N.C. Business Court Opinions, February 26, 2025 – March 11, 2025
By: Ashley Oldfield
JT Russell & Sons, Inc. v. Russell, 2025 NCBC 7 (N.C. Super. Ct. Mar. 4, 2025 (Conrad, J.)
Key Terms: Rule 12(b)(6); derivative claims; independent panel; N.C.G.S. § 55-7-44; judicial removal of a director; N.C.G.S. § 55-8-09
As summarized here, this action involves a dispute between two branches of a family regarding their company, JT Russell & Sons. Defendant Jim Russell, a former officer and director of the company, asserted derivative counterclaims against the remaining directors for alleged misuse of company assets, as well as a direct counterclaim to remove them as directors. Upon the request of the company’s board, the Court appointed, pursuant to N.C.G.S. 55-7-44(f), an independent panel to conduct an inquiry into whether the maintenance of the derivative counterclaims was in the best interest of the corporation. Following its investigation, the panel submitted a detailed report regarding its inquiry and concluded that it was not in the company’s best interest to pursue the various derivative counterclaims. Thereafter, the company moved to dismiss the derivative counterclaims and the direct counterclaim for removal of directors.
The Court granted the motion to dismiss the derivative counterclaims. N.C.G.S. § 55-7-44 requires that a court grant a motion to dismiss a derivative proceeding if an independent, court-appointed panel determines in good faith after conducting a reasonable inquiry that the maintenance of the derivative proceeding is not in the best interest of the company. Upon review of the panel’s report, the Court concluded that these elements were satisfied and dismissal was warranted.
However, the Court denied the motion to dismiss the direct counterclaim for removal of directors. N.C.G.S. § 55-8-09 allows a court to remove a director if a shareholder shows that the director engaged in fraudulent or dishonest conduct or gross abuse of authority or discretion with respect to the corporation. Limiting its review solely to the allegations in the counterclaims, the Court concluded that Jim’s allegations that the directors had unlawfully circumvented the bylaws to gain corporate control and had engaged in self-dealing were sufficient to state a claim under the statute.
*******
Lafayette Vill. Pub, LLC v. Burnham, 2025 NCBC 8 (N.C. Super. Ct. Mar. 4, 2025) (Davis, J.)
Key Terms: Rule 12(b)(6); existence of a fiduciary duty between LLC members; breach of fiduciary duty; constructive fraud; derivative claims; statute of limitations; accounting
This action involves a dispute between members of two LLCs. Two of the members brought suit against the third member, asserting various derivative and individual claims arising from Defendant’s alleged financial mismanagement and self-dealing. Defendant moved under Rule 12(b)(6) to dismiss the derivative and individual claims for breach of fiduciary duty and constructive fraud, as well as the claim for an accounting.
Beginning with the individual breach of fiduciary claims, the Court first concluded that the Complaint did not allege the existence of a de jure fiduciary relationship between Defendant and Plaintiffs based on Defendant’s status as a member, since as a general rule, members do not owe fiduciary duties to each other and there was no operating agreement providing otherwise. Second, the Court concluded that, at best, the complaint alleged that Defendant had exercised more power than he actually possessed over the companies and that the Plaintiffs let him do so, and that this was insufficient to establish a de facto fiduciary relationship. The complaint contained no allegations that Plaintiffs, as members with equal managerial authority, had ever called a managers’ meeting, formally voted against Defendant’s actions, or sought injunctive relief. Since the complaint failed to allege the existence of a fiduciary relationship between the members, the Court dismissed the individual breach of fiduciary duty claims.
The Court also dismissed the individual constructive fraud claims due to the absence of a fiduciary relationship and the complaint’s failure to allege any alternative factual basis for a relationship of trust and confidence between the members.
Turning to the derivative claims, the Court noted that Defendant’s argument that the claims were barred by the three-year statute of limitations was inapplicable to the constructive fraud claim because the statute of limitations for such a claim is ten years. As to the breach of fiduciary duty claim, the Court concluded that it would benefit from a more developed factual record regarding when Plaintiffs had actual or constructive knowledge of Defendant’s alleged wrongful acts. Accordingly, the motion to dismiss the derivative claims was denied without prejudice.
