Protecting Your Client's President From Having To Be Deposed: NC Business Court

You have probably been in this situation.  Your client is a successful corporate entity, maybe publicly held.  You are defending the entity in a lawsuit and you receive a Notice of Deposition for the CEO of your client.  The CEO is annoyed, says that she knows nothing about the substance of the lawsuit, and that she's too important (and too darn busy) to sit down for a deposition.  She expects you to get her out of it.

It's a difficult objective.  The NC Business Court has looked at this set of facts a couple of times, Once, a couple of years ago, in an unpublished Order in the case of Gay v. People's Bank (which I wrote about in this post), it granted a Motion for a Protective Order. And last week, in Next Advisor Continued, Inc. v. Lendingtree, Inc, 2016 NCBC 70, the Court denied a similar Motion.

Both decisions came from Judge Bledsoe.  Each time he discussed something called the "apex doctrine," but he decided not to formally adopt it.

The Apex Doctrine

What is the apex doctrine?  It is a federally recognized principle that helps top officers of a corporate client avoid having to be deposed.  In a decision from the Western District of North Carolina, it was described as follows:

The 'apex doctrine,' rooted in Federal Rule of Civil Procedure 26, was developed as an aid in ensuring that the liberal rules of procedure for depositions are used only for their intended purpose and not as a litigation tactic to create undue leverage by harassing the opposition or inflating its discovery costs.

Op. ¶14 (quoting Performance Sales & Mktg. LLC v. Lowe's Cos., 2012 U.S. Dist. LEXIS 131394, at *16 (W.D.N.C. 2012)).

The apex doctrine doesn't presumptively exclude the litigant's top officer from being deposed.  It puts the burden on the party asking for the deposition to show that “(1) the executive has unique or special knowledge of the facts at issue and (2) other less burdensome avenues for obtaining the information sought have been exhausted."  Id.

If you are in federal court and are thinking of filing a Motion for a Protective Order to keep your client's President from having to endure the pain of a deposition, Judge Bledsoe's Opinion in the Next Advisor decision contains a comprehensive discussion of the federally recognized apex doctrine (in ¶¶13-14).

North Carolina Standards In Lieu Of The Apex Doctrine

Judge Bledsoe said that North Carolina's courts had not adopted the apex doctrine, and that he found it unnecessary to do so.  He said that our Courts "are permitted to limit discovery where 'justice requires it' to protect a party or person, including a corporate executive, 'from unreasonable annoyance, embarrassment, oppression, or undue burden or expense.'" Op. ¶15.  Discovery can also be limited if it is “unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive,” or is “unduly burdensome or expensive, taking into account the needs of the case, the amount in controversy, limitations on the parties’ resources, and the importance of the issues at stake in the litigation.” N.C. R. Civ. P. 26(b)(1a)."  Order ¶15.

So, Judge Bledsoe followed those general principles in ruling that Plaintiff's CEO would have to be deposed.  He said that the CEO had "unique, personal knowledge relevant to the issues in dispute in this litigation" relating to Defendant's attempted acquisition of the Plaintiff."  Op. ¶17.

A CEO Being "Too Busy" Isn't Enough To Warrant A Protective Order

He rejected Plaintiff's argument that the CEO "carri[ed] heavy responsibilities as the CEO of a publicly traded company with over 300 employees" and that he should be protected from having to be deposed for that reason.  He held that:

Although [the CEO] undoubtedly maintains a very busy schedule and carries heavy responsibilities in his role as Lending Tree’s CEO, courts have consistently held that if a prospective deponent has relevant knowledge, the mere fact that the prospective deponent is a CEO or is busy does not constitute a showing of good cause for a protective order.

Op. ¶18.

Given that the CEO had direct knowledge of some of the issues in the case, Judge Bledsoe found that the Defendant's right to obtain relevant information from him "outweighed any burden or inconvenience imposed [the CEO] by requiring him to prepare for and submit to a deposition."  Op. ¶19.

There was no evidence of "annoyance," "harassment," or "undue burden" to the CEO.

If you are wondering why a similar Motion for a Protective Order in the People's Bank case was granted, it was a different set of facts.  The Defendant in that case, a "relatively small bank," had already provided four of its executives for their depositions and argued that further depositions of its top officers would be repetitive of those already taken and disruptive to its operations.  Judge Bledsoe said that he was "persuaded that Defendant faces a sufficient risk of disruption and undue burden in these circumstances to afford Defendant limited relief."  Order ¶21.  He permitted the deposition of the bank's Chief Operating Officer, but prohibited the depositions of its Chief Financial Officer and its Chief Administrative Offer.  That Order was without prejudice to the Plaintiff being allowed to re-notice the depositions of the CFO or the CAO.

 

 

 

 

 

 

 

 

 

 

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It Takes More Than Just $5 Million To Get A Case Into The NC Business Court

This week, I published a post on this blog in which I suggested that a case involving $5 million in controversy could be designated to the Business Court without the Court having to analyze the nature of the claims before it to see if they met any of the bases for mandatory jurisdiction contained in G.S. §7A-45.4.

