N.C. Business Court Opinions, August 28, 2024 – September 10, 2024
By: Natalie Kutcher
Intersal, Inc. v. Wilson, 2024 NCBC 56 (N.C. Super. Ct. Aug. 30, 2024) (Earp, J.)
Key Terms: pirate ship; summary judgment; Emoluments Clause; North Carolina State Constitution; Monopolies Clause; Umstead Act; N.C. Gen. Stat. § 143-162.2
As summarized here, this case arises from a series of agreements between Plaintiff and Defendants relating to ownership rights over two sunken pirate ships located off the North Carolina coast. Following additional discovery, Defendants made a renewed motion for summary judgment related to certain issues affecting damages. Specifically, Defendants moved for a judgment holding that: (i) the 2013 Settlement Agreement’s language did not intend the term “commercial narrative” to include commercial tours; and (ii) Defendants were not required to pay Plaintiff for access to the pirate ship the Queen Anne’s Revenge, as requiring such would be a violation of the North Carolina Constitution and other state law. The Court granted in part and denied in part Defendants’ motion.
The Court had previously denied summary judgment on the interpretation of the term “commercial narrative,” reserving the matter as an issue of fact for the jury. Following Plaintiff’s production of a series of images, transcripts, and audio recordings of meetings held between the parties in 2014, the Court revisited the issue and concluded that a material issue of fact still existed as to the parties’ intended meaning of the term “commercial narrative.”
The Court rejected Plaintiff’s argument that Defendants were precluded from raising their constitutional arguments as untimely and barred by judicial estoppel and the law of the case doctrine. The arguments related to a specific interpretation of the 2013 Agreement, rather than the general enforceability of the 2013 Agreement. As the constitutional issues had yet to be raised, the Court held that Defendants were not estopped from doing so at this time.
Nevertheless, the Court rejected Defendants’ arguments that the Emoluments Clause or N.C. Gen. Stat. § 143-162.2 (which restricts the State’s ability to charge any fee when it makes real property available to a production company) were implicated by Section 16 of the 2013 Agreement. The Court also concluded that Defendants failed to establish that the rights afforded to Intersal by the 2013 Agreement violated the Monopolies Clause or the Umstead Act. Accordingly, Defendants’ motion was denied to the extent it was based on these arguments. The Court did, however, hold that the 2013 Agreement did not obligate Defendants to enforce Plaintiff’s terms of service and that since N.C. Gen. Stat. § 121-7.3 prohibits Defendants from sharing with Intersal a portion of the admission fees charged by the state-run museums that hosted a Queen Anne’s Revenge exhibit, the State was entitled to summary judgment on Plaintiff’s claim that it had suffered damages in the form of lost admission fees.
*******
Fairleigh v. Wegner, 2024 NCBC 57 (N.C. Super. Ct. Sept. 6, 2024) (Davis, J.)
Key Terms: amended complaint; motion for leave to amend; unfair prejudice; Rule 15
This matter came before the Court on Plaintiff’s motion for leave to file a second amended complaint. Plaintiff’s proposed second amended complaint asserted a new claim for constructive fraud and for punitive damages and contained several new factual additions in support of Plaintiff’s existing claims. Defendants argued that Plaintiff’s motion should be denied, as it was filed in bad faith and would result in unfair prejudice to Defendants.
The Court granted Plaintiff’s motion, noting the “liberal canon in the rules that leave to amend shall be freely given when justice so requires.” The motion was timely under the case management order and no written discovery or depositions had yet been conducted. Because Defendants failed to demonstrate how they would be prejudiced by the amendment, the Court granted Plaintiff’s motion.
*******
LFF IV Timber Holding LLC, v. Heartwood Forestland Fund IV, LLC, 2024 NCBC 58 (N.C. Super. Ct. Sept. 6, 2024) (Davis, J.)
