N.C. Business Court Opinions, September 14, 2022 – September 27, 2022
Total Merch. Servs., LLC v. TMS NC, Inc., 2022 NCBC 51 (N.C. Super. Ct. Sept. 19, 2022) (Bledsoe, C.J.)
Key Terms: sanctions; show cause hearing; preliminary injunction; attorneys’ fees
In a previous order entered August 30, 2022, the Court concluded that sanctions should be awarded against Defendants for their egregious conduct, including improperly removing the case to federal court, refusing to respond to discovery requests for fifteen months, taking an improper interlocutory appeal of the Preliminary Injunction Order, “stubbornly and willfully” refusing to comply with the Preliminary Injunction, making false representations to the Court, and refusing to timely comply with the Order to Compel. In that order, the Court ordered Defendants to appear and show cause why the Court should not enter sanctions, including striking Defendants’ answer, affirmative defenses, and remaining counterclaims. At the show cause hearing, Defendants argued that their actions did not constitute a violation of the Preliminary Injunction Order, they had misunderstood the Preliminary Injunction Order’s terms, and any violations of the Preliminary Injunction Order were de minimis. The Court rejected Defendants’ three arguments.
Pursuant to its inherent authority and Rule 41(b), the Court struck Defendants’ Answer, including all affirmative defenses and counterclaims, and ordered entry of default against Defendants. The Court also ordered Defendants to pay Plaintiff’s reasonable expenses and attorneys’ fees incurred during the sanctions process but reserved the issue of Plaintiff’s damages and further attorneys’ fees for a future order.
Davis v. HCA Healthcare, Inc., 2022 NCBC 52 (N.C. Super. Ct. Sept. 19, 2022) (Davis, J.)
Key Terms: antitrust; class action; motion to dismiss; standing; monopoly; restraint of trade; indirect purchaser
Plaintiffs filed a class action lawsuit against Defendants, a group of hospitals and health systems in and around Buncombe County, alleging antitrust claims. Specifically, Plaintiffs allege that Defendants have engaged in unlawful restraint of trade by: (i) possessing a monopoly over inpatient medical services in Asheville, North Carolina; and (ii) unlawfully seeking to maintain and extend this monopoly into adjacent counties by coercing commercial health insurers to include Defendants’ smaller facilities in their networks. Plaintiffs, a group of residents from western North Carolina, claim damages in the form of higher healthcare costs as a result of Defendants’ antitrust violations. Defendants filed a Motion to Dismiss, arguing that Plaintiffs lacked standing pursuant to Rule 12(b)(1) and failed to state a claim pursuant to Rule 12(b)(6).
Defendants’ argument for dismissal under 12(b)(1) was premised upon federal case law barring indirect purchasers from asserting antitrust claims under federal antitrust law. The Court rejected Defendants’ argument, noting that North Carolina precedent has explicitly established the right of indirect purchasers to maintain standing under N.C. Gen. Stat. § 75-16, and denied Defendants’ Motion to Dismiss pursuant to Rule 12(b)(1). After engaging in an analysis of the pleadings, the Court granted Defendants’ Motion to Dismiss pursuant to Rule 12(b)(6) on five of Plaintiff’s six claims, leaving only Plaintiff’s claim for restraint of trade.
McNew v. Fletcher Hosp., Inc., 2022 NCBC 53 (N.C. Super. Ct. Sept. 20, 2022) (Bledsoe, C.J.)
Key Terms: class action; UDTPA; learned profession exemption; motion to dismiss; fiduciary duty; constructive fraud
Plaintiff filed a class action lawsuit against Defendant hospital, alleging that Defendant engaged in “surprise billing” by charging patients amounts in excess of both its published rates and local and national market rates. Plaintiff pursued individual and class claims against Defendant for (i) violation of North Carolina’s Unfair and Deceptive Trade Practices Act, (ii) breach of fiduciary duty, (iii) constructive fraud, and (iv) breach of contract. Defendant moved to dismiss all claims pursuant to Rule 12(b)(6). At the motion hearing, Defendant conceded that Plaintiff sufficiently pleaded his claim for breach of contract and withdrew its Motion as to that claim.
The Court granted dismissal of the breach of fiduciary duty claim, holding that the de jure fiduciary duty Plaintiff sought to impose on Defendant was not applicable to the allegations presented in the Complaint, which arose from Defendants’ billing practices. The Court noted that the fiduciary duty imposed upon physicians stems from the physician’s “special knowledge and skill in diagnosing and treating injuries, which the patient lacks.” Conversely, the billing relationship is one of debtor and creditor, which does not constitute a de jure fiduciary relationship under North Carolina law. The Court further held that Plaintiff had presented insufficient factual allegations to impose a de facto fiduciary duty upon the hospital. As Plaintiff failed to establish a fiduciary duty, the Court dismissed his constructive fraud claim as well. The Court also dismissed Plaintiff’s UDTPA claim, holding that it was precluded by the learned profession exemption applied to the healthcare field.
