N.C. Business Court Opinions, May 22, 2024 – June 4, 2024
By: Jack Reynolds and Ashley Oldfield
Merz Pharm., LLC v. Thomas, 2024 NCBC 35 (N.C. Super. Ct. May 22, 2024) (Davis, J.)
Key Terms: motion for partial summary judgment; restrictive covenants; nonsolicitation agreement; asset transfer agreement; change of employer; breach of contract; botulinum toxin
As summarized here, this suit arose from Defendant Andrew Thomas’s alleged breaches of certain restrictive covenants between him and his former employer, Plaintiff Merz Pharmaceuticals. Thomas moved for partial summary judgment on Merz Pharmaceuticals’ breach of contract claim based on his alleged violation of a nonsolicitation provision. Thomas argued that the provision’s one-year period began to run when his employment was transferred from Merz NA (a Merz Pharmaceuticals’ affiliate) when Merz Pharmaceuticals acquired all of Merz NA’s assets through an asset transfer agreement.
The Court has previously held that when an employee’s restrictive covenant is assigned from his original employer to a new employer in conjunction with an asset purchase agreement between the two entities, the clock begins to run immediately upon the termination of his employment with the original employer. However, the Court held that the asset transfer here did not trigger the restrictive covenant because the switch in employers was more akin to an administrative transfer of an employee between two affiliated entities and Thomas’s job had remained substantially the same. Moreover, continuing to apply Thomas’s nonsolicitation provision after the asset transfer would not result in any unfairness to Thomas, nor would it violate the public policy considerations of the Court’s previous decisions. Therefore, the Court denied Thomas’s motion and held that the one-year period of the nonsolicitation covenant began to run as of the date of Thomas’s termination, not the date of the asset transfer.
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Innovare, LTD. v. Sciteck Diagnostics, Inc., 2024 NCBC 36 (N.C. Super. Ct. May, 29, 2024) (Davis, J.)
Key Terms: motion for summary judgment; motion for judgment on the pleadings; Rule 12(c); breach of contract; unjust enrichment; Lanham Act; 15 U.S.C. § 1125(a); unfair and deceptive trade practices; FDA; emergency use authorization; research use only; COVID-19 test strips
As summarized here, this case revolves around disputes regarding a distributor agreement between Innovare and Sciteck involving COVID-19 test strips. Both Innovare and Sciteck moved for partial summary judgment while Innovare also moved for judgment on the pleadings. The Court denied as moot Sciteck’s motion for judgment on the pleadings because its summary judgment motion encompassed the same arguments.
Innovare’s and Sciteck’s Claims for Breach of Contract. The Court held that the distributor agreement, though ambiguous, could not be construed against either party given their mutual contributions to the final agreement. Next, the Court held that, contrary to Innovare’s assertions, Sciteck had not repudiated the distributor agreement because both parties continued to rely on the agreement even after the purported repudiation occurred. Finally, the Court concluded that significant questions of fact remained regarding both parties’ claims for breach of contract which needed to be resolved by a jury. Therefore, the Court denied both parties’ motions for summary judgment as to the breach of contract claims. The Court also denied summary judgment as to both parties’ claims for breach of the covenant of good faith and fair dealing on the same bases.
Innovare’s Unjust Enrichment Claim. Innovare asserted that it had provided services not contemplated by the distributor agreement for Sciteck’s benefit and that Sciteck promised to pay Innovare for those services, but never did so. The Court noted that the existence of a contract did not bar the unjust enrichment claim since the services at issue were extra-contractual. However, since factual disputes remained over whether Sciteck benefitted from the additional services, the Court denied summary judgment.
Sciteck’s Lanham Act Claim. Sciteck’s Lanham Act claim was based on its allegations that Innovare had continued to represent that it was authorized to distribute the product even after its license to do so ended; that Innovare misled consumers into believing that the product was distributed by Sciteck without full FDA approval; that Innovare continued to maintain a website referencing the product; and that Innovare engaged in a “relabeling” or “repackaging scheme.” The Court held that these contentions, if proven, were sufficient to show a violation of the Lanham Act but that genuine issues of fact remained requiring determination by a jury. Accordingly, the Court denied summary judgment.
