N.C. Business Court Opinions, January 3, 2024 – January 16, 2024
BIOMILQ, Inc. v. Guiliano, 2023 NCBC 91A (N.C. Super. Ct. Jan. 9, 2024) (Robinson, J.)
Key Terms: Rule 12(b)(5); amended order; dismissal without prejudice
As summarized here, the Court previously entered an order granting Counterclaim-Defendants’ motions to dismiss pursuant to Rule 12(b)(5). The Court entered this amended order to clarify three things: 1) that the dismissals were without prejudice; 2) that the Court had not considered affidavits of service filed after full briefing and a hearing on the motions; and 3) to correct the date of the hearing.
Johnson v. Everett, 2024 NCBC 1 (N.C. Super. Ct. Jan. 5, 2024) (Davis, J.)
Key Terms: motion for judgment on the pleadings; Rule 12(c); fraud; quantum meruit; constructive fraud; conspiracy
Defendant Brian Estes filed a Motion for Judgment on the Pleadings as to the claims against him for quantum meruit, constructive fraud, conspiracy, and fraud. Generally, Plaintiffs alleged that Defendants engaged in a scheme whereby Plaintiffs invested in Defendants’ company that was seeking a patent for a stair box system and then, using Plaintiffs’ investments and other assets of the first company, formed a separate company, to the exclusion of Plaintiffs, and when the patent was granted, assigned the patent for the product to the new company. Defendant Estes assisted in the formation of the second, competing company and was allegedly involved in its operations that took place to the detriment of the company Plaintiffs invested in.
Fraud: The Court dismissed with prejudice Plaintiffs’ fraud claim against Estes as Plaintiffs conceded at the hearing that their allegations were insufficient to state a valid claim for fraud against Estes.
Quantum Meruit: The Court dismissed with prejudice this claim as well because Plaintiffs’ allegations failed to meet the first required element of a claim for quantum meruit – that Plaintiffs rendered services to Estes.
Constructive Fraud: The Court also dismissed with prejudice the constructive fraud claim because Plaintiffs did not allege the existence of a de jure fiduciary relationship between them and Estes and the allegations in the complaint could not reasonably be construed as asserting the existence of a de facto fiduciary relationship either.
Conspiracy: With respect to Estes, Plaintiffs alleged that he joined the other Defendants’ conspiracy shortly after the new, competing company was formed, agreed to participate in the unlawful conduct of Defendants thereafter, and did participate in such unlawful conduct by sending an email to Plaintiffs explaining their options related to the failure of their investments in the original company. Estes argued that the purpose of the conspiracy (using Plaintiffs’ money to form the competing company) was accomplished before he became involved with Defendants and therefore, he cannot be liable for any such conspiracy. While the Court found that Plaintiffs’ conspiracy allegations were “not a model of specificity,” they were nevertheless, sufficient to allow the conspiracy claim against Estes to go forward. The Court therefore denied Estes’ motion as to Plaintiffs’ civil conspiracy claim.
Live Oak Banking Co. v. Mafic USA LLC, 2024 NCBC Order 2 (N.C. Super. Ct. Jan. 3, 2024) (Conrad, J.)
Key Terms: claim objections; receivership; receivership estate; N.C. Commercial Receivership Act; Bankruptcy Code; proof of claim
Following the appointment of a Receiver over Defendant Mafic to oversee an orderly liquidation process, the Receiver objected to nine creditors’ proofs of claims. The Court looked to the Bankruptcy Code as an instructive guide for the framework related to the presentation of evidence and burden of proof necessary to determine the reasonableness or validity of a claim accepted or rejected by a Receiver. The Court determined that all of the challenged claims against Mafic arose under contract law and therefore that the claimants bore the burden of proving the existence and breach of a valid contract by a preponderance of the evidence.
AFC Worldwide Express Inc.: AFC claimed that Mafic owed it $13,045.57 for freight services, but only attached an account statement listing dates and amounts of invoices, but not the invoices themselves, to its proof of claim. The Receiver submitted evidence that Mafic never received the invoices or purchased goods or services from AFC on the dates listed on the account statement. AFC did not appear at the hearing and the Court found that the Receiver successfully rebutted the proof of claim, sustained his objection, and disallowed AFC’s claim.