Univ. of N.C. at Chapel Hill v. Vesta Therapeutics, Inc., 2022 NCBC 54 (N.C. Super. Ct. Sept. 21, 2022) (Conrad, J.)
Key Terms: breach of contract; license agreement; motion to dismiss; Rule 13(d); State Tort Claims Act; constitutional claim
Plaintiff filed a breach of contract action against Defendants alleging Defendants breached a sponsorship research agreement with Plaintiff by failing to provide funding. Plaintiff also asserted a claim against Defendants for breach of their licensing agreement with Plaintiff for Plaintiff’s stem cell technology. Defendants counterclaimed, alleging that Plaintiff failed to perform the required research under the sponsorship agreement, destroyed evidence of its inactivity, disclosed confidential information to a foreign government, improperly disposed of samples, and interfered with commercialization efforts. Plaintiff moved to dismiss Defendants’ constitutional and negligence-based counterclaims.
The Court held that Defendants’ constitutional counterclaim, which derived from Article I Section 19 of the North Carolina Constitution, could not be asserted against the State or its agencies unless Defendants “lacked any sort of state remedy.” The Court held that Defendants’ contractual claims provided an adequate remedy under state law and, consequently, granted dismissal of Defendants’ constitutional counterclaim.
Regarding Defendants’ negligence-based counterclaim, the Court held that the State Tort Claims Act, which requires aggrieved parties to bring their claims against State institutions within the exclusive and original jurisdiction of the Industrial Commission, barred Defendants’ counterclaim. Defendants argued that an exception to the State Tort Claims Act, permitting third-party claims against a state agency in superior court, also applied to counterclaims. Noting that Rule 13(d) of the North Carolina Rules of Civil Procedure stresses that the Rules “shall not be construed to enlarge beyond the limits fixed by law the right to assert counterclaims” against a state agency, the Court rejected Defendants’ argument and granted dismissal of the negligence-based counterclaim.
Ehmann v. Medflow, Inc., 2022 NCBC 55 (N.C. Super. Ct. Sept. 12, 2022) (Robinson, J.)
Key Terms: breach of contract; UDTPA; motion to dismiss; fraud; successor liability; veil-piercing; instrumentality rule; civil conspiracy; intracorporate immunity; Wage and Hour Act; Retaliatory Discrimination Act; tortious retaliation
In this case, Plaintiff had served as CEO of Defendant Medflow during the time that Medflow was acquired by Defendant Lindberg. Following this acquisition, Plaintiff requested from Medflow certain payments which became due under Plaintiff’s employment Agreement. After Medflow refused to make the payments and terminated Plaintiff, Plaintiff brought suit against Lindberg, Medflow, and a host of related entities, alleging eleven claims. Defendants moved to dismiss pursuant to Rule 12(b)(6). In a previous order, the Court had denied the motion insofar as it attacked the claim for breach of contract. The Court now addressed the remaining claims.
Regarding the veil piercing claim, the Court denied dismissal, concluding that the instrumentality rule could be used to extend liability to affiliated entities, not just stockholders, and that the Complaint had adequately alleged facts to show Lindberg’s complete domination over the entity Defendants that caused injury to Plaintiff.
As to the civil conspiracy claim, Defendants argued that it was barred by the intracorporate immunity doctrine. Plaintiff responded that 1) the conspiracy involved unrelated co-conspirators; 2) North Carolina law does not extend the doctrine to commonly-owned affiliates; and 3) the “independent personal stake” exception allows the claim to proceed. The Court agreed with Defendants and dismissed the claim, concluding that the Complaint failed to adequately allege that any outsiders were co-conspirators, that, pursuant to the Fourth Circuit’s reasoning, intracorporate immunity does apply to commonly-owned affiliates; and that personal liability under the Wage and Hour Act is not wholly separable from the corporate benefit Defendants obtained and thus did not qualify for the independent personal stake exception.
The Court denied dismissal of the N.C. Wage and Hour Act claim, determining that the Complaint adequately alleged that Plaintiff was owed payments which qualified as wages under the Act and that Defendants, including the affiliates, qualified as employers under the “economic reality” test.
Plaintiff also alleged violation of the N.C. Retaliatory Employment Discrimination Act, claiming that he was retaliated against after filing complaints with the Department of Labor and receiving right-to-sue letters against certain Defendants. The Court found these allegations sufficient to survive dismissal as to the Defendants for whom Plaintiff had received right-to-sue letters but dismissed the claim as to the remaining Defendants.
In addition, the Court dismissed Plaintiff’s “tortious retaliation” claim, which the Court construed as a wrongful discharge claim, because such a claim arises only in the context of employment at will and Plaintiff was instead a contract employee.
