N.C. Business Court Opinions, January 17, 2024 – January 30, 2024
Cardiorentis AG v. IQVIA Ltd., 2024 NCBC 2 (N.C. Super. Ct. Jan. 18, 2024) (Conrad, J.)
Key Terms: N.C.G.S. § 1-75.12; inconvenient forum; stay; administrative dismissal
Shortly after Plaintiff filed suit in 2018, Defendants moved to stay the case under N.C.G.S. § 1-75.12(a) arguing that North Carolina was an inconvenient forum and that Plaintiff’s claims should be litigated in England. The Court granted the stay and the parties litigated their dispute in England, resulting in a final judgment in 2022. Defendants then moved to dismiss the complaint administratively under section 1-75.12(b), which provides that the “jurisdiction of the court continues for a period of five years from the entry of the last order affecting the stay.” Since no orders had been entered modifying the stay since it was entered more than five years ago, and the Plaintiff had not responded to Defendants’ motion to dismiss, the Court granted the motion and dismissed all claims.
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CTS Metrolina, LLC v. Berastain, 2024 NCBC Order 8 (N.C. Super. Ct. Jan. 19, 2024) (Earp, J.)
Key Terms: preliminary injunction; restrictive covenant; non-compete; asset purchase agreement; material breach; prior pending action doctrine; arbitration; blue-pencil rule; look-back rule
In 2022, Defendants Berastain and Moreau sold the assets of their company to CTS Metrolina in exchange for $3.6 million and minority non-voting interests in CTS Metrolina and were promised an Earnout Payment and a true up of working capital. They also accepted co-president positions with CTS Metrolina and signed employment agreements and restrictive covenants. The following year, Berastain and Moreau sued CTS Metrolina seeking to invalidate the acquisition; however, that lawsuit was stayed pending arbitration. After Berastain’s and Moreau’s employment with CTS Metrolina ended, CTS Metrolina filed suit against them and moved for a preliminary injunction enjoining them from violating their restrictive covenants based upon allegations that they were involved in a competing business.
Defendants challenged the Court’s jurisdiction arguing that 1) the parties had agreed to arbitrate claims related to the restrictive covenants and 2) any injunctive relief should be sought in the prior pending lawsuit. The Court disagreed. Although the APA and the employment agreements contained arbitration provisions, those provisions gave way to the restrictive covenants which specified that CTS Metrolina could seek enforcement of the restrictive covenants “by any court having jurisdiction.” In addition, the prior pending action doctrine did not apply because the two actions involved different parties, issues, and relief.
Defendants also argued that they were relieved from their obligations under the restrictive covenants because CTS Metrolina had breached the APA by not paying them the Earnout Payment or the working capital true up. However, the Court was unable to conclude that this conduct was a material breach going to the very heart of the APA sufficient to excuse Defendants from their obligations under the restrictive covenants.
Turning to the request for a preliminary injunction, the Court first determined that a five-year restrictive period (or even a six-year period if the look-back rule applied) was not unreasonable in the context of the sale of a business involving sophisticated parties dealing at arms-length. Next, the Court determined that the noncompetition covenant had been drafted such that the Court could blue pencil and refuse to enforce any overbroad geographic provisions and that the remaining restricted territory was not unreasonable. Finally, the Court concluded that, based on the evidence presented, CTS Metrolina was likely to succeed on its claim that the individual Defendants had violated one or more of the restrictive covenants. Accordingly, the Court granted the motion and enjoined the individual Defendants (and their agents) from further violations of the restrictive covenants.
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Brakebush Bros., Inc. v. Certain Underwriters at Lloyd’s of London – Novae 2007 Syndicate Subscribing to Pol’y No. 93PRX17F157, 2024 NCBC Order 9 (N.C. Super. Ct. Jan. 22, 2024) (Davis, J.)