Finally, the Court dismissed Plaintiffs’ claim for an accounting because an accounting is a remedy, not a claim.
*******
Hengqin Dingsheng Zhirong Equity Inv. Fund (Ltd. P’ship) v. Li, 2025 NCBC 9 (N.C. Super. Ct. Mar. 5, 2025) (Davis, J.)
Key Terms: forum non conveniens; N.C.G.S. 1-75.12; China; motion to dismiss; motion to stay
Plaintiffs, Chinese investors and minority shareholders of a Chinese pharmaceutical research company, filed this action against three of the executives of the company, alleging that the executives improperly enriched themselves at the expense of the Plaintiffs and the company. Defendants moved to dismiss the action pursuant to Rules 12(b)(2) and 12(b)(6), or, alternatively, to stay the action on forum non conveniens grounds.
Upon consideration of the forum non conveniens factors, the Court granted the motion to stay and consequently denied the motion to dismiss as moot. First, the nature of the case, applicable law, and the respective interests of China and North Carolina all weighed strongly in favor of a stay because Chinese law would need to be applied to the case, many of the witnesses and documents would require a Chinese translator, and China had a far greater interest than North Carolina in the litigation because the case involved a dispute between Chinese investors of a Chinese company regarding actions mostly taken in China. Second, the location of witnesses and evidence weighed neither for or against a stay because witnesses and evidence were located both in China and North Carolina. Third, China provided an adequate forum for Plaintiffs to litigate their claims despite the fact that China uses a judge-led inquisitorial system, rather than the adversarial system used in the U.S. Finally, although deference is usually given to a plaintiff’s choice of forum, such deference is diminished when, as here, plaintiffs chose to bring their case outside their home forum.
*******
Epes Logistics Servs., Inc. v. De Piante, 2025 NCBC 10 (N.C. Super. Ct. Mar. 11, 2025) (Robinson, C.J.)
Key Terms: summary judgment; non-disclosure agreement; non-solicitation agreement; breach of fiduciary duty; breach of contract, ; injunctive relief; aiding and abetting breach of fiduciary duty; tortious interference; UDTPA; civil conspiracy; respondeat superior; declaratory judgment; failure to brief an issue
This case arose from the resignation of three employees from Plaintiff and their alleged access to, and use of, Plaintiff’s confidential information to begin their own competing business. Plaintiff brought suit alleging various claims arising from the Individual Defendant’s alleged breach of their employment agreements with Plaintiff and interference with Plaintiff’s customer relationships. Defendants asserted a counterclaim for a declaratory judgment concerning the enforceability of the non-solicitation covenants in their employment agreements. Both sides moved for summary judgment, in whole or in part.
Breach of Fiduciary Duty. Plaintiff asserted that Defendant De Piante owed it both de jure and de facto fiduciary duties and that Defendant Caron owed it de facto fiduciary duties. Because the parties heavily disputed whether De Piante was an officer of Plaintiff, the Court denied Plaintiff’s motion for summary judgment as it related to De Piante’s de jure fiduciary duty to Plaintiff. However, regarding de facto fiduciary duties, the Court determined that there was no evidence that either De Piante or Caron exercised domination and control over Plaintiff; to the contrary, the evidence showed that both worked in a specific division of Plaintiff and reported to superiors. Accordingly, the Court dismissed the claim to the extent it was based on de facto fiduciary duties.
Breach of Contract. The Court found that Plaintiff had put forth sufficient evidence that would permit a jury to conclude that the Individual Defendants had violated the confidentiality provisions of their employment agreements, including by using Plaintiff’s financial information to obtain financing for their new company. Thus, genuine issues of material fact existed, precluding summary judgment on the breach of contract claim.
Injunctive Relief. Plaintiff sought to permanently enjoin the Individual Defendants from using or disclosing its confidential information. Because the Court had already determined that there was a genuine issue of material fact as to whether the Individual Defendants breached their employment agreements by disclosing confidential information, the Court held that it would be premature to determine whether the requested injunctive relief was warranted and therefore denied Defendants’ motion for summary judgment on this claim.
Aiding and Abetting Breach of Fiduciary Duty. Because North Carolina does not recognize a claim for aiding and abetting breach of fiduciary duty, the Court dismissed this claim.
