Archive for the ‘Legal Updates’ Category

N.C. Business Court Opinions, November 9, 2022 – November 22, 2022

Kelly v. Metro. Life Ins. Co., 2022 NCBC 70 (N.C. Super. Ct. Nov. 14, 2022) (Robinson, J.)

Key Terms: automatic stay; summary judgment; Ponzi scheme; securities; fraud by omission; concealment; independent contractor; duty to speak; reasonable reliance; respondeat superior

This case arose out of an alleged Ponzi scheme operated by Richard Siskey (deceased), who was, for a period of time, a MetLife employee. Plaintiff had engaged Siskey and his business partner Phillips, another former MetLife employee, as a securities broker, investment advisor, and/or insurance agent. Plaintiff brought 9 claims against Phillips and two MetLife entities, a number of which were previously dismissed pursuant to 12(b)(1) and 12(b)(6). In 2020, Phillips filed a Chapter 13 bankruptcy and the case was stayed as to him. The MetLife Defendants subsequently moved for summary judgment on the remaining claims for fraud by omission, negligent supervision, and negligent misrepresentation and professional negligence under a theory of respondeat superior.

As to the fraud by omission claim, the Court found that MetLife had no duty to speak as a fiduciary relationship did not exist between it and the Plaintiff. Moreover, the Plaintiff could not show reasonable reliance because he failed to investigate Siskey’s past disciplinary history, despite being on notice of it.

As to the negligent supervision claim, the Court found that Plaintiff had failed to put forth sufficient evidence to create a jury issue with respect to the nexus proof requirement that the injury was reasonably foreseeable by the MetLife Defendants.

As to the vicarious liability claims for negligent misrepresentation and professional negligence, the Court found that these claims failed because Siskey and Phillips were independent contractors of MetLife at the time of the complained of conduct and therefore respondeat superior did not apply. Furthermore, even if they had been employees, the claims would fail on other bases as well.

Accordingly, the Court granted the motion and dismissed all claims with prejudice.

 

N.C. Dep’t of Revenue v. Integon Nat’l Ins. Co., 2022 NCBC 71 (N.C. Super. Ct. Nov. 22, 2022) (Earp, J.)

Key Terms: motion to dismiss; subject matter jurisdiction; Rule (12(b)(1); standing; judicial review; final agency determination; N.C.G.S. § 150B-43; motion to strike; tax credit; admission; mootness

Immediately before a hearing on cross-summary judgment motions before the Office of Administrative Hearings, the Parties, the N.C. Department of Revenue (“Department”) and Integon (“Taxpayer”), submitted a consent order requesting dismissal with prejudice to the administrative law judge (“ALJ”) after the Department withdrew its final determination holding that the Taxpayer could not claim the tax credit at issue and agreed to issue a refund to the Taxpayer. Instead, the ALJ granted the Taxpayer’s summary judgment motion finding that the Department’s proposed order, which was not entered, contained an admission as to the correctness of the Taxpayer’s legal position. The Department sought judicial review.

The Court held that the withdrawal of the final determination by the Department did not deprive the ALJ of subject matter jurisdiction but instead raised the issue of mootness. The Court held that the Department did have standing as an aggrieved party to seek judicial review of the ALJ’s ruling and remanded the case to the ALJ to consider the issue of mootness or otherwise conduct a hearing on the Parties’ cross-motions for summary judgment.

 

Window World of Baton Rouge, LLC v. Window World, Inc.; Window World of St.

Louis, Inc. v. Window World, Inc., 2022 NCBC Order 62 (N.C. Super. Ct. Nov. 11, 2022) (Bledsoe, C.J.)

Key Terms: motion to seal; attorney-client privilege; work-product doctrine; proprietary business information; mistake; billing records; crime-fraud exception; privilege logs

The Court denied Defendants’ motions to seal exhibits that consisted of emails between Defendants’ in-house counsel and Defendants’ executives, directors, and counsel involved in the litigation because the Court found that any potentially privileged information had been redacted. The Court also denied Defendants’ motions to seal various privilege logs it had compiled because the content of the quoted descriptions appeared unredacted elsewhere in the briefs and the Court found privilege logs do not qualify as attorney work-product. The Court granted Defendants’ motion to seal as to certain consulting contracts and executive severance agreements because Defendants had a strong interest in preserving the confidentiality of its proprietary and trade secret information, and Defendants’ proposed redactions were appropriately limited. The Court allowed Defendants to provide supplemental briefing as to sealing exhibits filed by mistake and granted the motion to seal portions of attorney billing records that described confidential settlement communications, governance matters, and personal matters related to individuals associated with Defendants.

 

McManus v. Dry, 2022 NCBC Order 65 (N.C. Super. Ct. Nov. 16, 2022) (Bledsoe, C.J.)

Key Terms: class action; class settlement agreement; cyberattack; personally identifiable information

Upon preliminary review, the Court found that the proposed Settlement Agreement was negotiated at arms-length and was fair, reasonable, adequate, and in the best interests of the Settlement Classes to warrant providing Notice of the Settlement to the Settlement Classes and accordingly preliminarily approved the unopposed motion for class settlement agreement which would settle the case and result in dismissal with prejudice.

 

Bucci v. Burns, 2022 NCBC Order 63 (N.C. Super. Ct. Nov. 17, 2022) (Conrad, J.)

Key Terms: attorneys’ fees; N.C.G.S. § 6-21.5; costs; N.C.G.S. § 7A-305(d)

Defendant moved to recover costs and attorneys’ fees against two remaining plaintiffs after partially prevailing at summary judgment and settling with five other plaintiffs. The Court awarded but offset costs because Defendant prevailed against some plaintiffs but benefited from settling with certain other plaintiffs and avoiding trial. The Court based award on number of plaintiffs who actively participated in litigation. The Court awarded attorneys’ fees in its discretion because of a complete lack of judiciable issue of law or fact and apportioned fees among the two plaintiffs based on estimated time spent related specifically to defending against their claims and the motions to recover attorneys’ fees.

 

Auto Club Grp. v. Frosch Int’l Travel LLC, 2022 NCBC Order 64 (N.C. Super. Ct. Nov. 21, 2022) (Bledsoe, C.J.)

Key Terms: notice of designation; N.C.G.S. § 7A-45.4(a)(8); opposition; trade secret dispute

Plaintiffs had initiated a prior action against Defendant Frosch which included a claim for violation of the N.C. Trade Secrets Protection Act. The action was properly designated a mandatory complex business case but was then dismissed without prejudice after mediation failed. Plaintiffs immediately filed the present action against Frosch and three individuals but did not reassert the trade secrets violation claim. Frosch nonetheless filed a notice of designation contending the case involved a trade secret dispute under N.C.G.S. § 7A-45.4(a)(8). Defendants argued that the current lawsuit was merely a maneuver to avoid Business Court designation since it involved essentially the same subject matter and allegations as the previous action. The Court rejected this argument noting that a plaintiff is master of its complaint and has freedom to choose what claims to bring. Accordingly, the Court found that designation was inappropriate because the complaint did not involve material issues involving trade secrets, made no claim for misappropriation of trade secrets, and did not allege that the confidential information purportedly taken by Defendant constituted trade secrets. The claims involved only misuse of confidential or proprietary information.

 

By Rachel E. Brinson

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.

To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at aoldfield@rcdlaw.net.

 

 

Posted 11/23/22

N.C. Business Court Opinions, October 26, 2022 – November 8, 2022

North Carolina ex rel. Stein v. Bowen, 2022 NCBC 64 (N.C. Super. Ct. Oct. 27, 2022) (Conrad, J.)