Innovare’s and Sciteck’s Unfair and Deceptive Trade Practices Claims. The Court granted Sciteck’s motion for summary judgment as to Innovare’s unfair and deceptive trade practices claim because there was insufficient evidence of aggravating circumstances to raise Innovare’s breach of contract claim to a UDTP claim. The Court denied Innovare’s motion for summary judgment as to Sciteck’s unfair and deceptive trade practices claim because it was based on Sciteck’s surviving Lanham Act claim.
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CTS Metrolina, LLC v. Berastain, 2024 NCBC Order 36 (N.C. Super. Ct. May 31, 2024) (Earp, J.)
Key Terms: show cause order; preliminary injunction; civil contempt; N.C.G.S. § 5A-21(a); restrictive covenant agreement; noncompetition provision; property restoration services
As summarized here, the Business Court previously issued a preliminary injunction enjoining Defendants Berastain and Moreau from violating their restrictive covenants by engaging in “the commercial property restoration business.” Thereafter, Plaintiff filed a motion for order to show cause based on its belief that Berastain and Moreau were violating the injunction by continuing to perform restoration work for Defendant Inkwell.
At the show cause hearing, Defendants testified that they understood the preliminary injunction to prohibit their involvement in the restoration of commercial property and, therefore, they had complied with the injunction by only engaging in restoration projects that involved residential properties. Berastain and Moreau also asserted that they were mere laborers in their new roles and did not act in a substantially similar capacity to their previous roles at Metrolina.
Based on the circumstances surrounding the issuance of the preliminary injunction, the Court was extremely skeptical of Defendants’ assertions; however, it was unable to conclude as a matter of law that Berastain’ and Moreau’s noncompliance with the order was willful. Thus, it declined to hold them in civil contempt and instead amended the prior order to make clear that Berastain and Moreau were prohibited from involvement in any property restoration services.
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Daedong-USA, Inc. v. KI Fin., Inc., 2024 NCBC Order 37 (N.C. Super. Ct. June 4, 2024) (Davis, J.)
Key Terms: temporary restraining order; likelihood of success on the merits; voidable transaction; conflict of interest transaction; N.C.G.S. § 55-8-31
Plaintiff, a manufacturer of groundskeeping equipment, filed suit against KI Finance and several of Plaintiff’s former executives, contending that the executives had wrongfully siphoned millions of dollars from Plaintiff through the creation of KI Finance and its eventual takeover of the functions of Plaintiff’s financing department. At issue here is Plaintiff’s motion for a temporary restraining order requiring KI Finance to restore Plaintiff’s access to its payment portal.
The Court denied the motion, concluding that Plaintiff had failed to show a reasonable likelihood of success on the merits of its declaratory judgment claim, which sought a determination pursuant to N.C.G.S. § 55-8-31 that certain agreements between Plaintiff and KI Finance were voidable because the transactions were effectuated by the executives despite their conflict of interest. However, since many of the key allegations of the complaint were alleged upon information and belief and were rebutted by affidavits submitted by Defendants, the Court determined that Plaintiff had not met its burden to show entitlement to a TRO.
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In re Southeastern Eye Center, No. 192A23, 2024 N.C. LEXIS 345, 2024 WL 2338335 (May 23, 2024) (per curiam)
Key Terms: interlocutory appeal; substantial right; lack of appellate jurisdiction; sanctions
Appellant appealed from an interlocutory order of the Business Court but failed to provide the Supreme Court with any basis by which the order affected a substantial right. Accordingly, the Supreme Court dismissed the appeal for lack of jurisdiction. The Supreme Court also noted that this was the fifth time that it had dismissed an appeal filed by appellant for failing to demonstrate grounds for appellate review and that sanctions would be appropriate if appellant continued flouting appellate rules.
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North Carolina Department of Revenue v. FSC II, LLC, No. 150A23, 2024 N.C. LEXIS 340, 2024 WL 2338190 (May 23, 2024) (per curiam)
Key Terms: N.C. Sales and Use Tax Act; Mill Machinery Exemption; hot mix asphalt; manufacturing
As summarized here, the Business Court previously affirmed the final decision of the Office of Administrative Hearings which granted summary judgment in favor of FSC II, LLC and concluded that FSC’s use of raw materials it purchased to produce hot mix asphalt constituted manufacturing under the N.C. Sales and Use Tax Act, thereby qualifying FSC for the Mill Machinery Exemption. On appeal by the NCDOR, the Supreme Court affirmed for the reasons stated in the Business Court’s order.
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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.