Alvaro Ruiz Emparanza: Ruiz, a former employee of Mafic, claimed that Mafic owed him $99,875.00 in bonus payments based on an alleged employment contract. Based on the language of the document, entitled an “Employment Proposal Letter,” the Receiver argued and the Court agreed that the document was an unenforceable agreement to agree and Ruiz did not carry his burden to establish the existence of a valid contract. The Court disallowed his claim.
CP Metal Crafters, Inc.: CP Metal Crafters claimed that Mafic owed it $54,548.76 for goods sold and the Receiver conceded that Mafic owes $31,297.50 in unpaid invoices but objected that it had no record of invoices above that amount. CP Metal Crafters did not appear at the hearing or offer evidence in response to the objection. The Court sustained the Receiver’s objection, allowing an unsecured claim for $31,297.50, and disallowing the remainder of the claim.
JEC Group: JEC Group claimed that Mafic owed it €15,096.80 for cancelling Mafic’s planned participation in a trade show in 2023. The Court found that the terms of the relevant contract stated it would only become effective upon JEC Group’s receipt of a down payment from Mafic and the Receiver presented evidence that Mafic never made such a down payment. JEC Group did not appear at the hearing or offer evidence to show that a valid contract existed between it and Mafic. As a result, the Court disallowed the claim in its entirety.
Metallix Refining Inc.: Metallix Refining claimed that Mafic failed to pay two invoices—one totaling $1,850 and the other $1,400—for goods and shipping charges, but the Receiver offered evidence, which Metallix Refining failed to dispute, that Mafic only received the $1,400 invoice. The Court found that the Receiver rebutted Metallix Refining’s claim, sustained his objection, allowed an unsecured claim for $1,400, and disallowed the remainder of the claim.
Pitney Bowes Inc.: Pitney Bowes claimed that Mafic owed it $1,091.50 arising from its rejection of an equipment lease, and attached an account statement but failed to attach the lease to its proof of claim. The Receiver offered evidence from Mafic’s records to show that it owed only $195.25 in unpaid invoices to Pitney Bowes, which the creditor did not rebut. The Court sustained the Receiver’s objection, allowed an unsecured claim for $195.25, and disallowed the remainder of the claim.
R+L Carriers, Inc.: In support of its claim, R+L Carriers attached four invoices for $15,342.34 for freight services performed for Mafic. The Receiver objected that Mafic owes only $2,200.05 and presented invoices at the hearing showing that R+L Carriers gave Mafic a discount on each charge so that the total amount due is only $2,200.05. R+L Carriers did not appear at the hearing or present additional evidence in response to the objection. The Court concluded that the Receiver rebutted the claim, sustained his objection, allowed an unsecured claim for $2,200.05, and disallowed the remainder of the claim.
Université de Sherbrooke: Sherbrooke submitted a proof-of-claim form stating that Mafic owes a substantial sum under a research agreement, but Sherbrooke’s agreement was with “Mafic Inc.”—not Mafic USA. At the hearing, the Receiver represented that officials of Sherbrooke acknowledged the mistaken identity and agree with his objection. The Court sustained the objection and disallowed the claim.
Electric Glass Fiber America, LLC: EGFA submitted a claim for $73,864.24 four days after the deadline to submit claims and the Court disallowed it as untimely.
Chi v. N. Riverfront Marina & Hotel LLLP; Feng v. N. Riverfront Marina & Hotel LLLP, 2024 NCBC Order 3 (N.C. Super. Ct. Jan. 5, 2024) (Earp, J.)