Key Terms: personal jurisdiction; minimum contacts; specific jurisdiction; motion to dismiss

Following the settlement of its 2019 lawsuit against JUUL Labs, Inc., the State of North Carolina filed suit against five officers and directors of JUUL Labs, Inc. individually (“Defendants”). In its complaint, the State alleged that Defendants engaged in unfair and deceptive trade practices under N.C. Gen. Stat. § 75-1.1 “in the course of supervising and directing the marketing of JUUL’s e-cigarette devices and flavored nicotine inserts.” Defendants moved to dismiss for lack of personal jurisdiction and failure to state a claim for relief.

After receiving evidence from the Defendants relating to the Defendants’ contacts with the forum, the Court granted the Defendants’ motion to dismiss for lack of personal jurisdiction. Specifically, the Court held that the State failed to show that Defendants had sufficient minimum contacts or purposefully availed themselves of conducting activities in the forum. The Court held that the State’s allegations, which contained generalized allegations about the Defendants collectively, were facially deficient and failed to address each individual Defendant’s contacts within the state. Noting that the State’s allegations attempted to attribute the corporation’s activities within the state to the individual Defendants, the Court emphasized that “jurisdiction over the individual officers [and directors] of a corporation cannot be predicated merely upon jurisdiction over the corporation.” The Court also noted that the Defendants’ actions were geared towards national marketing campaigns and did not target the State of North Carolina specifically.

 

Vitaform, Inc. v. Aeroflow, Inc., 2022 NCBC 65 (N.C. Super. Ct. Oct. 27, 2022) (Bledsoe, C.J.)

Key Terms: misappropriation of trade secrets; fraud; fraudulent concealment; summary judgment; UDTPA

Plaintiff Vitaform, Inc., a designer and manufacturer of post-partum compression garments, filed suit against Defendant Aeroflow, Inc., a nationwide Durable Medical Equipment (“DME”) distributor. Plaintiff designed compression garments specifically for post-partum recovery that qualified as a DME for health insurance purposes. After working with one of Defendant’s subsidiary regional distributors, Plaintiff entered into an oral agreement with Defendant on July 19, 2018 to distribute the products nationally and process the related insurance claims (the “July 19 Call”). Plaintiff agreed to provide Defendant with its products, marketing material, and insurance coding information in exchange for payment of shipments received. In its complaint, Plaintiff alleged its business information was only provided on the basis that Defendant would maintain its confidentiality. Plaintiff alleged that Defendant used the information obtained from Plaintiff to design a competing product through Defendant’s wholly-owned subsidiary, which Defendant eventually began to distribute to customers in place of Plaintiff’s product.

Following the dismissal of four of Plaintiff’s claims and two of Defendant’s counterclaims, Defendant moved for summary judgment on Plaintiff’s remaining claims of: (i) trade secret misappropriation; (ii) breach of the duty of good faith and fair dealing; (iii) fraud and fraudulent concealment in relation to the July 19 Call; (iv) common law unfair competition and violations of the UDTPA and Lanham Act; (v) common law unfair competition and violations of the UDTPA in relation to the July 19 Call; and (vi) unjust enrichment.

The Court granted Defendant’s motion as to Plaintiff’s trade secret claim, on the basis that Plaintiff’s unpatented product design specifications and business model information were publicly available and readily ascertainable, and Plaintiff failed to make reasonable efforts to maintain secrecy. Plaintiff’s breach of the duty of good faith and fair dealing was dismissed by the Court on the grounds that Plaintiff failed to present facts sufficiently specific to warrant a finding that Plaintiff and Defendant entered into an enforceable oral confidentiality agreement during the July 19 Call.

Defendant’s motion was denied as to Plaintiff’s fraud and fraudulent concealment claims, as the Court held that the evidence created an issue of fact as to whether Defendant made fraudulent misrepresentations on the July 19 Call and fraudulently concealed its intent to use Plaintiff’s business model in the following weeks.

The Court granted Defendant’s motion as to Plaintiff’s Lanham Act, unfair competition, and UDTPA claims (except to the extent the unfair competition and UDTPA claims were based on the July 19 Calls). In addressing Plaintiff’s Lanham Act claim, the Court held that Defendant did not falsely designate the origin of its product and did not create customer confusion by indicating to customers that they would be receiving Plaintiff’s product rather than Defendants. The court likewise found that Plaintiff had failed to create an issue of triable fact for its unfairness and UDTPA claims, as it did not proffer evidence that Defendant had designated its shipped products as coming from a specific supplier and sent appropriately branded products. The Court denied Defendant’s motion as to Plaintiff’s unjust enrichment and punitive damages claims, as Plaintiff had presented sufficient evidence of Defendant’s “wrongful” conduct.

 

Anderson v. Beresni, 2022 NCBC ORDER 59 (N.C. Super. Ct. Oct. 27, 2022) (Davis, J.)

Key Terms: preliminary injunction, TRO; mediation; homeowners’ association

Plaintiffs are property owners in a planned community called Mystic Lands and members of the Mystic Lands Property Owners’ Association (the “Association”). Plaintiffs, on behalf of the Association, filed suit against current and former members of the Association’s board of directors for breach of fiduciary duty related to the board of directors’ failure to collect assessments from the declarant for property owned in the community. Plaintiffs also sought preliminary and permanent injunctive relief. A temporary restraining order was entered in August 2022, enjoining the board of directors from participating in any mediation or settlement discussions with the property owners owing assessments without Plaintiffs’ participation.

The Court denied Plaintiff’s motion for a preliminary injunction on the basis that Plaintiffs failed to demonstrate irreparable harm. Specifically, the Court noted that Plaintiffs failed to show that they lacked an adequate remedy at law, such as monetary damages, that would make the Associate whole if Plaintiffs succeeded in the underlying suit.

 

Hartsell v. Mindpath Care Ctrs., N.C., PLLC, 2022 NCBC 66 (N.C. Super. Ct. Nov. 2, 2022) (Earp, J.)

Key Terms: breach of fiduciary duty; constructive fraud; motion to dismiss

Defendant Mindpath operates as a mental and behavioral healthcare organization. Plaintiff, a nurse practitioner, signed an operating agreement and participating provider agreement to become a member, minority interest holder, and employee of Mindpath in 2001. Mindpath’s majority interest holder (“Yvonne”) shared ownership with Mindpath’s president (“Stanley”) in MISO, LLC, a company Mindpath used for billing services. In her complaint, Plaintiff alleged that Defendants deducted funds owed to Plaintiff pursuant to the operating agreement, concealed the terms of Mindpath’s “insider transactions” with MISO, refused to redeem Plaintiff’s ownership interest in Mindpath when requested, and refused to permit Plaintiff to access Mindpath’s records.

Defendants filed a motion to dismiss Plaintiff’s claims for: (i) breach of fiduciary duty against Stanley for failure to redeem Plaintiff’s membership interest; (ii) breach of fiduciary duty against Stanley and Yvonne for self-dealing transactions with MISO; and (iii) constructive fraud against all defendants. Noting that no de jure fiduciary duty existed between the parties, the Court held that each claim’s survival depended upon a finding that a de facto fiduciary existed in each situation respectively. The Court concluded that Plaintiff failed to sufficiently allege that Stanley or Yvonne exercised sufficient dominion or control over Mindpath to warrant the imposition of fiduciary duties to Plaintiff. The Court likewise held that no fiduciary duties were owed to Plaintiff by Mindpath or MISO. As Plaintiff failed to allege the existence of a fiduciary duty, the Court granted Defendant’s motion in full.

