N.C. Business Court Opinions, April 24, 2024 – May 7, 2024
By: Natalie E. Kutcher, Ashley Oldfield, and Rachel Brinson
Truist Fin. Corp. v. Rocco, 2024 NCBC 28 (N.C. Super. Ct. April 25, 2024) (Bledsoe, C.J.)
Key Terms: Rule 12(b)(6); breach of fiduciary duty; tortious interference with contract; misappropriation of trade secrets; unfair and deceptive trade practices; civil conspiracy; unjust enrichment; non-solicitation covenant; non-disclosure agreement; look-back rule
Plaintiff Truist Financial Corporation and its subsidiary Grandbridge brought suit against three former Grandbridge executives and Colliers Mortgage, a competitor, for allegedly devising and executing a scheme to take Grandbridge’s key employees, clients, and revenue. Defendants moved to dismiss all claims under Rule 12(b)(6).
Breach of Non-Solicitation Covenants and Non-Disclosure Agreements (against the Executives). Plaintiffs alleged that the Executives breached non-solicitation covenants which prohibited them from soliciting Plaintiffs’ employees both during the Executives’ employment and for 12 months thereafter. The Executives argued that the non-solicits did not protect a legitimate business interest and were unreasonable as to time because they included an extensive look-back period covering the entirety of the Executives’ employment. Although the Court agreed that the look-back rule may be applied to employee non-solicits, which in this case resulted in restricted periods ranging from 7 to 17 years, the Court ultimately was unable to conclude as a matter of law that the non-solicits did not protect a legitimate business interest of Plaintiffs, such as its client relationships, confidential information, and ability to compete. Accordingly, the motion to dismiss this claim was denied. Plaintiffs also alleged that the Executives had breached non-disclosure agreements. However, the claim was dismissed as against one of the Executives, since Plaintiffs did not allege that he had entered into or breached a non-disclosure agreement.
Breach of Fiduciary Duty (against the Executives). The Court dismissed this claim to the extent it was asserted by Truist because Plaintiffs failed to plead facts showing that the Executives owed a fiduciary duty to Truist. Regarding Grandbridge, however, the Court rejected the Executives’ argument that Grandbridge’s articles of organization eliminated any fiduciary duty, because, while the articles did purport to waive a manager’s liability, “manager” was not interchangeable with “officer.” Accordingly, the articles did not waive the Executives’ liability for any alleged breach of their duties as officers or company officials of Grandbridge and dismissal was therefore denied.
Tortious Interference with Contract (against Colliers). The Court denied dismissal of this claim, finding that the allegations of Defendants’ scheme to solicit Plaintiffs’ employees and clients en masse to cripple Plaintiffs’ ability to compete and destroy Grandbridge’s business were sufficient to satisfy both the inducement and without justification elements of the claim.
Misappropriation of Trade Secrets (against all Defendants). The Court also denied dismissal of this claim, which was based on the alleged misappropriation of compilations of proprietary financial information and employee information. The Court found that the compilations as alleged sufficiently identified protectible trade secrets at the 12(b)(6) stage. Further, Plaintiffs’ allegations that the information was shared on a need-to-know basis, that it was accessible to the Executives only due to their high-ranking positions, and that the Executives had agreed not to disclose confidential information (pursuant to either the Truist Code of Ethics or a non-disclosure agreement) were sufficient to allege reasonable efforts to protect the trade secrets.
Tortious Interference with Business Relations (against all Defendants). The Court dismissed this claim to the extent it was based on interference with Plaintiffs’ future contracts with existing and prospective customers and employees because Plaintiffs failed to allege any specific contractual opportunities that were lost. However, the Court denied dismissal of the claim to the extent it was based on Defendants’ alleged interference with existing contracts with employees and customers. That the employment contracts were “at will” was not a bar to the claim; moreover, the surviving misappropriation of trade secrets claim was sufficient to allege that Defendants acted without justification.
Unfair and Deceptive Trade Practices (against all Defendants). The Court denied dismissal of this claim based on the surviving underlying tort claims. Further, the solicitation of employees and customers as alleged here satisfied the “in or affecting commerce” requirement.
Unjust Enrichment (against all Defendants). Noting that an unjust enrichment claim does not require that the alleged benefit be conferred upon the defendant directly by the plaintiff, the Court denied dismissal of this claim, concluding that Plaintiffs’ allegations that Defendants had received benefits in the form of compensation or profits as a result of their unlawful conduct were sufficient to state a claim.
Civil Conspiracy (against all Defendants). The Court also denied dismissal of this claim, concluding that Plaintiffs had adequately alleged an agreement between the Defendants to commit an unlawful act.
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In re Radiator Specialty Co. et al., 2024 NCBC 29 (N.C. Super. Ct. May 1, 2024) (Conrad, J.)
Key Terms: receivership; asbestos; mass tort; liquidating trust; claim process; joint and several liability; pro tanto release
Radiator Specialty Company, Inc. entered into a receivership following a series of personal injury lawsuits filed against it by claimants alleging that long-term exposure to the company’s products caused them to develop cancer and other diseases. The appointed receiver moved for approval of a proposed claim process, which included a liquidating trust for payment of tort claims. Under the liquidating trust, claimants would receive amounts equivalent to 40% of what Radiator Specialty had previously paid on average to settle similar claims. United States Steel Corporation, who is a co-defendant in many of the lawsuits involving Radiator Specialty, objected to the proposed claim process. United Steel’s objection sought to change the form of the proposed release to prevent tort claimants from pursuing claim shortfalls from anyone else.
