in the FINRA arbitration, and to that extent, Lauren’s motion to stay was denied. However, because the claims between Lauren and Peter were not within the scope of the arbitration agreement, the Court denied Peter’s motion to stay the state court proceedings relating to such claims. The Court granted Peter’s motion to stay Plaintiff’s interpleader suit as it related to the claims brought in the FINRA arbitration, so as to not infringe upon Peter’s arbitration claims against Plaintiff.
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Design Gaps, Inc. v. Hall, 2024 NCBC Order 18 (N.C. Super. Ct. Feb. 21, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; opposition; N.C.G.S. §§ 7A-45.4(a)(4), (5), and (8); personal injury exception; misappropriation of trade secrets; common law trademark claims
This case arose out of a dispute between Plaintiff Design Gaps and its former employee, Hall, relating to Hall’s alleged breaches of restrictive covenants in a business development agreement. Defendants designated the case as a mandatory complex business case under N.C.G.S. §§ 7A-45.4(a)(4), (5), and (8). Plaintiffs opposed designation, arguing first that the case did not involve a material issue related to any of the grounds for designation and second that because their claim for tortious interference with contract sounded in tort and sought recovery for personal injury, the action fell within the exception to designation for personal injury actions found in section 7A-45.4(h). The Court rejected both arguments. Regarding the first, the complaint alleged a claim for misappropriation of trade secrets which was sufficient for designation under subsection (a)(8), despite Plaintiffs’ assertion that it was a “side issue.” In addition, the complaint also alleged common law infringement of unregistered trade dress, which was sufficient for designation under subsection (a)(4). Regarding Plaintiffs’ second argument, Plaintiff Design Gaps could not suffer “bodily or mental injuries” as a result of any tortious interference with the agreement since it was a corporate entity. Moreover, Plaintiffs primarily alleged claims for actual damages for misappropriation of proprietary information rather than claims involving “bodily or mental” personal injuries. Accordingly, Plaintiffs’ opposition was overruled.
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Green v. EmergeOrtho, P.A., 2024 NCBC Order 19 (N.C. Super. Ct. Feb. 23, 2024) (Bledsoe, C.J.)
Key Terms: class action; preliminary approval of class action settlement; Rule 23; class certification
Plaintiff brought this class action against Defendant alleging that Defendant had negligently allowed an unauthorized third-party to access the personal information and medical records of numerous individuals. Plaintiff moved, pursuant to Rule 23, for an order preliminarily approving a settlement and certifying a settlement class, among other things. The Court granted the unopposed motion and set the schedule for subsequent deadlines, including a final approval hearing. The Court found the settlement, as embodied in the settlement agreement, to be fair, reasonable and adequate to the settlement class, subject to further consideration at the final approval hearing, and that it was worthwhile to provide notice of the proposed settlement to the settlement class.
By Rachel E. Brinson and Natalie Kutcher.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 02/28/24
Intersal, Inc. v. Wilson, 2024 NCBC 3 (N.C. Super. Ct. Feb. 2, 2024) (Earp, J.)
Key Terms: pirate ship; expert testimony; motion in limine; calculation of damages; Rule 702(a); Daubert standard; copyright law; hypothetical licensing model
As summarized here, this dispute arises from a series of agreements between Plaintiff and the North Carolina Department of Natural and Cultural Resources covering the discovery, promotion, and preservation of two ships that sunk off the North Carolina coast in the eighteenth century. Plaintiff alleged that Defendants breached an agreement entered between the parties in 2013 (the “2013 Agreement”), which included provisions relating to certain media rights.
To support its assertion of damages, Plaintiff sought to offer the expert testimony of Jeffrey Sedlik, a professor of licensing practices and copyright law in visual arts. Defendants moved to exclude Sedlik’s expert testimony, challenging the reliability of his opinions on the bases that: (i) the hypothetical licensing model Sedlik employed is inapplicable because the present dispute is not a copyright infringement case; and (ii) even if the hypothetical licensing model was applicable, Sedlik failed to properly apply it.
The Court concluded that Plaintiff satisfied its burden with respect to Sedlik’s damages testimony under Rule 702(a). Noting that this case is premised upon a legal right stemming from the same source as copyright law and that similar hypothetical licensing models have been embraced by other courts, the Court held that Sedlik’s hypothetical licensing model was applicable to the dispute and admissible. The Court further held that Sedlik would be permitted to offer expert testimony relating to damages incurred by Plaintiff from Defendants’ alleged breaches of the 2013 Agreement, as well as definitions of technical terms or terms of art in the image production and publication industry. However, the Court prohibited Sedlik from offering definitions of commonly used words or phrases or offering any interpretation of the 2013 Agreement or legal conclusions regarding Defendants’ liability.
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Vista Horticultural, Inc. v. Johnson Price Sprinkle, PA, 2024 NCBC 4 (N.C. Super. Ct. Feb. 5, 2024) (Bledsoe, C.J.)
Key Terms: motion to amend complaint; undue delay; futility; bad faith
Plaintiff filed suit in April 2023, alleging malpractice against an accounting firm, DMJPS, PLLC, and later amended its complaint to add another accounting firm, Johnson Price Sprinkle, PA (“JPS”), as a defendant. The amended complaint asserted claims against both firms for breach of contract, professional malpractice/professional negligence, common law negligence, gross negligence, and breach of fiduciary duty. Following the exchange of discovery in late 2023, Plaintiff determined that JPS’s insurance coverage was insufficient to cover the damages alleged and moved to amend its complaint to add JPS’s lead shareholder and owner, Cheng, as a defendant. JPS opposed the motion, arguing undue delay, bad faith, and futility.
The Court first determined that there was no undue delay, as Plaintiff had acted promptly after receiving the information regarding JPS’s insurance coverage. Moreover, since the discovery period was ongoing and JPS’s counsel had conceded that Cheng’s addition as a party-defendant would not change JPS’s litigation conduct, there was no undue prejudice.
Next, the Court rejected JPS’s bad faith argument. Plaintiff’s allegations were supported by facts that must be taken as true, and the Court could not conclude that Plaintiff had engaged in bad faith conduct through the second amended complaint.
Finally, the Court addressed JPS’s futility arguments. The Court denied the addition of a disgorgement claim as Plaintiff conceded at the hearing that it no longer sought disgorgement. The Court also denied the addition of Cheng to the breach of contract claim as there were no allegations that Plaintiff had entered into a contract with Cheng, that Cheng was a third-party beneficiary of the contract, or that Cheng is JPS’s alter ego. However, the Court allowed the addition of Plaintiff’s proposed claims against Cheng for professional malpractice/professional negligence, common law negligence, gross negligence, and breach of fiduciary duty. Since Plaintiff had made no argument regarding the breach of fiduciary duty claim, the Court concluded that Plaintiff had abandoned any contention that leave to amend should be denied as to the breach of fiduciary duty claim. As to the remaining claims, they had been adequately pleaded and were not barred by the economic loss rule because an accountant, like Cheng, owed an independent duty to competently perform services apart from any duty under contract.
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State of N.C. v. E.I. Du Pont De Nemours & Co., 2024 NCBC 5 (N.C. Super. Ct. Feb. 7, 2024) (Robinson, J.)
Key Terms: partial summary judgment; law of the case; assumption of liabilities; chemical manufacturing
In 2020, the State of North Carolina filed this action, bringing claims for negligence, trespass, public nuisance, and fraud against various DuPont-related entities arising from the alleged contamination of North Carolina’s air, land, and water through Defendants’ chemical manufacturing operations at Fayetteville Works. Defendants Corteva and New DuPont moved to dismiss pursuant to Rules 12(b)(2) and 12(b)(6). The Business Court denied the motion under Rule 12(b)(2) (and reserved ruling on the 12(b)(6) motion), determining that it could properly exercise personal jurisdiction over the moving defendants. Defendants appealed to the N.C. Supreme Court, which affirmed the Business Court’s ruling. Following remand, Plaintiff moved for partial summary judgment on the legal issue of whether Corteva and New Dupont contractually assumed the liabilities of Old Dupont arising from Old Dupont’s use, manufacture, and discharge of PFAS.
Plaintiff contended that the Supreme Court’s ruling that Corteva and New DuPont assumed Old DuPont’s PFAS liability was the law of the case, and as such, warranted summary judgment on the issue. The Business Court agreed. Since the Supreme Court had concluded that the agreements at issue established that Corteva and New DuPont were liable for Old DuPont’s PFAS liabilities, it had necessarily determined that Corteva and New DuPont would be held liable if, at a later point in this litigation, Old DuPont is found liable for conduct related to its use, manufacture, and discharge of PFAS. Further, given the lack of any new developments in the case, the Business Court held that the issue of Corteva and New DuPont’s assumption of the PFAS liabilities had been decided with finality for the purposes of the case.
The Court rejected Defendants’ argument that, by seeking summary judgment on the issue of assumption of liability, Plaintiff sought summary judgment on Plaintiff’s first four causes of action, which had not been asserted against Corteva and New DuPont. The Court clarified that its ruling was explicitly limited to the issue of the assumption of liability and did not address any other issues presented by the agreements or whether Old DuPont was actually liable for the alleged conduct.
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Karriker v. Harpoon Holdings, L.P., 2024 NCBC 6 (N.C. Super. Ct. Feb. 12, 2024) (Conrad, J.)