Tortious Interference with Contracts Claim against Individual Defendants. Defendants sought summary judgment on Plaintiff’s claim that the Individual Defendants had tortiously interfered with each other’s employment agreements and the confidentiality provisions found therein. Since the Court had already determined that genuine issues of material fact existed regarding the enforceability of the agreements, it rejected any argument that the tortious interference claim failed because the agreements were unenforceable. The Court was also satisfied that genuine issues of material fact existed regarding inducement. Thus, the Court denied summary judgment on this claim.
Tortious Interference with Prospective Economic Advantage Claim against Defendants. The Court granted summary judgment in Defendants’ favor on this claim because, although Plaintiff had identified specific customers it contends would have continued to do business with it but for Defendants’ conduct, Plaintiff failed to point to any specific contracts that would have ensued but for Defendants’ conduct, a required element of the claim.
UDTPA. Defendants sought summary judgment on plaintiff’s UDTPA claim arguing that it was precluded by the single market participant exclusion. The Court determined, however, that Plaintiff had forecast sufficient evidence that the alleged conduct supporting the claim involved market participants outside of Plaintiff’s organization and therefore denied the motion for summary judgment.
Civil Conspiracy. Because Defendants’ only argument in favor of summary judgment as to the civil conspiracy claim was that it should be dismissed if all other tort claims were dismissed, and other claims had survived dismissal, the Court denied Defendants’ motion for summary judgment on this claim.
Respondeat Superior against Defendant Noble. Because Defendants did not present any argument in their brief regarding this claim, the Court denied Defendants’ motion for summary judgment on the respondent superior claim.
Declaratory Judgment Counterclaim. Defendants sought summary judgment on their claim for a declaratory judgment that the non-solicitation provisions in their employment agreements were unenforceable. Because Defendants had presented sufficient evidence to support a prima facie case as to this claim and Plaintiff failed to present any argument regarding this claim in its brief in opposition to summary judgment, the Court concluded that no genuine issue of material fact existed and granted summary judgment in Defendants’ favor.
*******
Jackson v. MH Master Holdings, LLLP, 2025 NCBC Order 15 (N.C. Super. Ct. Feb. 28, 2025) (Earp, J.)
Key Terms: BCR 10.9; public records; work product doctrine; attorney-client privilege; anticipation of litigation; substantial need
As summarized here, the N.C. Attorney General initiated this action against Defendant, alleging that Defendant had violated certain provisions of an asset purchase agreement relating to its acquisition of a hospital system in western North Carolina. In response to Defendant’s Rule 34 document request, Plaintiff withheld or redacted various documents that he identified in a privilege log as relating to legal advice. After complying with BCR 10.9, Defendant filed a motion to compel Plaintiff to produce the documents, which Defendant contends are public records.
Because Plaintiff asserted that the majority of the documents were withheld based on the work product doctrine, the Court began by examining the interplay between the Public Records Act and the work product doctrine. Although the Act defines public record broadly, it also recognizes application of the work product doctrine to public records and incorporates the provisions of Rule 26 regarding the production of trial preparation materials. Under Rule 26(b)(3), documents prepared in anticipation of litigation are subject to the work product doctrine. Here, Defendant argued that the documents at issue were prepared in connection with the negotiation of a contract, not in anticipation of litigation. However, because there was evidence in the record that the Plaintiff anticipated litigation early on in the transaction, the Court determined that an in camera review of the documents was necessary to determine if they were prepared in anticipation of litigation.
Defendant also argued that even if the work product doctrine applied, the documents must still be produced because Defendant had a substantial need for the materials (and couldn’t get equivalent materials elsewhere) since the Attorney General was the only source of information concerning his contemporaneous understanding of potentially ambiguous language in the APA. Plaintiff responded that regardless of Defendant’s “substantial need,” the work product documents were not discoverable because they reflected the mental impressions, conclusions, opinions, and legal theories of Plaintiff’s attorneys. Once again, the Court concluded that an in camera review of the documents was needed to determine this issue.
Accordingly, the Court ordered Plaintiff to provide the documents at issue to the Court for an in camera review.
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.