N.C. Business Court Opinions, September 11, 2024 – September 24, 2024
By: Rachel Brinson
Yoder v. Verm, 2024 NCBC 60 (N.C. Super. Ct. Sept. 10, 2024) (Bledsoe, C.J.)
Key Terms: judgment on the pleadings; Rule 12(c); breach of settlement agreement; reasonable time to perform; contract interpretation
The parties here were previously involved in three lawsuits which resulted in a Settlement Agreement and the dismissal of those suits in late 2022. About a year later, Plaintiff filed the current lawsuit asserting five claims arising from Defendants’ purported breaches of the Settlement Agreement. Defendants moved for judgment on the pleadings seeking dismissal of Plaintiff’s fourth claim and judgment in their favor on a counterclaim, both of which centered on the parties’ competing interpretations of a section of the settlement agreement relating to the procedure for buying out the Plaintiff’s interests in an LLC.
Defendants argued that the relevant contract provision was subject to North Carolina’s reasonable time to perform doctrine. However, the Court found that although the provision contemplated the sale of real estate, neither it nor the Settlement Agreement more broadly created a contract for the purchase and sale of real property and therefore the “reasonable time to perform rule” was inapplicable. Interpreting the Settlement Agreement as written, the Court concluded that the sale procedure outlined in the first paragraph of the relevant section, as argued by Plaintiff, controlled. Under that interpretation, judgment on the pleadings was not warranted and therefore, the motion was denied.
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Trail Creek Invs. LLC v. Warren Oil Holding Co., 2024 NCBC 61 (N.C. Super. Ct. Sept. 11, 2024) (Davis, J.)
Key Terms: motion to amend; derivative demand; Rule 15; counterclaims; inspection rights; minority member; breach of contract
Following initial pleadings, Defendant Minority Member simultaneously amended its answer, asserted counterclaims, and sent a derivative demand letter to Plaintiff Warren Oil. After Warren Oil declined to take the action requested in the derivative demand letter, the Minority Member moved to amend its answer and counterclaims to add factual allegations and a derivative counterclaim for Warren Oil’s causing a breach of the Management Fee Agreement. Plaintiffs opposed the addition of the derivative counterclaim on the grounds of undue delay, prejudice, and futility.
The Court rejected Plaintiffs’ arguments related to undue delay. The Defendant’s board representative’s receipt of certain financial documents years earlier did not conclusively alert him to the alleged violations of the Management Fee Agreement. Furthermore, the Minority Member sought to amend to add the derivative claim shortly after the expiration of the ninety-day waiting period required by N.C.G.S. § 57D-8-01(a)(2). Thus, there was no undue delay.
The Court further found that the Minority Member’s existing counterclaims contain the same basic allegation that forms the basis of the proposed derivative claim and that therefore Plaintiffs would not be prejudiced by its inclusion.
With regard to futility, the Court concluded that it would benefit from a more factually developed record in assessing the parties’ competing contentions as opposed to attempting to resolve their disputes at the Rule 15 stage. The Court further found that the Special Committee’s Report determining that derivative action was not in the best interest of the company and submitted by Plaintiffs prior to the hearing on the Motion to Amend did not preclude the Defendants’ derivative counterclaim because Section 57D-8-03(a) contemplates the filing of a motion by the LLC to dismiss a pending derivative claim and no motion to dismiss has yet been filed.
The Court granted the Motion to Amend.
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Vista Horticultural, Inc. v. Johnson Price Sprinkle, PA, 2024 NCBC 62 (N.C. Super. Ct. Sept. 17, 2024) (Bledsoe, C.J.)
Key Terms: motion for summary judgment; out-of-state sales tax liability; Wayfair decision; breach of contract; tax advice; malpractice; professional negligence; contributory negligence; breach of fiduciary duty; gross negligence; punitive damages
Plaintiff’s claims arose out of its engagement of Defendants to, according to Plaintiff, provide accounting, bookkeeping, and business consulting services. Consistent with Defendant JPS’s advice to Plaintiff in 2017, Plaintiff paid sales taxes from 2017 until 2021 only to North Carolina, the state of its physical operations, in accordance with the applicable law in 2017. On 21 June 2018, however, the United States Supreme Court ruled in South Dakota v. Wayfair, Inc., that states could assess taxes to out-of-state online retailers for sales to in-state residents. Plaintiff contends that Defendants failed to advise it of the Wayfair decision until 2021, preventing Plaintiff from passing its sales tax liability on to its online customers for three years and thereby causing the company to incur an unexpected $2 million tax liability. Defendants argue that they had no legal duty to advise Plaintiff of the Wayfair decision and that Plaintiff is responsible for its losses. Defendants moved for summary judgment on all claims.