Key Terms: forum-selection clause; Rule 12(b)(3); improper venue; integration clause; Delaware law
Several years ago, Plaintiff converted his membership units in a related entity into several hundred partnership units in Defendant Harpoon Holdings, LLC, thereby becoming a party to Defendant’s limited partnership agreement, which included a provision allowing Defendant to repurchase Plaintiff’s units if Plaintiff’s employment was terminated. Plaintiff later purchased seven more membership units pursuant to a subscription agreement which also permitted Defendant to repurchase the units if Plaintiff’s employment was terminated. After Plaintiff’s employment was terminated, Defendant asserted that it had the right to buy back Plaintiff’s units at cost pursuant to the limited partnership agreement. Plaintiff subsequently filed suit, demanding, among other things, payment for fair market value for all his units. Defendant moved to dismiss pursuant to Rule 12(b)(3), arguing that the subscription agreement contains a forum-selection clause designating Delaware as the exclusive jurisdiction for suits arising out of or relating to the agreement.
Because there was no dispute regarding the validity of the forum-selection clause, the Court focused on whether Plaintiff’s suit was “arising out of or relating to” the subscription agreement. Applying Delaware law, as required by the agreement’s choice-of-law clause, the Court granted Defendant’s motion to dismiss. The Court noted that the case at hand related to all of Plaintiff’s membership units, seven of which were purchased pursuant to the subscription agreement. The Court rejected Plaintiff’s argument that Defendant waived its rights under the subscription agreement when it made a pre-litigation demand to repurchase Plaintiff’s shares under the limited partnership agreement, noting that the issue of whether Defendant waived any rights granted in the subscription agreement was an issue “arising out of” the subscription agreement itself.
The Court further rejected Plaintiff’s argument that a permissive venue clause in the limited partnership agreement “conflicted” with the subscription agreement’s mandatory venue clause, finding that the permissive clause must yield to the mandatory clause. Lastly, the Court rejected Plaintiff’s argument that an integration clause contained in the limited partnership agreement superseded the provisions of the subscription agreement, as the integration clause only superseded prior agreements between the parties, not a later agreement.
The Court dismissed Plaintiff’s suit without prejudice to his right to refile his claims in an appropriate venue.
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Intersal, Inc. v. Wilson, 2024 NCBC Order 12 (N.C. Super. Ct. Feb. 1, 2024) (Earp, J.)
Key Terms: Rule 702; expert witness; motion in limine; pirate ship
In its pursuit of damages for breach of contract relating to media rights over the wreckage of Blackbeard’s flagship, the Queen Anne’s Revenge (the “QAR”), Plaintiff sought to offer the expert testimony of Samuel Weiser related to (i) the viability of, and potential revenue stream from, touring exhibitions utilizing the artifacts and intellectual property related to the discovery of the QAR; (ii) the sufficiency and quality of the artifacts recovered from QAR and the corresponding video and images of the recovery operations; and (iii) the importance of intellectual property and imagery related to the QAR recovery in creating and preserving the value of the potential touring exhibitions. Defendants filed a motion in limine, challenging Weiser’s qualifications, methodology, and the inclusion of legal conclusions in his interpretations.
The Court granted Defendants’ motion in part and denied it in part. The Court granted Defendants’ motion as it related to Weiser’s testimony relating to damages resulting from commercial narrative projects that did not materialize, or legal interpretations of the settlement agreement at issue. The Court denied the remainder of Defendants’ motion, having concluded that Weiser qualified as an expert witness under Rule 702 and his methodology was reasonable.
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Intersal v. Wilson, 2024 NCBC Order 13 (N.C. Super. Ct. Feb. 2, 2024) (Earp, J.)
Key Terms: Rule 702; Rule 403; expert witness; legal conclusions; motion in limine; pirate ship
In the same case as above, Defendants sought to admit Professor Deborah Gerhardt as an expert witness to counter Plaintiff’s expert witness testimony relating to damages asserted. Gerhardt produced a report responding to four questions posed by the Defendants, which concluded that: (1) intellectual property law does not provide any foundation for Plaintiff to claim exclusive rights in the narrative (commercial or not) of salvaging the Queen Anne’s Revenge (“QAR”); (2) the Court should not enforce any provision in a way that gives Intersal the exclusive right to telling the story of the QAR salvage as such an interpretation would violate constitutional and federal public policy; (3) Defendant DNCR did not place any of Intersal’s intellectual property in the public domain because Intersal has failed to identify any protectable intellectual property; and (4) Intersal does not have an ownership interest in QAR photos taken by Defendant DNCR because no express written copyright assignment existed.
Plaintiff filed a motion in limine to exclude Gerhardt’s expert testimony. The Court granted Plaintiff’s motion, on the basis that Gerhardt’s opinions were legal conclusions intended to provide a legal clarification of copyright law, rather than opinions of a factual nature. The Court noted that Gerhardt’s report was “tantamount to a well-written legal memorandum on intellectual property law,” and did not address the propriety of Plaintiff’s use of a theoretical licensing model to assess damages. As such, the Court determined that under both Rule 702 and 403, Gerhardt’s testimony should be excluded.
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Vitaform, Inc. v. Aeroflow, Inc., 2024 NCBC Order 14 (N.C. Super. Ct. Feb. 5, 2024) (Bledsoe, C.J.)
Key Terms: attorneys’ fees; fee application; RPC Rule 1.5(a); block billing; hourly rates
As summarized here, the Court previously granted, in part, Defendants’ motion for attorneys’ fees, awarding Defendants their attorneys’ fees incurred in connection with prosecuting their motion for summary judgment and defending against Plaintiff’s counterclaims. As requested by the Court, Defendants subsequently submitted a fee application, supported by billing records documenting the tasks and time worked for which they sought attorneys’ fees.
The Court evaluated the fee application based on the factors set forth in Rule 1.5(a) of the Revised Rules of Professional Conduct. First, it considered the hourly rates charged (ranging from $235 to $400 per hour) and determined, based on affidavits, previous holdings of North Carolina’s state and federal courts, and its own knowledge, that the rates were reasonable and within those customarily charged in Buncombe County and in cases in the Business Court. The Court next considered the time and labor expended and, in its discretion, reduced certain entries that were block-billed, but otherwise found the time expended reasonable. Finally, the Court determined that the remaining factors of Rule 1.5(a) merited the award of the fees submitted. The Court also clarified that Defendants’ right to seek relief under Rule 41(d) of the North Carolina Rules of Civil Procedure was not affected by the Court’s fee order.
By: Natalie E. Kutcher
To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 02/13/24
Cardiorentis AG v. IQVIA Ltd., 2024 NCBC 2 (N.C. Super. Ct. Jan. 18, 2024) (Conrad, J.)
Key Terms: N.C.G.S. § 1-75.12; inconvenient forum; stay; administrative dismissal
Shortly after Plaintiff filed suit in 2018, Defendants moved to stay the case under N.C.G.S. § 1-75.12(a) arguing that North Carolina was an inconvenient forum and that Plaintiff’s claims should be litigated in England. The Court granted the stay and the parties litigated their dispute in England, resulting in a final judgment in 2022. Defendants then moved to dismiss the complaint administratively under section 1-75.12(b), which provides that the “jurisdiction of the court continues for a period of five years from the entry of the last order affecting the stay.” Since no orders had been entered modifying the stay since it was entered more than five years ago, and the Plaintiff had not responded to Defendants’ motion to dismiss, the Court granted the motion and dismissed all claims.
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CTS Metrolina, LLC v. Berastain, 2024 NCBC Order 8 (N.C. Super. Ct. Jan. 19, 2024) (Earp, J.)
Key Terms: preliminary injunction; restrictive covenant; non-compete; asset purchase agreement; material breach; prior pending action doctrine; arbitration; blue-pencil rule; look-back rule
In 2022, Defendants Berastain and Moreau sold the assets of their company to CTS Metrolina in exchange for $3.6 million and minority non-voting interests in CTS Metrolina and were promised an Earnout Payment and a true up of working capital. They also accepted co-president positions with CTS Metrolina and signed employment agreements and restrictive covenants. The following year, Berastain and Moreau sued CTS Metrolina seeking to invalidate the acquisition; however, that lawsuit was stayed pending arbitration. After Berastain’s and Moreau’s employment with CTS Metrolina ended, CTS Metrolina filed suit against them and moved for a preliminary injunction enjoining them from violating their restrictive covenants based upon allegations that they were involved in a competing business.
Defendants challenged the Court’s jurisdiction arguing that 1) the parties had agreed to arbitrate claims related to the restrictive covenants and 2) any injunctive relief should be sought in the prior pending lawsuit. The Court disagreed. Although the APA and the employment agreements contained arbitration provisions, those provisions gave way to the restrictive covenants which specified that CTS Metrolina could seek enforcement of the restrictive covenants “by any court having jurisdiction.” In addition, the prior pending action doctrine did not apply because the two actions involved different parties, issues, and relief.
Defendants also argued that they were relieved from their obligations under the restrictive covenants because CTS Metrolina had breached the APA by not paying them the Earnout Payment or the working capital true up. However, the Court was unable to conclude that this conduct was a material breach going to the very heart of the APA sufficient to excuse Defendants from their obligations under the restrictive covenants.