Key Terms: motion for leave to withdraw; failure to communicate with counsel; failure to pay attorneys’ fees; financial hardship; North Carolina Rule of Professional Conduct 1.16; justifiable cause; foreign language; conditional withdrawal; procedural protections
Plaintiffs’ counsel initially filed a motion for leave to withdraw from the representation of six Plaintiffs, who are all Chinese nationals. In the motion, Plaintiffs’ counsel maintained that withdrawal was appropriate pursuant to North Carolina Rule of Professional Conduct 1.16 because the Six Plaintiffs had both failed to communicate with counsel and to pay their attorneys’ fees, and that continued representation would lead to unreasonable financial hardship. Plaintiffs’ counsel subsequently filed a second motion to withdraw from representation of all Plaintiffs relying on the same arguments as in their first motion to withdraw. Defendants opposed the motion citing Plaintiffs’ lack of fluency in English, failure of Plaintiffs’ counsel to ensure that substitute counsel had been retained, and concern over delays in the litigation. Five Plaintiffs consented to the withdrawal of counsel and four of those five subsequently settled with the Defendants.
Although the Court found that justifiable cause for Plaintiffs’ counsel to withdraw existed and that Plaintiffs’ counsel gave reasonable notice of withdrawal to the Plaintiffs, the burden on Defendants and the Court of allowing Plaintiffs’ counsel to withdraw without procedural protections in place would be unreasonable. Therefore, the Court conditioned Plaintiffs’ counsel’s withdraw upon “assurances that each Plaintiff (1) is able to communicate with opposing counsel and the Court (including, if necessary, by having access to a translator at their cost), (2) understands his/her obligations pursuant to the North Carolina Rules of Civil Procedure, the Case Management Order, and the Court’s Rules, (3) has an account on the Court’s electronic filing system and is able to serve and be served with pleadings and to receive electronic notices from the Court, and (4) understands his/her obligation to provide and maintain with the Court reliable contact information.” In addition, given that the deadline to complete fact discovery was near, counsel’s withdrawal would not be permitted until fact discovery had been completed.
Rockingham Cnty. v. NTE Energy, LLC, 2024 NCBC Order 4 (N.C. Super. Ct. Jan. 8, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; opposition; law governing corporations, LLCs, partnerships; N.C.G.S. 7A-45.4(a)(1); amended complaint; piercing the corporate veil; joint enterprise
Defendants filed a notice of designation of action as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(1) after Plaintiff Rockingham County amended its original complaint to include numerous additional claims against Defendants. The County opposed designation arguing that designation was improper because its claims did not assert complex questions involving the law governing corporations and because any corporate law allegations of the amended complaint were ancillary to the material issues in the case.
The Court disagreed because the complexity of the case had no bearing on the propriety of designation, and the allegations implicating the law governing corporations, LLCs, or partnerships, including piercing the corporate veil, were not ancillary issues. Citing an array of allegations from the Plaintiff’s amended complaint, the Court found that the “law governing corporations, partnerships, and LLCs is material to the issue of which Defendant entity (or entities) is liable to the County for the misconduct alleged.” The Court also noted that because the County is master of its complaint and chose to amend its complaint to include issues involving the law governing corporations, partnerships, and LLCs, it must accept the consequence that the action now qualified for designation. The Court overruled the County’s opposition to designation.
Potts v. Steel Tube, Inc. 2024 NCBC Order 5 (N.C. Super. Ct. Jan. 12, 2024) (Conrad, J.)
Key Terms: charging order; judgment creditors; Board of CPA Examiners; involuntary transfer of ownership interest
Following entry of a judgment in favor of Judgment Creditors, the Court issued an order in July 2020 charging Defendant Rives’ ownership interest in Rives & Associates, LLP (“R&A”) and several other entities with the unsatisfied amount of the judgment. In Rives’ discovery responses leading up to entry of the charging order, Rives stated that there had been discussions regarding the cancellation or repurchase of his ownership interests in R&A but that no transfer of ownership had occurred. Long after entry of the charging order, the Judgment Creditors learned that Rives had, pursuant to an Involuntary Agreement, surrendered his interest in R&A due to his suspension by the N.C. Board of Certified Public Accountant Examiners and that he claimed to have received no consideration for said transfer and that the transfer had occurred prior to entry of the charging order. Believing that the Involuntary Agreement was a sham designed to conceal the transfer of Rives’ interest to his wife, Judgment Creditors moved to enforce the charging order and for an order appointing a receiver and directing Rives and R&A to appear and show cause why they should not be held in civil contempt.
