N.C. Business Court Opinions, October 4, 2023 – October 17, 2023
Karriker v. Harpoon Holdings, L.P., 2023 NCBC 67 (N.C. Super. Ct. Oct. 6, 2023) (Conrad, J.)
Key Terms: motion to strike; motion to seal; Rule 12(f)
Defendant moved to dismiss the complaint and then subsequently moved to either strike or seal a draft version of its Amended and Restated Limited Partnership Agreement which Plaintiff had attached as an exhibit in opposition to the dismissal motion. Before the Court ruled on the motion to dismiss, Plaintiff filed an amended complaint thereby mooting the motion to dismiss.
The Court denied the Rule 12(f) motion to strike because Rule 12(f) was inapplicable to the Draft LPA since the Draft LPA was not contained in any pleading, but rather was submitted as an exhibit in opposition to the motion to dismiss, and regardless, the Court never considered the document since the motion to dismiss was denied as moot.
The Court did, however, grant the motion to seal the Draft LPA based on Defendant’s argument that it contained sensitive information about employment and ownership incentives, investor rights, and internal corporate governance. Moreover, it was unlikely to be considered by the Court in the future as it had no bearing on disputed issues following the filing of the amended complaint, and, therefore, the public’s interest was negligible.
Harris Teeter Supermarkets, Inc. v. Ace Am. Ins. Co., 2023 NCBC 68 (N.C. Super. Ct. Oct. 10, 2023) (Robinson, J.)
Key Terms: insurance coverage; opioid epidemic; Rule 12(b)(2); personal jurisdiction; Mallory v. Norfolk Southern Railway Co.; registration requirements; N.C.G.S. § 58-21-100; N.C.G.S. § 58-16-30; service of process; Commissioner of Insurance; Rule 12(b)(6); declaratory judgment action; forum shopping; N.C.G.S. § 1-75.12; discretionary stay
This lawsuit is primarily an insurance coverage dispute concerning whether Defendants, insurance companies that issued policies to Plaintiffs, owe coverage to Plaintiffs with respect to nearly 800 underlying lawsuits seeking damages related to injuries allegedly caused by Plaintiffs’ distribution and dispensing of opioid drugs. Plaintiffs are two Ohio entities (the “Kroger Plaintiffs”) and two North Carolina entities (the “Harris Teeter Plaintiffs”). Following the Ohio Supreme Court’s decision in September 2022 holding that governmental entities suing for alleged economic loss sustained by their citizens caused by the opioid epidemic were not seeking damages because of “bodily injury,” several of the insurers filed the Ohio Insurance Action seeking declarations that they were not required to provide coverage to the Kroger Plaintiffs for underlying opioid litigation. Shortly after, Plaintiffs filed the present action. Defendants moved to dismiss for lack of personal jurisdiction and under the North Carolina Declaratory Judgment Act and moved to stay the case.
The Court first addressed the motion to dismiss for lack of personal jurisdiction brought by the PJ Moving Defendants. Taking into consideration 1) the U.S. Supreme Court’s recent decision in Mallory v. Norfolk Southern Railway Co., which held that the Pennsylvania law at issue permitted Pennsylvania’s state courts to exercise general personal jurisdiction over a registered foreign corporation because the foreign corporation had submitted to suit there by completing the mandatory statutory registration procedures, and 2) North Carolina’s insurance statutes which set forth requirements for foreign insurance companies to be admitted and authorized to do business in North Carolina, the Court concluded that the exercise of personal jurisdiction over Defendants was proper. Regarding all of the PJ Moving Defendants except AXIS, the Court found that they had submitted to suit in North Carolina by completing the statutorily required registration procedures, including filing an instrument appointing the Commissioner of Insurance as their agent to accept service of process. Regarding AXIS, which the Court separately considered because it is a surplus lines insurance company subject to different licensing requirements than the other PJ Moving Defendants, the Court concluded that under N.C.G.S. § 58-21-100, surplus line insurers are subject to suit in North Carolina for causes of action arising in the state under any surplus lines insurance contract made by that insurer, so long as service of process is made upon the Commissioner pursuant to N.C.G.S. § 58-16-30. Because AXIS had designated the Commissioner as its agent for service of process in its policy and had, in fact, accepted service of process for the lawsuit through the Commissioner, it had consented to the exercise of general personal jurisdiction over it by North Carolina courts. Accordingly, the motion to dismiss for lack of personal jurisdiction was denied.
Defendants also argued that the action should be dismissed under Rule 12(b)(6) and pursuant to the Court’s discretionary authority to dismiss declaratory judgment claims under N.C.G.S. § 1-257 because the Kroger Plaintiffs’ filing of this action constituted forum shopping. As to the Kroger Plaintiffs, the Court agreed. The filing of the action appeared to be an attempt by them to avoid their home state of Ohio and adverse precedent there even though the Ohio Insurance Action addressed the same issues, was first filed, and remained pending. Thus, the Court granted the motion to dismiss as it related to the Kroger Plaintiffs. However, the Court disagreed as to the Harris Teeter Plaintiffs. The Harris Teeter Plaintiffs are at home in North Carolina and the determination of their rights under their insurance policies is not at issue in the Ohio Insurance Action, to which they are not a party. Thus, the motion to dismiss was denied as to the Harris Teeter Plaintiffs.