That was wrong, and it provoked a torrent of controversy directed to me.  Well, probably not a torrent to you, but a torrent to me: an email and a phone call from Business Court Chief Judge Gale and an email from an eminent attorney friend in Raleigh.  I'm glad that Judge Gale looks at my blog (I think that Judge Bledsoe, Judge McGuire, and Judge Robinson look at it too), but I'm unhappy that I might have said anything on this blog that generated a phone call from Judge Gale and which could have steered anyone in the wrong direction.

Let me start by saying that you shouldn't rely on my blog for legal advice or its accuracy.  There is a disclaimer buried somewhere in this blog which says exactly that.

Notwithstanding that disclaimer, I'm pretty serious about getting it right with this blog.  So let's look at the part of the statute governing designations to the Business Court which I didn't describe correctly on Monday: G.S. §7A-45.4(b)(2).  It says:

An action described in subdivision (1), (2), (3), (4), (5), or (8) of subsection (a) of this section in which the amount in controversy computed in accordance with G.S. 7A-243 is at least five million dollars ($5,000,000) shall be designated as a mandatory complex business case by the party whose pleading caused the amount in controversy to equal or exceed five million dollars ($5,000,000).

So the statute is pretty clear that an amount in controversy of more than $5 million, standing alone, isn't enough to make a case mandatory for designation to the Business Court.

The case still has to fall within the grounds set forth in G.S. Section 7A-45.4(a)(1), (2), (3), (4), (5), or (8).  So when I suggested in my last post that Judge Gale didn't have to analyze whether the Complaint in Southeastern Automotive, Inc. v. Genuine Parts Co. 2016 NCBC 61 qualified as an intellectual property case because more than $5 million was in controversy, I was not right.

 

The Business Court Opens Its Door Wide To "Intellectual Property" Disputes

The Business Court doesn't often discuss its interpretation of the statutory bases for a designation to the Court, all of which are contained in G.S. sec. 7A-45.4.  So its published Order this month in Southeastern Automotive, Inc. v. Genuine Parts Co. 2016 NCBC 61, is worth noting.

The issue in Southeastern Automotive was whether the Complaint qualified for designation to the Business Court under G.S. §7A-45.4(a)(5), which says that a party may designate as a complex business case:

Disputes involving the ownership, use, licensing, lease, installation, or performance of intellectual property, including computer software, software applications, information technology and systems, data and data security, pharmaceuticals, biotechnology products, and bioscience technologies.

The statute, before the amendments effective October 1, 2014, mentioned only "disputes involving '[i]ntellectual property law, including software licensing disputes." Op. 19 (referencing former version of G.S. §7A-45.4(a)(5)). 

The Southeastern Complaint did not directly raise issues regarding the ownership of intellectual property. It centered around the Defendant's acquisition of the Plaintiff, and Plaintiff's claims that it had not been fully compensated in the sale.  The shortfall, according to the Plaintiff, was caused by the inadequate operation of Defendant's software programs with respect to the inventory which the Plaintiff had sold.

Judge Gale saw the 2014 amendment as expanding the Court's role in intellectual property lawsuits.  He held:

The Court concludes that the 2014 amendment to section 7A-45.4(a)(5) expanded the scope of disputes within the statute’s purview to include a dispute that involves a material issue regarding the use or performance of intellectual property, including computer software and data, without requiring a dispute regarding ownership of the intellectual property or another dispute that may require application of principles of the body of law known as intellectual property law.

Order 20.

In the end, this analysis by Judge Gale was unnecessary, as the amount in controversy, per the Southeastern Complaint, was in excess of five million dollars.  That made this a case in which designation would be mandatory regardless of whether it was requested by one of the parties.  Order 4 (referencing G.S. §7A-45.4b)(2)).

I frequently look at the Orders from the Chief Judge of the Business Court on challenges to designations (the Chief Judge handles all of the Oppositions to Designation) and don't find much to write about as they usually say nothing more than something like "the allegations in the Complaint fall within the mandatory jurisdiction of the Business Court,"  I collected a number of those unpublished Orders in this 2008 post.

That said, every once in a while the Business Court says something significant about the scope of its mandatory jurisdiction.  For example, in its unpublished Order in  Sonic Automotive, Inc. v. Mercedes-Benz USA, LLC, the Court spoke about its broad approach to designations involving antitrust matters (per G.S. §7A-45.4(a)(3).  

The NC Business Court On Non-Solicitation And Non-Inducement Provisions

There is more discussion of non-solicitation clauses and non-inducement clauses in Judge McGuire's opinion last week in Sandhills Home Care, LLC v. Companion Home Care-Unimed, Inc., 2016 NCBC 59, than I think that I've ever seen before in a North Carolina court decision.  Non-solicitation clauses prohibit a former employee from trying to get business from his former employer's clients.  Non-inducement clauses prevent a former employee from encouraging other employees of the former employer from leaving to join him in his new employment.

Yesterday's post covered the non-competition restrictions in the Sandhills agreement.

