N.C. Business Court Opinions – September 20, 2023 – October 4, 2023
Visionary Ed. Tech. Holdings Grp., Inc. v. Issuer Direct Corp., 2023 NCBC 65 (N.C. Super. Ct. Sept. 22, 2023) (Conrad, J.)
Key Terms: N.C. Gen. Stat. § 25-8-403; security transfer; appropriate person; standing; transfer agent; security registration
This action is a sister case to a case pending in Canada in which Fan Zhou, the majority shareholder of Visionary Education Technology Holdings Group, Inc., sued two former directors, You Bun Chan and Thomas Traves, for breach of contract and sought the return of Visionary’s shares which had previously been transferred to Chan and Traves. Zhou and Visionary filed the present case in North Carolina against Visionary’s transfer agent, Issuer Direct Corporation, seeking, first, an order barring Issuer Direct from removing restrictions on the shares and registering a transfer if and when Chan and Traves make such a request, and, second, a declaration that Issuer Direct cannot be liable to Chan and Traves for refusing to register a transfer.
The Court determined that Plaintiffs did not have standing to seek their requested relief under N.C. Gen. Stat. § 25-8-403. Section 25-8-403 allows an “appropriate person” to demand that an issuer’s transfer agent not register transfer of a security. “Appropriate person” is defined as the security’s registered owner. Because Visionary Education and Zhou were not the registered owners of the shares at issue, they did not have standing to seek relief under N.C. Gen. Stat. § 25-8-403, and, therefore, the Court did not have jurisdiction to grant such relief. The Court dismissed the complaint without prejudice. The Court did not rule on whether an issuer could enforce restrictions on share transfers through other contractual or statutory means.
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Husqvarna Pro Prods., Inc. v. Robin Autopilot Holdings, LLC, 2023 NCBC 66 (N.C. Super. Ct. Sept. 22, 2023) (Bledsoe, C.J.)
Key Terms: motion to dismiss; Rule 12(b)(6); Rule 12(h)(3); declaratory judgment; actual case or controversy; non-competition agreement; operating agreement; anticipatory breach
Husqvarna Products (collectively with Husqvarna Business, the “Husqvarna Parties”) specializes in outdoor power equipment, including robotic lawnmowers. Robin Autopilot (collectively with Robin Technologies, the “Robin Parties”) sells or rents robots to subscribers. Seeking to form a business relationship, Husqvarna Products and Robin Technologies entered into a non-disclosure agreement, followed by Robin Autopilot and Husqvarna Business entering into the Original Admission Agreement, whereby the Husqvarna Parties would contribute capital and robotics, parts, and accessories to Robin Autopilot through a separate Supply Agreement, and, in return, Husqvarna Business would be admitted as a member of Robin Autopilot and permitted to fill one seat on Robin Autopilot’s board of managers. The Original Admission Agreement included a non-solicitation provision, which prohibited Husqvarna from soliciting two businesses for a certain period. Robin Autopilot subsequently entered into an Amended Operating Agreement which allowed its members to engage in competitive business ventures. Following certain disputes, the Husqvarna Parties and the Robin Parties entered into a Settlement Agreement, and Husqvarna Business and Robin Autopilot entered into an Amended Admission Agreement and a Note Purchase Agreement.
The dispute underlying this litigation arose when Husqvarna Products began pursuing sales of its robotic products to professional users directly. After Robin Autopilot’s CEO sent a memo to the Husqvarna Parties objecting to this practice, the Husqvarna Parties filed suit against the Robin Parties and certain of Robin Autopilot’s members (the “Member Defendants”), asserting claims for a declaratory judgment regarding the parties’ rights under the various agreements; anticipatory breach of the Settlement Agreement and Note Purchase Agreement; and breach of the Supply Agreement. Robin Technologies and the Member Defendants moved to dismiss pursuant to Rules 12(b)(6) and 12(h)(3).
The Court first addressed Plaintiffs’ claims for a declaration that the Admission and Operating Agreements did not restrict their right to sell their products directly to third-parties. The Member Defendants and Robin Technologies contended that because they were not signatories to either agreement and their interests were unaffected by the declarations sought, the “actual case or controversy” requirement for a declaratory judgment action was not met and the claims should be dismissed. The Court agreed as to the Admission Agreements as a declaration of rights under those agreements would not impact any interests of the Member Defendants or Robin Technologies. That the Member Defendants disagreed with the Husqvarna Parties’ position was irrelevant because a mere difference of opinion does not constitute a controversy under the Declaratory Judgment Act. The Court also agreed that with respect to the Operating Agreement, the claim should be dismissed against Robin Technologies because it was not a member of Robin Autopilot and thus had no rights under the Operating Agreement. However, the Court disagreed with regard to the Member Defendants, since as members of Robin Autopilot, a determination of Husqvarna Business’s rights to compete under the Operating Agreement would necessarily determine the Member Defendants’ rights to compete as well.