Key Terms: discovery violation; untimely production; eve of trial; Rule 37; sanctions; attorneys’ fees; adverse inference instruction
As summarized here and here, this suit involves a dispute between Plaintiffs and a number of insurance companies over the amount of insurance proceeds payable under excess insurance policies issued by Defendants following a fire that occurred at a chicken plant. The case proceeded through discovery and motions practice and was scheduled for trial in late January 2024. The day before the parties were to exchange trial exhibit lists, Plaintiffs produced, for the first time, two sets of materials, including extensive handwritten notes by an executive of Plaintiff Brakebush and a cache of photos and videos. Following a status conference, Defendants moved for sanctions for discovery violations and the Court canceled the trial, to be rescheduled at a later date.
The Court denied Defendants’ requests to bar Plaintiffs from using the documents at trial and to give an adverse inference jury instruction. The documents were highly relevant to the key issues in the case and therefore should be allowed to be offered as evidence. In addition, an adverse inference instruction was not appropriate because the documents had not been destroyed. However, the Court granted Defendants’ requests for an order allowing them to conduct additional discovery regarding the documents and awarding their reasonable attorneys’ fees incurred from the motion for sanctions and from the subsequent discovery. Additional discovery was needed to ameliorate any prejudice caused to Defendants by the late production and monetary sanctions were appropriate under Rule 37 as the untimely production was not substantially justified.
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Howard v. IOMAXIS, LLC, 2024 NCBC Order 10 (N.C. Super. Ct. Jan. 25, 2024) (Earp, J.)
Key Terms: limited receiver; economic interest; fraud; rights adversely affected
As summarized here, this action involves a dispute between the Ronald E. Howard Revocable Trust (a purported 51% economic interest holder in IOMAXIS) and the IOMAXIS members regarding the Trust’s right to the economic benefits from its interest. Following discovery, the Trust moved for the appointment of a receiver, based on allegations that the IOMAXIS Defendants had formulated and were actively implementing a plan to transfer assets, disguise distributions paid to other interest holders, and dilute the Trust’s economic interest.
The Court granted the motion and appointed the Finley Group as limited receiver for IOMAXIS. A receiver was necessary and appropriate based on evidence that 1) the IOMAXIS Defendants had set up a new entity to take control of IOMAXIS and had exchanged their interests in IOMAXIS for like interests in the new entity; 2) the new entity had sold IOMAXIS’s assets without accounting for the proceeds; 3) the IOMAXIS Defendants had plans to develop additional entities to move more of IOMAXIS’s assets; and 4) the IOMAXIS Defendants had converted their capital accounts in IOMAXIS to loans so they (but not the Trust) could receive “repayments” rather than distributions. This evidence combined with the IOMAXIS Defendants’ adamance that Plaintiffs were not entitled to review financial information and their disregard for the Trust generally was sufficient for the Court to conclude that the Plaintiffs had shown a reasonable likelihood of success on their fraud-based claims and that their rights in the assets of IOMAXIS may be adversely impacted during the suit. The receiver was directed to, among other things, review IOMAXIS’s books and records, investigate any planned or actual transfers of IOMAXIS’s assets, identify any entities formed by the IOMAXIS Defendants, and ascertain the terms of any agreement between IOMAXIS and the newly created entity.
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Miller v. RedGoose, L.L.C., 2024 NCBC Order 11 (N.C. Super. Ct. Jan. 30, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; opposition; counterclaim; N.C.G.S. § 7A-45.4(a)(5); intellectual property
Defendant RedGoose filed a notice of designation of action as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(5) based on its counterclaims for fraud, conversion, tortious interference with contract, and unfair and deceptive trade practices. Plaintiff opposed designation arguing that designation was improper because the counterclaims did not involve intellectual property and because the allegations in the counterclaims were false.
The Court overruled Plaintiff’s opposition to designation. First, each of the counterclaims was based on Plaintiff’s alleged misuse of RedGoose’s software, IT systems, and client data and data security, which satisfied the statutory requirement of a dispute involving the use of intellectual property. The fact that the words “intellectual property” were not used in the counterclaims was irrelevant since the Court assesses designation based not only on the claims asserted but also on the underlying factual allegations. Second, Plaintiff’s challenge to the truthfulness of the allegations was misplaced and premature because allegations in the subject pleading are accepted as true for the purposes of determining whether a case qualifies for mandatory complex business designation. Accordingly, the Court did not consider the affidavits proffered by the parties in opposition to and in support of designation.
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