Breach of Contract. Plaintiff alleged that JPS breached its contracts with Vista by failing to update its tax advice. Viewing the evidence of record in the light most favorable to Plaintiff, the Court determined that a factfinder could reasonably conclude that Defendant agreed to provide services beyond the scope of the written agreements between it and Plaintiff and that providing and updating sales tax advice concerning out-of-state sales was included within the wide-ranging financial, tax, accounting, and bookkeeping services that Defendant had agreed to provide. The Court denied summary judgment on the breach of contract claim.
Professional Negligence/Malpractice and Common Law Negligence. Defendants sought to dismiss Plaintiff’s claims for professional negligence/malpractice and common law negligence on grounds that Plaintiff’s contributory negligence bars these claims as a matter of law. Defendants argued that Plaintiff did not tend to its ordinary business affairs in a diligent manner and failed to send requested out-of-state sales data to Defendants. Plaintiff however refuted this evidence by demonstrating that the request for out-of-state sales data was one of numerous requests for various information that Defendants failed to follow up on. Plaintiff also demonstrated that Defendants failed to respond to their inquiry regarding a sales tax notice from the Arizona Department of Revenue. Based on the record, the Court could not conclude that Plaintiff was contributorily negligent as a matter of law in not learning about and acting upon the Wayfair decision before the spring of 2021. The Court denied summary judgment as to Plaintiff’s claims for professional negligence/malpractice and common law negligence.
Breach of Fiduciary Duty. Because North Carolina does not recognize a de jure fiduciary relationship between accountants and their clients, any fiduciary relationship here must be a de facto one. However, the Court found that Plaintiff failed to offer evidence showing the existence of a de facto fiduciary relationship between Plaintiff and Defendants. The parties’ relationship was governed by their contracts and Defendants did not figuratively hold all the cards. Accordingly, the Court dismissed Plaintiff’s claim for breach of fiduciary duty with prejudice.
Gross Negligence/Punitive Damages. Lastly, Defendants sought dismissal of Plaintiff’s claims for gross negligence and punitive damages, arguing that Plaintiff failed to offer evidence that Defendants engaged in reckless, intentional, willful, or wanton conduct. Defendants argued that Plaintiff’s evidence—consisting of Defendants “doing nothing, failing to advise, and failing to follow up”—is not evidence of willfulness or wantonness and instead only gives rise to a claim in simple negligence. The Court agreed and while noting that Plaintiff offered sufficient evidence to support its claims sounding in negligence, the NC Supreme Court has held that the difference between ordinary negligence and gross negligence is “substantial.” Thus, the Court dismissed these claims with prejudice.
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Dapper Dev., L.L.C. v. Cordell, 2024 NCBC Order 58 (N.C. Super. Ct. Sept. 13, 2024) (Bledsoe, C.J.)
Key Terms: ESI protocol; metadata; reasonableness; discovery dispute; Rule 26(b)(1)
The parties filed separate proposed ESI protocols reflecting their disagreement over how the production of metadata should or should not be limited. The Court found that the dispute over whether the ESI Protocol specifically limits a metadata request to one that is “reasonable” was immaterial because under Rules 26 and 34, any request for metadata must be reasonable as a matter of law. To avoid further confusion however, the Court specifically required that any request for metadata be “reasonable.” The Court also reminded the parties that where the case management order requires collaboration, they should not wait until the last day to begin discussions.
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Swim Club Mgmt. Grp. of Raleigh, LLC v. Calvin, 2024 NCBC Order 59 (N.C. Super. Ct. Sept. 17, 2024) (Davis, J.)
Key Terms: preliminary injunction; irreparable harm; restrictive covenants; non-compete; non-solicit; employment agreement
Plaintiff, a provider of professional aquatic services, sought a preliminary injunction against two former employees seeking an order enjoining them from directly competing with Plaintiff or soliciting any of Plaintiff’s customers or prospective customers in violation of the non-competition and non-solicitation covenants in their respective employment agreements.
The Court denied the motion because Plaintiff failed to show irreparable harm would exist but for the entry of a preliminary injunction. Noting that Plaintiff’s failure to address the irreparable harm prong in its principal brief would normally result in the Court’s refusal to consider it, the Court nonetheless considered Plaintiff’s arguments from its reply brief and the hearing but found that Plaintiff’s conclusory assertions and testimony based on hearsay were insufficient to support the extraordinary relief of a preliminary injunction. Plaintiff did not establish that defendants’ alleged breaches of their employment agreements caused Plaintiff to lose customers. Further, because Plaintiff’s slate of customers was already set for 2025 and the restrictive covenants were set to expire shortly, the Court found that Plaintiff would suffer no irreparable harm by the denial of a preliminary injunction. The Court also noted that the Plaintiff’s lack of urgency in seeking the preliminary injunction weighed against a finding of irreparable harm.
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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.