Lastly, Defendants sought a discretionary stay of the action pursuant to N.C.G.S. § 1-75.12 in favor of the Ohio Insurance Action. This motion was denied as moot with regards to the Kroger Plaintiffs since their claims were dismissed. As to the Harris Teeter Plaintiffs, the Court determined, after weighing the applicable Lawyers Mutual factors, that a stay was not warranted or reasonable. The Harris Teeter Plaintiffs’ election of home forum was entitled to great deference, North Carolina and its residents have a strong interest in having the suit decided here, and it was reasonably possible that the Court would have to apply North Carolina law. Based on these factors and the Defendants’ failure to show that continuing the case in North Carolina would work a substantial injustice on them, the Court denied the motion to stay.
Mary Annette, LLC v. Crider, 2023 NCBC 69 (N.C. Super. Ct. Oct. 11, 2023) (Conrad, J.)
Key Terms: motion for summary judgment; quite title; real property; offensive summary judgment; conclusions of law; superior court judge; overrule; deeds; ambiguity; extrinsic evidence
This case arises out of disputes concerning the creation, ownership, and management of Plaintiff Mary Annette, LLC. Defendants moved for summary judgment on their quiet title claim, in which they contended that the Crider siblings’ transfer of certain real property parcels to Mary Annette transferred only the common area surrounding cabins and RV spots within the perimeter of tract C-4, not the cabins and RV spots themselves.
Prior to this case’s designation to the business court, Mary Annette was granted a preliminary injunction barring the Crider siblings from handling rentals on tract C-4. In ruling on the preliminary injunction, the superior court judge found that Mary Annette had purchased all cabins and RV spots within tract C-4 from the Crider siblings. Mary Annette therefore argued here that the Court was bound by the superior court judge’s order. The Court disagreed, concluding that the determination by the superior court judge regarding the ownership of the property was a finding of fact, which the Court was not bound by. Nevertheless, because the deed was ambiguous and there was conflicting extrinsic evidence regarding the Crider siblings’ intent, the Court denied the motion for summary judgment.
Cone v. Blue Gem, Inc., 2023 NCBC 70 (N.C. Super. Ct. Oct. 13, 2023) (Earp, J.)
Key Terms: motion to dismiss; judicial dissolution; majority control; shareholders; corporate waste; C corporation; redemption; deadlock; taxes; breach of fiduciary duty; derivative claim; voluntary dismissal; bad faith; Rule 41; business judgment rule; prejudice
Plaintiffs, shareholders in a family-owned corporation, filed this action seeking a judicial dissolution of the business and asserting a derivative claim for breach of fiduciary duty. After Defendants moved to dismiss, Plaintiffs also filed a motion to dismiss without prejudice.
Pursuant to Rule 41(a) and absent any showing of bad faith by Plaintiffs in filing the dismissal, the Court granted the dismissal of the judicial dissolution claim without prejudice. However, the Court rejected Plaintiffs’ request that each side bear its own costs since Rule 41(d) mandates that a plaintiff dismissing under Rule 41(a) be taxed with the costs of the action.
The Court separately addressed the breach of fiduciary duty claim because N.C.G.S. § 55-7-45(a) requires court approval for dismissal of derivative claims. All parties agreed to dismissal; however, Defendants argued that any dismissal should be with prejudice because 1) Plaintiffs did not allege sufficient facts to show that they had complied with the pre-suit demand requirement and 2) the complaint lacked factual support for Plaintiffs’ conclusion that the individual defendants had acted in bad faith or in self-interest and therefore the business judgment rule controlled. The Court concluded that Plaintiffs had sufficiently alleged compliance with the demand requirement by attaching the derivative demand itself to the complaint. Nevertheless, the Court determined that Plaintiffs’ complaint failed to adequately allege facts to support their conclusory statements regarding the individual defendants. Thus, the Court granted Defendants’ motion and dismissed the claim with prejudice.
Trail Creek Invs. LLC v. Warren Oil Holding Co., 2023 NCBC 71 (N.C. Super. Ct. Oct. 13, 2023) (Davis, J.)
Key Terms: motion to amend; second amended complaint; disclosure; fraud; environmental liabilities; civil conspiracy; indemnification; Rule 15; latent ambiguity; timeliness; futility; prejudice; relation back; statute of limitations
Having previously dismissed certain of Plaintiff’s claims without prejudice, the Court considered Plaintiff’s Renewed Motion for Leave to File Second Amended Complaint. Plaintiff sought first to replead its fraud and civil conspiracy claims with beefed-up allegations, including a more detailed list of the environmental regulations allegedly violated by Defendants, and second, to add allegations regarding a purported latent ambiguity in the purchase agreement at issue. Defendants opposed the amendments on the grounds of undue delay, prejudice, and futility.