Key Terms: Rule 12(b)(6); motion to dismiss; indemnification claim; breach of contract; contract interpretation; unjust enrichment
This case arises from an indemnification dispute between the purchasers and sellers of several large timberlands. The purchasers of the timberlands initiated this suit against the sellers, alleging that the sellers overstated carbon stocking data regarding the timberlands to a state agency in connection with a government program, exposing the purchasers to millions of dollars of potential liability. The purchasers sought declaratory and monetary relief in connection with the sellers’ alleged duty to indemnify the purchasers, in addition to a claim for unjust enrichment. Sellers moved to dismiss the action.
The Court began its analysis by addressing: (i) which documents the Court could consider in ruling upon the motion to dismiss; (ii) whether the complaint was impermissibly vague; and (iii) whether purchasers’ use of estimates of carbon deposits could form the basis for an indemnification claim by the purchasers. First, the Court held that it could consider only the three documents explicitly incorporated or referenced in the complaint. A fourth document, which was executed at the same time as one of the three referenced in the complaint, was excluded as it was neither attached to nor expressly referenced in the complaint. Second, the Court determined that the complaint was not impermissibly vague, noting the “low bar” for stating a claim for breach of contract. Third, the Court held that the purchasers’ reliance on estimates did not warrant dismissal at the current pleadings stage of the case, as these estimates were alleged to have been made under oath and were sufficiently formalized.
In regard to the indemnity claims, the Court denied sellers’ motion to dismiss, finding that the ambiguity in the purchase agreement’s language prevented a dispositive ruling at the pleadings stage. Since both sides’ interpretation of the indemnification provision was plausible, the Court declined to adopt one party’s interpretation over another at the Rule 12(b)(6) stage.
The Court, however, granted sellers’ motion as it related to the unjust enrichment claim, as no party disputed that the purchase agreement was an enforceable contract. Since a contract governed the dispute, it would make little sense to hold that a party unsuccessful at seeking indemnification under explicit contractual provisions could nevertheless obtain the same relief under an equitable theory of recovery.
*******
Chi v. N. Riverfront Marina & Hotel LLLP, 2024 NCBC 59 (N.C. Super. Ct. Sept. 10, 2024) (Earp, J.)
Key Terms: summary judgment; confidentiality provision; breach of contract; conversion
As summarized here, this case arises from a limited partnership agreement entered into between Plaintiffs and Defendant Wilmington Riverfront Development, LLC (“WRD”). Following a series of dismissals, only two claims remained: (i) breach of contract against Defendant WRD and (ii) conversion against WRD and its principal. Defendants moved for summary judgment on these remaining claims and also moved for affirmative summary judgment on their counterclaim for breach of the confidentiality provision contained in a subscription agreement between the parties.
The Court granted Defendants’ motion as it related to Plaintiff’s claim for breach of contract because the subscription agreement at issue contained explicit disclosures pertaining to the inherent risk of the investment and disclaimed all guarantees of a return. Further, Plaintiff had admitted in his deposition that he was unable to identify any term of the agreement that had been breached and was aware of the risks of investing in the project. Under the plain language of the agreement, the Court determined that no genuine issue of material fact existed in regard to the contract claim.
The Court also granted summary judgment in favor of Defendants on the conversion claim. A conversion claim under North Carolina law requires the plaintiff to show both ownership in himself and the wrongful possession or conversion of the property by the defendant. As Plaintiff admitted to voluntarily investing the money with WRD and having knowledge of the risks of doing so, the Court determined that Plaintiff’s conversion claim failed.
Lastly, the Court granted Defendants’ motion for affirmative summary judgment on their counterclaim for breach of contract. Plaintiff published the contents of the subscription agreement, which were subject to a confidentiality agreement, by attaching the subscription agreement to Plaintiff’s publicly filed complaint. The Court determined that Plaintiff’s decision to file the agreements not under seal and without redaction constituted a breach of the subscription agreement’s confidentiality provisions and ruled in Defendants’ favor. The Court reserved the issue of damages for this counterclaim for jury trial.
*******
Gallinaro v. Eager to Motivate Fitness, LLC, 2024 NCBC Order 55 (N.C. Super. Ct. Aug. 30, 2024) (Bledsoe, C.J.)
