N.C. Business Court Opinions, February 28, 2024 – March 12, 2024
JT Russell and Sons, Inc. v. Russell, 2024 NCBC 13 (N.C. Super. Ct. Feb 28, 2024) (Conrad, J.)
Key Terms: Rule 12(b)(6); UDTPA; misuse of corporate resources; in or affecting commerce; breach of contract; statute of frauds; N.C.G.S. § 22-1; account stated; statute of limitations; constructive trust
In this action, Plaintiff JT Rusell and Sons, an asphalt and road construction business, alleged that Defendant Jim Russell, its former officer, abused his position by channeling company resources toward his other personal and business interests, including Defendants Tillery Tradition and Mid-Eastern Asphalt. Defendants moved to dismiss some of the claims pursuant to Rule 12(b)(6).
UDTPA Claim. Defendants argued that the UDTPA claim should be dismissed because it was based on Jim’s alleged misuse of corporate resources, which were matters internal to JT Russell and therefore not “in or affecting commerce.” The Court agreed and dismissed the claim since, as alleged, the unfairness of Jim’s conduct was wholly internal to JT Russell and did not occur in the broader marketplace.
Breach of Contract. The Court denied dismissal of the claim for breach of contract against Jim, determining that JT Russell had met the low bar necessary to allege breach of contract based on its allegations that Jim had offered to pay back certain sums, that JT Russell had accepted that offer, and that Jim failed to make the promised payments. The Court rejected Jim’s argument that any promise by him to repay Tillery Tradition’s debt was barred by the statute of frauds pursuant to N.C.G.S. § 22-1. Construed liberally, the complaint alleged Jim’s promise to repay his own debts and therefore, the statute’s requirement regarding contracts to repay the debts of another was inapplicable.
Account Stated. The Court denied dismissal of the claim for account stated against Tillery Tradition, finding that JT Russell had adequately alleged the necessary elements: that it had calculated the balance due, that it submitted a statement of account to Tillery Tradition, that Tillery Tradition had acknowledged the statement’s correctness, and that Tillery Tradition had made a promise to pay the balance due. Tillery Tradition’s arguments that 1) JT Russell had sent a demand for repayment and an invitation to negotiate, rather than a true statement of account, and 2) the claim was barred by the statute of limitations were both questions for discovery.
Constructive Trust. Because a constructive trust is not a standalone claim, the Court dismissed this claim, but without prejudice to JT Russell’s right to seek a constructive trust as a remedy at a later stage.
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JT Russell and Sons, Inc. v. Russell, 2024 NCBC 14 (N.C. Super. Ct. Feb. 28, 2024) (Conrad, J.)
Key Terms: Rule 12(b)(6); derivative claims; presuit demand; N.C.G.S. § 55-7-42; dissolution; N.C.G.S. § 55-14-30(2); equitable accounting
This action involves a dispute between the shareholders of JT Russell and Sons, a family-owned business. After JT Russell brought suit against Jim Russell, one of its shareholders and a former officer, Jim sought dissolution of JT Russell and asserted derivative claims against some of the other current or former officers. The counterclaim-defendants moved to dismiss these claims.
Derivative Claims. The Court dismissed all of Jim’s derivative claims without prejudice for lack of subject matter jurisdiction based on Jim’s failure to comply with the presuit demand requirement of N.C.G.S. § 55-7-42. Although Jim contended that the list of potential claims he had provided to JT Russell prior to filing suit satisfied this requirement, the Court determined that the document was insufficient because it did not demand that JT Russell take any action.
Dissolution. Jim sought the dissolution of JT Russell on the grounds that his reasonable expectation to participate in the management of the family business had been frustrated and that the individual counterclaim defendants had mismanaged the company and misused its assets for personal gain. JT Russell conceded at the hearing that Jim had adequately stated a claim for dissolution but nonetheless sought partial dismissal to the extent the claim was based on alleged misconduct which Jim failed to object to while an officer and director. However, since Rule 12(b)(6) operates to dismiss claims, not allegations, the Court rejected this argument and denied dismissal of the dissolution claim.
Accounting. Because an equitable accounting is not an independent cause of action, the Court dismissed the claim, but did so without prejudice to Jim’s right to seek an accounting as a remedy.
