Archive for the ‘Business Court Blast’ Category

N.C. Business Court Opinions, August 31, 2022 – September 13, 2022

Brenner v. Hound Ears Club, Inc., 2022 NCBC 47 (N.C. Super. Ct. Sept. 1, 2022) (Bledsoe, C.J.)

Key Terms: voluntary association; bylaws; Nonprofit Corporation Act

Defendant is a non-profit corporation which owns and operates a private club for the purpose of running a gated subdivision with amenities. Property owners and non-property owners comprise the Club’s equity membership. The Club’s bylaws permit the Club’s Board of Directors to assess dues and fees on equity members to fund the amenities. The bylaws also permit the Board to amend the bylaws, without approval of the members, with certain restrictions. After the Board adopted a new fee structure which assessed fees against non-property-owning equity members, Plaintiffs brought suit, alleging breach of the bylaws and seeking a declaratory judgment. Following the Defendant’s answer, the parties brought cross-motions for judgment on the pleadings.

Plaintiffs argued that the new fee structure created new classes of membership and constituted a procedurally defective bylaw amendment. Applying traditional rules of contract interpretation, the Court concluded that the creation of new membership classes was a proper exercise of the Board’s powers under the bylaws, not an amendment. Plaintiffs also argued that the assessments violated the North Carolina Nonprofit Corporation Act (the “Act”). The Court rejected this argument, concluding that the plain language in the bylaws expressly allowed the Board to assess fees against any new membership class. Moreover, because the obligations of each class were consistent within each class, there was no violation of the Act’s proscription against unequal treatment. Accordingly, the Court dismissed the action with prejudice.

 

Vanguard Pai Lung, LLC v. Moody, 2022 NCBC 48 (N.C. Super. Ct. Aug. 31, 2022) (Conrad, J.)

Key Terms: judicial dissolution; minority member; attorneys’ fees; N.C.G.S. 1-538.2(a)

Following a jury trial which resulted in a verdict for Plaintiffs, the parties submitted two issues for the Court’s resolution before entry of judgment: 1) Plaintiffs’ motion for costs and attorneys’ fees, and 2) Defendant Nova Trading’s motion for judicial dissolution of Plaintiff Vanguard.

Regarding the first motion, Plaintiffs sought costs pursuant to N.C.G.S. §§ 6-1, 7A-305(d) and over $2.5 million in attorneys’ fees pursuant to N.C.G.S. § 1-538.2(a). The Court granted the unopposed request for costs but denied, without prejudice, Plaintiffs’ request for attorneys’ fees. The Court determined that Plaintiffs’ request for attorneys’ fees was deficient because 1) only Vanguard, not the other Plaintiff, had any basis to request attorneys’ fees under the statute; 2) the statute only authorized attorneys’ fees relating to an embezzlement claim, and Vanguard had not shown that the other claims in the case were inextricably interwoven with its embezzlement claim; 3) the hourly billing rates of Vanguard’s out-of-state attorneys were unreasonable compared to rates customarily charged in North Carolina; and 4) Vanguard did not submit any billing records.

Regarding the second motion, Nova Trading, the minority member of Vanguard, argued that acrimony between Vanguard’s members made it impossible to conduct Vanguard’s business going forward and that Nova Trading was powerless within Vanguard and needed dissolution to protect its rights. The Court held that these arguments were meritless and denied the motion. Not only had Nova Trading failed to cite any supporting evidence (in violation of the Business Court Rules), but Plaintiffs’ evidence showed that Vanguard was operating and profitable. Moreover, Nova Trading was not powerless; it had all the rights it had bargained for and agreed to when it signed the operating agreement. Finally, dissolution would frustrate the jury’s verdict, which provided that Plaintiffs had not breached the operating agreement.

 

Forsythe v. N.C. Dep’t of Revenue, 2022 NCBC 49A (N.C. Super Ct. Sept. 9, 2022) (Bledsoe, C.J.)

Key Terms: contested tax case; subject matter jurisdiction; Business Court designation; sovereign immunity

Petitioners initiated a contested tax case in the Office of Administrative Hearings (“OAH”), challenging Respondent’s denial of their request for a refund of certain taxes and raising a constitutional challenge to a tax statute. After dismissal of their case by the OAH, Petitioners filed a Petition for Judicial Review in Wake County Superior Court raising the same issues. The statutes that governed the Petition, N.C.G.S. §§ 105-241.116, 105-241.17, both require that a taxpayer comply with the mandatory business case designation procedures in N.C.G.S § 7A-45.4(b)-(f), which are jurisdictional. Here, Petitioners did not comply with the statute as they filed their notice of designation 29 days after filing their petition, rather than contemporaneously with the petition as required by section 7A-45.4(d). Given that the State only waived sovereign immunity to the extent the statutory requirements were met, Petitioners’ noncompliance divested the Court of subject matter jurisdiction to hear the case. Moreover, because section 7A-45.4(b)(1) mandated that such an action could only proceed as a mandatory complex business case before a Business Court Judge, no other forum was available to Petitioners. Thus, the Court dismissed the Petition with prejudice since Petitioners could not cure their procedural default or proceed in any other forum.

 

Lafayette Vill. Pub, LLC v. Burnham, 2022 NCBC 50 (N.C. Super. Ct. Sept. 12, 2022) (Davis, J.)