Defendants also sought dismissal of the UDTPA claim because the claim related solely to Plaintiff’s employment relationship and thus did not affect commerce. The Court rejected this argument concluding that allegations of a fraudulent transfer scheme between multiple companies, even though they were all owned indirectly by the same person, satisfied the requirements under UDTPA.
Finally, the Court dismissed the constructive trust claim because such a claim is not a standalone claim but denied dismissal of the claims for successor liability, fraud, and violation of the UVTA.
Bourgeois v. Lapelusa, 2022 NCBC 56 (N.C. Sup. Ct. Sept. 23, 2022) (Earp, J.)
Key Terms: motion to dismiss; LLC; fiduciary duties; judicial dissolution; conversion; unjust enrichment; conversion to economic interest holder; Rules of Professional Conduct
This case arises from a dispute amongst members of a limited liability company following the merger of two separate limited liability companies. Plaintiffs Bourgeois and Pitbox Auto Sales, LLC filed suit against Bourgeois’ former business partners, claiming that Defendants breached their fiduciary duties, converted funds to their own benefit, and were unjustly enriched by their actions. Plaintiffs also sought injunctive relief and judicial dissolution of the entity resulting from the merger, Defendant The Pit Box, LLC. Defendants collectively moved under 12(b)(6) to dismiss Plaintiffs’ claims for breach of fiduciary, judicial dissolution, conversion, unjust enrichment, and injunctive relief. Defendant Stevenson individually moved under 12(b)(6) to dismiss Plaintiff’s conversion to economic interest holder claim. Plaintiffs also filed a Motion to Amend their Complaint.
The Court dismissed Plaintiffs’ breach of fiduciary duty claim, noting that members of an LLC traditionally do not owe one another fiduciary duties absent a contractual agreement to impose such duties. The Court also held that Plaintiffs failed to allege facts warranting the imposition of de facto fiduciary duties. The Court denied dismissal of the judicial dissolution claim, as Plaintiffs sufficiently pleaded allegations that, if true, would warrant a judicial dissolution and thus dismissal would be “premature.” Plaintiff’s claims for conversion were dismissed without prejudice, as the Complaint failed to allege that Defendants had acquired payments wrongfully, or that Plaintiffs had requested the payment to be returned, and therefore failed to plead a critical element of conversion. The Court dismissed Plaintiffs’ claim for unjust enrichment against the entity defendants, as the Complaint only contained allegations of the individual defendants’ wrongful use of payments, and not the entities. Plaintiffs’ claim for unjust enrichment against the individual defendants was upheld. In light of Plaintiffs’ remaining unjust enrichment claim, the Court also upheld Plaintiffs’ injunctive relief claim, as “foreclosing injunctive relief would be premature.”
Defendant Stevenson’s Motion to Dismiss Plaintiffs’ conversion to economic interest holder was granted by the Court, as Plaintiffs failed to cite any law in favor of the claim. Plaintiffs alleged that Stevenson, an attorney, had a conflict of interest in his membership with the LLC and violated the “Canon of Ethics” for attorneys. The Court rejected Plaintiff’s argument, noting that North Carolina’s Rules of Professional Conduct cannot be used to establish civil liability.
Finally, the Court denied Plaintiffs’ Motion to Amend the Complaint, on the basis that the claims attempted in the proposed amendment were futile for lack of standing.
Halikierra Cmty. Servs. LLC v. N.C. Dep’t of Health & Hum. Servs., 2022 NCBC 57A (N.C. Super. Ct. Sept. 27, 2022) (Robinson, J.)
Key Terms: unfair and deceptive trade practices; due process; summary judgment; constitutional challenge; equal protection
Plaintiff, a home health provider servicing Medicaid-eligible beneficiaries, filed suit against Defendants North Carolina Department of Health and Human Services (“DHHS”), the Medical Review of North Carolina, Inc. d/b/a The Carolinas Center for Medical Excellence (“CCME”), and two individuals working for or on behalf of the DHHS (the “Individual Defendants” and collectively with DHHS and CCME, “Defendants”). In the Complaint, Plaintiff alleged that the DHHS violated Plaintiff’s due process rights under the North Carolina Constitution by arbitrarily placing it on prepayment review, a strenuous audit procedure employed when DHHS detects aberrant billing practices, which ultimately led to the closure of Plaintiff’s business. Plaintiff also alleged that CCME and the Individual Defendants violated North Carolina’s Unfair and Deceptive Trade Practices Act (“UDTPA”) by conspiring against it. Plaintiff sought compensatory and punitive damages from all Defendants. In a previous order, the Court dismissed Plaintiff’s facial constitutional challenges against the DHHS and fraud claim against CCME. The Defendants moved for summary judgment on the remaining claims.
