N.C. Business Court Opinions, July 3, 2024 – July 16, 2024
By: Ashley Oldfield and Jack Reynolds
Atl. Coast Conf. v. Clemson Univ., 2024 NCBC 44 (N.C. Super. Ct. July 10, 2024) (Bledsoe, C.J.)
Key Terms: motion to stay; first-filed; sovereign immunity; waiver; personal jurisdiction; declaratory judgment; justiciable controversy; implied covenant of good faith and fair dealing; fiduciary duty
Following the initiation of litigation between the Atlantic Coast Conference (a North Carolina nonprofit association) and Florida State University in both North Carolina (the “FSU Action”) and Florida regarding the validity of certain Grant of Rights Agreements between the ACC and its members, Clemson University filed suit against the ACC in South Carolina seeking a declaration regarding, inter alia, the scope of the Grant of Rights Agreements (the “South Carolina Action”). The ACC filed the present suit against Clemson the following day. Two weeks later, the Court entered an order in the FSU Action (the “FSU Order,” summarized here) dismissing the ACC’s breach of fiduciary duty claim, but otherwise denying FSU’s motion to dismiss, including FSU’s argument that the Court lacked personal jurisdiction over FSU on sovereign immunity grounds, and denying FSU’s motion to stay. Clemson then moved to dismiss the present action under Rules 12(b)(1), 12(b)(2), and 12(b)(6), contending that it was situated differently from FSU and thus the claims and arguments in the FSU Action had “little bearing on this case.” Clemson also moved to stay the case in favor of the South Carolina Action.
Lack of Personal Jurisdiction. Clemson argued that the Court lacked personal jurisdiction because Clemson was entitled to, and had not waived, sovereign immunity in North Carolina. As in the FSU Order, the Court concluded that although Clemson was entitled to sovereign immunity, it had explicitly waived such immunity in North Carolina by choosing to remain a member of the ACC after the ACC became subject to the Uniform Unincorporated Nonprofit Association Act and its sue and be sued clause in 2006 and by engaging in extensive commercial activity in North Carolina. Accordingly, the Court denied the motion to dismiss for lack of personal jurisdiction.
Lack of Subject Matter Jurisdiction. Clemson next argued that the ACC’s two declaratory judgment claims should be dismissed because they did not present an actual and justiciable controversy. The Court agreed in part. Because the South Carolina Action did not challenge the enforceability or validity of the Grant of Rights Agreement, but instead only sought a declaratory judgment regarding the scope of the rights granted, no current controversy existed as to the validity and enforceability of the Grant of Rights Agreement. Thus, the declaratory judgment claims were dismissed to the extent they sought a declaration regarding the enforceability of the Grant of Rights Agreement.
Failure to State a Claim.
Breach of the Grant of Rights Agreements. The ACC alleged that Clemson’s filing of the South Carolina Action violated the Grant of Rights Agreement on three bases, each of which the Court rejected. First, the Court determined that the South Carolina Action did not violate the warranty provision of the Grant of Rights Agreements because the warranty provision only prohibited ACC Members from taking any action that would affect the validity and enforcement of the granted rights, but the South Carolina Action only sought to determine the meaning of a disputed term. Second, the South Carolina Action did not challenge the “irrevocability” or “exclusivity” of the Grant of Rights Agreements but instead sought a determination of the scope of the rights. Third, since no breach of contract claim arose from Clemson’s filing of the South Carolina Action, any claim for breach of the implied covenant of good faith and fair dealing based on the same acts failed as well.
Breach of Implied Covenant of Good Faith and Fair Dealing. The ACC alleged that Clemson’s filing of the South Carolina Action also violated its implied duties under the ACC’s Constitution and Bylaws. The Court dismissed the claim concluding that the South Carolina Action simply sought to clarify the scope of the ACC’s rights but did not seek to interfere with those rights.