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Kumar v. Patel, 2024 NCBC 15 (N.C. Super. Ct. Feb. 28, 2024) (Robinson, J.)
Key Terms: conversion; eBay account; breach of contract; condition precedent; unjust enrichment; equitable accounting; fraud; negligent misrepresentation; Rule 9(b); reasonable reliance; breach of fiduciary duty; judicial dissolution; standing
This action arose out of Plaintiff Kumar and Defendant Patel’s formation of Defendant Empower Tomorrow, a nonprofit, and the events that followed. Plaintiffs contended that they provided the nonprofit startup funds with the understanding that the funds would eventually be repaid and that Kumar would be paid back-pay for his work at the nonprofit between 2019 and 2023. When the funds failed to materialize, Plaintiffs filed suit alleging eleven claims for relief. Defendants moved to dismiss most of the claims under Rules 12(b)(1) and 12(b)(6).
Conversion. Plaintiffs asserted a claim for conversion contending that 1) Defendants wrongfully converted loans and purchased inventory; and 2) Patel converted Kumar’s eBay account. The Court dismissed the claim on both grounds with prejudice. The Court determined first, that a failure to pay a debt does not amount to a civil claim for conversion, and second, that preventing access to an online electronics store platform such as eBay did not give rise to a claim for conversion either, particularly where the account still existed and Defendants had not caused a complete deprivation.
Accounting. The Court dismissed the accounting claim without prejudice because Plaintiffs did not allege or argue any reason why discovery procedures would be insufficient to obtain the desired account information.
Breach of Contract. Kumar’s breach of contract claim was based on breach of an alleged agreement that Empower Tomorrow would pay him a back-owed salary as soon as Empower Tomorrow became profitable and surpassed monthly net revenue of $10,000. However, because Kumar did not allege that either of the conditions precedent–profitability and $10,000 in revenue–had been met, the Court dismissed the claim without prejudice.
Unjust Enrichment. Kumar asserted an unjust enrichment claim based on his expectation to receive a salary once Empower Tomorrow became profitable. The Court determined, however, that the claim was insufficient because Kumar’s work appeared to be conferred gratuitously based on his allegation that he and Patel had not decided to receive salaries until years after the work had been completed.
Member Judicial Dissolution. The Court granted dismissal under Rule 12(b)(1) of Kumar’s claim for judicial dissolution of Empower Tomorrow because Empower Tomorrow’s articles of incorporation, which were attached to the complaint, contradicted and negated any allegation that Kumar was a member of the company.
Breach of Fiduciary Duty and Constructive Fraud. The Court dismissed Plaintiffs’ fiduciary duty claims against Patel with prejudice. No de jure fiduciary duty existed between Patel and Plaintiffs because any fiduciary duty she owed ran to Empower Tomorrow, not Plaintiffs. Moreover, Plaintiffs had not alleged any facts sufficient to establish the existence of a de facto fiduciary relationship.
Fraud and Negligent Misrepresentation. The Court dismissed these claims without prejudice based on Plaintiffs’ failure to plead the time, place, or specific content of any of the alleged misstatements of Patel or to allege facts constituting reasonable reliance.
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BIOMILQ, INC. v. Guiliano, 2024 NCBC 16 (N.C. Super. Ct. Feb. 29, 2024) (Robinson, J.)
Key Terms: pro se; Rule 60; interlocutory order; Rule 12(b)(6); Rule 12(g); Rule (12(h)
Following entry of an Order denying Defendants’ motion to dismiss, Defendant Guiliano, proceeding pro se, filed a “Motion for Rule 60 Relief from Judgment” requesting that the Court reconsider its Order, reconsider the Rule 12(b) motions already filed, and consider a new 12(b)(6) motion to dismiss based on Rules 12(g) and (h)(2). The Court denied the motion without a hearing. Because the Order was an interlocutory order, the Court did not have authority to grant relief pursuant to Rule 60(b), which applies only to relief from a final judgment. Furthermore, consideration of Guiliano’s new motion under Rule 12(b)(6) pursuant to Rules 12(g) and (h)(2) was not appropriate because the Rules do not permit a party to make a pre-trial motion under Rule 12(b)(6) after the party has answered.