 

Lee v. McDowell, 2022 NCBC ORDER 60 (N.C. Super. Ct. Nov. 2, 2022) (Bledsoe, C.J.)

Key Terms: shareholder notice; proposed settlement agreement

This order stems from an opposed proposed settlement agreement to resolve Plaintiffs’ individual and derivative claims for breach of fiduciary duty. The Court held that notice to the Plaintiff corporation’s shareholders of the proposed settlement was not required under statute, as it was within the Plaintiff corporation’s best interest to approve the settlement.

 

Gallaher v. Ciszek, 2022 NCBC 67 (N.C. Super. Ct. Nov. 4, 2022) (Bledsoe, C.J.)

Key Terms: breach of contract; employment agreement; Wage and Hour Act; piercing corporate veil

Plaintiffs, former employees of Defendant Cape Fear Neonatology Services, P.A. (“Cape Fear Neo”), filed suit against Cape Fear Neo for breach of their employment contracts and violations of the North Carolina Wage and Hour Act (“NCWHA”) for unilaterally reducing Plaintiffs’ salaries and withholding bonuses. Plaintiffs also requested the Court to pierce Cape Fear Neo’s corporate veil and hold its owner, Defendant Ciszek, personally liable on both claims. Defendants filed a counterclaim for breach of contract. Both sides moved for summary judgment.

On the breach of contract claim, the Court determined that Cape Fear Neo had breached its employment agreements with Plaintiffs by unilaterally reducing Plaintiffs’ salaries. However, after analyzing the parties’ conduct using the Wheeler elements, the Court held that this breach had been waived by Plaintiffs, who continued their employment with Cape Neo after receiving notice of the breach. Noting that North Carolina is an at-will employment state, the Court interpreted Plaintiffs’ continued employment with Cape Fear Neo to constitute a waiver. The Court also held that no breach occurred as to the withholding of year-end bonuses, as the employment contracts’ language did not give Plaintiffs a right to year-end bonuses for the years at issue.

The Court held that Cape Fear Neo violated the NCWHA by failing to tender prior notice of Plaintiffs’ salary reduction as required under N.C. Gen. Stat. § 95-25.13(3). Plaintiffs did not receive notice of the salary reduction until the first reduced paycheck was received with a memo line noting the payment reflected an alteration in salary payments. The Court entered judgment in favor of Plaintiffs for the amount of unpaid salary withheld during that pay period, and awarded Plaintiffs liquidated damages pursuant to statute. However, the Court further held that Plaintiffs received the requisite statutory notice on the day the first reduced paycheck was received, and no subsequent violation of the NCWHA occurred. No costs or attorneys’ fees were awarded. The Court concluded that Cape Fear Neo’s withholding of annual bonuses did not violate the NCWHA, as the employment contract did not create a calculable bonus formula, and consequently dismissed Plaintiffs’ NCWHA claim as it related to the unpaid bonuses.

The Court employed the instrumentality test to determine that piercing the corporate veil was appropriate in this situation and held Defendant Ciszek personally liable for the judgments entered against Cape Fear Neo. Defendants’ counterclaim for breach of contract was dismissed.

 

Woodcock v. Cumberland Cnty. Hosp. Sys., Inc., 2022 NCBC 68 (N.C. Super. Ct. Nov. 7, 2022) (Davis, J.)

Key Terms: judgment on the pleadings; declaratory judgment; standing

The Court ruled on two motions for partial judgment on the pleadings related to claims surrounding the validity of an equity purchase agreement. Plaintiff was a limited partner of Fayetteville Ambulatory Surgery Center, L.P. (“FASC”). The general partner of FASC, NSC Fayetteville, Inc. (“NSCF”), was a wholly-owned subsidiary of National Surgery Centers, LLC (“NSC”), which itself was a wholly-owned subsidiary of Surgical Care Affiliates, LLC (“SCA”). Through two separate but related transactions, Defendant Cumberland County Hospital System, Inc. (“CCHS”), acquired 100% of NSCF’s equity, and through that ownership, owned 100% of the general partner units of FASC. Plaintiff, on behalf of himself and the other limited partners of FASC, filed suit to challenge the validity of these transactions.

Defendants filed a motion for partial judgment on the pleadings related to Plaintiff’s standing to assert individual claims. The Court ruled in Defendants’ favor on Plaintiff’s claims for breach of contract, tortious interference with contractual relationship, and civil conspiracy. The Court reasoned that since FASC was not a party to either of the transactions at issue, Plaintiff lacked standing.

The Court denied Defendants’ motion as to Plaintiff’s eighth claim for tortious interference with contractual relationship against SCA, as this claim was not based upon the equity transactions, but rather a Cash Management Agreement that bound FASC. As FASC was bound by the agreement, Plaintiff maintained standing to assert this claim. The Court also denied Defendants’ motion as to Plaintiff’s individual claim for declaratory judgment.

Lastly, the Court dismissed Plaintiff’s claim for punitive damages, noting that North Carolina does not recognize an independent cause of action for punitive damages. The Court dismissed this claim without prejudice to Plaintiffs’ right to seek punitive damages for his remaining claims to the extent such damages would be recoverable under North Carolina law.

 

Aspen Specialty Ins. Co. v. Nucor Corp., 2022 NCBC 69 (N.C. Super. Ct. Nov. 8, 2022) (Earp, J.)

Key Terms: summary judgment; Rule 30(b)(6) deposition; evidential admission v. judicial admission; motion to amend complaint; UDTPA

This case arose from an industrial incident that occurred at an iron ore processing facility owned by Defendant Nucor Corp. Plaintiffs are two groups of insurers, each of which sought a declaratory judgment regarding whether their policies covered the losses incurred by Nucor. Following certain discovery, Nucor moved for partial summary judgment and to amend its complaint.

Regarding summary judgment, Nucor asserted that the testimony of one of the insurer’s Rule 30(b)(6) deponent contained admissions that established as a matter of law that certain policy provisions and allegations in the complaint could not be the basis for the denial of Nucor’s claim. The Court disagreed, finding that the deponent’s testimony was not sufficiently deliberate and unequivocal to constitute a judicial admission warranting summary judgment.

Regarding the motion to amend, Nucor sought to add a UDTPA claim premised on unfair claim settlement practices as defined in N.C.G.S. § 58-63-15(11). Despite Nucor’s years-long delay in adding this claim, the Court did not find undue delay or undue prejudice. However, it did find that the part of the proposed UDTPA claim based on misrepresentation was futile because it did not allege reasonable reliance. The remaining portions of the claim were sufficient and the Court, therefore, granted the motion to amend in part.

 

Sneed v. Sneed, 2022 NCBC ORDER 61 (N.C. Super. Ct. Nov. 8, 2022) (Earp, J.)

Key Terms: receivership; corporate dissolution

The Court approved a consent order providing for the judicial dissolution of three corporations owned by separated spouses. Pursuant to the consent order, the Court appointed a receiver to protect and manage the assets of the three corporations pending a resolution of the equitable distribution proceedings in their marriage dissolution case.

 

North Carolina ex rel. Stein v. E. I. Du Pont de Nemours & Co., 2022-NCSC-110 (Earls, J.)

Key Terms: personal jurisdiction; specific jurisdiction; corporate restructuring; successor liability

In an opinion addressing a lawsuit by North Carolina relating to Old Dupont for its alleged release of harmful chemicals into the environment and a corporate restructuring by Old Dupont, the N.C. Supreme Court held Defendants that were Delaware holding companies were subject to personal jurisdiction in North Carolina because the successor entities expressly assumed Old Dupont’s liabilities for the chemicals at issue, including the liabilities arising in North Carolina, even though the successors themselves had no direct contact with North Carolina. The Court also noted that Old Dupont engaged in the corporate restructuring to fraudulently deprive its creditors of judicial recourse, serving as a second independent ground to exercise personal jurisdiction over the successor entities. Accordingly, the Court affirmed the order and opinion by Business Court Judge Michael Robinson, which had denied a motion to dismiss for lack of personal jurisdiction.