Let's start with the non-inducement provisions of the Sandhills agreement:

Non-Inducement Provisions Are Enforceable

Non-inducement provisions are enforceable in North Carolina and they receive the same analysis as non-solicitation provisions (Op. ¶42).  More about that standard for analysis is below.

The Defendants in the Sandhills case raised a novel (and completely unsupported) argument about why the non-inducement provisions before the Court were invalid.  They said that the restrictions violated their right to engage in concerted activity under the National Labor Relations Act, and that they suppressed competition in "North Carolina's home healthcare market." 

Judge McGuire shot down that argument, stating that "North Carolina's appellate courts have held that such restrictions on inducing a former employer's employees can be enforceable" and that the Defendants had "cited to no source for the contention that there is a North Carolina public policy in favor of protecting employee concerted activity."  Op. ¶47

Non-Solicitation And Non-Inducement Provisions Are Subject To The Same Analysis As Non-Competition Provisions

I think that I had been successful in the past in persuading a North Carolina Judge that a provision preventing a former employee from soliciting his former employer's customers did not have to satisfy the same standard as a non-compete.

That argument won't work any longer, if it ever did.  A valid non-solicitation provision, like a provision restricting competition, must be:

(1) in writing, (2) entered into at the time and as part of the contract of employment, (3) based on valuable consideration, (4) reasonable both as to the time and territory embraced in the restrictions, (5) fair to the parties, and (6) not against public policy.

Op. ¶29.

But the standard for reviewing the validity of a non-solicitation provision is more liberal than the standard applied to a covenant not to compete.  Judge McGuire said that:

North Carolina courts are more willing to enforce non-solicitation provisions targeted to the former employer's customers or prospective customers than provisions prohibiting entirely the former employee from working for certain employers or in certain regions.

Op. ¶31.

A Non-Solicitation Agreement Doesn't Need To Be Tied To A Specific Territory

The Sandhills non--solicitation provision was not limited to a specific territory.  It was limited instead to the "book of business" of the Plaintiff.

Judge McGuire said that an argument  made by the Defendants --- that a non-solicitation restriction could not be enforced if it was not tied to a specific geographical description -- had been rejected by the NC Court of Appeals.   Op. ¶33 (citing Farr Associates, Inc. v. Baskin, 138 N.C.App. 276, 281, 530 S.E.2d 878, 882 (2000)).  So, he held that:

North Carolina's courts will enforce a covenant prohibiting a former employee from soliciting his former employer's customers even when not tied to a specific geographic region where 'the terms and conditions of this contract clause were reasonably necessary to protect the employer's legitimate business interests.'

Op. ¶33.

You are more likely to have a customer based restriction enforced if the time period of the restriction is not long.  Time and territory restrictions are evaluated "in tandem."  Op. ¶18.  In the case before Judge McGuire, it was limited to one year, short enough that a geographic restriction was not necessary.

Can A Non-Solicitation Provision Extend To Clients With Which The Employee Had No Contact?

It seems to be an open question whether a non-solicitation covenant can prohibit contact with all of a former employer's customers, or just those customers or prospective customers with whom the employee had personal contact." Op. ¶34

Judge McGuire avoided having to resolve that issue saying that he could not rule the restriction covering all of the former employer's clients to be unreasonable at "this very early stage of the case."  Op. ¶35.

A Non-Solicitation Provision Cannot Cover Prospective Customers Of The Former Employer

Judge McGuire didn't need to break new ground in ruling that language in the restriction prohibiting the solicitation of prospective customers was "unreasonably broad." Op. ¶37.

The NC Court of Appeals reached that conclusion several years ago, in Hejl v. Hood, Hargett & Assocs., 196 N.C. App. 299, 674 S.E.2d 425 (2009).  It held there that:

Defendant's attempt to prevent Plaintiff from obtaining clients where Defendant had failed to do so, is an impermissible restraint on Plaintiff.

Id. at 307, 674 S.E.2d at 430.

Don't include prospective clients in your non-solicitation agreements. This Plaintiff was lucky that the inclusion of prospective customers didn't invalidate its entire non-solicitation provision.  Since that "provision [was] a separate and divisible obligation contained in a separate sentence of the covenant, the Court was able to "blue pencil" it out and leave the remaining restriction on solicitation standing. Op. ¶37.

 

 

A Few Things To Avoid When Drafting A North Carolina Covenant Not To Compete

The Business Court closely examined a set of restrictive covenants last week in Sandhills Home Care,, LLC v. Companion Home Care-Unimed, Inc., 2016 NCBC 59. This decision collects a number of North Carolina Court of Appeals decisions assessing the validity of covenants not to compete (and non-solicitation and non-inducement covenants) and highlights language contained in many restrictions which is probably invalid.

Don''t Overreach In Describing The Activities That Will Be Restricted

The Plaintiff's covenant against competition said that its former employee could not "work for, provide services for, consult with, or otherwise assist any individual or entity who is in the home health or personal care business competing with the Employer" in the North Carolina counties in which the Plaintiff was providing services at the time of the employee's separation.