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Found. Bldg. Materials, LLC v. Conking & Calabrese, Co., 2024 NCBC 17 (N.C. Super. Ct. Mar. 4, 2024) (Earp., J.)
Key Terms: tortious interference with business relations; without justification; unfair and deceptive trade practices; market power; monopoly; Noerr-Pennington doctrine
As summarized here, this lawsuit involves a dispute between Plaintiff FBM and Defendant Conking, who are competitors in the building material distribution industry. FBM moved to dismiss Conking’s counterclaims for tortious interference with business relations and unfair and deceptive trade practices.
The Court dismissed without prejudice Conkings’ claim for tortious interference with business relations because Conking failed to allege any facts showing that FBM/Henshaw acted without justification.
The Court also dismissed without prejudice Conking’s claim for unfair and deceptive trade practices under both N.C.G.S. § 75-1.1 and the common law. These claims were premised on 1) FBM’s alleged tortious interference; 2) FBM’s “exploitation” of its market power to convince others to place “holds” on doing business with Conking; and 3) the commencement and prosecution of the present lawsuit. Since the Court had already dismissed the tortious interference claim, the UDTP claim based on it failed as well. Further, FBM’s alleged misuse of its market power did not amount to an unfair trade practice since Conking did not allege a conspiracy or a monopoly. Lastly, Conking’s contention that the lawsuit itself constituted an unfair trade practice failed under the Noerr-Pennington doctrine because Conking had not shown that the lawsuit was objectively meritless.
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Airtron, Inc. v. Heinrich, 2024 NCBC 18 (N.C. Super. Ct. Mar. 12, 2024) (Conrad, J.)
Key Terms: motion for sanctions; discovery violations; pro se; BCR 10.9; default judgment
This order and opinion addresses Plaintiff’s motion to sanction Defendant for disobeying the Court’s discovery orders. Defendant, proceeding pro se, was previously ordered by the Court to serve full and complete discovery responses. Thereafter, Defendant still failed to fully respond to Plaintiff’s discovery requests, but, upon Plaintiff’s motion to compel, the Court gave Defendant a second chance to fully respond and required him to pay some of Plaintiff’s attorney’s fees. After Defendant again failed to comply, Plaintiff moved for sanctions, including striking Defendant’s answer and entering a default judgment. Determining that lesser sanctions were insufficient, the Court granted the motion. Defendant’s conduct had stalled the progress of the case, prejudiced Plaintiff, and wasted judicial resources. Moreover, Plaintiff’s allegations against Defendant for misappropriation of trade secrets and unfair or deceptive trade practices were adequate to state a claim and therefore default judgment as to liability on those claims was appropriate.
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Davis v. Davis Funeral Serv., Inc., 2024 NCBC Order 21 (N.C. Super. Ct. Mar. 4, 2024) (Conrad, J.)
Key Terms: attorneys’ fees; Rule 11; Rule 37(c); requests for admission
As summarized here, the Court previously granted summary judgment in favor of third-party defendant Tedder on Davis Funeral Service’s claims against her. Tedder then moved for an award of attorney’s fees under Rules 11 and 37(c) and N.C.G.S. § 1D-45. The Court granted the motion pursuant to Rule 11. The evidence showed that Davis Funeral Service knew or should have known at the time it filed its third-party complaint against Tedder that the allegations against her were false. Further, even if they hadn’t known at that time, they were previously put on notice of the dispositive evidence but continued to pursue the claims through summary judgment. The Court directed the parties to confer in an effort to agree to the amount due, but if the conference was unsuccessful Tedder could supplement her materials. The Court did not decide the motion under N.C.G.S. § 1D-45 since it provided a second basis to award the same fees. As for the request under Rule 37(c), Tedder sought attorneys’ fees incurred in conducting discovery related to her own counterclaims based on Davis Funeral Service’s denial of several requests for admission. The Court denied this request because it concluded that the admissions sought were of no substantial importance.
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Gvest Real Est., LLC v. JS Real Est. Invs., LLC, 2024 NCBC Order 22 (N.C. Super. Ct. Mar. 7, 2024) (Conrad, J.)