Turning to the request for a preliminary injunction, the Court first determined that a five-year restrictive period (or even a six-year period if the look-back rule applied) was not unreasonable in the context of the sale of a business involving sophisticated parties dealing at arms-length. Next, the Court determined that the noncompetition covenant had been drafted such that the Court could blue pencil and refuse to enforce any overbroad geographic provisions and that the remaining restricted territory was not unreasonable. Finally, the Court concluded that, based on the evidence presented, CTS Metrolina was likely to succeed on its claim that the individual Defendants had violated one or more of the restrictive covenants. Accordingly, the Court granted the motion and enjoined the individual Defendants (and their agents) from further violations of the restrictive covenants.
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Brakebush Bros., Inc. v. Certain Underwriters at Lloyd’s of London – Novae 2007 Syndicate Subscribing to Pol’y No. 93PRX17F157, 2024 NCBC Order 9 (N.C. Super. Ct. Jan. 22, 2024) (Davis, J.)
Key Terms: discovery violation; untimely production; eve of trial; Rule 37; sanctions; attorneys’ fees; adverse inference instruction
As summarized here and here, this suit involves a dispute between Plaintiffs and a number of insurance companies over the amount of insurance proceeds payable under excess insurance policies issued by Defendants following a fire that occurred at a chicken plant. The case proceeded through discovery and motions practice and was scheduled for trial in late January 2024. The day before the parties were to exchange trial exhibit lists, Plaintiffs produced, for the first time, two sets of materials, including extensive handwritten notes by an executive of Plaintiff Brakebush and a cache of photos and videos. Following a status conference, Defendants moved for sanctions for discovery violations and the Court canceled the trial, to be rescheduled at a later date.
The Court denied Defendants’ requests to bar Plaintiffs from using the documents at trial and to give an adverse inference jury instruction. The documents were highly relevant to the key issues in the case and therefore should be allowed to be offered as evidence. In addition, an adverse inference instruction was not appropriate because the documents had not been destroyed. However, the Court granted Defendants’ requests for an order allowing them to conduct additional discovery regarding the documents and awarding their reasonable attorneys’ fees incurred from the motion for sanctions and from the subsequent discovery. Additional discovery was needed to ameliorate any prejudice caused to Defendants by the late production and monetary sanctions were appropriate under Rule 37 as the untimely production was not substantially justified.
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Howard v. IOMAXIS, LLC, 2024 NCBC Order 10 (N.C. Super. Ct. Jan. 25, 2024) (Earp, J.)
Key Terms: limited receiver; economic interest; fraud; rights adversely affected
As summarized here, this action involves a dispute between the Ronald E. Howard Revocable Trust (a purported 51% economic interest holder in IOMAXIS) and the IOMAXIS members regarding the Trust’s right to the economic benefits from its interest. Following discovery, the Trust moved for the appointment of a receiver, based on allegations that the IOMAXIS Defendants had formulated and were actively implementing a plan to transfer assets, disguise distributions paid to other interest holders, and dilute the Trust’s economic interest.
The Court granted the motion and appointed the Finley Group as limited receiver for IOMAXIS. A receiver was necessary and appropriate based on evidence that 1) the IOMAXIS Defendants had set up a new entity to take control of IOMAXIS and had exchanged their interests in IOMAXIS for like interests in the new entity; 2) the new entity had sold IOMAXIS’s assets without accounting for the proceeds; 3) the IOMAXIS Defendants had plans to develop additional entities to move more of IOMAXIS’s assets; and 4) the IOMAXIS Defendants had converted their capital accounts in IOMAXIS to loans so they (but not the Trust) could receive “repayments” rather than distributions. This evidence combined with the IOMAXIS Defendants’ adamance that Plaintiffs were not entitled to review financial information and their disregard for the Trust generally was sufficient for the Court to conclude that the Plaintiffs had shown a reasonable likelihood of success on their fraud-based claims and that their rights in the assets of IOMAXIS may be adversely impacted during the suit. The receiver was directed to, among other things, review IOMAXIS’s books and records, investigate any planned or actual transfers of IOMAXIS’s assets, identify any entities formed by the IOMAXIS Defendants, and ascertain the terms of any agreement between IOMAXIS and the newly created entity.
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Miller v. RedGoose, L.L.C., 2024 NCBC Order 11 (N.C. Super. Ct. Jan. 30, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; opposition; counterclaim; N.C.G.S. § 7A-45.4(a)(5); intellectual property
Defendant RedGoose filed a notice of designation of action as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(5) based on its counterclaims for fraud, conversion, tortious interference with contract, and unfair and deceptive trade practices. Plaintiff opposed designation arguing that designation was improper because the counterclaims did not involve intellectual property and because the allegations in the counterclaims were false.
The Court overruled Plaintiff’s opposition to designation. First, each of the counterclaims was based on Plaintiff’s alleged misuse of RedGoose’s software, IT systems, and client data and data security, which satisfied the statutory requirement of a dispute involving the use of intellectual property. The fact that the words “intellectual property” were not used in the counterclaims was irrelevant since the Court assesses designation based not only on the claims asserted but also on the underlying factual allegations. Second, Plaintiff’s challenge to the truthfulness of the allegations was misplaced and premature because allegations in the subject pleading are accepted as true for the purposes of determining whether a case qualifies for mandatory complex business designation. Accordingly, the Court did not consider the affidavits proffered by the parties in opposition to and in support of designation.
By: Ashley B. Oldfield
To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 01/30/24
BIOMILQ, Inc. v. Guiliano, 2023 NCBC 91A (N.C. Super. Ct. Jan. 9, 2024) (Robinson, J.)
Key Terms: Rule 12(b)(5); amended order; dismissal without prejudice
As summarized here, the Court previously entered an order granting Counterclaim-Defendants’ motions to dismiss pursuant to Rule 12(b)(5). The Court entered this amended order to clarify three things: 1) that the dismissals were without prejudice; 2) that the Court had not considered affidavits of service filed after full briefing and a hearing on the motions; and 3) to correct the date of the hearing.
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Johnson v. Everett, 2024 NCBC 1 (N.C. Super. Ct. Jan. 5, 2024) (Davis, J.)
Key Terms: motion for judgment on the pleadings; Rule 12(c); fraud; quantum meruit; constructive fraud; conspiracy
Defendant Brian Estes filed a Motion for Judgment on the Pleadings as to the claims against him for quantum meruit, constructive fraud, conspiracy, and fraud. Generally, Plaintiffs alleged that Defendants engaged in a scheme whereby Plaintiffs invested in Defendants’ company that was seeking a patent for a stair box system and then, using Plaintiffs’ investments and other assets of the first company, formed a separate company, to the exclusion of Plaintiffs, and when the patent was granted, assigned the patent for the product to the new company. Defendant Estes assisted in the formation of the second, competing company and was allegedly involved in its operations that took place to the detriment of the company Plaintiffs invested in.
Fraud: The Court dismissed with prejudice Plaintiffs’ fraud claim against Estes as Plaintiffs conceded at the hearing that their allegations were insufficient to state a valid claim for fraud against Estes.
Quantum Meruit: The Court dismissed with prejudice this claim as well because Plaintiffs’ allegations failed to meet the first required element of a claim for quantum meruit – that Plaintiffs rendered services to Estes.
Constructive Fraud: The Court also dismissed with prejudice the constructive fraud claim because Plaintiffs did not allege the existence of a de jure fiduciary relationship between them and Estes and the allegations in the complaint could not reasonably be construed as asserting the existence of a de facto fiduciary relationship either.
Conspiracy: With respect to Estes, Plaintiffs alleged that he joined the other Defendants’ conspiracy shortly after the new, competing company was formed, agreed to participate in the unlawful conduct of Defendants thereafter, and did participate in such unlawful conduct by sending an email to Plaintiffs explaining their options related to the failure of their investments in the original company. Estes argued that the purpose of the conspiracy (using Plaintiffs’ money to form the competing company) was accomplished before he became involved with Defendants and therefore, he cannot be liable for any such conspiracy. While the Court found that Plaintiffs’ conspiracy allegations were “not a model of specificity,” they were nevertheless, sufficient to allow the conspiracy claim against Estes to go forward. The Court therefore denied Estes’ motion as to Plaintiffs’ civil conspiracy claim.
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Live Oak Banking Co. v. Mafic USA LLC, 2024 NCBC Order 2 (N.C. Super. Ct. Jan. 3, 2024) (Conrad, J.)
Key Terms: claim objections; receivership; receivership estate; N.C. Commercial Receivership Act; Bankruptcy Code; proof of claim
Following the appointment of a Receiver over Defendant Mafic to oversee an orderly liquidation process, the Receiver objected to nine creditors’ proofs of claims. The Court looked to the Bankruptcy Code as an instructive guide for the framework related to the presentation of evidence and burden of proof necessary to determine the reasonableness or validity of a claim accepted or rejected by a Receiver. The Court determined that all of the challenged claims against Mafic arose under contract law and therefore that the claimants bore the burden of proving the existence and breach of a valid contract by a preponderance of the evidence.
AFC Worldwide Express Inc.: AFC claimed that Mafic owed it $13,045.57 for freight services, but only attached an account statement listing dates and amounts of invoices, but not the invoices themselves, to its proof of claim. The Receiver submitted evidence that Mafic never received the invoices or purchased goods or services from AFC on the dates listed on the account statement. AFC did not appear at the hearing and the Court found that the Receiver successfully rebutted the proof of claim, sustained his objection, and disallowed AFC’s claim.