Key Terms: order on designation; N.C.G.S. § 7A-45.4(a); intellectual property; proposed class action
Plaintiff, on behalf of herself and all others similarly situated, filed suit against Eager to Motivate Fitness, LLC, alleging that Defendant sold her and thousands of others a lifetime membership to an online diet and fitness Facebook community for a one-time enrollment fee, but later implemented an additional $19.99 monthly subscription fee to access its content. Plaintiff timely filed a notice of designation, contending that designation to the Business Court was proper under N.C.G.S. § 7A-45.4(a)(5) because Defendant had sold perpetual access to its online intellectual property content.
The Court held that the case was improperly designated under N.C.G.S. § 7A-45.4(a)(5), which permits designation of disputes involving the ownership, use, licensing, lease, installation, or performance of intellectual property. Finding that the complaint’s allegations focused on the breach of contract, rather than the intellectual property aspects of the dispute, the Court ruled that the case was not properly designated to the Business Court, subject to the parties’ rights to seek designation on a different basis.
*******
CLC (US) Invs., Inc. v. Gramcor Corp., 2024 NCBC Order 56 (N.C. Super. Ct. Aug. 30, 2024) (Bledsoe, C.J.)
Key Terms: Rule 6(b); extension of time; ESI protocol
The parties filed a joint stipulation extending their time to file an ESI protocol, purportedly pursuant to Rule 6(b) of the North Carolina Rules of Civil Procedure, which allows parties to stipulate to certain extensions of time without court approval. However, because the deadline to file the ESI protocol was originally set by the Court’s case management order, Rule 6(b) did not grant the parties authority to unilaterally extend the deadline. Accordingly, the Court struck the joint stipulation, but without prejudice to the parties’ right to file a consent motion seeking the same relief.
*******
Tree Sprout, LLC v. Brilliance LED, LLC, 2024 NCBC Order 57 (N.C. Super. Ct. Sept. 5, 2024) (Bledsoe, C.J.)
Key Terms: modification of case management order; discovery; BCR 10.9 dispute summary; requests for production of documents; punitive damages
Before the Court was Defendants’ motion to modify the case management order and their BCR 10.9 dispute. Defendants sought a 90-day extension of certain discovery deadlines due to: (i) scheduling conflicts of Defendants’ counsel; (ii) the pending discovery dispute; and (iii) a desire to consolidate a recently-filed related case with this action. Plaintiffs opposed the motion, arguing that Defendants had failed to exercise reasonable diligence to conduct discovery since the case management order was entered in January 2024. In its discretion, the Court granted Defendants’ motion to modify the case management order, but cautioned the parties that it did not intend to extend the deadlines further absent exceptional good cause.
In regard to Defendants’ BCR 10.9 dispute, Defendants argued that Plaintiffs had willfully failed to fulfill their discovery obligations by refusing to produce certain documents. The Court analyzed each of the disputed requests for production and provided clarification on Plaintiffs’ duties to produce. Among other things, the Court noted that information sought to assist in the execution and satisfaction of a judgment later obtained was not appropriate at this stage of the litigation and that a party may not withhold documents on the grounds that the opposing party already has those documents in its possession, custody, or control. The Court also ordered the parties to file supplemental briefs on whether information relating to the computation of punitive damages was discoverable at the present stage of litigation.
*******
North Carolina ex rel. Stein v. MV Realty PBC, LLC, No. 38A24, 2024 N.C. LEXIS 665, 2024 WL 3913656 (Aug. 21, 2024) (Riggs, J.)
Key Terms: preliminary injunction; interlocutory appeal
As summarized here, the Business Court previously granted the State’s request for a preliminary injunction against MV Realty relating to Homeowner Benefit Agreements entered into between MV Realty and North Carolina homeowners. MV Realty subsequently appealed, asserting that the preliminary injunction orders affected a substantial right and were therefore immediately appealable. On August 21, 2024, the Supreme Court dismissed the appeal ex mero motu as interlocutory.
To subscribe, email aoldfield@rcdlaw.net.
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.