By Natalie Kutcher and Matthew Tomsic

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.

To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at aoldfield@rcdlaw.net.

 

 

Posted 11/09/22

N.C. Business Court Opinions, October 12, 2022 – October 25, 2022

United Therapeutics Corp. v. Liquidia Techs., Inc., 2022 NCBC 59 (N.C. Super Ct. Oct. 13, 2022) (Earp, J.)

Key Terms: trade secret misappropriation; UDTPA; in or affecting commerce; Rule 12(b)(6)

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. Defendants moved to dismiss all claims.

Regarding the misappropriation claim, the Court concluded that Plaintiff’s allegations describing the types of information it contended constituted trade secrets and identifying the specific documents in which the trade secrets could be found were sufficient to identify the trade secrets at issue. Moreover, the Court concluded that Plaintiff had sufficiently pleaded misappropriation based on its allegations that Roscigno had access to the trade secrets, transferred and used them after his employment ended, and carried them to Liquidia, and that Liquidia had the trade secrets in its possession as evidenced by its production of the trade secrets during discovery in separation litigation.

Regarding the UDTPA claim, Liquidia argued that because the medical treatment was not yet commercially available, the alleged misappropriation was not “in or affecting commerce.” The Court rejected this narrow interpretation of the statute, determining that allegations regarding the transfer of trade secrets between competing companies regarding the development of products that are on the market or are intended for the market satisfied the UDTPA pleading requirements.

Accordingly, the Court denied the motion to dismiss as to both claims.

 

Clue Prop. Dev., LLC v. Switzenbaum & Assocs., Inc., 2022 NCBC 60 (N.C Super. Ct. Oct. 14, 2022) (Robinson, J.)

Key Terms: Rule 12(b)(6); breach of contract; damages; defined term; Rule 12(e); more definite statement

Plaintiffs filed suit alleging numerous claims arising from agreements between the parties to purchase and transfer certain property for residential development. Defendants moved to dismiss the Complaint, or in the alternative, for a more definite statement.

Defendants sought dismissal based largely on the Complaint’s definition of “Clue” as including both Plaintiff Clue Property Development (“Clue”) and an alleged predecessor entity Cue Property Development (“CUE”), which, according to Defendants, undermined the damages allegations in Claim 4 and tainted the whole Complaint. After determining that Claim 4 had sufficiently alleged a breach of contract despite the defect in the damages allegation, the Court turned to the effect of the defined term on the Complaint as a whole. The Court held that Plaintiffs had sufficiently alleged successorship for Rule 12(b) purposes because despite not alleging specific facts showing successorship, it appeared that Plaintiffs may be able to prove some facts which would support such a finding. Thus, the Court denied the motion to dismiss the Complaint.

The Court did, however, grant the motion for a more definite statement, due to the Complaint’s failure to sufficiently identify which entity was damaged and by what conduct.

 

Chambers v. Moses H. Cone Mem’l Hosp., 2022 NCBC 61 (N.C. Super. Ct. Oct. 19, 2022) (Conrad, J.)

Key Terms: class certification; non-opt-out class; actual notice; due process; class action settlement approval; attorneys’ fees

After Plaintiff received a $14,000 bill from Defendant Moses Cone for an emergency appendectomy, Plaintiff filed suit in 2012 alleging that Defendants had overcharged him and a class of other self-pay patients who received emergency care. Following ten years of litigation, all that remained was a class declaratory judgment claim seeking a declaration that Moses Cone’s form contract included an open price term, that it may not bill self-pay patients at Chargemaster rates, and that it is entitled only to the reasonable value of its services. The parties agreed to a proposed settlement in April 2022 which provided, among other things, that each class member would receive a fifty percent reduction of his original bill. This settlement was preliminarily approved by the Court in June. After notice was given to putative class members, Plaintiff filed unopposed motions for final approval and for $75,000 in attorneys’ fees.

The Court first approved the class, finding that the requirements of Rule 23 of the North Carolina Rules of Civil Procedure were satisfied. Although not all class members received actual notice due to mailings returned undeliverable, the Court concluded that this did not violate due process under the circumstances. Moreover, given that only declaratory relief was at issue, a non-opt-out class was appropriate to avoid unnecessary inconsistencies and compromises in future litigation.

The Court also approved the settlement, finding it fair, reasonable, adequate, and in the best interests of the class, especially considering the uncertainty and expense of continued litigation.

Regarding the request for attorneys’ fees, the Court applied the eight factors identified in Rule 1.5 of the Rules of Professional Conduct and determined that $75,000 was fair and reasonable. Plaintiffs’ counsel had expended nearly 450 hours in litigating the case, which was reasonable given the length and complexity of the litigation. At counsel’s ordinary billing rates, the combined value would have been $196,670. A discounted award of $75,000 would yield an implied average rate of $168/hour, which was well within the rates customarily charged in North Carolina.

 

PHE, Inc. v. Dolinksy, 2022 NCBC 62 (N.C. Super. Ct. Oct. 19, 2022) (Davis, J.)

Key Terms: estate; executor; fiduciary duty; economic loss rule; declaratory judgment; no actual dispute

After one of its shareholders passed away, Plaintiff sought to purchase the decedent’s shares of the company from his Estate, pursuant to the terms of its Shareholders’ Agreement and the decedent’s Will. When the Estate’s executor failed to deliver the shares, Plaintiff filed suit for breach of the Shareholders’ Agreement and breach of fiduciary duty under the Will and for declaratory judgments regarding the Shareholders’ Agreement and the Will. Defendant moved to dismiss Plaintiff’s will-based claims.

In its breach of fiduciary duty claim, Plaintiff alleged that Defendant owed it a statutory fiduciary duty under N.C.G.S. § 28A-13-2, as well as a general duty to comply with the terms of the Will. In response, Defendant argued that the claim must be dismissed because 1) Plaintiff is essentially a creditor of the Estate and thus is not in the class of persons legally authorized to bring such a claim; and 2) the economic loss rule bars a tort claim because the parties’ obligations are governed exclusively by the Shareholders’ Agreement. The Court declined to address the first argument but agreed with the second—because nothing in the Will changed the relationship between the Parties established by the Agreement, the tort claim could not exist independently from the contract claim and was, therefore, barred by the economic loss rule.

For similar reasons, the Court also dismissed the will-based declaratory judgment claim. Since the Court could not identify any legally permissible construction of the Will that would alter the contractual duties under the Agreement, no actual dispute existed to warrant a declaratory judgment regarding the Will.

 

BlueSky Restoration Contractors, LLC v. Brown, 2022 NCBC 63 (N.C. Super. Ct. Oct. 20, 2022) (Robinson, J.)

Key Terms: Rule 12(c); judgment on the pleadings; merger; restrictive covenants; Delaware law; claim for punitive damages

Plaintiff BlueSky Restoration filed suit against Brown, a former employee, for allegedly breaching several agreements containing restrictive covenants. Brown counterclaimed and filed a third-party complaint against BlueSky HoldCo (BlueSky Restoration’s parent company), who, in turn, filed third-party counterclaims against Brown. Brown moved for judgment on the pleadings under Rule 12(c) as to various claims. At the outset, the Court determined that, pursuant to the choice of law provisions in the agreements, Delaware law applied to substantive issues.