Key Terms: UDTP; in or affecting commerce; LLC; minority member; fiduciary duty

An LLC and two of its members, who collectively own a majority interest in the LLC, brought individual and derivative claims against a minority member of the LLC for breach of fiduciary duty, constructive fraud, accounting, and unfair and deceptive trade practices. Defendant moved to dismiss the UDTP claim arguing that the alleged actions were not in or affecting commerce because they were based solely on intracompany dealings. Plaintiffs countered that the conduct was in or affecting commerce because it affected the LLC’s employees and the Defendant had potentially misused government sponsored disaster loans. After reviewing recent case law, the Court rejected Plaintiffs’ arguments and granted dismissal of the UDTP claim, finding that the indirect effects of Defendant’s conduct on commerce were too attenuated to satisfy the “in or affecting commerce” prong of a UDTP claim. Defendant also moved to dismiss the individual claims for breach of fiduciary duty and constructive fraud based on a lack of fiduciary duty between him and the other members of the LLC. The Court agreed and dismissed both claims, concluding that Plaintiffs failed to plead specific allegations of control by Defendant sufficient to satisfy the test articulated in Corwin v. British Am. Tobacco PLC for whether a minority shareholder owes a fiduciary duty to other shareholders.

 

In re Se. Eye Ctr. (Pending Matters); In re Se Eye Ctr. (Judgments), 2022 NCBC Order 52 (N.C. Super. Ct. Feb. 17, 2022) (Bledsoe, C.J.)

Key Terms: stay pending appeal; inherent authority

The Court, sua sponte, addressed whether the recent filing of notices of appeal regarding several orders warranted postponing the scheduled trial. The parties disagreed as to whether the appeals barred further action under N.C.G.S. § 1-294 but agreed nonetheless that, for practical reasons, the trial should be continued and other deadlines suspended. Without deciding whether the appeals stayed the action, the Court, pursuant to its inherent authority to manage its docket, agreed and ordered the scheduled trial cancelled and certain case management deadlines suspended.

 

*This order was entered on February 17, 2022 but not designated as an Order of Significance until September 12, 2022.

 

By Ashley B. Oldfield

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 09/14/22

N.C. Business Court Opinions, August 17, 2022 – August 30, 2022

KNC Techs., LLC v. Tutton, 2022 NCBC Order 50 (N.C. Super. Ct. Aug. 17, 2022) (Davis, J.)

Key Terms: Rule 38; Rule 39; right to jury trial; waiver

Upon its own motion, the Court addressed whether a jury trial was appropriate. Neither party had requested a jury trial in their pleadings or within ten days following service of the last pleading, as required by Rule 38(b) of the North Carolina Rules of Civil Procedure; accordingly, the parties had waived their right to a jury trial per Rule 38(d). Although Rule 39(b) grants a court the discretion to order a jury trial even when the right has been waived, the Court declined to do so here and denied Plaintiff’s belated request for a jury trial.

 

Chi v. N. Riverfront Marina & Hotel LLLP, 2022 NCBC 46 (N.C. Super. Ct. Aug. 24, 2022) (Earp, J.)

Key Terms: Rule 12(b)(6); BCR 5; breach of contract; litigation privilege; confidentiality; waiver

Plaintiffs and Defendant Wilmington Riverfront entered into a partnership agreement to form Defendant NRMH for investing in developing riverfront property. After the investment failed to provide the allegedly promised returns, Plaintiffs brought suit, attaching to their complaint various partnership documents, including the partnership agreement and a subscription agreement. Defendants asserted a counterclaim for breach of contract alleging that Plaintiffs violated the confidentiality provisions in the agreements by disclosing confidential information about the partnership in public filings in the present lawsuit. Plaintiffs moved to dismiss, arguing that Defendants allegations were conclusory and therefore failed to state a claim; that their disclosures were protected by “litigation privilege”; and that Defendants had waived their right to pursue a claim because they included the same documents with their counterclaim. The Court denied the motion, concluding that 1) the Defendants had satisfied the minimal pleading requirements for a breach of contract claim; 2) Plaintiffs had failed to provide any North Carolina authority regarding a litigation privilege as argued here, and Business Court Rule 5 provides a mechanism for filing documents under seal; and 3) the waiver argument failed because the complaint did not allege that Defendants were bound by the confidentiality provisions, and, moreover, Defendants’ disclosure came after Plaintiffs had already disclosed the same material.

 

Total Merch. Servs., LLC v. TMS NC, Inc., 2022 NCBC Order 51 (N.C. Super. Ct. Aug. 30, 2022) (Bledsoe, C.J.)

Key Terms: sanctions; inherent authority; discovery violations; interlocutory appeal; preliminary injunction

This case arose from Defendants’ alleged breach of an exclusive sales agreement and Plaintiff’s attempts to enforce its inspection rights pursuant to the agreement. Over a year after filing the case, Plaintiff moved for sanctions due to Defendants’ discovery conduct and failure to comply with a Preliminary Injunction Order and a Compel Order. The Court detailed the Defendants’ conduct over the past year, which included improperly removing the case to federal court; refusing to respond to discovery requests for nearly fifteen months; taking an improper interlocutory appeal of the Preliminary Injunction Order; stubbornly and willfully failing to comply with the Preliminary Injunction Order; and failing to timely comply with the Compel Order. After reviewing its inherent authority to impose sanctions for a party’s misconduct, the Court concluded that sanctions should be awarded against Defendants for their egregious conduct; however, the Court deferred entry of the sanctions and ordered Defendants (and a non-party owner of Defendant TMS NC, Inc.) to appear and show cause why the Court should not enter sanctions, in addition to attorneys’ fees and costs, up to and including striking Defendants’ answer, affirmative defenses, and remaining counterclaims.

 

By: Ashley B. Oldfield

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 08/31/22