N.C. Business Court Opinions, December 20, 2023 – January 2, 2024
Husqvarna Pro. Prods., Inc. v. Robin Autopilot Holdings, LLC, 2023 NCBC 88 (N.C. Super. Ct. Dec. 22, 2023) (Bledsoe, C.J.)
Key Terms: Rule 15; amended complaint; futility; 12(b)(6); breach of fiduciary duty; tortious interference; anticipatory repudiation
As previously summarized here, this dispute arose from a series of agreements entered into by parties associated with Husqvarna and parties associated with Robin Autopilot. Husqvarna sought leave to amend its complaint to supplement the complaint’s factual allegations, add Robin Autopilot’s formed CEO, Logan Fahey, as a defendant, assert additional claims, and reassert certain existing claims. Defendant Robin Autopilot opposed the motion on the basis of futility.
Breach of Fiduciary Duty Claim against Fahey. The Court denied Plaintiff’s motion to amend to add a derivative claim for breach of fiduciary duty against Fahey because Plaintiff had failed to make a written pre-suit demand as required by the governing Ohio LLC statute. The Court found no basis to read a futility exception into the Ohio law as urged by Plaintiff. Accordingly, the claim was futile because Plaintiff lacked standing to assert it.
Tortious Interference Claim against Fahey. The Court granted Plaintiff’s motion to add tortious interference with contract claims against Fahey. The Court noted that Plaintiff’s allegations of malice made “upon information and belief” were sufficient to survive a 12(b)(6) dismissal motion. Additionally, the Court rejected Robin Autopilot’s public policy argument, stating that North Carolina law permits a party to seek to hold a corporate officer accountable for tortiously interfering with their company’s contracts for their own personal benefit.
Anticipatory Repudiation. The Court granted Plaintiff’s motion as to its reasserted claims for anticipatory breach of contract. Robin Autopilot argued that the claim, which stems from a memo sent by Fahey to Plaintiff, was futile. Robin Autopilot based its argument on language found in the Court’s Order and Opinion on Plaintiff’s Motion to Dismiss Amended Counterclaims from November 2023, in which the Court concluded that the memo was not a “distinct, unequivocal, and absolute refusal to perform.” The Court held that its Order did not resolve issues of fact and did not constitute a holding in regard to the memo’s interpretation.
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McFee v. Presley, 2023 NCBC 89 (N.C. Super. Ct. Dec. 28, 2023) (Conrad, J.)
Key Terms: summary judgment; 12(b)(6); fraudulent transfer; fraud; statute of limitations; breach of fiduciary duty; N.C.G.S § 39-23.4; unjust enrichment
Plaintiff Jacqueline McFee served as the lead designer for CPP, a stationery and office supply company, for ten years. Defendant William Presley served as CPP’s President, CEO, and partial owner during the relevant period. In 2008, McFee became a Class B member of CPP with 10% of non-voting stock. At that time, McFee entered into a written employment agreement with CPP, which assigned all intellectual property rights in her design work to CPP but granted McFee the option to reclaim the intellectual property rights if certain events occurred. McFee alleged that Defendant falsely promised to protect her intellectual property rights and ensure that CPP would reassign them to her when the time arose.
After CPP’s business went into decline, McFee and other Class B members abandoned their membership interests in 2013. McFee alleged that prior to her abandoning her membership interest, Defendant falsely represented to her that CPP’s poor performance had rendered her membership interest worthless. After CPP terminated McFee’s employment, she requested that she be reassigned the rights to her design. Defendant refused McFee’s request. McFee subsequently sued CPP in both federal and state court over the dispute and she obtained a default judgment against CPP in the state action. During the pendency of the state action, CPP sold some of its assets for $11 million to a company called Pacon and used the profits to pay off a secured lender, make a distribution to Defendant, and retained a portion as capital. Defendant resigned from CPP in 2017. After CPP defaulted on a line of credit in 2019, CPP’s lender foreclosed on its assets used as collateral and sold them to a company called Bay Sales.
In 2021, McFee filed the present lawsuit against Defendant for fraud, unjust enrichment, breach of fiduciary duty, and constructive fraud. McFee also alleged that the Pacon sale and Bay Sales foreclosure sale were fraudulent transfers. The parties filed cross-motions for summary judgment.