First, Brown argued that the restrictive covenants in the LLC Agreement and LP Agreement were no longer enforceable due to a corporate merger, or, in the alternative, that the restrictive covenants were overbroad and unenforceable as a matter of law. Regarding merger, the Court found that there was no evidence properly before the Court on a Rule 12(c) motion which indicated that the Plaintiffs intended to release Brown from the restrictive covenants in the LLC Agreement. As to the LP Agreement, the Court rejected Brown’s merger argument based on language in certain merger documents which indicated that the LP Agreement’s restrictive covenants survived the merger. Regarding the enforceability of the restrictive covenants, the Court went through the elements under Delaware law and concluded that the covenants were not overbroad as a matter of law. Plaintiffs had sufficiently alleged that the covenants protected a legitimate economic interest, and issues of fact remained regarding the reasonableness of the time and territorial restrictions.

Second, Brown argued that the non-solicitation provision in the 2017 Agreement had expired on his last day of employment due to BlueSky Restoration’s failure to pay a required severance payment. The Court rejected this argument because the plain language of the 2017 Agreement provided that the severance payment requirement did not apply to the non-solicitation provision.

Having found that the breach of contract claims survived dismissal, the Court also denied Brown’s request for dismissal of the claims for injunctive relief and for a declaratory judgment regarding the enforceability of the LP Agreement. However, the Court granted dismissal of BlueSky Restoration’s claim for punitive damages, as punitive damages are a remedy, not a stand-alone claim.

 

Anderson v. Beresni, 2022 NCBC Order 58 (N.C Super. Ct. Oct. 25, 2022) (Davis, J.)

Key Terms: BCR 7.8; arguments incorporated by reference; nominal defendant; crossclaim

On its own motion, the Court entered an order striking Defendants’ brief in support of their motion to dismiss for violation of BCR 7.8, which prohibits incorporating by reference arguments made in another brief. The Court directed Defendants to file an amended brief within ten days. The Court also directed the parties to include in their briefs a discussion of whether a nominal defendant in a derivative action is permitted to assert a crossclaim.

 

By Ashley B. Oldfield

To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at aoldfield@rcdlaw.net.

The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.

 

Posted 10/26/22

N.C. Business Court Opinions, September 14, 2022 – September 27, 2022

Total Merch. Servs., LLC v. TMS NC, Inc., 2022 NCBC 51 (N.C. Super. Ct. Sept. 19, 2022) (Bledsoe, C.J.)

Key Terms: sanctions; show cause hearing; preliminary injunction; attorneys’ fees

In a previous order entered August 30, 2022, the Court concluded that sanctions should be awarded against Defendants for their egregious conduct, including improperly removing the case to federal court, refusing to respond to discovery requests for fifteen months, taking an improper interlocutory appeal of the Preliminary Injunction Order, “stubbornly and willfully” refusing to comply with the Preliminary Injunction, making false representations to the Court, and refusing to timely comply with the Order to Compel.  In that order, the Court ordered Defendants to appear and show cause why the Court should not enter sanctions, including striking Defendants’ answer, affirmative defenses, and remaining counterclaims.  At the show cause hearing, Defendants argued that their actions did not constitute a violation of the Preliminary Injunction Order, they had misunderstood the Preliminary Injunction Order’s terms, and any violations of the Preliminary Injunction Order were de minimis.  The Court rejected Defendants’ three arguments.

Pursuant to its inherent authority and Rule 41(b), the Court struck Defendants’ Answer, including all affirmative defenses and counterclaims, and ordered entry of default against Defendants. The Court also ordered Defendants to pay Plaintiff’s reasonable expenses and attorneys’ fees incurred during the sanctions process but reserved the issue of Plaintiff’s damages and further attorneys’ fees for a future order.

 

Davis v. HCA Healthcare, Inc., 2022 NCBC 52 (N.C. Super. Ct. Sept. 19, 2022) (Davis, J.)

Key Terms: antitrust; class action; motion to dismiss; standing; monopoly; restraint of trade; indirect purchaser

Plaintiffs filed a class action lawsuit against Defendants, a group of hospitals and health systems in and around Buncombe County, alleging antitrust claims.  Specifically, Plaintiffs allege that Defendants have engaged in unlawful restraint of trade by: (i) possessing a monopoly over inpatient medical services in Asheville, North Carolina; and (ii) unlawfully seeking to maintain and extend this monopoly into adjacent counties by coercing commercial health insurers to include Defendants’ smaller facilities in their networks.  Plaintiffs, a group of residents from western North Carolina, claim damages in the form of higher healthcare costs as a result of Defendants’ antitrust violations. Defendants filed a Motion to Dismiss, arguing that Plaintiffs lacked standing pursuant to Rule 12(b)(1) and failed to state a claim pursuant to Rule 12(b)(6).

Defendants’ argument for dismissal under 12(b)(1) was premised upon federal case law barring indirect purchasers from asserting antitrust claims under federal antitrust law. The Court rejected Defendants’ argument, noting that North Carolina precedent has explicitly established the right of indirect purchasers to maintain standing under N.C. Gen. Stat. § 75-16, and denied Defendants’ Motion to Dismiss pursuant to Rule 12(b)(1).  After engaging in an analysis of the pleadings, the Court granted Defendants’ Motion to Dismiss pursuant to Rule 12(b)(6) on five of Plaintiff’s six claims, leaving only Plaintiff’s claim for restraint of trade.

 

McNew v. Fletcher Hosp., Inc., 2022 NCBC 53 (N.C. Super. Ct. Sept. 20, 2022) (Bledsoe, C.J.)

Key Terms: class action; UDTPA; learned profession exemption; motion to dismiss; fiduciary duty; constructive fraud

Plaintiff filed a class action lawsuit against Defendant hospital, alleging that Defendant engaged in “surprise billing” by charging patients amounts in excess of both its published rates and local and national market rates. Plaintiff pursued individual and class claims against Defendant for (i) violation of North Carolina’s Unfair and Deceptive Trade Practices Act, (ii) breach of fiduciary duty, (iii) constructive fraud, and (iv) breach of contract.  Defendant moved to dismiss all claims pursuant to Rule 12(b)(6).  At the motion hearing, Defendant conceded that Plaintiff sufficiently pleaded his claim for breach of contract and withdrew its Motion as to that claim.

The Court granted dismissal of the breach of fiduciary duty claim, holding that the de jure fiduciary duty Plaintiff sought to impose on Defendant was not applicable to the allegations presented in the Complaint, which arose from Defendants’ billing practices.  The Court noted that the fiduciary duty imposed upon physicians stems from the physician’s “special knowledge and skill in diagnosing and treating injuries, which the patient lacks.”  Conversely, the billing relationship is one of debtor and creditor, which does not constitute a de jure fiduciary relationship under North Carolina law. The Court further held that Plaintiff had presented insufficient factual allegations to impose a de facto fiduciary duty upon the hospital.  As Plaintiff failed to establish a fiduciary duty, the Court dismissed his constructive fraud claim as well. The Court also dismissed Plaintiff’s UDTPA claim, holding that it was precluded by the learned profession exemption applied to the healthcare field.

 

Univ. of N.C. at Chapel Hill v. Vesta Therapeutics, Inc., 2022 NCBC 54 (N.C. Super. Ct. Sept. 21, 2022) (Conrad, J.)

