N.C. Business Court Opinions, May 24, 2023 – June 6, 2023
Brakebush Bros., Inc. v. Certain Underwriters at Lloyd’s of London – Novae 2007 Syndicate Subscribing to Pol’y No. 93PRX17F157, 2023 NCBC 37 (N.C. Super. Ct. May 30, 2023) (Davis, J.)
Key Terms: summary judgment; fire insurance; N.C.G.S. § 58-44-16; fraud
In 2018, Brakebush acquired a chicken processing plant which had recently suffered a fire. The plant’s primary insurer paid out its policy limit of $20 million for the fire damage; Brakebush, however, sought additional coverage under its eight excess policies. After a dispute arose regarding the excess insurance, Brakebush brought suit against the excess insurers seeking, inter alia, a declaratory judgment regarding the insurers’ obligations. Defendants filed counterclaims alleging that Brakebush had fraudulently submitted a fire insurance claim seeking proceeds that grossly exceeded the value of the actual damage in order to fund expansion and upgrades of the plant. Brakebush moved for summary judgment on these counterclaims.
Upon review of the evidence in the summary judgment record, the Court concluded that a factual dispute existed regarding whether Brakebush deliberately claimed entitlement to insurance proceeds as part of its fire loss claim for costs unrelated to fire damage. Accordingly, the Court denied Brakebush’s motion for summary judgment.
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Caliber Packaging & Equip., LLC v. Swaringen, 2023 NCBC 38 (N.C. Super. Ct. May 31, 2023) (Earp, J.)
Key Terms: civil liability for theft; N.C.G.S. § 1-538.2; unjust enrichment; misappropriation of trade secrets
Plaintiffs brought suit against a former employee, alleging that she had misappropriated Plainitffs’ confidential and trade secret information and then leveraged that information to entice employment offers and financial rewards. Defendant moved to dismiss the claims for civil liability for theft by an employee and unjust enrichment.
Civil Liability for Theft. Plaintiffs alleged that Defendant committed employee larceny and embezzlement and was therefore liable for damages pursuant to N.C.G.S. § 1-538.2, which permits an employer to pursue a civil claim for damages against an employee who commits an act punishable under certain statutes. Defendant argued that because there is no reference to intellectual property such as confidential information or trade secrets in the underlying criminal statutes, § 1-538.2 was not intended to cover theft of intellectual property. The Court determined that confidential and trade secret information in its tangible form constitute chattels belonging to the employer, and the predicate crimes cover theft of chattels. Since Plaintiff alleged that Defendant stole information in the form of paper invoices, the Court denied Defendant’s motion to dismiss this claim.
Unjust Enrichment. Plaintiffs alleged that Defendant was unjustly enriched when she exchanged the confidential information she received from Plaintiffs for employment opportunities and financial rewards. The Court, however, found that these benefits identified by Plaintiffs were not ones that they conferred on Defendant; rather, the benefits were the gains of her misconduct. Accordingly, the Court granted Defendant’s motion to dismiss this claim.
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N.C. Dep’t of Revenue v. Wireless Ctr. Of NC, Inc., 2023 NCBC 39 (N.C. Super. Ct. Jun. 2, 2023) (Robinson, J.)
Key Terms: Department of Revenue; contested tax case; North Carolina Sales and Use Tax Act; N.C.G.S. § 105-164.4
Wireless Center petitioned for a contested tax case hearing after the N.C. Department of Revenue issued its determination that Wireless Center, a retailer of cell phone products and services, owed over $500,000 in unpaid sales taxes for products known as “Real Time Replenishments” (“RTRs”) for tax years 2016-18. Following the hearing, the N.C. Office of Administrative Hearings entered its Final Decision which (1) remanded the assessment for Period I because although Wireless Center had failed to collect and remit tax on RTRs during Period I, the Department had over-assessed the tax bill; and (2) reversed the assessment for Period II because the Department failed to show that Boost (of which Wireless Center was an independent contractor) had not paid the taxes on behalf of Wireless Center for Period II. The parties cross-petitioned for judicial review.
First, the Court found that the RTRs, regardless of how they were classified by Boost, were taxable under the North Carolina Sales and Use Tax Act (“SUTA”). Moreover, pursuant to both the agreement between Boost and Wireless Center and SUTA, Wireless Center was a “retailer” subject to taxation at all relevant times.