Alvaro Ruiz Emparanza: Ruiz, a former employee of Mafic, claimed that Mafic owed him $99,875.00 in bonus payments based on an alleged employment contract. Based on the language of the document, entitled an “Employment Proposal Letter,” the Receiver argued and the Court agreed that the document was an unenforceable agreement to agree and Ruiz did not carry his burden to establish the existence of a valid contract. The Court disallowed his claim.
CP Metal Crafters, Inc.: CP Metal Crafters claimed that Mafic owed it $54,548.76 for goods sold and the Receiver conceded that Mafic owes $31,297.50 in unpaid invoices but objected that it had no record of invoices above that amount. CP Metal Crafters did not appear at the hearing or offer evidence in response to the objection. The Court sustained the Receiver’s objection, allowing an unsecured claim for $31,297.50, and disallowing the remainder of the claim.
JEC Group: JEC Group claimed that Mafic owed it €15,096.80 for cancelling Mafic’s planned participation in a trade show in 2023. The Court found that the terms of the relevant contract stated it would only become effective upon JEC Group’s receipt of a down payment from Mafic and the Receiver presented evidence that Mafic never made such a down payment. JEC Group did not appear at the hearing or offer evidence to show that a valid contract existed between it and Mafic. As a result, the Court disallowed the claim in its entirety.
Metallix Refining Inc.: Metallix Refining claimed that Mafic failed to pay two invoices—one totaling $1,850 and the other $1,400—for goods and shipping charges, but the Receiver offered evidence, which Metallix Refining failed to dispute, that Mafic only received the $1,400 invoice. The Court found that the Receiver rebutted Metallix Refining’s claim, sustained his objection, allowed an unsecured claim for $1,400, and disallowed the remainder of the claim.
Pitney Bowes Inc.: Pitney Bowes claimed that Mafic owed it $1,091.50 arising from its rejection of an equipment lease, and attached an account statement but failed to attach the lease to its proof of claim. The Receiver offered evidence from Mafic’s records to show that it owed only $195.25 in unpaid invoices to Pitney Bowes, which the creditor did not rebut. The Court sustained the Receiver’s objection, allowed an unsecured claim for $195.25, and disallowed the remainder of the claim.
R+L Carriers, Inc.: In support of its claim, R+L Carriers attached four invoices for $15,342.34 for freight services performed for Mafic. The Receiver objected that Mafic owes only $2,200.05 and presented invoices at the hearing showing that R+L Carriers gave Mafic a discount on each charge so that the total amount due is only $2,200.05. R+L Carriers did not appear at the hearing or present additional evidence in response to the objection. The Court concluded that the Receiver rebutted the claim, sustained his objection, allowed an unsecured claim for $2,200.05, and disallowed the remainder of the claim.
Université de Sherbrooke: Sherbrooke submitted a proof-of-claim form stating that Mafic owes a substantial sum under a research agreement, but Sherbrooke’s agreement was with “Mafic Inc.”—not Mafic USA. At the hearing, the Receiver represented that officials of Sherbrooke acknowledged the mistaken identity and agree with his objection. The Court sustained the objection and disallowed the claim.
Electric Glass Fiber America, LLC: EGFA submitted a claim for $73,864.24 four days after the deadline to submit claims and the Court disallowed it as untimely.
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Chi v. N. Riverfront Marina & Hotel LLLP; Feng v. N. Riverfront Marina & Hotel LLLP, 2024 NCBC Order 3 (N.C. Super. Ct. Jan. 5, 2024) (Earp, J.)
Key Terms: motion for leave to withdraw; failure to communicate with counsel; failure to pay attorneys’ fees; financial hardship; North Carolina Rule of Professional Conduct 1.16; justifiable cause; foreign language; conditional withdrawal; procedural protections
Plaintiffs’ counsel initially filed a motion for leave to withdraw from the representation of six Plaintiffs, who are all Chinese nationals. In the motion, Plaintiffs’ counsel maintained that withdrawal was appropriate pursuant to North Carolina Rule of Professional Conduct 1.16 because the Six Plaintiffs had both failed to communicate with counsel and to pay their attorneys’ fees, and that continued representation would lead to unreasonable financial hardship. Plaintiffs’ counsel subsequently filed a second motion to withdraw from representation of all Plaintiffs relying on the same arguments as in their first motion to withdraw. Defendants opposed the motion citing Plaintiffs’ lack of fluency in English, failure of Plaintiffs’ counsel to ensure that substitute counsel had been retained, and concern over delays in the litigation. Five Plaintiffs consented to the withdrawal of counsel and four of those five subsequently settled with the Defendants.
Although the Court found that justifiable cause for Plaintiffs’ counsel to withdraw existed and that Plaintiffs’ counsel gave reasonable notice of withdrawal to the Plaintiffs, the burden on Defendants and the Court of allowing Plaintiffs’ counsel to withdraw without procedural protections in place would be unreasonable. Therefore, the Court conditioned Plaintiffs’ counsel’s withdraw upon “assurances that each Plaintiff (1) is able to communicate with opposing counsel and the Court (including, if necessary, by having access to a translator at their cost), (2) understands his/her obligations pursuant to the North Carolina Rules of Civil Procedure, the Case Management Order, and the Court’s Rules, (3) has an account on the Court’s electronic filing system and is able to serve and be served with pleadings and to receive electronic notices from the Court, and (4) understands his/her obligation to provide and maintain with the Court reliable contact information.” In addition, given that the deadline to complete fact discovery was near, counsel’s withdrawal would not be permitted until fact discovery had been completed.
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Rockingham Cnty. v. NTE Energy, LLC, 2024 NCBC Order 4 (N.C. Super. Ct. Jan. 8, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; opposition; law governing corporations, LLCs, partnerships; N.C.G.S. 7A-45.4(a)(1); amended complaint; piercing the corporate veil; joint enterprise
Defendants filed a notice of designation of action as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(1) after Plaintiff Rockingham County amended its original complaint to include numerous additional claims against Defendants. The County opposed designation arguing that designation was improper because its claims did not assert complex questions involving the law governing corporations and because any corporate law allegations of the amended complaint were ancillary to the material issues in the case.
The Court disagreed because the complexity of the case had no bearing on the propriety of designation, and the allegations implicating the law governing corporations, LLCs, or partnerships, including piercing the corporate veil, were not ancillary issues. Citing an array of allegations from the Plaintiff’s amended complaint, the Court found that the “law governing corporations, partnerships, and LLCs is material to the issue of which Defendant entity (or entities) is liable to the County for the misconduct alleged.” The Court also noted that because the County is master of its complaint and chose to amend its complaint to include issues involving the law governing corporations, partnerships, and LLCs, it must accept the consequence that the action now qualified for designation. The Court overruled the County’s opposition to designation.
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Potts v. Steel Tube, Inc. 2024 NCBC Order 5 (N.C. Super. Ct. Jan. 12, 2024) (Conrad, J.)
Key Terms: charging order; judgment creditors; Board of CPA Examiners; involuntary transfer of ownership interest
Following entry of a judgment in favor of Judgment Creditors, the Court issued an order in July 2020 charging Defendant Rives’ ownership interest in Rives & Associates, LLP (“R&A”) and several other entities with the unsatisfied amount of the judgment. In Rives’ discovery responses leading up to entry of the charging order, Rives stated that there had been discussions regarding the cancellation or repurchase of his ownership interests in R&A but that no transfer of ownership had occurred. Long after entry of the charging order, the Judgment Creditors learned that Rives had, pursuant to an Involuntary Agreement, surrendered his interest in R&A due to his suspension by the N.C. Board of Certified Public Accountant Examiners and that he claimed to have received no consideration for said transfer and that the transfer had occurred prior to entry of the charging order. Believing that the Involuntary Agreement was a sham designed to conceal the transfer of Rives’ interest to his wife, Judgment Creditors moved to enforce the charging order and for an order appointing a receiver and directing Rives and R&A to appear and show cause why they should not be held in civil contempt.
Despite some discrepancies regarding the date the Involuntary Agreement was entered into, the Court found that the Involuntary Agreement had been finalized prior to entry of the charging order. Therefore, since the charging order charged an interest that Rives did not actually possess, and the evidence showed that Rives had not received any payments on account of that interest after entry of the charging order, Rives had not violated the charging order. Further, while Rives may have subsequently made false statements to the IRS and NCDOR regarding his status with R&A, such statements were not a violation of the charging order. Finally, to the extent Judgment Creditors sought to have the transfer set aside as fraudulent, the proper remedy was to bring a civil action under the Uniform Voidable Transactions Act.
Nevertheless, based on Rives’ previous lack of candor, the Court found it appropriate to enter an order enjoining Rives from transferring or otherwise disposing of his ownership interests in the other entities subject to the charging order.
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Bui v. Phan, 2024 NCBC Order 6 (N.C. Super. Ct. Jan. 12, 2024) (Bledsoe, C.J.)
Key Terms: order on designation; N.C.G.S. § 7A-45.4(a)(1); breach of operating agreement; law governing LLCs
Plaintiff filed suit alleging that she and Defendant Phan are 50/50 member-managers of Defendant Golden Rooster, LLC, and that while she and Phan were negotiating the buyout of her membership interest, Phan took several unilateral actions on behalf of Golden Rooster which violated its operating agreement. Plaintiff asserted a claim for breach of the operating agreement and sought a judicial declaration that Phan is subject to expulsion from membership in Golden Rooster pursuant to the operating agreement. Plaintiff filed a notice of designation, contending that designation as a mandatory complex business case is proper under N.C.G.S. § 7A-45.4(a)(1), which provides for designation in actions involving a material issue related to disputes involving the law governing LLCs.