Key Terms: breach of contract; license agreement; motion to dismiss; Rule 13(d); State Tort Claims Act; constitutional claim

Plaintiff filed a breach of contract action against Defendants alleging Defendants breached a sponsorship research agreement with Plaintiff by failing to provide funding.  Plaintiff also asserted a claim against Defendants for breach of their licensing agreement with Plaintiff for Plaintiff’s stem cell technology.   Defendants counterclaimed, alleging that Plaintiff failed to perform the required research under the sponsorship agreement, destroyed evidence of its inactivity, disclosed confidential information to a foreign government, improperly disposed of samples, and interfered with commercialization efforts.  Plaintiff moved to dismiss Defendants’ constitutional and negligence-based counterclaims.

The Court held that Defendants’ constitutional counterclaim, which derived from Article I Section 19 of the North Carolina Constitution, could not be asserted against the State or its agencies unless Defendants “lacked any sort of state remedy.”  The Court held that Defendants’ contractual claims provided an adequate remedy under state law and, consequently, granted dismissal of Defendants’ constitutional counterclaim.

Regarding Defendants’ negligence-based counterclaim, the Court held that the State Tort Claims Act, which requires aggrieved parties to bring their claims against State institutions within the exclusive and original jurisdiction of the Industrial Commission, barred Defendants’ counterclaim.  Defendants argued that an exception to the State Tort Claims Act, permitting third-party claims against a state agency in superior court, also applied to counterclaims.  Noting that Rule 13(d) of the North Carolina Rules of Civil Procedure stresses that the Rules “shall not be construed to enlarge beyond the limits fixed by law the right to assert counterclaims” against a state agency, the Court rejected Defendants’ argument and granted dismissal of the negligence-based counterclaim.

 

Ehmann v. Medflow, Inc., 2022 NCBC 55 (N.C. Super. Ct. Sept. 12, 2022) (Robinson, J.)

Key Terms: breach of contract; UDTPA; motion to dismiss; fraud; successor liability; veil-piercing; instrumentality rule; civil conspiracy; intracorporate immunity; Wage and Hour Act; Retaliatory Discrimination Act; tortious retaliation

In this case, Plaintiff had served as CEO of Defendant Medflow during the time that Medflow was acquired by Defendant Lindberg. Following this acquisition, Plaintiff requested from Medflow certain payments which became due under Plaintiff’s employment Agreement. After Medflow refused to make the payments and terminated Plaintiff, Plaintiff brought suit against Lindberg, Medflow, and a host of related entities, alleging eleven claims. Defendants moved to dismiss pursuant to Rule 12(b)(6). In a previous order, the Court had denied the motion insofar as it attacked the claim for breach of contract. The Court now addressed the remaining claims.

Regarding the veil piercing claim, the Court denied dismissal, concluding that the instrumentality rule could be used to extend liability to affiliated entities, not just stockholders, and that the Complaint had adequately alleged facts to show Lindberg’s complete domination over the entity Defendants that caused injury to Plaintiff.

As to the civil conspiracy claim, Defendants argued that it was barred by the intracorporate immunity doctrine. Plaintiff responded that 1) the conspiracy involved unrelated co-conspirators; 2) North Carolina law does not extend the doctrine to commonly-owned affiliates; and 3) the “independent personal stake” exception allows the claim to proceed. The Court agreed with Defendants and dismissed the claim, concluding that the Complaint failed to adequately allege that any outsiders were co-conspirators, that, pursuant to the Fourth Circuit’s reasoning, intracorporate immunity does apply to commonly-owned affiliates; and that personal liability under the Wage and Hour Act is not wholly separable from the corporate benefit Defendants obtained and thus did not qualify for the independent personal stake exception.

The Court denied dismissal of the N.C. Wage and Hour Act claim, determining that the Complaint adequately alleged that Plaintiff was owed payments which qualified as wages under the Act and that Defendants, including the affiliates, qualified as employers under the “economic reality” test.

Plaintiff also alleged violation of the N.C. Retaliatory Employment Discrimination Act, claiming that he was retaliated against after filing complaints with the Department of Labor and receiving right-to-sue letters against certain Defendants. The Court found these allegations sufficient to survive dismissal as to the Defendants for whom Plaintiff had received right-to-sue letters but dismissed the claim as to the remaining Defendants.

In addition, the Court dismissed Plaintiff’s “tortious retaliation” claim, which the Court construed as a wrongful discharge claim, because such a claim arises only in the context of employment at will and Plaintiff was instead a contract employee.

Defendants also sought dismissal of the UDTPA claim because the claim related solely to Plaintiff’s employment relationship and thus did not affect commerce. The Court rejected this argument concluding that allegations of a fraudulent transfer scheme between multiple companies, even though they were all owned indirectly by the same person, satisfied the requirements under UDTPA.

Finally, the Court dismissed the constructive trust claim because such a claim is not a standalone claim but denied dismissal of the claims for successor liability, fraud, and violation of the UVTA.

 

Bourgeois v. Lapelusa, 2022 NCBC 56 (N.C. Sup. Ct. Sept. 23, 2022) (Earp, J.)

Key Terms: motion to dismiss; LLC; fiduciary duties; judicial dissolution; conversion; unjust enrichment; conversion to economic interest holder; Rules of Professional Conduct

This case arises from a dispute amongst members of a limited liability company following the merger of two separate limited liability companies.   Plaintiffs Bourgeois and Pitbox Auto Sales, LLC filed suit against Bourgeois’ former business partners, claiming that Defendants breached their fiduciary duties, converted funds to their own benefit, and were unjustly enriched by their actions.  Plaintiffs also sought injunctive relief and judicial dissolution of the entity resulting from the merger, Defendant The Pit Box, LLC.   Defendants collectively moved under 12(b)(6) to dismiss Plaintiffs’ claims for breach of fiduciary, judicial dissolution, conversion, unjust enrichment, and injunctive relief.  Defendant Stevenson individually moved under 12(b)(6) to dismiss Plaintiff’s conversion to economic interest holder claim.  Plaintiffs also filed a Motion to Amend their Complaint.

The Court dismissed Plaintiffs’ breach of fiduciary duty claim, noting that members of an LLC traditionally do not owe one another fiduciary duties absent a contractual agreement to impose such duties.  The Court also held that Plaintiffs failed to allege facts warranting the imposition of de facto fiduciary duties.  The Court denied dismissal of the judicial dissolution claim, as Plaintiffs sufficiently pleaded allegations that, if true, would warrant a judicial dissolution and thus dismissal would be “premature.”  Plaintiff’s claims for conversion were dismissed without prejudice, as the Complaint failed to allege that Defendants had acquired payments wrongfully, or that Plaintiffs had requested the payment to be returned, and therefore failed to plead a critical element of conversion.  The Court dismissed Plaintiffs’ claim for unjust enrichment against the entity defendants, as the Complaint only contained allegations of the individual defendants’ wrongful use of payments, and not the entities.  Plaintiffs’ claim for unjust enrichment against the individual defendants was upheld. In light of Plaintiffs’ remaining unjust enrichment claim, the Court also upheld Plaintiffs’ injunctive relief claim, as “foreclosing injunctive relief would be premature.”

Defendant Stevenson’s Motion to Dismiss Plaintiffs’ conversion to economic interest holder was granted by the Court, as Plaintiffs failed to cite any law in favor of the claim. Plaintiffs alleged that Stevenson, an attorney, had a conflict of interest in his membership with the LLC and violated the “Canon of Ethics” for attorneys.  The Court rejected Plaintiff’s argument, noting that North Carolina’s Rules of Professional Conduct cannot be used to establish civil liability.

Finally, the Court denied Plaintiffs’ Motion to Amend the Complaint, on the basis that the claims attempted in the proposed amendment were futile for lack of standing.