Fraudulent Transfer—N.C.G.S. § 39-23.5(b). The Court granted Defendant’s motion as to McFee’s claim under N.C.G.S. § 39-23.5(b) as the one-year statute of limitations precluded the claim.
Fraudulent Transfer—N.C.G.S. §39-23.4(a)(1) (Pacon Sale). The Court granted Defendant’s motion for summary judgment and denied McFee’s cross-motion on the basis that the claim was untimely. N.C.G.S. §39-23.4(a)(1) provides a limitations period of “not later than four years after the transfer was made . . . or, if later, not later than one year after the transfer . . . was or could reasonably have been discovered.” Noting that the sale occurred in 2017, and the undisputed evidence suggested that McFee received actual notice of the sale in 2019, the Court dismissed McFee’s claim as untimely.
Fraudulent Transfer—N.C.G.S. §39-23.4(a)(1) (Bay Sales Foreclosure Sale). The Court granted Defendant’s motion and denied McFee’s cross-motion as to the Bay Sales foreclosure sale, as the foreclosure sale did not constitute a “transfer” under the statute. The statute defines “transfer” as disposal of an “asset” and defines “asset” to exclude property encumbered by a valid lien. The evidence showed that the property sold to Bay Sales was collateral encumbered by a valid lien.
Fraud. The Court granted Defendant’s motion as to McFee’s fraud claim on the basis that it was untimely and lacked evidence to survive dismissal on the merits of the claim. McFee failed to provide evidence which would create a genuine issue of material fact concerning when her fraud claim accrued. The Court noted that, by McFee’s own admission, she was aware of the alleged fraud when she initiated suit in state court in 2017. Additionally, Defendant’s arguments and evidence relating to the merits of the claim remained unrebutted by McFee. As such, McFee’s claim was dismissed.
Unjust Enrichment. The Court granted Defendant’s motion as to McFee’s unjust enrichment claim as it related to the Pacon sale (2017), holding that the statute of limitations for unjust enrichment (3 years) barred recovery for McFee’s claim, which was filed in 2021. The Court held that McFee’s claim was not time-barred as it related to the Bay Sales foreclosure sale (2019). However, after analyzing the merits of the claim, the Court granted Defendant’s motion on the basis that: (i) a written employment agreement governed the intellectual property rights, making unjust enrichment an improper claim; and (2) McFee had failed to allege or otherwise provide evidence demonstrating that she had conferred a benefit upon Defendant.
Breach of Fiduciary Duty and Constructive Fraud. The Court likewise granted Defendant’s motion and dismissed Plaintiff’s breach of fiduciary duty and constructive fraud claims. The Court held that, while the managers of an LLC “owe a fiduciary duty to the LLC’s creditors to treat members of the same creditor class fairly and equally” when the LLC finds itself in circumstances amounting to a winding-up or dissolution, Defendant did not owe Plaintiff a fiduciary duty in the present circumstances. First, Defendant was not a manager at the time the Bay Sales foreclosure sale occurred in 2019. Second, the undisputed evidence showed that CPP was not in “circumstances amounting to a winding-up” at the time of the Pacon sale. As such, Defendant did not owe Plaintiff a fiduciary duty at the time the relevant transactions took place. As the Court held that no fiduciary duty existed, the constructive fraud claim was dismissed as well.
Veil Piercing. As the Court entered summary judgment in favor of Defendant on every claim for relief, the Court also entered summary judgment in Defendant’s favor on Plaintiff’s veil piercing claim.
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McFee v. Presley, 2023 NCBC 90 (N.C. Super. Ct. Dec. 28, 2023) (Conrad, J.)
Key Terms: default judgment; fraudulent transfer; standing; breach of fiduciary duty; constructive fraud; unjust enrichment; N.C.G.S § 39-23.4; N.C.G.S. § 39-23.5(b); veil-piercing
A more detailed factual summary of this case can be found in our summary of McFee v. Presley, 2023 NCBC 89, above. This opinion arises from Plaintiffs Jacqueline McFee (“McFee”) and her solely owned, dissolved corporation, Savage McFee, Inc.’s Motion for Default Judgment against Defendants Bill Stacks, Sabr Leme, Inc., Stacks Holding, Inc., and CPP International, LLC (collectively, the “Defaulting Defendants”). After the Defaulting Defendants failed to answer or otherwise respond to Plaintiffs’ amended complaint, the Court entered default against the Defaulting Defendants in May 2023.