Despite some discrepancies regarding the date the Involuntary Agreement was entered into, the Court found that the Involuntary Agreement had been finalized prior to entry of the charging order. Therefore, since the charging order charged an interest that Rives did not actually possess, and the evidence showed that Rives had not received any payments on account of that interest after entry of the charging order, Rives had not violated the charging order. Further, while Rives may have subsequently made false statements to the IRS and NCDOR regarding his status with R&A, such statements were not a violation of the charging order. Finally, to the extent Judgment Creditors sought to have the transfer set aside as fraudulent, the proper remedy was to bring a civil action under the Uniform Voidable Transactions Act.
Nevertheless, based on Rives’ previous lack of candor, the Court found it appropriate to enter an order enjoining Rives from transferring or otherwise disposing of his ownership interests in the other entities subject to the charging order.
Bui v. Phan, 2024 NCBC Order 6 (N.C. Super. Ct. Jan. 12, 2024) (Bledsoe, C.J.)
Key Terms: order on designation; N.C.G.S. § 7A-45.4(a)(1); breach of operating agreement; law governing LLCs
Plaintiff filed suit alleging that she and Defendant Phan are 50/50 member-managers of Defendant Golden Rooster, LLC, and that while she and Phan were negotiating the buyout of her membership interest, Phan took several unilateral actions on behalf of Golden Rooster which violated its operating agreement. Plaintiff asserted a claim for breach of the operating agreement and sought a judicial declaration that Phan is subject to expulsion from membership in Golden Rooster pursuant to the operating agreement. Plaintiff filed a notice of designation, contending that designation as a mandatory complex business case is proper under N.C.G.S. § 7A-45.4(a)(1), which provides for designation in actions involving a material issue related to disputes involving the law governing LLCs.
The Court determined that the action should not proceed as a mandatory complex business case as the resolution of Plaintiff’s asserted claims required only a straightforward application of contract law principles.
James H.Q. Davis Tr. v. JHD Props., LLC, 2024 NCBC Order 7 (N.C. Super. Ct. Jan. 16, 2024) (Bledsoe, C.J.)
Key Terms: stay pending appeal; sua sponte order; summary judgment; judicial dissolution; N.C.G.S. § 1-294; N.C.G.S. § 7A-27; appeal from final order of Business Court; North Carolina Supreme Court; North Carolina Court of Appeals
As summarized here, the Court previously entered an Order granting Plaintiffs’ motion for summary judgment, denying Defendant’s motion for summary judgment, and entering summary judgment for Plaintiffs on their claim for judicial dissolution. Thereafter, Defendant filed a notice of appeal of the Order to the N.C. Court of Appeals. After the Court noticed a status conference to discuss the process for dissolution and winding up, Defendant contended that as a result of the appeal, further proceedings in the trial court were stayed pursuant to N.C.G.S. § 1-294. Plaintiffs responded that Defendant’s failure to timely file an appeal with the N.C. Supreme Court, as required by N.C.G.S. § 7A-27, rendered the appeal without legal effect and therefore the Court retained jurisdiction to proceed with dissolution.
The Court agreed with Plaintiffs. The Court of Appeals lacks jurisdiction over appeals from orders of the Business Court because such appeals must be brought in the Supreme Court. Accordingly, Defendant’s appeal to the Court of Appeals was without legal effect, subject to dismissal, and was not and could not be perfected. Additionally, since the time for Defendant to file its appeal of the summary judgment order expired without Defendant filing an appeal in the proper court, Defendant had not and could not belatedly perfect a newly filed appeal in the Supreme Court. Therefore, the Court found it was not divested of jurisdiction, the stay provisions of section 1-294 did not apply, and the Court could proceed to consider the dissolution of the two defendant LLCs at issue.
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