 

Halikierra Cmty. Servs. LLC v. N.C. Dep’t of Health & Hum. Servs., 2022 NCBC 57A (N.C. Super. Ct. Sept. 27, 2022) (Robinson, J.)

Key Terms: unfair and deceptive trade practices; due process; summary judgment; constitutional challenge; equal protection

Plaintiff, a home health provider servicing Medicaid-eligible beneficiaries, filed suit against Defendants North Carolina Department of Health and Human Services (“DHHS”), the Medical Review of North Carolina, Inc. d/b/a The Carolinas Center for Medical Excellence (“CCME”), and two individuals working for or on behalf of the DHHS (the “Individual Defendants” and collectively with DHHS and CCME, “Defendants”).    In the Complaint, Plaintiff alleged that the DHHS violated Plaintiff’s due process rights under the North Carolina Constitution by arbitrarily placing it on prepayment review, a strenuous audit procedure employed when DHHS detects aberrant billing practices, which ultimately led to the closure of Plaintiff’s business.  Plaintiff also alleged that CCME and the Individual Defendants violated North Carolina’s Unfair and Deceptive Trade Practices Act (“UDTPA”) by conspiring against it.  Plaintiff sought compensatory and punitive damages from all Defendants.  In a previous order, the Court dismissed Plaintiff’s facial constitutional challenges against the DHHS and fraud claim against CCME.  The Defendants moved for summary judgment on the remaining claims.

The Court granted summary judgment in Defendant’s favor as to the remaining constitutional claims.  While the Court noted that Plaintiff’s due process claim was permissible, as no adequate remedy existed under state late, the Court ruled that Plaintiff failed to create a genuine issue of material fact regarding whether the DHHS’ actions were arbitrary or capricious.  The Court also granted summary judgment in Defendants’ favor on Plaintiff’s equal protection claim, as Plaintiff failed to establish a genuine issue of material fact regarding DHHS’ selection of Plaintiff for the prepayment review program.

In addition, the Court granted summary judgment in CCME’s favor regarding the UDTPA claims, as Plaintiff had not presented evidence that CCME, as a third-party prepayment review vendor for the DHHS, acted unfairly or deceptively.  The Court dismissed Plaintiff’s UDTPA claims against the Individual Defendants sua sponte, on the basis that Plaintiffs’ allegations against the Individual Defendants arose during the course of the Individual Defendants’ work as representatives of the State and, as such, the Court lacked subject matter jurisdiction.   As no viable underlying claims against CCME or the Individual Defendants existed, the Court granted summary judgment in favor of the Defendants on Plaintiff’s civil conspiracy claim.

 

IQVIA, Inc. v. Cir. Clinical Sols., Inc., 2022 NCBC ORDER 53 (N.C. Super. Ct. Sept. 14, 2022) (Conrad, J.)

Key Terms: restrictive covenants; temporary restraining order; motion to stay; forum shopping

Plaintiff filed suit against Defendant alleging that Defendant induced a former employee of Plaintiff to breach her employment agreement.  Eight months prior to the filing of this suit, Plaintiff filed a separate lawsuit against the former employee for breach of contract and moved for a temporary restraining order to enforce the restrictive covenants of her employment agreement. In this suit, Plaintiff moved for expedited discovery, while Defendant moved to stay the proceedings pending the resolution of Plaintiff’s lawsuit against the former employee, or in the alternative, dismiss Plaintiff’s claims.

Noting that the two lawsuits are “clearly interrelated,” the Court granted Defendant’s Motion to Stay, and deferred Defendant’s request to dismiss Plaintiff’s claims.  The Court reasoned that permitting this second action to proceed would be a waste of judicial resources, and risks inviting judge and forum shopping in future cases.  Plaintiff’s Motion for Expedited Discovery was consequently denied.

 

Miriam Equities, LLC v. LB-UBS 2007-C2 Millstream Rd., LLC, 2022 NCBC ORDER 54 (N.C. Super. Ct. July 8, 2022) (Earp, J.)

Key Terms: attorneys’ fees; N.C. Gen. Stat. § 6-21.6(c); prevailing party

In this Order, the Court awarded expenses and attorneys’ fees to the prevailing party.  Following summary judgment, the Court concluded that the Defendant was the prevailing party in the litigation and conducted an analysis of the costs and fees submitted by Defendant.  Employing the list of relevant factors contained in N.C. Gen. Stat. § 6-21.6(c), the Court focused on the following factors: (1) the amount in controversy; (2) the reasonableness of the time and labor expended, and the billing rates charged by the attorneys; (3) the novelty and difficulty of the questions raised in the action; (4) the skill required to perform properly the legal services rendered; (5) the extent to which the party seeking attorneys’ fees prevailed in the action; and (6) the terms of the business contract. The Court noted that the billing rates of the attorneys and paralegals were somewhat higher than the rates customarily charged in North Carolina and adjusted the rates accordingly. The Court also encouraged counsel to not submit materials in block-billed format when requesting attorneys’ fees.

 

CPI Sec. Sys., Inc. v. Chapman, 2022 NCBC ORDER 55 (N.C. Super. Ct. Sept. 26, 2022) (Conrad, J.)

Key Terms: preliminary injunction; noncompete; non solicitation; trade secrets

The Court granted Plaintiff’s Motion for Preliminary Injunction against Defendant Chapman, a former General Manager of Plaintiff, in this trade secret case.  Based on largely undisputed evidence, Chapman met with his present employer on the same date as his resignation from Plaintiff. The following day, Chapman downloaded an assortment of Plaintiff’s files to a USB, including one file reflecting tens of thousands of transactions showing more than five years’ of Plaintiff’s customer purchase history. Following the filing of this lawsuit, Chapman began destroying evidence of his actions, including deleting text messages with his current employer and deleting emails from his personal email account. Chapman did not dispute that the information taken from Plaintiff was confidential or that the confidentiality clause in his employment agreement is valid.

Finding that Plaintiff’s “likelihood of success …. is uncontested” and the likelihood of irreparable harm “is just as clear,” the Court entered an Order enjoining Defendant Chapman from using or disclosing Plaintiff’s confidential information during the pendency of the litigation or soliciting any customer listed in the files he removed from Plaintiff’s possession.

 

By Natalie E. Kutcher

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 09/28/22

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

North Carolina Business Court Addresses Three Motions By and Against the Receiver in In re Southeastern Eye Center

On August 10, 2022, the North Carolina Business Court released three Orders of Significance in In re Southeastern Eye Center-Pending Matters and In re Southeastern Eye Center-Judgments. This litigation was initiated in 2012, resulting in a number of opinions and orders from the Court. The Orders released on August 10 all relate to the receiverships into which various entities involved have been placed.

In Order No. 45, the movants sought to compel the Receiver, pursuant to Article 38, § 1-501, et seq. of the North Carolina General Statutes, to testify under oath at a hearing in response to questions from the movants concerning information they contended the Receiver was required to provide to interested parties. Setting aside issues of standing, the Court determined that the relief requested was not authorized by Article 38 and denied the motions. However, the Court further noted that it had directed the Receiver to file an interim report by September 1, 2022, which would provide at least some of the information that the movants were seeking.

In Order No. 46, the Receiver sought an accounting from Doug Harris (“Harris”), who served as trustee for JDPW Trust (“JDPW”) prior to the Receiver’s appointment. In previous orders and opinions, the Court had concluded that Harris had committed a breach of trust against JDPW through various transactions which benefited himself and others and which were not in the best interests of JDPW and its beneficiaries. Reviewing caselaw and statutory authority, the Court determined that an accounting was an appropriate remedy and that the Receiver had satisfied his burden entitling him to an accounting. Thus, the Court granted the motion and ordered Harris to file an accounting setting forth the assets, income, and expenses of JDPW during his time as trustee and making available all original source documents so that the accounting could be verified.