The Court granted summary judgment in Defendant’s favor as to the remaining constitutional claims. While the Court noted that Plaintiff’s due process claim was permissible, as no adequate remedy existed under state late, the Court ruled that Plaintiff failed to create a genuine issue of material fact regarding whether the DHHS’ actions were arbitrary or capricious. The Court also granted summary judgment in Defendants’ favor on Plaintiff’s equal protection claim, as Plaintiff failed to establish a genuine issue of material fact regarding DHHS’ selection of Plaintiff for the prepayment review program.
In addition, the Court granted summary judgment in CCME’s favor regarding the UDTPA claims, as Plaintiff had not presented evidence that CCME, as a third-party prepayment review vendor for the DHHS, acted unfairly or deceptively. The Court dismissed Plaintiff’s UDTPA claims against the Individual Defendants sua sponte, on the basis that Plaintiffs’ allegations against the Individual Defendants arose during the course of the Individual Defendants’ work as representatives of the State and, as such, the Court lacked subject matter jurisdiction. As no viable underlying claims against CCME or the Individual Defendants existed, the Court granted summary judgment in favor of the Defendants on Plaintiff’s civil conspiracy claim.
IQVIA, Inc. v. Cir. Clinical Sols., Inc., 2022 NCBC ORDER 53 (N.C. Super. Ct. Sept. 14, 2022) (Conrad, J.)
Key Terms: restrictive covenants; temporary restraining order; motion to stay; forum shopping
Plaintiff filed suit against Defendant alleging that Defendant induced a former employee of Plaintiff to breach her employment agreement. Eight months prior to the filing of this suit, Plaintiff filed a separate lawsuit against the former employee for breach of contract and moved for a temporary restraining order to enforce the restrictive covenants of her employment agreement. In this suit, Plaintiff moved for expedited discovery, while Defendant moved to stay the proceedings pending the resolution of Plaintiff’s lawsuit against the former employee, or in the alternative, dismiss Plaintiff’s claims.
Noting that the two lawsuits are “clearly interrelated,” the Court granted Defendant’s Motion to Stay, and deferred Defendant’s request to dismiss Plaintiff’s claims. The Court reasoned that permitting this second action to proceed would be a waste of judicial resources, and risks inviting judge and forum shopping in future cases. Plaintiff’s Motion for Expedited Discovery was consequently denied.
Miriam Equities, LLC v. LB-UBS 2007-C2 Millstream Rd., LLC, 2022 NCBC ORDER 54 (N.C. Super. Ct. July 8, 2022) (Earp, J.)
Key Terms: attorneys’ fees; N.C. Gen. Stat. § 6-21.6(c); prevailing party
In this Order, the Court awarded expenses and attorneys’ fees to the prevailing party. Following summary judgment, the Court concluded that the Defendant was the prevailing party in the litigation and conducted an analysis of the costs and fees submitted by Defendant. Employing the list of relevant factors contained in N.C. Gen. Stat. § 6-21.6(c), the Court focused on the following factors: (1) the amount in controversy; (2) the reasonableness of the time and labor expended, and the billing rates charged by the attorneys; (3) the novelty and difficulty of the questions raised in the action; (4) the skill required to perform properly the legal services rendered; (5) the extent to which the party seeking attorneys’ fees prevailed in the action; and (6) the terms of the business contract. The Court noted that the billing rates of the attorneys and paralegals were somewhat higher than the rates customarily charged in North Carolina and adjusted the rates accordingly. The Court also encouraged counsel to not submit materials in block-billed format when requesting attorneys’ fees.
CPI Sec. Sys., Inc. v. Chapman, 2022 NCBC ORDER 55 (N.C. Super. Ct. Sept. 26, 2022) (Conrad, J.)
Key Terms: preliminary injunction; noncompete; non solicitation; trade secrets
The Court granted Plaintiff’s Motion for Preliminary Injunction against Defendant Chapman, a former General Manager of Plaintiff, in this trade secret case. Based on largely undisputed evidence, Chapman met with his present employer on the same date as his resignation from Plaintiff. The following day, Chapman downloaded an assortment of Plaintiff’s files to a USB, including one file reflecting tens of thousands of transactions showing more than five years’ of Plaintiff’s customer purchase history. Following the filing of this lawsuit, Chapman began destroying evidence of his actions, including deleting text messages with his current employer and deleting emails from his personal email account. Chapman did not dispute that the information taken from Plaintiff was confidential or that the confidentiality clause in his employment agreement is valid.
Finding that Plaintiff’s “likelihood of success …. is uncontested” and the likelihood of irreparable harm “is just as clear,” the Court entered an Order enjoining Defendant Chapman from using or disclosing Plaintiff’s confidential information during the pendency of the litigation or soliciting any customer listed in the files he removed from Plaintiff’s possession.
By Natalie E. Kutcher
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.