This restriction could be read to prohibit the employee from providing any type of service to or for a competitor, entirely different from the type of work the former employee had done for the Plaintiff.  That was unreasonably broad, ruled Judge McGuire.  He held that:

Covenants that restrict an employee from working for in any capacity or providing services of any type to competitors, and are not restricted to prohibiting the employee from performing the same type of work or services, are unreasonable. 

Op. ¶21.

 

Don't Include  "Advising" Or "Holding Any Ownership Interest" In A Similar Business In Your Definition Of "Compete"

Judge McGuire ruled that the Plaintiff's prohibition of its employee from "advising" or "holding any ownership interest in" any home health care business was unreasonable and unenforceable. Op. ¶28.

The word "advising" was

broad enough to sweep within it all sorts of employment and other services that would not impinge on Plaintiff's interests in any way.

Op. ¶28. Judge McGuire gave this example:

an employee might become employed by an interior design or decorating business that advises a home health care provider on decorating its corporate offices, or a technology company providing consulting services to a home health care provider regarding its computer network needs.

Op. ¶28.  Restricting a former employee from employment with a competitor which is unrelated to the job performed for the former employer went beyond a protection of the Plaintiff's legitimate interests.

As for the restriction on "holding any ownership interest in a competitor, Judge McGuire said that this language, "read literally, would prohibit the employee from owning shares of a mutual fund that had a tiny holding in a publicly-traded home health care company." Op. ¶28.

Judge McGuire found that there were no facts to support such a "broad prohibition."  Op. ¶28.

Don't Prohibit The Employee From Providing "Any Work Or Services" For  Any Client Of Her Former Employer

Many covenants not to compete bar the former employee from doing any work at all for an existing client of the employer, even if the employee had no contact with that client.  The Sandhills covenant said that the former employee would not do "any work or services for any customer or account" which the employer (not the employee) had serviced in the six months prior to termination of employment.

A covenant prohibiting the former employee for performing any type of service for a client of his employer, regardless of whether that employee had any contact with that client, is unreasonably broad.  Op. ¶29.

So is a restriction prohibiting the former employee from providing "any work or services" for the clients with whom she did have contact valid?  Probably not.  See above.

_______________________________________________

There was so much worth writing about in this Opinion (39 pages!) that I've divided this post into two parts, today's post dealing with non-competition provisions, and a second part (coming tomorrow) on non-solicitation and non-inducement provisions.

By the way, I have never drafted a covenant not to compete, though I have pursued the enforcement of many of them.  You don't want a covenant not to compete drafted by your partner to be ruled to be unreasonably broad.  (I've dreaded having to tell a partner that, but never had to actually deliver that bad news). Tell them to avoid using language like that contained in the Sandhills covenant.

"Winding Up" A Law Firm Partnership Doesn't Necessarily Mean Liquidation

You can "wind up" a partnership without having to liquidate all of its assets and terminating its existence.  So ruled Judge McGuire last week in Hardin v. Lewis, 2016 NCBC 55.  But that may not be true for all partnerships.  This case involved a law firm partnership which was continuing to operate its practice after one of its partners left to start her own law firm.

The lawsuit concerned the amount due to the Plaintiff from her former partners for the value of her partnership share (along with a host of other claims on which the Court will rule later).  Her withdrawal had constituted a dissolution of the partnership as a  matter of law (Op. ¶4). She had also requested the winding up of the partnership.

What Is "Winding Up"?

North Carolina's Uniform Partnership Act seems to dictate that winding up is the final stage in the existence of a partnership.  Section 59-60 of the General Statutes says that: "[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed."  N.C.G.S. §59-60.

That is consistent with the definition often given to "winding up":

The last phase in the dissolution of a partnership or corporation, in which accounts are settled and assets are liquidated so that they may be distributed and the business may be terminated.

The Free Dictionary.

That a winding up ending in liquidation was not required of their law partnership was particularly good news for the Defendants in Hardin, as they were the remaining partners in the law firm which Plaintiff had left.  They had continued to practice law without their departing partner, and filed a Certificate of Amendment with the NC Secretary of State to change the name of the firm to delete Plaintiff's name.

Judge McGuire found support for his ruling that the old partnership would not have to liquidate as a part of its winding up in decisions from other states, observing that:

a number of courts have concluded that a 'winding up' is technically effected when an outgoing partner is compensated for their interest in the dissolving partnership, without any strict requirement that the dissolving partnership be liquidated.

Op. ¶18.

Judge McGuire said that given "the potential disruption to the representation of [the law firm's] current clients that would result from a liquidation of the Firm's assets" that an accounting and settling of accounts between the partners as of the date of the dissolution, with the new partnership continuing in business was the appropriate means of a "winding up."  Op. ¶19.