Second, the Court found that due to the absence of records establishing the payment of its tax liability, Wireless Center was unable to overcome the initial presumption that the tax assessment for Period II was correct. Accordingly, the Court reversed the OAH and upheld the tax assessment for Period II.
Finally, the Court found that the unrebutted evidence clearly demonstrated that the Department had properly credited Wireless Center for the tax it already remitted, and therefore, the Department had not over-assessed for Period I. Consequently, the Court reversed the OAH and upheld the tax assessment for Period I.
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Bivins v. Pacheco, 2023 NCBC 40 (N.C. Super. Ct. Jun. 2, 2023) (Earp, J.)
Key Terms: standing; Barger exceptions; dissolution; N.C.G.S. § 57D-6-02(2); statute of limitations; discovery rule; constructive fraud; fraud; Rule 9(b); fraudulent conveyance; motion for a more definite statement
In 2015, the Bivens and the Pachecos formed two LLCs (KJ Launch and KJ Endeavors) to own and operate a trampoline park. Each of the individuals owned twenty-five percent of KJ Launch, while two additional entities, controlled by the Bivens and the Pachecos respectively, each owned fifty percent of KJ Endeavors. After discovering financial irregularities, the Bivens brought suit alleging direct and indirect claims, including that the misconduct of Jennifer Pacheco, who had served as bookkeeper for the business, triggered the involuntary withdrawal of Jennifer and her company. Defendants moved to dismiss and alternatively, sought a more definitive statement.
Standing. Defendants moved to dismiss Plaintiffs’ direct claims for lack of standing under the Barger rule. Upon consideration of the four “direct” claims, the Court disagreed and denied the motion. First, with regards to breach of the operating agreements, the Court found that Jennifer’s alleged acceptance of her ex-husband’s membership interest in KJ Launch without giving Plaintiffs an opportunity to purchase the interest impacted only Plaintiffs and accordingly gave Plaintiffs a direct claim. Second, the Court found that Plaintiffs had standing to assert the four direct claims, which sought a judgment that Defendants breached the operating agreements and thereby triggered certain rights, because parties to an operating agreement have standing to seek a declaration of rights under the agreement. Third, Plaintiffs had standing as current LLC members to seek dissolution under N.C.G.S. § 57D-6-02(2).
Statute of Limitations. The Court denied Defendants’ motion to dismiss based on statutes of limitations because although the complaint alleged that the improper transfers occurred outside of the statute of limitations, it was silent as to when Plaintiffs discovered the wrongdoing. The Court also identified an unenumerated constructive fraud claim and determined that it fell well within the ten-year statute of limitations.
Rule 9(b). The Court dismissed the fraud claim to the extent it was based upon certain undated transactions and a promissory misrepresentation because Plaintiffs had failed to satisfy Rule 9(b)’s particularity requirements. The Court also dismissed the fraudulent conveyance claim for the same reason and because Plaintiffs did not plead that Defendants were debtors or that Plaintiffs were creditors as required by the Uniform Voidable Transactions Act.
Motion for More Definitive Statement. The Court denied Defendant’s motion for a more definite statement after determining that the surviving claims met the requirements of Rule 8 and enabled Defendant to conduct the necessary discovery.
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Kelly v. Nolan, 2023 NCBC Order 31 (N.C. Super. Ct. June 6, 2023) (Davis, J.)
Key Terms: subpoenas duces tecum; BCR 10.4(a); discovery
On 31 May 2023, Defendants emailed the Court identifying an unresolved discovery dispute regarding three subpoenas duces tecum served by Plaintiffs on third-party financial institutions—Wells Fargo, Suntrust/Truist Bank, and Southern Bank. All three subpoenas purported to require the production of certain documents at the office of Plaintiffs’ counsel on 9 June 2023. Defendants requested that the subpoenas be quashed because they were served on or after the last day of the discovery period in the case and were therefore untimely.
The Court held a WebEx conference and ruled that the three subpoenas were untimely and not served in compliance with Business Court Rule 10.4(a), which requires each party to ensure that discovery will be completed within the time period provided in the case management order. Therefore, the Court ordered that the three subpoenas at issue be quashed. The Court further directed counsel for Plaintiffs to serve a copy of this order upon Wells Fargo, Suntrust/Truist Bank, and Southern Bank immediately and inform them that they are not required to comply with the subpoenas.
By: Rachel Brinson and Grace Kinley
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