Even after default is properly entered and the defaulting party is deemed to have admitted the factual allegations in the complaint, the Court must still assess the sufficiency of the allegations to determine if they are sufficient to state a cause of action.
Standing. The Court began by ordering Savage McFee, Inc. to show cause why its claims should not be dismissed for lack of standing, as the complaint contained no allegations that Savage McFee took part in any of the relevant events, nor that it was harmed by the Defaulting Defendants.
Breach of Fiduciary Duty and Constructive Fraud. The Court denied McFee’s motion as to the breach of fiduciary duty and constructive fraud claims as they related to the Pacon transaction. The complaint did not adequately allege that Default Defendant Bill Stacks owed a fiduciary duty to McFee because 1) Stacks, as an officer of the LLC, did not owe a fiduciary duty to McFee as a member or employee; and 2) Stacks was not an officer of CPP at the time the Pacon sale was executed and thus he did not owe a fiduciary duty to McFee as a creditor. However, the Court granted McFee’s motion as it related to the Bay Sales transaction, as the complaint alleged that at the relevant time, Stacks was a manager, CPP was winding up, and McFee was a known creditor.
Fraudulent Transfer. The Court granted McFee’s motion as it related to fraudulent transfer under N.C.G.S § 39-23.4 against CPP, as the amended complaint adequately alleged that McFee was a creditor of CPP; CPP was put on notice of McFee’s claim; that substantially all of CPP’s assets were transferred to Pacon and Bay Sales; that CPP concealed these transfers from McFee; and that CPP transferred the assets with the intent to hinder, delay and defraud McFee. The Court denied McFee’s motion as it related to Defaulting Defendants Sabr Leme and Stacks Holding, as the complaint provided no allegations to hold Sabr Leme or Stack Holding liable on a veil-piercing theory. The Court also denied McFee’s motion against Stacks as it related to the Pacon sale, as the amended complaint alleged that Stacks did not acquire ownership in, or become an officer of, CPP until after the Pacon sale was completed. The Court granted McFee’s motion against Stacks as it related to the Bay Sales transaction, as the amended complaint made sufficient allegations against Stack of domination and control regarding the Bay Sales transaction to warrant veil-piercing. McFee’s claim under N.C.G.S. § 39-23.5(b) was denied in full, as the amended complaint did not allege an antecedent debt existed.
Unjust Enrichment. Lastly, the Court denied McFee’s motion as it related to the unjust enrichment claims. Her allegations against Stacks were conclusory and contradictory and otherwise insufficient. Her allegations regarding the other Defendants showed that her intellectual property rights were governed by a written contract, which foreclosed any claim for unjust enrichment.
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BIOMILQ, Inc. v. Guiliano, 2023 NCBC 91 (N.C. Super. Ct. Dec. 28, 2023) (Robinson, J.)
Key Terms: service; summons; Rule 4; Rule 12(b)(5); designated delivery service; FedEx Express Saver; 26 U.S.C. § 7502(f)(2)
This opinion was issued in response to the 12(b)(5) motions to dismiss filed by Counterclaim-Defendants Goodwin Procter LLP and Leila Strickland. On February 6, 2023, Defendants/Counterclaim-Plaintiffs Shayne Guiliano and 108LABS, LLC filed their answer and counterclaims to BIOMILQ’s complaint. Counterclaim-Plaintiffs did not cause a summons to be issued for either Goodwin or Strickland prior to or at the time of filing its counterclaims. After the Court’s inquiry on the issue, Counterclaim-Plaintiffs secured the issuance of summons for service upon Goodwin and Strickland on April 20, 2023.