Law Firms Should Have Written Partnership Agreements In Place To Avoid Cases Like This

The Business Court has been called upon before to adjudicate breakups of law firms, like in Walters & Zimmerman, PLLC v. Zimmerman and in Mitchell, Brewer, Richards, Adams, Burge & Boughman, PLLC v. BrewerIn the Mitchell case, the Court struggled with the issue of how a withdrawing partner should be compensated for fees generated from a contingent fee engagement after the withdrawal.

in every one of these kind of cases in the  Business Court, the partnership (or the PLLC) did not have a written agreement regarding the relationship of its partner/members, which led to significant dispute.  If you are a lawyer practicing with one or more other lawyers, put your agreement in writing and avoid having to get a Business Court Judge to resolve your disagreement.

Even though the Defendants in the Hardin case didn't have to liquidate their firm and shut down their practice, they still have to deal with the annoyance of having a Receiver overseeing their practice while the amount to be paid to the Plaintiff for her partnership interest is determined.  And they have to bear the cost of the Receiver.

Your "Limited Appearance" in the Business Court May Not Be As Limited As You Think

The attorney for the Plaintiff in Foster Biodevice, LLC v. Cantrell. 2016 NCBC 51 said that he was only making a limited appearance, but the Business Court (through new Business Court Judge Robinson, in his first Opinion for the Court) wasn't buying the limited nature of the appearance.

Plaintiff's counsel had previously obtained an Order from Judge Bledsoe permitting him to withdraw as counsel for Foster Biodevice.  He then appeared in the case and filed a Voluntary Dismissal of the case Without Prejudice after his withdrawal.  He stated in the Voluntary Dismissal that he was "making a limited appearance . . . for the sole purpose of filing this Notice of Limited Appearance and Voluntary Dismissal Without Prejudice."

Limited Appearances Are Allowed Under The Revised Rules Of Professional Responsibility

The Revised Rules of Professional Conduct of the North Carolina State Bar permit limited appearances.  Rule 1.2(c) says that “[a] lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances.” in a "Formal Ethics Opinion," the State Bar said that the ability of an attorney, in a litigated matter, to make a “limited appearance” is subject to the "rules of the tribunal."  99 FEO 12, Inquiry No. 3.

Judge Robinson rejected the "limited appearance," saying that he "deem[ed] Plaintiff's counsel to be . . . counsel of record for Plaintiff in this matter, at least with regard to proceedings in this Court, subject to all of the responsibilities of counsel of record."  Op. ¶25.

Judge Robinson pointed out that there was no Rule (either in the Business Court Rules, the Rules of Civil Procedure, or the Rules of General Practice) "that would permit a limitation of responsibility under these circumstances."  Op. ¶25.

Judge Robinson also looked to Rule 16 of the General Rules of Practice, which says that "[n]o attorney who has entered an appearance in any civil action shall withdraw his appearance, or have it stricken from the record, except on order of the court."  Op. ¶25

Was This Plaintiff Entitled To Take A Voluntary Dismissal?

Beyond the issue of the attempted "limited appearance," Judge Robinson dealt with the issue of whether the Plaintiff was entitled to file a voluntary dismissal of its case.  The answer ordinarily depends on whether the party taking the dismissal has "rested its case."  The Business Court explored that question recently.

In the case before Judge Robinson, the question was slightly different.  Another restraint on taking a voluntary dismissal applies when the opposing party has made a claim for affirmative relief arising out of the same transaction which is the subject of the attempted dismissal.  The Defendant here had asked in its prayer for relief (though not in a counterclaim) for a declaratory judgment  that it was the owner of the intellectual property which was at issue in the Complaint.

That prayer for relief wasn't enough for Judge Robinson to deny the Plaintiff the right to take a voluntary dismissal.  He said that it was nothing "but a standard request that the Court deny Plaintiff's requested relief."  Op. ¶25.

Since Judge Robinson allowed the voluntary dismissal without prejudice, does it make any difference that Plaintiff''s counsel must remain as Plaintiff's counsel of record?  Probably not, since there is no longer a case in which that lawyer is required to appear.

Though it might make no difference to the attorney for Foster Biodevice, the ruling should cause all lawyers to consider whether they can limit the scope of their responsibility in a particular case and state that they are making a limited appearance.  They may find themselves committed more deeply than they had anticipated.

Coincidentally, yesterday I saw lawyers file Notices of Appearances in the Business Court in three related cases on a limited basis, in which they said they are appearing solely to deal with one particular Motion.  That limitation may not work for them, although that case is not before Judge Robinson.

Judge Robinson Finally Joins The Court

You've known for a long time that Governor McCrory nominated Michael Robinson to be a Business Court Judge.  That happened over a year ago, back in March of 2015.  He was confirmed by the NC General Assembly on June 16th, and was sworn in as the newest Judge on the Business Court on July 1st.

Judge Gale has reassigned a number of the cases previously pending in the Business Court to Judge Robinson.  If you've got a case in the Business Court, you might want to check to see if your case has been reassigned to Judge Robinson.

Judge Robinson will be holding court in a new courtroom (which is not yet ready) at Wake Forest Law School in Winston--Salem.  For the time being, he will be sharing a courtroom and chambers  with Chief Judge Gale, in Greensboro.