The Court determined that the action should not proceed as a mandatory complex business case as the resolution of Plaintiff’s asserted claims required only a straightforward application of contract law principles.
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James H.Q. Davis Tr. v. JHD Props., LLC, 2024 NCBC Order 7 (N.C. Super. Ct. Jan. 16, 2024) (Bledsoe, C.J.)
Key Terms: stay pending appeal; sua sponte order; summary judgment; judicial dissolution; N.C.G.S. § 1-294; N.C.G.S. § 7A-27; appeal from final order of Business Court; North Carolina Supreme Court; North Carolina Court of Appeals
As summarized here, the Court previously entered an Order granting Plaintiffs’ motion for summary judgment, denying Defendant’s motion for summary judgment, and entering summary judgment for Plaintiffs on their claim for judicial dissolution. Thereafter, Defendant filed a notice of appeal of the Order to the N.C. Court of Appeals. After the Court noticed a status conference to discuss the process for dissolution and winding up, Defendant contended that as a result of the appeal, further proceedings in the trial court were stayed pursuant to N.C.G.S. § 1-294. Plaintiffs responded that Defendant’s failure to timely file an appeal with the N.C. Supreme Court, as required by N.C.G.S. § 7A-27, rendered the appeal without legal effect and therefore the Court retained jurisdiction to proceed with dissolution.
The Court agreed with Plaintiffs. The Court of Appeals lacks jurisdiction over appeals from orders of the Business Court because such appeals must be brought in the Supreme Court. Accordingly, Defendant’s appeal to the Court of Appeals was without legal effect, subject to dismissal, and was not and could not be perfected. Additionally, since the time for Defendant to file its appeal of the summary judgment order expired without Defendant filing an appeal in the proper court, Defendant had not and could not belatedly perfect a newly filed appeal in the Supreme Court. Therefore, the Court found it was not divested of jurisdiction, the stay provisions of section 1-294 did not apply, and the Court could proceed to consider the dissolution of the two defendant LLCs at issue.
By: Rachel E. Brinson
To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 01/17/24
Husqvarna Pro. Prods., Inc. v. Robin Autopilot Holdings, LLC, 2023 NCBC 88 (N.C. Super. Ct. Dec. 22, 2023) (Bledsoe, C.J.)
Key Terms: Rule 15; amended complaint; futility; 12(b)(6); breach of fiduciary duty; tortious interference; anticipatory repudiation
As previously summarized here, this dispute arose from a series of agreements entered into by parties associated with Husqvarna and parties associated with Robin Autopilot. Husqvarna sought leave to amend its complaint to supplement the complaint’s factual allegations, add Robin Autopilot’s formed CEO, Logan Fahey, as a defendant, assert additional claims, and reassert certain existing claims. Defendant Robin Autopilot opposed the motion on the basis of futility.
Breach of Fiduciary Duty Claim against Fahey. The Court denied Plaintiff’s motion to amend to add a derivative claim for breach of fiduciary duty against Fahey because Plaintiff had failed to make a written pre-suit demand as required by the governing Ohio LLC statute. The Court found no basis to read a futility exception into the Ohio law as urged by Plaintiff. Accordingly, the claim was futile because Plaintiff lacked standing to assert it.
Tortious Interference Claim against Fahey. The Court granted Plaintiff’s motion to add tortious interference with contract claims against Fahey. The Court noted that Plaintiff’s allegations of malice made “upon information and belief” were sufficient to survive a 12(b)(6) dismissal motion. Additionally, the Court rejected Robin Autopilot’s public policy argument, stating that North Carolina law permits a party to seek to hold a corporate officer accountable for tortiously interfering with their company’s contracts for their own personal benefit.
Anticipatory Repudiation. The Court granted Plaintiff’s motion as to its reasserted claims for anticipatory breach of contract. Robin Autopilot argued that the claim, which stems from a memo sent by Fahey to Plaintiff, was futile. Robin Autopilot based its argument on language found in the Court’s Order and Opinion on Plaintiff’s Motion to Dismiss Amended Counterclaims from November 2023, in which the Court concluded that the memo was not a “distinct, unequivocal, and absolute refusal to perform.” The Court held that its Order did not resolve issues of fact and did not constitute a holding in regard to the memo’s interpretation.
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McFee v. Presley, 2023 NCBC 89 (N.C. Super. Ct. Dec. 28, 2023) (Conrad, J.)
Key Terms: summary judgment; 12(b)(6); fraudulent transfer; fraud; statute of limitations; breach of fiduciary duty; N.C.G.S § 39-23.4; unjust enrichment
Plaintiff Jacqueline McFee served as the lead designer for CPP, a stationery and office supply company, for ten years. Defendant William Presley served as CPP’s President, CEO, and partial owner during the relevant period. In 2008, McFee became a Class B member of CPP with 10% of non-voting stock. At that time, McFee entered into a written employment agreement with CPP, which assigned all intellectual property rights in her design work to CPP but granted McFee the option to reclaim the intellectual property rights if certain events occurred. McFee alleged that Defendant falsely promised to protect her intellectual property rights and ensure that CPP would reassign them to her when the time arose.
After CPP’s business went into decline, McFee and other Class B members abandoned their membership interests in 2013. McFee alleged that prior to her abandoning her membership interest, Defendant falsely represented to her that CPP’s poor performance had rendered her membership interest worthless. After CPP terminated McFee’s employment, she requested that she be reassigned the rights to her design. Defendant refused McFee’s request. McFee subsequently sued CPP in both federal and state court over the dispute and she obtained a default judgment against CPP in the state action. During the pendency of the state action, CPP sold some of its assets for $11 million to a company called Pacon and used the profits to pay off a secured lender, make a distribution to Defendant, and retained a portion as capital. Defendant resigned from CPP in 2017. After CPP defaulted on a line of credit in 2019, CPP’s lender foreclosed on its assets used as collateral and sold them to a company called Bay Sales.
In 2021, McFee filed the present lawsuit against Defendant for fraud, unjust enrichment, breach of fiduciary duty, and constructive fraud. McFee also alleged that the Pacon sale and Bay Sales foreclosure sale were fraudulent transfers. The parties filed cross-motions for summary judgment.
Fraudulent Transfer—N.C.G.S. § 39-23.5(b). The Court granted Defendant’s motion as to McFee’s claim under N.C.G.S. § 39-23.5(b) as the one-year statute of limitations precluded the claim.
Fraudulent Transfer—N.C.G.S. §39-23.4(a)(1) (Pacon Sale). The Court granted Defendant’s motion for summary judgment and denied McFee’s cross-motion on the basis that the claim was untimely. N.C.G.S. §39-23.4(a)(1) provides a limitations period of “not later than four years after the transfer was made . . . or, if later, not later than one year after the transfer . . . was or could reasonably have been discovered.” Noting that the sale occurred in 2017, and the undisputed evidence suggested that McFee received actual notice of the sale in 2019, the Court dismissed McFee’s claim as untimely.
Fraudulent Transfer—N.C.G.S. §39-23.4(a)(1) (Bay Sales Foreclosure Sale). The Court granted Defendant’s motion and denied McFee’s cross-motion as to the Bay Sales foreclosure sale, as the foreclosure sale did not constitute a “transfer” under the statute. The statute defines “transfer” as disposal of an “asset” and defines “asset” to exclude property encumbered by a valid lien. The evidence showed that the property sold to Bay Sales was collateral encumbered by a valid lien.
Fraud. The Court granted Defendant’s motion as to McFee’s fraud claim on the basis that it was untimely and lacked evidence to survive dismissal on the merits of the claim. McFee failed to provide evidence which would create a genuine issue of material fact concerning when her fraud claim accrued. The Court noted that, by McFee’s own admission, she was aware of the alleged fraud when she initiated suit in state court in 2017. Additionally, Defendant’s arguments and evidence relating to the merits of the claim remained unrebutted by McFee. As such, McFee’s claim was dismissed.
Unjust Enrichment. The Court granted Defendant’s motion as to McFee’s unjust enrichment claim as it related to the Pacon sale (2017), holding that the statute of limitations for unjust enrichment (3 years) barred recovery for McFee’s claim, which was filed in 2021. The Court held that McFee’s claim was not time-barred as it related to the Bay Sales foreclosure sale (2019). However, after analyzing the merits of the claim, the Court granted Defendant’s motion on the basis that: (i) a written employment agreement governed the intellectual property rights, making unjust enrichment an improper claim; and (2) McFee had failed to allege or otherwise provide evidence demonstrating that she had conferred a benefit upon Defendant.
Breach of Fiduciary Duty and Constructive Fraud. The Court likewise granted Defendant’s motion and dismissed Plaintiff’s breach of fiduciary duty and constructive fraud claims. The Court held that, while the managers of an LLC “owe a fiduciary duty to the LLC’s creditors to treat members of the same creditor class fairly and equally” when the LLC finds itself in circumstances amounting to a winding-up or dissolution, Defendant did not owe Plaintiff a fiduciary duty in the present circumstances. First, Defendant was not a manager at the time the Bay Sales foreclosure sale occurred in 2019. Second, the undisputed evidence showed that CPP was not in “circumstances amounting to a winding-up” at the time of the Pacon sale. As such, Defendant did not owe Plaintiff a fiduciary duty at the time the relevant transactions took place. As the Court held that no fiduciary duty existed, the constructive fraud claim was dismissed as well.