Regarding the first group of proposed amendments, the Court found that there was no undue delay since the motion to amend was filed only forty-three days after the claims were dismissed. Further, the Court found that there was no prejudice resulting from the amendments because the claims were not new theories but had been pleaded in the original complaint. Lastly, the Court determined that the claims were not futile as they had been alleged with sufficient particularity and the Court could not make a definitive ruling at this time on whether the claims “related back” to the filing of the original complaint. Accordingly, the Court granted Plaintiff’s motion to amend as to its new claims for fraud and civil conspiracy and their accompanying allegations.
Regarding the second group of proposed amendments, Plaintiff sought to allege that the indemnification provisions at issue contained a latent ambiguity and therefore, parol evidence concerning the parties’ negotiations and contemporaneous understanding of the meaning of the provisions should be considered. However, because Plaintiff had not sought leave to allege an ambiguity in the purchase agreement until 356 days after the initial filing of the lawsuit and had previously taken a contrary position, the Court concluded that Plaintiff’s delay was excessive. The Court also concluded that Plaintiff had failed to show the existence of a latent ambiguity under North Carolina law. Thus, the motion was denied as to these amendments.
Lafayette Vill. Pub, LLC v. Burnham, 2023 NCBC Order 48 (N.C. Super. Ct. Oct. 3, 2023) (Davis, J.)
Key Terms: voluntary dismissal; derivative claims; court approval; N.C.G.S. § 57D-8-04(a)
Pursuant to the North Carolina LLC Act, a plaintiff cannot dismiss or settle a derivative claim without the approval of the Court. Plaintiff here filed a notice of voluntary dismissal of its individual and derivative claims. The Court, on its own motion, ordered Plaintiff to file a motion to approve the dismissal of the derivative claims and supporting brief explaining why dismissal is in the best interest of the company.
Chi v. N. Riverfront Marina & Hotel LLLP; Feng v. N. Riverfront Marina & Hotel LLLP, 2023 NCBC Order 49 (N.C. Super. Ct. Oct. 4, 2023) (Earp, J.)
Key Terms: motion to dismiss; unperfected appeal; interlocutory appeal; Appellate Rule 3; Appellate Rule 25; Rule 58; BCR 3.8; timely notice of appeal
After the Court entered an order partially granted Defendants’ motion to dismiss on July 27, 2023, certain of the Plaintiffs electronically filed notices of appeal on August 25, 2023, on the Business Court’s docket. However, none of the Plaintiffs ever filed a notice of appeal with the Clerk of Superior Court of New Hanover County, the county of venue. Defendants moved to dismiss the appeals, arguing that the notices of appeal were not timely filed with the clerk of court within thirty days after entry of the dismissal order in violation of Appellate Rule 3. The Court agreed and dismissed the appeals, finding that Appellate Rule 3 is jurisdictional and non-waivable and thus, failure to file a notice of appeal with the clerk of court of the county of venue within the time prescribed in Appellate Rule 3 is fatal to the appeal.
Airtron, Inc. v. Bentley, 2023 NCBC Order 50 (N.C. Super. Ct. Oct. 5, 2023) (Conrad, J.)
Key Terms: motion to compel; discovery dispute; BCR 10.9; motion for sanctions; Rule 37(b); pro se litigant; judicial estoppel
Following several discovery conferences with the Court, a failed settlement agreement, and incomplete discovery responses from Defendant Heinrich, Plaintiff Airtron sought not only complete discovery responses but also an order shifting some of its attorney’s fees to Heinrich, striking his answer, and entering a default judgment against him. Airtron also requested that the Court enforce the parties’ settlement agreement based on principles of judicial estoppel.
The Court found that Heinrich’s responses to Plaintiff’s discovery requests were incomplete, his objections untimely and nonresponsive, and violative of the Court’s order to provide full and complete responses to Airtron’s interrogatories and document requests. Despite Heinrich’s deficient responses, the Court found his noncompliance was more likely due to his “unfamiliarity with civil litigation as a nonlawyer rather than truly willful disobedience” and declined to impose the severe sanctions of striking his answer and entering default judgment against him. The Court, however, did enter an order (1) requiring Heinrich to supplement his discovery responses; (2) permitting Airtron to depose Heinrich again following receipt of his supplemental responses; and (3) requiring Heinrich to reimburse Airtron for certain reasonable expenses that it incurred in preparing for and attending the discovery hearing on October 2, 2023.
Regarding the settlement agreement, the Court determined that pursuant to the terms of the agreement, it was rendered null and void by Heinrich’s failure to execute a confession of judgment. Thus, there was no settlement agreement for the Court to enforce.
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