 

NC Court Of Appeals, Not Sure That It Had Jurisdiction, Dismisses Appeal From Business Court Decision

How does your appeal get dismissed when you've appealed to the "right", "appropriate", or "correct" court?  In other words, your appeal was to the Court with jurisdiction over your appeal.  It happened in the NC Court of Appeals this week.

The Date That Your Case Was Designated To The Business Court Is Critical To Your Appeal

For some context, you'll remember the NC Court of Appeals decision in Christenbury Eye Center P.A. v. Medflow, Inc., in which the COA dismissed an appeal from a Business Court ruling because the proper appellate court to hear that case was not it, but the NC Supreme Court.  That was because the case was designated to the Business Court after October 1, 2014, when G.S. § 7A-27(a)(2), became effective.  That statute specifies that appeals of the Business Court's final judgments will go to the NC Supreme Court. 

Since the Christenbury appeal was from a case designated to the Business Court after the October 1, 2014 effective date of the statute, it was to the "wrong" Court. the NCCOA concluded that the case should have been appealed to the NC Supreme Court and it lacked jurisdiction to hear the appeal.

But in Grasinger v. Williams, this week, the NCCOA dismissed an appeal from a Business Court decision which was properly appealed to it, the "correct" Court.  This case was designated to the Business Court before the effective date of the statute, so there was no appeal directly to the NC Supreme Court under the new Section 7A-27(a)(2).

So, why did the COA dismiss this appeal?  Because there was nothing in the Record on Appeal showing the date that the case was designated to the Business Court.  In other words, there was no way to tell whether the case was designated to the Business Court before October 1, 2014 (in which case the appeal would go to the COA) or after that date (in which case the appeal would go to the NC Supreme Court).  Judge Calabria said:

[w]ithout the precise date upon which this action was designated as a mandatory complex business case, we cannot determine with certainty whether jurisdiction lies with this Court or our Supreme Court. . . .  In the instant case, because plaintiff-appellants failed to include the designation approval or a designation order in the record on appeal and failed to note the date of designation in their brief, they have failed to confer jurisdiction on this Court and we dismiss.

Op. at 9.

Show The Designation Date In Your Record On Appeal

She said that the party appealing from a case designated as a complex business case, "bears the burden of showing the actual designation date"  Op. at 9.  In order to carry that burden in an appeal from a Business Court case designated before October 1, 2014, the appealing party:

must include in the record a copy of the dated designation and explicitly note the date of designation in the statement of grounds for appellate review portions of their brief in order to confer jurisdiction on this Court.

Op. at 9.

The COA rejected the argument that since the Amended Complaint (in the Record on Appeal) showed a filing date of November 6, 2013, the designation to the Business Court must have followed no more than thirty days later (if the statutory procedure for designation was followed), and would have been designated to the Business Court well before the effective date of the statute requiring appeals be made to the NC Supreme Court.  Judge Calabria outlined a possible set of events by which a designation could be entered beyond the thirty day period specified by the statute.  Op. at 7.

Couldn't The COA Have Taken Judicial Notice Of The Date Of Designation?

The COA also was not willing to take the few minutes it took me to find the Grasinger Designation Order in the readily accessible case file on the Business Court's website.  The Designation Order bears a date of October 25, 2013, putting the Business Court's decision squarely within the COA's jurisdiction.  Could the COA have done the same thing that I did?  Sure, the NC Supreme Court has said that "this Court may take judicial notice of the public records of other courts within the state judicial system." Alpine Motors Corp. v. Hagwood, 233 N.C. 57, 62 S.E.2d 518 (1950).

In fact, if the North Carolina Rules of Evidence apply to the Court of Appeals, judicial notice might have been mandatory.  Rule 201(d) says: "When mandatory.– A court shall take judicial notice if requested by a party and supplied with the necessary information."  Of course, the Appellant in Grasinger probably had no idea that the COA would focus so squarely on the date of the designation, and that it would be unwilling to spend a couple of minutes on the Business Court's website to satisfy itself that it had jurisdiction over the appeal.  The Appellant  therefore had no opportunity to request that the COA take judicial notice of the readily available Designation Order.

To be fair, as Judge Calabria pointed out, "it is not the duty of this Court to construct arguments for or find support for [an] appellant’s right to appeal[.]" (quoting Jeffreys v. Raleigh Oaks Joint Venture, 115 N.C. App. 377, 380, 444 S.E.2d 252, 254 (1994).

The Court then dictated a mandatory procedure for those appealing opinions in case designated to the Business Court before October 1, 2014: they must include the Designation Order in the Record on Appeal, and state the date of designation in the statement of grounds for appellate review in their brief.  Op. at 9. 

This Dismissal Looks Like A One-Off

Should we be worried about a deluge of dismissals from the COA because Appellants didn't specify the date their case was designated to the Business Court?  Apparently not.  I thought that there couldn't be that many cases that old around still on appeal, but I checked and there were more than ten.  I looked at most of the Records on Appeal in those cases, and found that each either included the Designation Order or a statement reflecting the date of designation. So it's unlikely that there will be any more dismissals of this type from the COA.