Veil Piercing. As the Court entered summary judgment in favor of Defendant on every claim for relief, the Court also entered summary judgment in Defendant’s favor on Plaintiff’s veil piercing claim.
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McFee v. Presley, 2023 NCBC 90 (N.C. Super. Ct. Dec. 28, 2023) (Conrad, J.)
Key Terms: default judgment; fraudulent transfer; standing; breach of fiduciary duty; constructive fraud; unjust enrichment; N.C.G.S § 39-23.4; N.C.G.S. § 39-23.5(b); veil-piercing
A more detailed factual summary of this case can be found in our summary of McFee v. Presley, 2023 NCBC 89, above. This opinion arises from Plaintiffs Jacqueline McFee (“McFee”) and her solely owned, dissolved corporation, Savage McFee, Inc.’s Motion for Default Judgment against Defendants Bill Stacks, Sabr Leme, Inc., Stacks Holding, Inc., and CPP International, LLC (collectively, the “Defaulting Defendants”). After the Defaulting Defendants failed to answer or otherwise respond to Plaintiffs’ amended complaint, the Court entered default against the Defaulting Defendants in May 2023.
Even after default is properly entered and the defaulting party is deemed to have admitted the factual allegations in the complaint, the Court must still assess the sufficiency of the allegations to determine if they are sufficient to state a cause of action.
Standing. The Court began by ordering Savage McFee, Inc. to show cause why its claims should not be dismissed for lack of standing, as the complaint contained no allegations that Savage McFee took part in any of the relevant events, nor that it was harmed by the Defaulting Defendants.
Breach of Fiduciary Duty and Constructive Fraud. The Court denied McFee’s motion as to the breach of fiduciary duty and constructive fraud claims as they related to the Pacon transaction. The complaint did not adequately allege that Default Defendant Bill Stacks owed a fiduciary duty to McFee because 1) Stacks, as an officer of the LLC, did not owe a fiduciary duty to McFee as a member or employee; and 2) Stacks was not an officer of CPP at the time the Pacon sale was executed and thus he did not owe a fiduciary duty to McFee as a creditor. However, the Court granted McFee’s motion as it related to the Bay Sales transaction, as the complaint alleged that at the relevant time, Stacks was a manager, CPP was winding up, and McFee was a known creditor.
Fraudulent Transfer. The Court granted McFee’s motion as it related to fraudulent transfer under N.C.G.S § 39-23.4 against CPP, as the amended complaint adequately alleged that McFee was a creditor of CPP; CPP was put on notice of McFee’s claim; that substantially all of CPP’s assets were transferred to Pacon and Bay Sales; that CPP concealed these transfers from McFee; and that CPP transferred the assets with the intent to hinder, delay and defraud McFee. The Court denied McFee’s motion as it related to Defaulting Defendants Sabr Leme and Stacks Holding, as the complaint provided no allegations to hold Sabr Leme or Stack Holding liable on a veil-piercing theory. The Court also denied McFee’s motion against Stacks as it related to the Pacon sale, as the amended complaint alleged that Stacks did not acquire ownership in, or become an officer of, CPP until after the Pacon sale was completed. The Court granted McFee’s motion against Stacks as it related to the Bay Sales transaction, as the amended complaint made sufficient allegations against Stack of domination and control regarding the Bay Sales transaction to warrant veil-piercing. McFee’s claim under N.C.G.S. § 39-23.5(b) was denied in full, as the amended complaint did not allege an antecedent debt existed.
Unjust Enrichment. Lastly, the Court denied McFee’s motion as it related to the unjust enrichment claims. Her allegations against Stacks were conclusory and contradictory and otherwise insufficient. Her allegations regarding the other Defendants showed that her intellectual property rights were governed by a written contract, which foreclosed any claim for unjust enrichment.
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BIOMILQ, Inc. v. Guiliano, 2023 NCBC 91 (N.C. Super. Ct. Dec. 28, 2023) (Robinson, J.)
Key Terms: service; summons; Rule 4; Rule 12(b)(5); designated delivery service; FedEx Express Saver; 26 U.S.C. § 7502(f)(2)
This opinion was issued in response to the 12(b)(5) motions to dismiss filed by Counterclaim-Defendants Goodwin Procter LLP and Leila Strickland. On February 6, 2023, Defendants/Counterclaim-Plaintiffs Shayne Guiliano and 108LABS, LLC filed their answer and counterclaims to BIOMILQ’s complaint. Counterclaim-Plaintiffs did not cause a summons to be issued for either Goodwin or Strickland prior to or at the time of filing its counterclaims. After the Court’s inquiry on the issue, Counterclaim-Plaintiffs secured the issuance of summons for service upon Goodwin and Strickland on April 20, 2023.
Counterclaim-Plaintiffs attempted to serve Goodwin and Strickland by FedEx’s “Express Saver” service. The tracking history for Strickland’s summons demonstrated that the materials were purportedly delivered to Strickland on May 2, 2023, but no signature was required or obtained. Counterclaim-Plaintiffs sent the summons and materials to Goodwin through the same “Express Saver” service, addressed to “Goodwin Procter LLP” but not addressed to an individual person. The tracking history shows that the package was delivered to Goodwin’s mailroom on May 4, 2023 and was signed for by an individual. Counterclaim-Defendants moved for dismissal of the counterclaims and third-party claims on the basis of improper service.
Noting that Rule 12(b)(5) requires an action to be dismissed when service of process is not valid, the Court granted both Counterclaim-Defendants’ motions. The Court looked to Rule 4(j)(7)(a) and 4(j)(1)d, which govern service by designated delivery service on a partnership and an individual, respectively. Both provisions require that the serving party deposit the summons and complaint “with a designated delivery service authorized pursuant to 26 U.S.C. § 7502(f)(2)” for delivery. Because FedEx’s “Express Saver” service is not a designated delivery service pursuant to 26 U.S.C. § 7502(f)(2), Counterclaim-Plaintiff’s attempted service did not comply with Rule 4 and was therefore insufficient. The Court found unpersuasive Counterclaim-Plaintiff’s arguments that 1) the list of designated delivery services was not properly before the Court; 2) that the list was illustrative rather than exhaustive; 3) that because FedEx Express Saver meets the minimum requirements necessary to be a designated delivery service, it is a proper method of service; 4) that the policy set forth in N.C.G.S. § 1-75.1 liberalizing the grounds for jurisdiction should prevail over a mechanical application of the law; and 5) that a rebuttable presumption that service was proper applies to their attempted service.
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Loyd v. Griffin, 2023 NCBC 92 (N.C. Super. Ct. Dec. 29, 2023) (Robinson, J.)
Key Terms: judgment; jury verdict; specific performance; breach of contract
Following a jury verdict, the Court issued this Final Order and Judgment. In the Order, the Court analyzed the contract at issue to determine if specific performance was an appropriate remedy. After the jury found that a shareholder agreement between the parties had been amended, the Court concluded that the amended agreement’s language did not require Plaintiff to sell his shares back to Defendant. As a result, Defendant was not entitled to specific performance on its counterclaim, as it was unable to establish the requisite elements of a breach of contract claim.
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CTS Metrolina, LLC v. Berastain, 2023 NCBC Order 68 (N.C. Super. Ct. Dec. 24, 2023) (Earp, J.)
Key Terms: temporary restraining order; injunctive relief; sale of a business; restrictive covenants; misappropriation of trade secrets
This order arises from Plaintiff CTS Metrolina, LLC’s motion for a temporary restraining order against Defendants Dustin Berastain, Timothy Moreau, and Inkwell Emergency Response LLC. CTS purchased the assets of Metrolina Restoration, LLC, a company owned and operated by Berastain and Moreau. As part of this transaction, Berastain and Moreau agreed to certain restrictive covenants, namely noncompetition, nonsolicitation, and confidentiality provisions, and became employed by CTS. CTS later terminated Berastain, and Moreau resigned soon after. CTS alleges that Berastain and Moreau are now affiliated with one of CTS’ competitors, Inkwell, which was founded soon after Berastain’s and Moreau’s exits from CTS. CTS filed the present motion to enjoin Defendants from activity in violation of the restrictive covenants or misappropriating CTS’ trade secrets.
The Court granted CTS’ motion as it related to the restrictive covenants. The Court found that CTS presented evidence sufficient to establish a reasonable likelihood that it will succeed on its claim that the restrictive covenants at issue are enforceable, and that Berastain and Moreau have violated one or more of them through their association with Inkwell. Finding the equities weighing in favor of CTS, the Court issued a temporary restraining order prohibiting certain competitive activity by the Defendants, including the disclosure of confidential information.
The Court denied CTS’ motion as it related to the misappropriation of trade secrets claim, concluding that Plaintiff had not shown a reasonable likelihood of success on that claim because CTS failed to identify the alleged trade secrets in sufficient detail and did not specify the particular measures taken to maintain the alleged trade secrets.
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Londry v. Stream Realty Partners L.P., 2023 NCBC Order 69 (N.C. Super. Ct. Dec. 28, 2023) (Earp, J.)