In Order No. 47, the Receiver sought authority to exercise the power of sale in a deed of trust owned by JDPW. As an initial matter, the Court addressed whether the statutes in effect when JDPW was placed in receivership in 2016 governed, or whether the North Carolina Commercial Receivership Act, which became effective January 1, 2021, controlled. In agreement with the Receiver, the Court concluded that the versions of sections 1-501.1 through 1-507.11 that were in effect at the commencement of the receivership continued to govern the receivership and thus the Receiver was entitled to seek its requested relief under those provisions. The Court then granted the motion, concluding that, based on the Receiver’s forecast of evidence, it was in JDPW’s best interest to seek to enforce the deed of trust through power of sale procedures. The Court also delegated its authority to the Clerk of Superior Court of Guilford County to conduct the foreclosure proceedings and directed that any appeal therefrom be filed in the Business Court.

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 08/19/22

RCD Wins Appeal to Compel Arbitration

The North Carolina Court of Appeals published an opinion in iPayment, Inc. v. Kelly M. Grainger, Individually and as Administrator of the Estate of George Gregory Grainger, et al., North Carolina Court of Appeals Case No. 16-908, on January 2, 2018, reversing the trial court (NC Superior Court, Union County Case No. 15-CVS-2234) and finding in favor of RCD’s client iPayment, Inc. that a motion to compel arbitration of counterclaims should have been granted.  The adverse party argued that iPayment had waived the right to arbitration of counterclaims by bringing its unrelated lawsuit.  The Court of Appeals disagreed, finding that because iPayment’s claims in the underlying lawsuit were unrelated to the arbitrable counterclaims, and the discovery that had been conducted prior to the motion to compel arbitration was not inconsistent with the parties’ rights under the arbitration clause, the right to arbitration was preserved and arbitration should have been compelled.  The case was remanded to the trial court for an order consistent with the opinion. A copy of the Court of Appeals opinion can be viewed here.

Posted 01/12/18

Assignments, Sublets, and the Importance of Reasonableness

A principle of landlord-tenant law is the power of the tenant to transfer all or part of its lease unless the lease includes provisions that limit that power.  The law of assignments and subleases seeks to strike a balance between the tenant’s interest in the alienability of its legal rights under the lease and the landlord’s interest in having a desirable and financially responsible occupant.

Click here to continue reading this article by Dave Melin.

Posted 11/10/16

NC Supreme Court Finds Substantial Interference with Property Rights Under the Map Act

In June, the North Carolina Supreme Court issued an opinion ruling in favor of property owners who challenged a state law that allows the North Carolina Department of Transportation to freeze development and improvements on land that may be used as a future highway.  The Court held that the law amounted to a “taking” and that property owners must be compensated for the restrictions placed on their land.

Click here to continue reading this article by Dave Melin.

Posted 07/26/16

Objectionable by Necessity: Achieving Appellate Review of Plan Confirmation Denial

Practice in the bankruptcy arena for long enough and you will inevitably run across the following, vexing, situation: debtor files a plan; party in interest objects to a plan provision; Bankruptcy Court sustains the objection and denies confirmation; debtor refuses to go forward with a plan that conforms to the Bankruptcy Court’s ruling, fervently believing that the Bankruptcy Court “got it wrong,” and wants to seek appellate review on the issue. What should a debtor do in this situation?

Click here to continue reading this article by Jack Miller and Michelle Earp.

 

Posted 06/01/16

Fourth Circuit Affirms Judgment for RCD Client on Fraud Claim

On May 23, 2016, the United States Court of Appeals for the Fourth Circuit affirmed a judgment obtained by Rayburn Cooper & Durham, P.A. for client RDLG, LLC (view a copy of the Fourth Circuit opinion here).  RCD’s client was granted a default judgment on a fraud claim as a sanction against Fred M. Leonard, Jr. by the United States District Court for the Western District of North Carolina.  A jury trial was later held on the issue of damages, and RCD was awarded a $500,580.36 judgment for its client by the jury.  The Fourth Circuit affirmed both the grant of the default judgment as a sanction and the jury’s damages award.  RDLG, LLC was represented by Ross Fulton and Ben Shook.

Posted 05/26/16

N.C. Court of Appeals Affirms Dismissal of All Claims Against RCD Client

On May 10, 2016, the North Carolina Court of Appeals affirmed the North Carolina Business Court’s order dismissing all claims against all defendants in Universal Cab Co., Inc. v. City of Charlotte, et al.  Defendant Timothy Newman was represented by RCD attorneys Kirk Hardymon, Ross Fulton and Ben Shook.  All claims asserted against Mr. Newman were dismissed by the Business Court because the plaintiffs failed to show that they had standing to bring the claims, and therefore the court lacked subject matter jurisdiction to hear the case.  The case related to the plaintiffs being denied contracts to provide taxi service at the Charlotte-Douglas Airport.  The Business Court found, and the Court of Appeals affirmed, that the plaintiffs failed to show a causal connection between the alleged actions by the defendants and the alleged injury suffered by plaintiffs.  A copy of the Court of Appeals opinion can be viewed here.

Posted 05/13/16

NC Lawyers Weekly features case involving RCD

North Carolina Lawyer’s Weekly featured a North Carolina Business Court order in favor of RCD’s client involving an unusual question of law involving injunctions of foreign proceedings.  This cover story for the May 9, 2016, edition is available here. A full copy of the Court’s opinion is available here.

Ross Fulton, a RCD shareholder, serves as lead counsel for TCG Consulting Partners. Fulton focuses his litigation practice on commercial and business disputes.

Posted 05/09/16

Sixth Circuit Affirms Summary Judgment on Non-Dischargeability Claim

On March 28, 2016, the United States Court of Appeals for the Sixth Circuit affirmed a judgment obtained by Rayburn Cooper & Durham, P.A. for client RDLG, LLC (view a copy of the Sixth Circuit opinion here).  RCD was granted summary judgment on a non-dischargeability claim for client RDLG, LLC in the Bankruptcy Court for the Eastern District of Tennessee, in which the court found that RDLG, LLC’s fraud judgment against Fred M. Leonard, Jr. obtained in the U.S. District Court for the Western District of North Carolina was not dischargeable in appellant’s subsequent Chapter 7 bankruptcy case.  The U.S. District Court for the Eastern District of Tennessee had previously affirmed the Bankruptcy Court’s judgment before the appeal to the Sixth Circuit.  RDLG, LLC was represented by Ross Fulton as lead counsel.

Posted 04/13/16

NC Court of Appeals Affirms Fraudulent Transfer Claim

On March 15, 2016, the North Carolina Court of Appeals affirmed the grant of summary judgment to RCD’s client DWC3, Inc. on a fraudulent transfer claim (view the N.C. Court of Appeals order).  RCD had previously obtained an arbitration award of more than $1 million against Diane Kissel, and here obtained a judgment against Kissel and her husband for fraudulently transferring the Kissel’s assets to her husband to avoid DWC3, Inc.’s original arbitration award. Ross Fulton served as lead counsel in the case.

Posted 03/31/16

Judgment awarding $500,000 in damages entered in favor of RCD client

In the Western District of North Carolina, a jury has awarded a $500,580 verdict in favor of RCD client RDLG, LLC, in litigation against a defendant that defrauded plaintiff RDLG, LLC in connection with mountain real estate sales. Ross Fulton served as lead counsel for plaintiff with Ben Shook.

Posted 01/15/15