Be Careful With Your Records On Appeal Going Forward Anyway

But in case the NC Supreme Court is as unwilling as the COA to check the Business Court website to determine whether a case was designated after October 1, 2014, it's a good idea to follow the instruction from the Grasinger opinion in appeals to the NC Supreme Court.

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I would have missed this decision but for my colleague Dan Smith, who circulated an email this week around Brooks Pierce about this decision.  (This is the second time that I owe a thank you to Dan)  And, of course, I was "scooped" again by the North Carolina Appellate Practice Blog, which wrote about this decision a couple of days ago.  I am reconciling myself to being much slower than I used to be.  I don't like it.

NC Attorney General Reaches $9 Million Settlement With "American Indian Business" Western Sky Over Usurious Loans

You will remember the North Carolina Attorney General's lawsuit against Western Sky Fin'l, LLC. It generated an opinion from the Business Court last year in which Judge McGuire enjoined the Defendants from making further high interest loans in violation of North Carolina's usury laws.  The Defendants had claimed that as an American Indian related business, they were exempt from North Carolina's usury laws regarding their lending operations.

Judge McGuire signed off this week on a Final Judgment in State ex rel. Cooper v. Western Sky Fin'l, LLC resolving the case, based upon the consent of all parties.

If you have questions about the terms of the Final Judgment, here are some answers:

  • Can Western Sky make any more loans in North Carolina?  No.  Western Sky and the other Defendants are permanently enjoined from offering loans in North Carolina, unless they obtain a license to do so. (¶4)
  • Can Western Sky collect on its outstanding loans?  No, Western Sky is enjoined permanently from collecting on any loans that it has already made.  (¶4) It must adjust any outstanding loans to a "zero balance." (¶5)
  • Can Western Sky's North Carolina borrowers get refunds of the excessive interest they paid to Western Sky? Yes, the Defendants are required to put $9,025,000 in an escrow account to provide refunds to North Carolina consumers who borrowed money from Western Sky.  (¶8)  The $9,025,000 is due within ten days of the date of entry of the Final Judgment.  The refund amount to  be paid to each eligible Borrower is based on the amount of interest paid by each borrower to Western Sky in excess of the maximum of 16% interest allowed by NC law. (¶10).  But the refund amount apparently is not equal to the full amount of usurious interest paid.
  • How will the refund process be handled? The refund process is to be administered by a company called Dahl Administration.  The Defendants must cover Dahl Administration's fees and expenses up to $100,000.  Dahl Administration is required to notify all borrowers who may be entitled to a refund with a "Notification of Refund Eligibility" within sixty days. Any Borrower accepting a refund is required to sign a Release of the Defendants.
  • Does Western Sky have to pay anything else?  Yes, the Defendants must pay $250,000 to North Carolina "for the State's costs and attorneys' fees." (¶7).
  • My inability to pay back my loan from Western Sky has hurt my credit, what can be done about that?  The Defendants are required, within sixty days, to contact Equifax and Experian (two of the major credit reporting agencies in the U.S.) and to request that they remove any reporting regarding Western Sky's loans to North Carolinians. (¶6)
  • What If another State reaches a better settlement with Western Sky?  It is possible that another State might strike a better deal than the one obtained by the North Carolina Attorney General.   (There are multiple lawsuits pending against Western Sky in other States).  But the Final Judgment protects (in 20) against any other State obtaining a more favorable settlement.  A more favorable settlement is defined in the Final Judgment as a settlement that requires the Western Sky Defendants to pay restitution of more than $9,025,000 to borrowers in any other State and that amount is more than 40% of the amount of usurious interest collected in that other State.  (I guess that 40% figure means that Western Sky is only going to have to repay 40% of the highly excessive interest it charged,)
  • What If Western Sky sold my loan, am I still covered by the Final Judgment?  It looks like the Final Judgment doesn't cover loans which Western Sky sold on the secondary market.  Although the Final Judgment extends to the "successors" and "assignees" of the Defendants, the Final Judgment says that "[f]or the avoidance of doubt, the terrms 'successors' and 'assignees' do not apply to parties not subject to this Final Judgment that purchased loans from Defendants." Final Judgment 1.

If I had needed to borrow money from Western Sky, and was despairing about the vicious debt cycle its loan had thrown me into, I would consider this a pretty good resolution by the Attorney General.  The AG's office issued a Press Release regarding the case yesterday.

Why North Carolina Is Probably The Best State In Which To File A Voluntary Dismissal Of Your Case

You have a case set for trial in a state trial court.  You are tenth on the trial calendar, but the nine cases in front of you have crumbled and settled over the weekend.  Plus, your most important witness is gone from your state based on your guess that the case wouldn't be reached for trial.  You've been hobbled by an Order granting a Motion in Limine excluding some of your evidence from trial. Even worse, the statute of limitations ran on your claims while your case was pending.  And you really aren't ready (or don't want) to try this case anyway.

Wouldn't it be nice to wipe the slate clean and get a fresh start?  Well, you can do that in North Carolina, but probably in no other court.  If you are admitted to practice law in North Carolina, you know that in NC state court a plaintiff can dismiss his case "by filing a notice of dismissal [per Rule 41 of the NC Rules of Civil Procedure] at any time before the plaintiff rests his case." 