Fiduciary Duties. The ACC sought a declaration that Clemson owes fiduciary duties to the ACC under the ACC’s Constitution and Bylaws and under North Carolina law. However, because the allegations pleaded in support of this claim were substantively identical to those pleaded in the FSU Action, the Court dismissed the claim for the same reasons as stated in the FSU Order—namely, that no de jure fiduciary duty existed as a matter of law and that the ACC had failed to plead the existence of a de facto fiduciary duty.
Motion to Stay. The Court denied Clemson’s motion to stay the case, concluding that the continuation of the action would not work a substantial injustice upon Clemson. The Court gave substantial weight to the “practical considerations” presented by this action, along with the other pending actions—namely, that only a North Carolina court had jurisdiction over all three parties to the pending actions (FSU, Clemson, and the ACC), and thus only a North Carolina court could assure a uniform interpretation of the Grant of Rights Agreements at issue in each pending action.
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Ur-Rehman v. KT Fin. LLC, 2024 NCBC Order 41 (N.C. Super. Ct. July 3, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; N.C.G.S. § 7A-45.4(a)(1); collection action; promissory note; piercing the corporate veil
Plaintiffs Ur-Rehman and Zaara Investments LLC sued Defendants on June 21, 2024, asserting claims for payment on a promissory note, money had and received, and piercing the corporate veil. Plaintiffs filed a Notice of Designation on the same day contending that designation was proper under N.C.G.S. § 7A-45.4(a)(1), which allows for designation if the action involves a material issued relating to the law governing corporations, partnerships, and LLCs. Plaintiffs alleged that a promissory note held by Ur-Rehman has matured, and that Defendants have used a complex corporate structure to shield assets which would otherwise be available to repay the promissory note.
The Court determined that the case did not qualify for designation under N.C.G.S. § 7A-45.4(a)(1), because a claim for piercing the corporate veil is insufficient on its own to support mandatory designation.
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BITCO Gen. Ins. Corp. v. SAS Retail Servs. LLC, 2024 NCBC Order 42 (N.C. Super. Ct. July 3, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; untimely designation; N.C.G.S. § 7A-45.4(a)(1)
Plaintiffs filed a complaint against Defendant on July 1, 2024, but did not file a Notice of Designation until the following day. N.C.G.S. § 7A-45.4(d) requires that a Notice of Designation be filed contemporaneously with the complaint. Thus, the complaint was not properly designated as a complex business case. Furthermore, even if the Notice of Designation was timely filed, Plaintiffs made claims only for indemnification and contribution, which do not pertain to the law governing corporations, partnerships, or limited liability companies.
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Trail Creek Invs. LLC v. Warren Oil Holding Co., 2024 NCBC Order 43 (N.C. Super. Ct. July 5, 2024) (Davis, J.)
Key Terms: discovery referee; BCR 10.9; Rule 53
As previously summarized here, Plaintiff Trail Creek brought suit against Defendant after discovering serious environmental compliance issues which were not disclosed prior to Plaintiff’s purchase of Warren Oil. Upon the parties’ joint consent motion for appointment of a discovery referee and due to the large number of discovery disputes between the parties, the Court appointed Alan W. Duncan of Turning Point Litigation as the Discovery Referee under N.C. R. Civ. P. 53. The Discovery Referee was granted the authority to oversee and resolve discovery disputes, direct and supervise compliance with discovery orders, interpret discovery agreements, and otherwise facilitate the discovery process. Finally, the Court directed the Discovery Referee to schedule the first meeting of the parties within 20 days, and to produce a report to be filed on the Electronic Case Filing docket within seven days of the briefing or hearing of any disputes.
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Stein v. HCA Mgmt. Servs., LP, 2024 NCBC Order 44 (N.C. Super. Ct. July 9, 2024) (Earp, J.)
Key Terms: motion to intervene; emergency medical services; asset purchase agreement; hospital system; Rule 24; attorney general
In January 2019, Defendant HCA acquired Mission Health, a hospital system in western North Carolina, pursuant to an Asset Purchase Agreement which set forth HCA’s obligations regarding the continuation of certain medical services until 2029. In December 2023, the N.C. Attorney General filed suit alleging that HCA failed to provide adequate emergency, trauma, and oncology services as required by the APA. Buncombe County subsequently moved to intervene and submitted a proposed complaint seeking damages and equitable relief arising from the allegedly excessive wait times its EMS crews have experienced. Defendants opposed intervention.