Key Terms: motion for reconsideration; Rule 54(b)
In a previous order, summarized here, the Court entered summary judgment against Plaintiff on each of its claims. Plaintiff moved, under Rule 54(b), for partial reconsideration, seeking to revive its declaratory judgment claim. The Court denied the motion. Plaintiff’s arguments were based on the same evidence previously considered and found wanting by the Court. Moreover, Plaintiff attempted to raise new arguments which it had waived by not raising earlier. Finally, Plaintiff’s interpretation of the operating agreement at issue did not comport with the agreement’s plain language.
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Bui v. Phan, 2024 NCBC Order 23 (N.C. Super. Ct. Mar. 8, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; N.C.G.S. § 7A-45.4(a)(1); opposition to designation
Plaintiff filed suit asserting claims for declaratory judgment and breach of Defendant Golden Rooster, LLC’s operating agreement, and timely filed a notice of designation. However, as summarized here, the Court determined that designation was improper. Thereafter, Defendants filed their answer and counterclaims asserting claims against Plaintiff for breach of fiduciary duty and involuntary withdrawal. Plaintiff timely filed a second notice of designation under N.C.G.S. § 7A-45.4(a)(1), but this time based on the counterclaims. Defendants opposed designation. The Court determined that designation was proper because Defendants’ counterclaims alleged that Plaintiff, as a managing member of Golden Rooster, breached fiduciary duties owed to the company, which duties are governed by Chapter 57D. Defendants’ argument that designation was improper under Rule 2.1(b) was irrelevant since Plaintiff sought designation under N.C.G.S. § 7A-45.4(a)(1). Furthermore, Defendants’ argument that designation was improper because the case was not complex or exceptional was without merit since designation does not require any particular complexity. Accordingly, the opposition was overruled.
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Caraballo-Lopez v. Retail Bus. Servs., LLC, 2024 NCBC Order 24 (N.C. Super. Ct. Mar. 11, 2024) (Bledsoe, C.J.)
Key Terms: order on designation; untimely; personal injury; N.C.G.S. § 7A-45.4(h)
Defendants sought designation of this case as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(1). However, the Court determined that designation was improper for two reasons. First, Defendants failed to file their notice of designation within thirty days of accepting service of the first amended complaint. Second, the case is a wrongful death action which is excluded from designation by N.C.G.S. § 7A-45.4(h).
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Howard v. IOMAXIS, LLC, 2024 NCBC Order 25 (N.C. Super. Ct. Mar. 12, 2024) (Earp, J.)
Key Terms: receiver; compensation; stay pending appeal; substantial right; N.C.G.S. § 1-294
The Court entered this order sua sponte to address the procedural posture of the case following IOMAXIS’s appeal of the Court’s Order on Receiver’s Application for Interim Compensation to Receiver and Counsel (the “Fee Order”), along with eight other interlocutory orders. IOMAXIS contended that a substantial right has been impacted because the Fee Order requires the immediate payment of a significant sum ($6,025.00) and that absent a stay of the Fee Order pending appeal, it is unclear whether IOMAXIS would be able to recoup the funds if the Supreme Court determines that the appointment of a receiver was improper.
The Court concluded that a stay of the Fee Order during the appeal was not appropriate. The attempted appeal was a nullity because IOMAXIS had failed to show a substantial right would be lost if the Fee Order was not reviewed before final judgment. The Court also acknowledged the Receiver’s policy arguments and agreed that permitting a party subject to a receivership to use an interlocutory appeal to delay the receiver’s compensation would jeopardize the receiver’s neutrality and discourage qualified individuals from accepting the assignments.
As for the other eight orders appealed, IOMAXIS had argued that the issues in those orders were “inextricably intertwined” with the issue regarding the Fee Order. However, since the Court determined that the appeal of the Fee Order was ineffective, so too was IOMAXIS’s attempt to appeal the other orders.
For these reasons, the Court held that N.C.G.S. § 1-294 did not stay the action pending the appeal. The Court also declined to exercise its discretion to issue a stay; however, to address IOMAXIS’s concern that the funds paid to the Receiver would be lost, the Court amended the previous Receiver Order to require Plaintiffs to post a bond with the clerk in the initial amount of $200,000.
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