N.C. Business Court Opinions, July 19, 2023 – August 1, 2023
Chi v. N. Riverfront Marina & Hotel LLLP; Feng v. N. Riverfront Marina & Hotel, LLLP, 2023 NCBC 47 (N.C. Super. Ct. July 27, 2023) (Earp, J.)
Key Terms: partnership; fraud; negligent misrepresentation; N.C.G.S. § 78A-8; statute of limitations; equitable tolling; Rule 9(b); conversion; breach of fiduciary duty; gross mismanagement; breach of contract; unjust enrichment; inspection demand; N.C.G.S. § 59-305; N.C.G.S. § 59-106(b)
After their investments in Defendant NRMH failed to provide the allegedly promised return, Plaintiffs brought suit asserting various claims related to purported misrepresentations. Defendants moved to dismiss all claims.
Fraud, Negligent Misrepresentation, and Violation of N.C.G.S. § 78A-8. The Court determined that, even taking into account the discovery rule, these claims were barred against certain Defendants by a three-year statute of limitation. However, as to other Defendants, the Court found that the statute of limitations had been tolled by equitable estoppel due to these Defendants’ representations which delayed Plaintiffs from filing suit. Nonetheless, the Court dismissed the claims because Plaintiffs failed to specify the misrepresentations made by each Defendant separately and therefore did not satisfy Rule 9(b)’s heightened pleading requirements. The Court also elected to dismiss these claims with prejudice because Plaintiffs had repeatedly failed to cure the deficiencies despite the Court’s directions.
Conversion. The Court determined that a three-year statute of limitations, running from the date the unauthorized exercise of ownership occurred, applied and therefore barred the claims, except as to those Defendants which Plaintiffs had sufficiently pleaded that the statute should be tolled.
Breach of Fiduciary Duty and Gross Mismanagement. The Court held that while NRHM’s general partner owed a de jure fiduciary duty to Plaintiffs, they did not have standing to bring a direct claim against the general partner under either of the Barger exceptions. As for the remaining Defendants, Plaintiffs’ allegations did not sufficiently allege the requisite domination and control to establish a de facto fiduciary duty and thus the claim failed. The Court also dismissed Plaintiffs’ claims of gross mismanagement as Plaintiffs did not have standing.
Breach of Contract. The Court dismissed Plaintiff’s breach of contract claims against those Defendants who were not a party to the contracts. The Court also dismissed the claims to the extent they were contradicted by the complaint’s allegations and exhibits. However, the Court upheld some of Plaintiff’s breach of contract claims and agreed that the statute of limitations should be equitably tolled as to those claims.
Unjust Enrichment. The Court dismissed this claim because the allegations did not fit the claim—Plaintiffs alleged that they provided investment capital to NRMH that was then used by multiple other companies. Since Plaintiffs did not allege that they agreed to the transfers with the expectation of receiving a benefit, the claim failed.
Records Demand. The Court determined that the nine Plaintiffs who had previously sent a demand letter requesting inspection of partnership records had adequately stated a claim for violation of their rights under N.C.G.S. § 59-305 and § 59-106(b).
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Harris v. Ten Oaks Mgmt., LLC, 2023 NCBC 48 (N.C. Super. Ct. July 31, 2023) (Conrad, J.)
Key Terms: summary judgment; contract interpretation; plain meaning; genuine issue of material fact
Under his employment agreement with Defendant Ten Oaks, Plaintiff Harris was entitled to different incentive compensation depending on whether he “sourced” a deal or just assisted with project management. After his employment ended, a dispute arose regarding what compensation Harris was entitled to regarding a particular deal. Plaintiff brought suit for breach of his employment contract and both sides subsequently moved for summary judgment.
The Court denied Harris’s motion as it presented a new theory of the case that had not been pleaded. Moreover, the Court denied Harris’s request to amend the complaint to fit his new theory as a summary judgment brief was not the appropriate means to make such a request and, in any event, the request was untimely.
The Court also denied Ten Oaks’ motion. Although the Court agreed with Ten Oaks regarding the plain meaning of the term “source” in the employment contract at issue (and rejected Harris’s request to inject his subjective understanding into the meaning), the Court determined that there were genuine issues of material fact as to who sourced the deal.
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Weaver, Bennett & Bland, P.A. v. Villmer, 2023 NCBC 49 (N.C. Super. Ct. July 31, 2023) (Robinson, J.)
Key Terms: law firm; fraud; duty of disclosure; breach of contract; consideration; tortious interference with contract; facilitation of fraud; attorney fraudulent practices; N.C.G.S. § 84-13; constructive trust; disgorgement; punitive damages
Defendants are two former partners and officers of Plaintiff Weaver Bennet & Bland, who left WBB and started a competing law firm, taking several of WBB’s attorneys and clients with them. After a dispute arose regarding how the parties would split fees for contingent fee cases worked on by both firms, WBB filed suit. Defendants moved to dismiss several of the claims.