Key Terms: injunctive relief; pleading standards; ancillary relief
While employed by Stream Charlotte, a commercial real estate services firm, Plaintiff worked with RCC Investors to find a buyer for property RCC Investors was selling (the “PBC Deal”). However, RCC Investors never entered into a listing agreement with Stream Charlotte. After Plaintiff left Stream Charlotte, he began working for his own real estate firm and executed a listing agreement with RCC Investors for the PBC Deal. After Stream Charlotte learned that a purchase agreement had been entered into for the PBC Deal, it demanded that the money it would have received had there been a listing agreement prior to Plaintiff leaving Stream Charlotte be held in escrow. In July 2023, Plaintiff filed suit alleging claims against his former employer for breach of contract, breach of partnership agreement, breach of fiduciary duty, fraud, and unfair trade practices; however, none of the claims involved the PBC Deal. In October, Plaintiff filed a motion for injunctive relief seeking a mandatory injunction requiring Defendants to sign a release allowing the escrowed funds to be disbursed and a prohibitory injunction requiring Defendants to cease all contact with Plaintiff’s clientele. Plaintiff argued that Defendants’ interference with the PBC Deal had damaged him, both financially and personally, and had placed a financial strain on his business.
The Court denied the motion because the complaint (i) failed to assert a claim to which the requested relief could be ancillary; and (ii) sought only damages, not injunctive relief, in its prayer for relief.
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Blueprint 2020 Opportunity Zone Fund, LLLP v. 10 Academy St. QOZB I, LLC, 2024 NCBC Order 1 (N.C. Super. Ct. Jan. 2, 2024) (Bledsoe, C.J.)
Key Terms: receivership; sanctions; violation of receivership order
In March 2023, the Court appointed the Receiver as general receiver for Defendant QOZB to administer the property of the Receivership Estate, including a piece of real property in Greenville, South Carolina (the “Multi-Family Land”). The Receivership Order also provided that the Receiver would have sole authority to act on behalf of QOZB and that the Court retained jurisdiction and supervision over all receivership-related matters. The Receiver subsequently reached an agreement on a proposed sale of the Multi-Family Land and circulated, by email, the proposed contract to counsel for QOZB’s investors: Plaintiffs, CitiSculpt Fund Services, and 10 Academy Opportunity Zone. Approximately two hours later, counsel for Academy and for CitiSculpt Fund Services indicated that they opposed the sale. Minutes later, CitiSculpt Fund Services’ counsel—Smith Currie & Hancock—filed a lawsuit on behalf of CitiSculpt SC, LLC against QOZB in South Carolina state court, seeking a declaration that a parking lease previously entered into was a valid and enforceable encumbrance on the Receivership Estate and recorded a notice of lis pendens against the Multi-Family Land. CitiSculpt SC and its counsel did not seek or obtain leave to file the South Carolina action or the lis pendens and never served the Receiver with either, instead only serving QOZB’s registered agent, a CitiSculpt employee. After finally being notified regarding the South Carolina action in July, the Receiver moved to approve the sale, enjoin the South Carolina action, and award sanctions against the CitiSculpt entities (including McAlpine, which owns and controls the CitiSculpt entities) and their counsel for violating the Receivership Order and for damages and attorneys’ fees incurred. Plaintiffs joined the motion and in support showed that McAlpine had made false statements to the Court.
The Court granted the motion. By attempting to exercise control over the Multi-Family Land through the filing of the South Carolina action and lis pendens, the CitiSculpt entities and their counsel: 1) violated the stay set forth in N.C.G.S. § 1-507.42(c); 2) violated the mandatory venue provisions of N.C.G.S. § 1-507.38(b); 3) violated N.C.G.S. § 1-507.22 which requires any claim relating to receivership property to be heard by the Court; and 4) violated their duties as Responsible Parties under the Receivership Order and as set forth in N.C.G.S. § 1-507.30. Further, the Court found that the evidence regarding false statements made by McAlpine provided further support for sanctions. The Court determined that the arguments advanced by the CitiSculpt entities and their counsel were meritless. The Court ordered the Receiver’s counsel to submit a petition seeking recovery of the Receiver’s actual damages and attorneys’ fees and ordered the sanctioned parties to dismiss the South Carolina action and cancel the lis pendens.
By: Natalie E. Kutcher
To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 01/03/24
Am. Circuits, Inc. v. Bayatronics, LLC, 2023 NCBC 84 (N.C. Super. Ct. Dec. 8, 2023) (Robinson, J.)
Key Terms: summary judgment; misappropriation of trade secrets; UDTPA; unjust enrichment; punitive damages; civil conspiracy
This dispute arose from Defendant Patel’s resignation from ACI, and his alleged misappropriation of ACI’s trade secrets for use at Bayatronics, a competing business which he co-founded while still an ACI employee. ACI brought suit against Bayatronics and its members. Following completion of discovery, Defendants moved for summary judgment on all claims.
Misappropriation of Trade Secrets. The Court first addressed the three groups of alleged trade secrets provided by ACI to determine whether a trade secret had been sufficiently identified. From the first group, the Court concluded that one file identified—a customer list—could be a trade secret because it included qualitative information regarding the products manufactured for each customer and their potential revenue, which was not readily available through other sources. Regarding the second group, ACI had failed to identify any specific files for the Court to consider. Thus, the Court granted the motion as to these broadly defined categories of files. The third group, however, passed muster as the complaint specifically provided the name of each file, its content, how it was developed and used by ACI, and its value to competitors. The Court next considered the protective measures taken by ACI—requiring all employees to sign employment agreements with a confidentiality provision and maintaining the alleged trade secrets on a password-protected server—and could not conclude that those efforts were unreasonable as a matter of law. Lastly, the Court concluded that the forensic evidence was sufficient to create an inference of misappropriation, but only as to Bayatronics and one of its co-founders, Mr. Warriner. Accordingly, the claim against them survived summary judgment but was dismissed as to the other defendants.
UDTPA. The Court denied the motion to the extent it was based on ACI’s surviving misappropriation of trade secrets claim against Mr. Warriner and Bayatronics but granted it as to the other parties.
Civil Conspiracy. Although the surviving misappropriation of trade secrets claim could serve as the underlying tort for civil conspiracy, ACI’s circumstantial evidence of an unlawful agreement did not rise above mere suspicion or conjecture and therefore the claim was dismissed.
Unjust Enrichment. ACI argued that it had conferred the benefit of access to its confidential information on Patel and that the Bayatronic Defendants had been unjustly enriched by obtaining the benefit of that confidential information through their conspiracy. The Court, however, rejected this argument and dismissed the claim. The evidence showed, at most, that Patel had taken or retained confidential information which the Bayatronic Defendants ultimately received. It did not show that ACI had voluntarily conferred a benefit on the Bayatronic Defendants.
Punitive Damages. Noting that punitive damages are not a standalone claim, the Court granted the motion as to the claim for punitive damages without prejudice to ACI’s ability to seek punitive damages for conduct which may later be found to meet the statutory requirements of N.C.G.S. § 1D-15.
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Conservation Station, Inc. v. Bolesky, 2023 NCBC 85 (N.C. Super. Ct. Dec. 12, 2023) (Robinson, J.)
Key Terms: entry of default; bench trial; breach of fiduciary duty; constructive fraud; lost profits; punitive damages; fraud; conversion; intangible assets; tracing; tortious interference with prospective economic advantage; UDTPA; in or affecting commerce
Plaintiff CSI brought suit against its former employee/officer Bolesky and his new competing business CTS, asserting a number of claims arising from Bolesky’s alleged misconduct in running CSI. Following entry of default against Defendants, the Court proceeded to a bench trial at which Bolesky represented himself and CTS did not appear. This opinion constitutes the Court’s final judgment. Although entry of default renders the factual allegations admitted, it does not necessarily establish liability as the Court must still determine whether the allegations are sufficient to state a claim for relief.
Breach of Fiduciary Duty and Constructive Fraud. The Court concluded that CSI had sufficiently alleged that 1) Bolesky owed CSI a fiduciary duty as an officer; 2) Bolesky had breached that duty by, among other things, converting CSI’s business assets, failing to file CSI’s tax returns, and neglecting CSI’s supplier relationships; 3) Bolesky sought to benefit himself through these actions; and 4) CSI had been significantly damaged by Bolesky’s misconduct. CSI requested over $8 million in actual damages based on lost profits. However, because CSI’s lost profits calculations were too speculative, the Court determined that CSI was only entitled to recover $200,000 from the Defendants, jointly and severally, for these claims. The Court also awarded $600,000 in punitive damages based on evidence that Bolesky’s breaches of his fiduciary duty were carefully calculated and intended to destroy CSI’s ability to compete in the market.
Fraud. CSI’s first fraud claim was based on its allegation that Bolesky had made a material misrepresentation of fact when he stated under oath in a previous proceeding that he did not know whether he would use his new business, CTS, to engage in the same type of business as CSI. The Court concluded that CSI was not entitled to recovery on this claim because the complaint did not include allegations of how such statement was reasonably calculated to deceive. CSI’s second fraud claim was based on its allegation that Bolesky had made material misrepresentations to CSI’s customers regarding the relationship between CSI and CTS. The Court found this claim insufficient as well because the complaint did not allege the time, place, and content of the fraudulent representations.
Conversion. CSI alleged that Defendants had converted CSI’s funds, accounts receivable, distributorship rights, business relationships with customers, and good will. The Court concluded that this claim failed. Intangible interests, such as distributorship rights, business relationships, and good will, cannot form the basis of a conversion claim. In addition, a claim for conversion of money requires the funds in question to be specifically traced and identified, which CSI failed to do.