Counterclaim-Plaintiffs attempted to serve Goodwin and Strickland by FedEx’s “Express Saver” service. The tracking history for Strickland’s summons demonstrated that the materials were purportedly delivered to Strickland on May 2, 2023, but no signature was required or obtained. Counterclaim-Plaintiffs sent the summons and materials to Goodwin through the same “Express Saver” service, addressed to “Goodwin Procter LLP” but not addressed to an individual person. The tracking history shows that the package was delivered to Goodwin’s mailroom on May 4, 2023 and was signed for by an individual. Counterclaim-Defendants moved for dismissal of the counterclaims and third-party claims on the basis of improper service.
Noting that Rule 12(b)(5) requires an action to be dismissed when service of process is not valid, the Court granted both Counterclaim-Defendants’ motions. The Court looked to Rule 4(j)(7)(a) and 4(j)(1)d, which govern service by designated delivery service on a partnership and an individual, respectively. Both provisions require that the serving party deposit the summons and complaint “with a designated delivery service authorized pursuant to 26 U.S.C. § 7502(f)(2)” for delivery. Because FedEx’s “Express Saver” service is not a designated delivery service pursuant to 26 U.S.C. § 7502(f)(2), Counterclaim-Plaintiff’s attempted service did not comply with Rule 4 and was therefore insufficient. The Court found unpersuasive Counterclaim-Plaintiff’s arguments that 1) the list of designated delivery services was not properly before the Court; 2) that the list was illustrative rather than exhaustive; 3) that because FedEx Express Saver meets the minimum requirements necessary to be a designated delivery service, it is a proper method of service; 4) that the policy set forth in N.C.G.S. § 1-75.1 liberalizing the grounds for jurisdiction should prevail over a mechanical application of the law; and 5) that a rebuttable presumption that service was proper applies to their attempted service.
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Loyd v. Griffin, 2023 NCBC 92 (N.C. Super. Ct. Dec. 29, 2023) (Robinson, J.)
Key Terms: judgment; jury verdict; specific performance; breach of contract
Following a jury verdict, the Court issued this Final Order and Judgment. In the Order, the Court analyzed the contract at issue to determine if specific performance was an appropriate remedy. After the jury found that a shareholder agreement between the parties had been amended, the Court concluded that the amended agreement’s language did not require Plaintiff to sell his shares back to Defendant. As a result, Defendant was not entitled to specific performance on its counterclaim, as it was unable to establish the requisite elements of a breach of contract claim.
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CTS Metrolina, LLC v. Berastain, 2023 NCBC Order 68 (N.C. Super. Ct. Dec. 24, 2023) (Earp, J.)
Key Terms: temporary restraining order; injunctive relief; sale of a business; restrictive covenants; misappropriation of trade secrets
This order arises from Plaintiff CTS Metrolina, LLC’s motion for a temporary restraining order against Defendants Dustin Berastain, Timothy Moreau, and Inkwell Emergency Response LLC. CTS purchased the assets of Metrolina Restoration, LLC, a company owned and operated by Berastain and Moreau. As part of this transaction, Berastain and Moreau agreed to certain restrictive covenants, namely noncompetition, nonsolicitation, and confidentiality provisions, and became employed by CTS. CTS later terminated Berastain, and Moreau resigned soon after. CTS alleges that Berastain and Moreau are now affiliated with one of CTS’ competitors, Inkwell, which was founded soon after Berastain’s and Moreau’s exits from CTS. CTS filed the present motion to enjoin Defendants from activity in violation of the restrictive covenants or misappropriating CTS’ trade secrets.
The Court granted CTS’ motion as it related to the restrictive covenants. The Court found that CTS presented evidence sufficient to establish a reasonable likelihood that it will succeed on its claim that the restrictive covenants at issue are enforceable, and that Berastain and Moreau have violated one or more of them through their association with Inkwell. Finding the equities weighing in favor of CTS, the Court issued a temporary restraining order prohibiting certain competitive activity by the Defendants, including the disclosure of confidential information.
The Court denied CTS’ motion as it related to the misappropriation of trade secrets claim, concluding that Plaintiff had not shown a reasonable likelihood of success on that claim because CTS failed to identify the alleged trade secrets in sufficient detail and did not specify the particular measures taken to maintain the alleged trade secrets.
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Londry v. Stream Realty Partners L.P., 2023 NCBC Order 69 (N.C. Super. Ct. Dec. 28, 2023) (Earp, J.)