Fraud. The Court found that WBB had adequately alleged claims for fraudulent misrepresentation and fraudulent omission based on the individual Defendants’ failure to disclose their plans to leave the firm. However, the Court dismissed the claim as against the new firm since the complaint did not allege that it had a duty of disclosure to WBB.
Breach of Contract. Defendants argued that WBB’s claim for breach of a contract to split attorneys’ fees should be dismissed because WBB failed to allege valid consideration. The Court, however, determined that the complaint’s allegations did not call into question the issue of consideration and therefore, the Court found it unnecessary to consider it at the 12(b)(6) stage.
Tortious Interference with Contract. The Court denied dismissal of WBB’s claim that Defendants had tortiously interfered with the employment contracts of WBB’s associate attorneys. WBB’s allegations that Defendants met with the associates to convince them to leave WBB was sufficient to allege inducement. Further, the complaint did not reveal any legitimate business purpose for their conduct since Defendants were not outsiders to the employment contracts and were acting for their own benefit.
Facilitation of Fraud. The Court dismissed this claim as it was duplicative of WBB’s civil conspiracy claim.
Attorney Fraudulent Practices under N.C.G.S. § 84-13. WBB sought, under N.C.G.S. § 84-13, to subject Defendants to double damages for its fraud-based claims. The Court, however, determined that the statute governed the relationship between attorneys and clients and was thus inapplicable here.
Remedies. The Court denied dismissal of WBB’s requests for a constructive trust, disgorgement, and punitive damages as those had been properly re-framed as remedies in the amended complaint.
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United Therapeutics Corp. v. Liquidia Techs., Inc., 2023 NCBC Order 36 (N.C. Super. Ct. July 20, 2023) (Earp, J.)
Key Terms: motion to amend; undue prejudice; delay
Over nineteenth months after filing suit, Plaintiff United Therapeutics Corporation moved to amend its complaint to add parties, claims, and factual allegations. Defendants opposed the amendments.
The Court permitted the addition of UTC’s subsidiary as a plaintiff since its addition was not a surprise and would not delay the case. However, the Court rejected the addition of new defendants because UTC did not provide a satisfactory reason for its delay in adding parties it was long aware of and their addition would extend the litigation and unduly prejudice Defendants. For similar reasons, the Court also denied the motion to add claims against Defendant Roscigno, expand the existing UDTPA claim, and add a declaratory judgment claim. However, the Court granted UTC’s motion to add allegations based on recently produced discovery because UTC moved promptly to amend, and the proposed amendments did not fundamentally change the nature of the claims against Defendants.
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Harris v. Ten Oaks Mgmt., LLC, 2023 NCBC Order 37 (N.C. Super. Ct. July 31, 2023) (Conrad, J.)
Key Terms: motion to seal; BCR 5; BCR 7; noncompliance
This order addresses five motions to seal filed in connection with the parties’ motions for summary judgment.
The Court began by addressing the parties’ failures to comply with BCR Rules 5 and 7 regarding motions to seal. First, the parties repeatedly filed the same exhibits despite BCR 7.5’s direction to cite to the docket location of previously filed materials. Second, the parties also filed many of their supporting materials as omnibus electronic files containing groups of documents making it difficult for the Court to review and to seal or unseal filed materials in a targeted way. The Court’s preference is for supporting exhibits to be filed as separate documents attached to a “lead document.” Third, the parties failed to comply with the consultation requirements of BCR 5.2(b)(6) and 7.3 or failed to provide opposing counsel with sufficient time to review. Fourth, the parties did not comply with BCR 5.2’s requirements that adequate non-confidential descriptions of the documents at issue be provided in the motion and that a public version of the provisionally sealed documents with appropriate redactions also be filed.
Turning to the merits of the motions, the Court first determined that Plaintiff’s 2020 bank statements did not warrant sealing in their entirety because the unredacted portions did not reveal sensitive or personal information. Next, the Court considered Defendant’s request to seal documents that it contended contained sensitive business and personal information (including personal email addresses) or that discussed the terms of Plaintiff’s departure from Defendant. The Court concluded that Defendant had failed to meet its burden to show that any of the materials were confidential or that their disclosure would result in harm. As to the email addresses, the Court noted that email addresses are not considered personal identifying information under N.C.G.S. § 132-1.10(d) and Defendant had not provided any authority to the contrary. The Court then determined that several exhibits containing information about a third-party should be sealed for the time-being since they had limited public interest and included information that the third-party may consider confidential.
By: Ashley Oldfield and Grace Kinley
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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.