Tortious Interference. CSI’s claim for tortious interference with prospective economic advantage failed because CSI did not identify any specific contract which would have resulted but for Defendants’ alleged tortious interference.
UDTPA. CSI’s UDTPA claim failed because Bolesky’s formation of CTS and usurpation of CSI’s corporate opportunities was not in or affecting commerce; rather, CTS was formed and used as an instrument to facilitate harm within CSI.
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Emrich Enters. LLC v. Hornwood Inc., 2023 NCBC 86 (N.C. Super. Ct. Dec. 14, 2023) (Robinson, J.)
Key Terms: judgment notwithstanding the verdict; motion for a new trial; operating agreement; waiver of fiduciary duties; direct claim; standing; punitive damages; breach of contract
In this action, Emrich Enterprises, the minority member of Triangle, brought claims individually, and derivatively on behalf of Triangle, against Hornwood, Inc., the majority member of Triangle, arising from Hornwood’s alleged breach of Triangle’s governing documents and of fiduciary duties owed to Emrich and Triangle. After a seven-day trial, the jury found that Hornwood had breached its fiduciary duties on various bases and awarded damages. Following entry of final judgment, Hornwood moved for judgment notwithstanding the verdict and for a new trial.
Triangle’s Fiduciary Duty Claims Against Hornwood. Hornwood moved for JNOV regarding Triangle’s fiduciary duty claims on the basis that Triangle’s operating agreement eliminated Hornwood’s liability for such duties. The Court agreed and further concluded that duties owed under other sections of the agreement were contractual, not fiduciary, in nature. Thus, since the jury’s determination that Hornwood owed Triangle fiduciary duties was legally unsubstantiated, the Court granted the JNOV motion on these claims and amended the judgment accordingly.
Hornwood’s Self-Interested Transactions. Based on its conclusion that there was no evidence that Hornwood owed, and breached, fiduciary duties to Triangle, the Court granted the JNOV motion and amended the judgment with regards to the jury’s finding that Hornwood had engaged in self-interested transactions and the jury’s resulting award of compensatory damages. Due to this amendment, the Court also amended the judgment to reinstate Issue 11, which it had previously stricken as duplicative. The Court determined that JNOV was not appropriate on Issue 11 but allowed Hornwood leave to move for a new trial on that issue.
Emrich’s Direct Claims Against Hornwood. At trial, the jury found that Hornwood, as majority member of Triangle, breached fiduciary duties owed to Emrich by working with another entity and threatening to cease manufacturing for Triangle. In support of its JNOV motion, Hornwood argued that Emrich did not have standing to bring direct claims. The Court disagreed, concluding that Emrich, as a minority member of Triangle, had standing to bring direct claims against Hornwood, the majority member. In addition, the jury’s award of damages in differing amounts to Emrich and Triangle for the same conduct showed that Emrich suffered injuries distinct from those suffered by Triangle. Nevertheless, the Court granted the JNOV motion with regard to the claim arising from Hornwood’s threat to cease manufacturing because no fiduciary duty was owed to Emrich under the joint venture agreement.
Hornwood’s Breach of Contract. The Court determined that there was ample evidence at trial to support the jury’s finding that Hornwood had breached Section 4.4 of the Triangle operating agreement. Thus, the Court denied the JNOV motion as to this claim.
Triangle’s Punitive Damages. The Court granted JNOV with regards to the jury’s award of punitive damages. Since Triangle’s only surviving claims were breach of contract claims and the Court had determined that the jury’s findings regarding underlying torts which would have warranted punitive damages were unsupported by the evidence, there was no legal basis for punitive damages.
Motion for a New Trial or to Amend Judgment. Hornwood moved to amend the final judgment award for its breach of Section 4.4 of the Operating Agreement, arguing that the award was inconsistent with the jury’s award of nominal damages to Triangle for similar conduct, was unsupported by the greater weight of the evidence, and excessive. The Court disagreed and denied the motion. The verdict was not inconsistent as the jury could have relied on different evidence when awarding damages for separate claims. Moreover, based on the evidence presented the jury’s award was reasonable and not against the greater weight of the evidence.
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Blueprint 2020 Opportunity Zone Fund, LLLP v. 10 Acad. St. QOZB I, LLC, 2023 NCBC 87 (N.C. Super. Ct. Dec. 15, 2023) (Bledsoe, C.J.)
Key Terms: receivership; subject matter jurisdiction; in rem; in personam; sale of real property; free and clear; lease; N.C.G.S. § 1-507.41; N.C.G.S. § 1-507.46(c); N.C.G.S. § 1-507.45(g)(2); balancing of equities
As summarized here, the Court previously appointed a receiver over Defendant QOZB. Thereafter, the Receiver filed a motion seeking authority to sell, free and clear of all liens and encumbrances, a piece of property in South Carolina currently encumbered by several parking leases. A number of parties opposed the motion.
The Opposing Parties first argued that the Court did not have subject matter jurisdiction to authorize the Receiver to sell property located in South Carolina. The Court rejected this argument. Although the Court did not have in rem jurisdiction to transfer title itself, it could exercise its in personam jurisdiction to authorize the Receiver to take appropriate steps to effectuate the sale.
The Opposing Parties then argued that, pursuant to N.C.G.S. § 1-507.41, the Receiver needed to obtain an ancillary receivership in South Carolina before exercising control over the property. This argument failed as well because the statute’s language regarding foreign receiverships was permissive rather than mandatory.
The Opposing Parties next argued that N.C.G.S. § 1-507.46(c) restricts a receiver’s power to effect sales to those that are free and clear of liens but not of other types of encumbrances, and that this provision preempts all other statutes and common law principles regarding the sale of receivership property. The Court again disagreed. It determined that the statute’s plain language only addressed a receiver’s authority to engage in sales made “free and clear of all liens and rights of redemption and claims of exemption,” but did not address or create a restriction on a receiver’s authority to sell free and clear of other encumbrances. Moreover, the Commercial Receivership Act expressly provides that other statutory and common law supplement its provisions unless explicitly displaced. Since North Carolina law has long held that a receiver has the power to sell property free and clear of all encumbrances, it followed that if the legislature intended to change the common law, it would have expressly said so.
The Court next concluded that the Receiver did not have the authority to reject the current parking lease as an executory contract pursuant to N.C.G.S. § 1-507.45(g)(2) because the statute expressly prohibited a receiver from rejecting an unexpired lease of real property under which the debtor is the landlord and the receiver was appointed at the request of a person other than the mortgagee—which were the facts at hand here. Nevertheless, the Court concluded that the parking leases were void under South Carolina law. First, the current parking lease was void because it was supported by grossly inadequate consideration and accompanied by various “inequitable incidents.” Second, the remaining parking leases were void due to fatal defects, including that the lessor did not have rights to the leased property, the parent lease was invalid, and the same party was on both sides of the transaction.
Based on the above, and the balancing of the equities, the Court granted the motion, approved the proposed sale contract, and authorized the Receiver to effectuate the sale and transfer the property free and clear of all liens and other encumbrances, including the parking leases.
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Bank of Am. N.A. v. Klaussner Furniture Indus., Inc., 2023 NCBC Order 66 (N.C. Super. Ct. 15, 2023) (Robinson, J.)
Key Terms: receivership; attorneys’ fees; application for compensation; reasonableness; hourly rate; N.C.G.S. § 1-507.31(b)
This order addressed K&L Gates’ first monthly application for payment of attorneys’ fees and expenses as counsel to the Receiver for Klaussner Furniture. In determining the reasonableness of the compensation requested, the Court considered the factors set forth in N.C.G.S. § 1-507.31(b), including the value of the debtors’ assets, the number and amount of the debtors’ creditors, the time and labor expended, the billing rates charged, the novelty and complexity of the receivership, and rates previously found reasonable in similar circumstances. Although acknowledging that K&L Gates had provided high-level performance, the Court ultimately determined that the rates needed to be adjusted. Accordingly, the Court granted the application in part and permitted the Receiver to remit to K&L Gates compensation at the rates set forth by the Court. However, the Court denied the motion as to payment of expenses because the application did not include any specific information or itemization for the costs incurred.
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Clearview Ltd., LLC v. Fife, 2023 NCBC Order 67 (N.C. Super. Ct. Dec. 18, 2023) (Bledsoe, C.J.)
Key Terms: order on designation; mandatory complex business case; N.C.G.S. § 7A-45.4(a)(8); amended complaint; trade secrets; confidential or proprietary information
This action arose out of a dispute between Plaintiff and two of its former employees. Plaintiff asserted claims for breach of contract, unfair and deceptive trade practices, unfair competition, civil conspiracy, and tortious interference with contract. Shortly after filing suit, Plaintiff filed an amended complaint asserting the same claims but modifying the factual allegations, including removal of references to trade secrets. Thereafter, Defendants filed a notice of designation under N.C.G.S. § 7A-45.4(a)(8), which permits designation in disputes involving trade secrets. Defendants argued that designation was proper despite the removal of references to trade secrets because the nature of the action had not changed. The Court disagreed, noting that it had never construed section 7A-45.4(a)(8) so broadly as to permit designation based on claims involving generalized confidential or proprietary information. Accordingly, since the allegations of the amended complaint only involved misuse of generalized proprietary information, designation was improper.
By: Ashley Oldfield
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The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Posted 12/20/23