The Court overruled U.S. Steel’s objection and granted the receiver’s motion. The Court balanced the competing interests at stake in the present situation, and noted that the liquidating trust would provide an efficient method for providing for claimants’ compensation after the liquidation of the business. The Court further held that the 40% claim valuation was fair and based on data from settlements from past cases. By limiting the recovery to 40%, the liquidating trust would not create an “immediate run” on the trust’s assets and would ensure future claimants would not be unfairly prejudiced. The Court further approved the liquidating trust’s procedural rules, which only require a valid claim be submitted with a medical diagnosis and proof of the claimant’s exposure to the product. Finally, the Court held that handling all other (non-tort) claims through the receivership estate was reasonable.
U.S. Steel sought to require claimants to sign a standalone release, which U.S. Steel could then use in Pennsylvania courts to allocate fault to Radiator Specialty in certain tort cases. The Court rejected this request and held that a pro tanto release, which would offset any judgment by the amount of the distribution from the liquidating trust, was consistent with the traditional principles of joint and several liability.
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Design Gaps, Inc. v. Hall, 2024 NCBC 30 (N.C. Super. Ct. May 1, 2024) (Conrad, J.)
Key Terms: motion to dismiss; breach of contract; misappropriation of trade secrets; tortious interference with contract; unfair or deceptive trade practices; breach of fiduciary duty; fraud; embezzlement; constructive fraud; restrictive covenants
Plaintiff Design Gaps and its principals sued a former employee, Jocelyn Hall, and her new employer, Peters Custom Design, for a variety of claims relating to Hall’s purported breaches of restrictive covenants in her employment agreement with Design Gaps. All defendants moved to dismiss the complaint.
Breach of Contract. Design Gaps claimed that Hall breached the non-competition and non-solicitation clauses in her employment agreement. However, the Court found that the restrictive covenants’ purported restriction on direct or indirect competition were facially overbroad and unenforceable. Therefore, the Court granted Hall’s motion to dismiss the claim for breach of contract.
Misappropriation of Trade Secrets. The Court dismissed this claim, finding that Plaintiffs’ vague and conclusory identification of the trade secrets was insufficient to satisfy the particularity pleading requirements to bring such a cause of action.
Tortious Interference with Contract. Because the non-competition and non-solicitation clauses of Hall’s employment agreement were unenforceable, the Court also found that they could not support a claim for tortious interference with contract. Moreover, Design Gaps failed to adequately allege that Peters Custom Design acted without justification, since Peters Custom Design was justified in offering Hall a new job and Design Gaps did not adequately allege any unlawful method of competition.
UDTPA. Because the UDTPA claim was predicated entirely on the dismissed claims for breach of contract, misappropriation of trade secrets, and tortious interference with contract, the Court dismissed the UDTPA claim as well.
Breach of Fiduciary Duty & Constructive Fraud. Design Gaps alleged that Hall breached fiduciary duties arising from her employment. However, since employees who are not officers or directors typically do not owe their employers fiduciary duties and Design Gaps did not allege that Hall exercised dominion over Design Gaps, the Court found that Design Gaps had not adequately alleged the existence of a fiduciary relationship and therefore dismissed the claims.
Fraud. The Court dismissed this claim because it did not allege that Hall made any false representations to Plaintiffs nor that they had relied on any misrepresentations.
Embezzlement. The Court found that an embezzlement claim had been adequately pleaded based on the allegations that Hall received at least one check from a customer made out to Design Gaps that she destroyed and then instructed the customer to pay her directly. Thus, the Court denied Hall’s motion to dismiss the embezzlement claim.
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PreGel Am., Inc. v. Casol, 2024 NCBC Order 31 (N.C. Super. Ct. April 26, 2024) (Bledsoe, C.J.)
Key Terms: petition for expenses; Rule 1.5 of the Rules of Professional Conduct; indemnification; reasonableness of rates; attorneys’ fees
As summarized here, the Court previously granted summary judgment on Defendant Casol’s claim for indemnification, declaring that Casol was entitled to indemnification from Plaintiff PreGel for expenses incurred in a previous federal action and in obtaining court-ordered indemnification. In this order, the Court reviewed Casol’s petition for expenses and found that the rates charged and the number of hours expended were reasonable under the circumstances. Accordingly, the Court granted Casol’s petition, except as to those timekeepers not sufficiently identified such that the Court could not determine the reasonableness of the hours worked or rates charged.
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Chi v. N. Riverfront Marina & Hotel LLLP, 2024 NCBC Order 32 (N.C. Super. Ct. May 2, 2024) (Earp, J.)
Key Terms: motion for contempt; sanctions; uncontested; motion to compel; Rule 37; discovery; unresponsive; dismissal of claims; attorneys’ fees
After Plaintiff Yongjie failed to meaningfully participate in fact discovery for over two years, including by failing to comply with a court order compelling discovery and twice refusing to appear for his own deposition, Defendants moved for sanctions, requesting that the Court dismiss Yongjie’s claims and that judgment be entered against Yongjie on their counterclaim.
The Court found that Yongjie’s failure to meet his discovery obligations had prejudiced Defendants’ ability to defend the claims brought against them and that there was nothing else the Court could do to persuade Yongjie to participate in his own case. Therefore, the Court dismissed his claims without prejudice and awarded Defendants their attorneys’ fees and costs associated with preparing and scheduling Yongjie’s deposition and the current motion. The Court, however, declined to enter judgment against Yongjie on Defendants’ counterclaim because that claim was not dependent on Yongjie’s responses to discovery.
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The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.