Intervention as of Right. The Court concluded that intervention as of right was not warranted because the County had failed to show a direct interest in the suit. The County’s claims for past wages due to increased wait times would exist regardless of the existence of the APA and the County’s general interest in safe healthcare was insufficient to require intervention in the AG’s enforcement action. The Court also saw no merit in the County’s argument that the AG did not adequately represent its interest based on speculation that the AG’s office might not continue the action after the current AG left office.
Permissive Intervention. The Court also declined to allow permissive intervention because 1) although there was some overlap of facts regarding wait times, the AG’s action was much broader; 2) intervention would require additional discovery and motion practice, delay the case, and increase HCA’s litigation burden; and 3) the County’s jury demand conflicted with the APA’s provision for a bench trial.
Accordingly, the County’s motion to intervene was denied.
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Worley v. Ormond, 2024 NCBC Order 45 (N.C. Super. Ct. July 11, 2024) (Robinson, J.)
Key Terms: motion for appointment of receiver; injunctive relief; N.C.G.S. §§ 1-507.20; N.C.G.S. § 55-14-32
As summarized here, Plaintiffs, the minority shareholders of the Ormond Companies, brought suit against Ormond, the majority shareholder, challenging certain of Ormond’s actions and asserting claims for breach of fiduciary duty and judicial dissolution. Here, Plaintiffs moved for appointment of a general receiver and for injunctive relief enjoining Ormond from creating new entities in the fuel distribution business until the litigation is resolved.
Injunctive Relief. The Court denied the motion for an injunction because Plaintiffs failed to cite any controlling authority or present any record evidence in support of their motion and therefore failed to meet their burden of showing that threatened or impending harm would occur absent an injunction.
Receivership. The Court concluded that a limited receiver for an initial four-week term was appropriate based upon the parties’ disputes regarding 1) Ormond’s willingness to produce the Ormond Companies’ financial records; 2) Ormond’s alleged use of company funds for personal use; and 3) the Ormond Companies’ ability to continue doing business. The receiver was directed to investigate and report weekly to the Court regarding the financial records and status of the Ormond Companies, specified transactions, and Ormond’s alleged self-dealing, among other things. The management of the Ormond Companies remained vested with the Plaintiffs and Ormond; however, they were directed to assist and cooperate in the receiver’s duties.
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Guiliano v. Strickland, 2024 NCBC Order 46 (N.C. Super. Ct. July 16, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; N.C.G.S. § 7A-45.4(a)(5), (a)(8), and (b)(2); motion to transfer; equitable distribution
Plaintiff Guiliano has been involved in related litigation with several of the Defendants in this action for the past two years, including a case currently pending before the Business Court and an equitable distribution action related to his divorce from Defendant Strickland pending in Orange County District Court. On April 5, 2024, Guiliano filed this action in Orange County District Court asserting a claim for equitable distribution against Strickland and claims for declaratory relief, fraudulent conveyance, unjust enrichment, and injunctive relief against Strickland and one or more other Defendants. Shortly after, Guiliano initiated a related suit in Orange County Superior Court, asserting a number of claims against mostly the same defendants as here. That action has since been designated to the Business Court. In the present action, Defendant Goodwin Proctor moved to transfer all but the equitable distribution claim to the Superior Court division and filed a Notice of Designation. Goodwin Proctor asserted that designation was proper under N.C.G.S. § 7A-45.4(a)(5), (a)(8), and (b)(2). However, because the District Court division has exclusive jurisdiction over equitable distribution claims, the Court concluded that it was unable to transfer the action to the Superior Court division to resolve the motion to transfer. The Court noted that its ruling was without prejudice to the right of any other party to seek designation should the District Court sever the equitable distribution claim from the remaining claims.
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