Key Terms: injunctive relief; pleading standards; ancillary relief
While employed by Stream Charlotte, a commercial real estate services firm, Plaintiff worked with RCC Investors to find a buyer for property RCC Investors was selling (the “PBC Deal”). However, RCC Investors never entered into a listing agreement with Stream Charlotte. After Plaintiff left Stream Charlotte, he began working for his own real estate firm and executed a listing agreement with RCC Investors for the PBC Deal. After Stream Charlotte learned that a purchase agreement had been entered into for the PBC Deal, it demanded that the money it would have received had there been a listing agreement prior to Plaintiff leaving Stream Charlotte be held in escrow. In July 2023, Plaintiff filed suit alleging claims against his former employer for breach of contract, breach of partnership agreement, breach of fiduciary duty, fraud, and unfair trade practices; however, none of the claims involved the PBC Deal. In October, Plaintiff filed a motion for injunctive relief seeking a mandatory injunction requiring Defendants to sign a release allowing the escrowed funds to be disbursed and a prohibitory injunction requiring Defendants to cease all contact with Plaintiff’s clientele. Plaintiff argued that Defendants’ interference with the PBC Deal had damaged him, both financially and personally, and had placed a financial strain on his business.
The Court denied the motion because the complaint (i) failed to assert a claim to which the requested relief could be ancillary; and (ii) sought only damages, not injunctive relief, in its prayer for relief.
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Blueprint 2020 Opportunity Zone Fund, LLLP v. 10 Academy St. QOZB I, LLC, 2024 NCBC Order 1 (N.C. Super. Ct. Jan. 2, 2024) (Bledsoe, C.J.)
Key Terms: receivership; sanctions; violation of receivership order
In March 2023, the Court appointed the Receiver as general receiver for Defendant QOZB to administer the property of the Receivership Estate, including a piece of real property in Greenville, South Carolina (the “Multi-Family Land”). The Receivership Order also provided that the Receiver would have sole authority to act on behalf of QOZB and that the Court retained jurisdiction and supervision over all receivership-related matters. The Receiver subsequently reached an agreement on a proposed sale of the Multi-Family Land and circulated, by email, the proposed contract to counsel for QOZB’s investors: Plaintiffs, CitiSculpt Fund Services, and 10 Academy Opportunity Zone. Approximately two hours later, counsel for Academy and for CitiSculpt Fund Services indicated that they opposed the sale. Minutes later, CitiSculpt Fund Services’ counsel—Smith Currie & Hancock—filed a lawsuit on behalf of CitiSculpt SC, LLC against QOZB in South Carolina state court, seeking a declaration that a parking lease previously entered into was a valid and enforceable encumbrance on the Receivership Estate and recorded a notice of lis pendens against the Multi-Family Land. CitiSculpt SC and its counsel did not seek or obtain leave to file the South Carolina action or the lis pendens and never served the Receiver with either, instead only serving QOZB’s registered agent, a CitiSculpt employee. After finally being notified regarding the South Carolina action in July, the Receiver moved to approve the sale, enjoin the South Carolina action, and award sanctions against the CitiSculpt entities (including McAlpine, which owns and controls the CitiSculpt entities) and their counsel for violating the Receivership Order and for damages and attorneys’ fees incurred. Plaintiffs joined the motion and in support showed that McAlpine had made false statements to the Court.
The Court granted the motion. By attempting to exercise control over the Multi-Family Land through the filing of the South Carolina action and lis pendens, the CitiSculpt entities and their counsel: 1) violated the stay set forth in N.C.G.S. § 1-507.42(c); 2) violated the mandatory venue provisions of N.C.G.S. § 1-507.38(b); 3) violated N.C.G.S. § 1-507.22 which requires any claim relating to receivership property to be heard by the Court; and 4) violated their duties as Responsible Parties under the Receivership Order and as set forth in N.C.G.S. § 1-507.30. Further, the Court found that the evidence regarding false statements made by McAlpine provided further support for sanctions. The Court determined that the arguments advanced by the CitiSculpt entities and their counsel were meritless. The Court ordered the Receiver’s counsel to submit a petition seeking recovery of the Receiver’s actual damages and attorneys’ fees and ordered the sanctioned parties to dismiss the South Carolina action and cancel the lis pendens.
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