Turning to the other agreements, the Court dismissed the declaratory judgment claims against Robin Technologies relating to the Supply Agreement and the Note Purchase Agreement as Robin Technologies was not a party to either and had no interests thereunder. The motion was denied, however, with respect to the Settlement Agreement, as Robin Technologies was a signatory to, and had continuing obligations under, the agreement.
Lastly, Robin Technologies sought dismissal of the claim for anticipatory breach of the Settlement Agreement, contending that since the claim was based on the memo from Robin Autopilot’s CEO, it did not show a refusal to perform by Robin Technologies. The Court disagreed. The complaint alleged that the memo’s author was the CEO of both companies, that Robin Technologies’ watermark appeared throughout the memo, and that the memo’s signature line identified the author as “CEO | Robin Technologies.” These allegations were sufficient at the 12(b)(6) stage to show that the memo was sent on behalf of both companies.
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Cutter v. Vojnovic, 2023 NCBC Order 45 (N.C. Super. Ct. Sept. 20, 2023) (Bledsoe, C.J.)
Key Terms: BCR 10.9; discovery dispute; discovery period; deposition; BCR 10.4
This order addresses a Business Court Rule 10.9 dispute. Plaintiff noticed a 30(b)(6) deposition of Defendant for February 2023. All parties appeared, but rather than taking the deposition, Plaintiff opted to engage in settlement negotiations. The discovery period expired in March with neither side seeking an extension. After settlement negotiations failed, Plaintiff served an amended notice for a 30(b)(6) deposition of Defendant. Defendant objected, contending that the notice was untimely and improper. Plaintiff responded that the parties had agreed to reconvene the deposition if settlement negotiations were unsuccessful.
The Court denied Plaintiff’s request to take the deposition and struck the notice. Although parties may agree to conduct discovery after the discovery deadline, BCR 10.4(d) prohibits the Court from entertaining a motion to compel or a motion for sanctions in connection with that discovery unless the parties have sought an order allowing the discovery.
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Truist Fin. Corp. v. Rocco, 2023 NCBC Order 46 (N.C. Super. Ct. Sept. 20, 2023) (Bledsoe, C.J.)
Key Terms: Rule 15(a); amendment as of right; responsive pleading; motion to dismiss
This order addresses whether Rule 15(a) precludes a plaintiff’s amendment as of right after any defendant files a responsive pleading. Plaintiffs had filed suit against Colliers Mortgage Holdings, LLC and certain Executives previously employed by Plaintiffs. Both Colliers and the Executives moved to dismiss; however, the Executives also filed an answer. Plaintiffs then filed an amended complaint as of right against Colliers, while simultaneously seeking leave to amend against the Executives (and asking for leave to amend against Colliers if the Court determined that they could not amend as of right). Colliers challenged Plaintiffs’ right to amend as of right.
While noting that federal courts have often reached a contrary conclusion, the Court determined that under North Carolina precedent, a plaintiff’s right to amend is cut off after any defendant files a responsive pleading. Accordingly, Plaintiffs’ amended complaint was void and without legal effect because Plaintiffs’ right to amend as of right was cut off by the Executives’ filing of an answer. Nevertheless, the Court ruled that in the interests of judicial efficiency and economy, the motion to amend was granted as to all Defendants, without prejudice to Defendants’ right to seek dismissal under Rule 12. The motions to dismiss the original complaint were denied as moot.
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Anderson v. Beresni, 2023 NCBC Order 47 (N.C. Super. Ct. Sept. 22, 2023) (Davis, J.)
Key Terms: Nonprofit Corporation Act; N.C. Gen. Stat. § 55A-7-40(d); derivative action; settlement; consent motion to approve settlement and dismissal; property owners association
Plaintiffs, members of a property owners association operating under North Carolina’s Nonprofit Corporation Act, had brought a derivative action against current and former members of the association’s board of directors and the declarant asserting that the board had failed to invoice the declarant for lot assessments allegedly owed. After reaching a settlement agreement, the parties, pursuant to N.C. Gen. Stat. § 55A-7-40(d), sought approval from the Court of the settlement and dismissal of the derivative claims.
The Court noted that the balancing factors typically applied to approval of the settlement of derivative claims in the context a for-profit corporation—balancing 1) any legitimate corporate claims against 2) the corporation’s best interests—were equally applicable to a non-profit corporation. Applying these factors and noting the risk, uncertainty, and significant expense of continued litigation, the Court granted the motion, determining that the proposed settlement was in the best interest of the association and its members, and was fair, reasonable, and adequate in all respects.
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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.