That is a much more generous allowance of the voluntary dismissal right than anywhere else.  In federal court (and under the Rules in many other states), by contrast, a voluntary dismissal must be filed much sooner: "before the opposing party serves either an answer or a motion for summary judgment."

The "Safety Net" Of Rule 41

The North Carolina Supreme Court (relying on North Carolina's civil procedure expert, Gray Wilson) has said that:

The Rule 41(a) voluntary dismissal “has salvaged more lawsuits than any other procedural device, giving the plaintiff a second chance to present a viable case at trial.” 2 G. Gray Wilson, North Carolina Civil Procedure § 41-1, at 32 (2d ed. 1995). Many plaintiffs have used “this rule to cure an unforeseen defect in a claim that did not become apparent until trial . . . . The rule also offers a safety net to plaintiff or his counsel who are either unprepared or unwilling to proceed with trial the first time the case is called.” 2 G. Gray Wilson, North Carolina Civil Procedure § 41-1, at 33.

Brisson v. Santoriello, 351 N.C. 589, 597, 528 S.E.2d 569, 572-573 (2000).

The longer period of time in which a plaintiff can take a voluntary dismissal (without the permission of the opposing party) is not the "distinct" feature of the North Carolina Rule which Judge Bledsoe referenced last week in  BBB&T BOLI Plan Trust v. Massachusetts Mutual Life Ins. Co., 2016 NCBC 34 at ¶17 .  That feature is the extension of the statute of limitations governing your claims.  The Rule says that so long as your dismissed lawsuit was timely filed, "a new action based on the same claim may be commenced within one year after such dismissal."  That's true even if the statute of limitations has expired at the time of the voluntary dismissal.

When Has A Plaintiff "Rested His Case"?

The words "rests his case" has a trial connotation to me.  When the Plaintiff has presented all of his documents and witnesses and turns the presentation of evidence over to the Defendant, he has rested his case.

But you can actually "rest your case"  much sooner than that, at least for Rule 41 purposes.  Defending your position in a summary judgment hearing means that you have rested your case within the meaning of Rule 41(a)(1)(i).  Op. ¶27 (citing Maurice v. Hatterasman Motel Corp., 38 N.C. App. 588, 591-92, 248 S.E.2d 430, 432-33 (1978)).  In fact, anytime that a plaintiff is facing a dispositive motion, he rests his case by "advanc[ing] its arguments about the merits of [his] case. . . ." Op. ¶28.

In the case before the Business Court last week, Plaintiff BB&T Trust filed its voluntary dismissal about three weeks before its trial was set to begin  During the course of the case (three years ago), Judge Murphy had denied a Motion to Amend in which the Trust tried to add additional theories of liability.  Shortly before trial, Judge Gale granted a Motion in Limine prohibiting the Trust from presenting evidence relating to those theories of liability that were the subject of its unsuccessful Motion to Amend.

So, can a voluntary dismissal be filed by a Plaintiff to avoid a Court's adverse ruling, or has he "rested his case" by contesting the ruling?

Bad Faith Dismissals Are Not Allowed

The NC Supreme Court said in the Brisson decision that a voluntary dismissal must "not be done in bad faith."  351 N.C. 597, 528 S.E.2d 569, 573.

Judge Bledsoe rejected the argument that the BB&T Trust's dismissal was taken in "bad faith."  He said that:

allowing Brisson’s bad faith exception to subject all voluntary dismissals to judicial scrutiny would undermine the intent of Rule 41(a) by creating unnecessary barriers for plaintiffs who wish to abandon their claims.

Op. ¶21.

So what makes out a "bad faith" dismissal?  It's a pretty narrow circumstance, and is limited to the situation where "the initial complaint fails to conform with the rules of pleading and merely seeks to take advantage of the savings provision"  Op. ¶2.  The rationale for that limitation " is that where an initial complaint does not conform with the rules of pleading, a plaintiff should not be entitled to the “safety net” of Rule 41(a)’s [statute of limitations] savings provision after dismissal."  Op. ¶26.

Defendant MassMutual took a run at arguing that "bad faith" had to be determined on a case by case basis, and that the Plaintiff had acted in bad faith by waiting three years after the rejection of its Motion to Amend to take its voluntary dismissal.  Judge Bledsoe said that he would not extend the bad faith exception "so far beyond precedent,"  and that finding Plaintiff''s dismissal to be in bad faith "would defeat Rule 41(a)'s broad function as a 'safety net.'"  Op. ¶26.

The Opinion makes it clear that an unfavorable ruling on a "non-dispositive motion" (like the ruling on the Defendant''s Motion in Limine) does not mean that a Plaintiff unsuccessfully contesting such a Motion has "rested his case."  Op. ¶29.

My "Unsecured Leave"

I'm going to be out of the country for the next couple of weeks.  For the first time, I'm not carrying a laptop with me, so don't look for anything from my blog until near the end of the month.