Who Cares What Judges Think?

The answer to the question above is probably you, if you are reading this blog.

So, you might be interested in a powerpoint presentation that Judge Jolly and Judge Diaz made at the 2006 Conference of Superior Court Judges, on the Unfair and Deceptive Practices Act. 

It seems like a claim under that statute is part and parcel of nearly every business case filed in North Carolina.

There are some good "Practical Pointers" about the statute at the end of the presentation, including the one in the box at the bottom. (The Meineke case referenced is Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331 (4th Cir. 1998), in which the Fourth Circuit threw out a $590 million unfair and deceptive practices verdict).

Notwithstanding my selection of excerpt from the powerpoint, this is by no means an anti-unfair and deceptive practices presentation.  It outlines a number of fact patterns that make out a UDPA claim, and has a good discussion of the respective roles of judge and jury in the trial of such claims and other useful information.


Fraud In The Inducement Claim Dismissed Due To "Patent Inconsistency" In Complaint

Warren v. Eli Research, Inc., April 28, 2008 (Diaz)(unpublished)

Inconsistent allegations in the Complaint doomed the claim for fraudulent inducement by one of the Plaintiffs in this case. 

That Plaintiff, Hittle, alleged that the Defendant had promised her an annual salary of $150,000, guaranteed for 12 months, but that it had no intention of fulfilling this promise when made.  The Defendant booted Hittle only a few months after she began employment.

What led to the granting of Defendant's Motion to Dismiss were Hittle's allegations in the Complaint that she had begun her employment, worked for three months, been paid for that work, and that she was terminated for "financial reasons."

The Court held "it is patently inconsistent for Hittle to allege, on the one hand, that Defendant never intended to pay the wages promised, and on the other, that Defendant in fact performed in part and that it failed to complete performance for reasons unrelated to its intent."  The Court held that partial performance of a contract demonstrates a party's intention to fulfill the promise at the time it was made, undermining Hittle's claim on its face.

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North Carolina Slips In U.S. Chamber's Ranking Of State Court Systems For Business

Each year, the United States Chamber Institute for Legal Reform rates the "Lawsuit Climate" for business in each of the fifty states.  The Institute just released its 2008 Report.  North Carolina ranked 21st overall, down from a ranking of 16th in 2007 and 10th in 2006.

The rankings are based on a survey of several hundred in-house counsel.  A respondent could grade the judicial system in a number of states on a scale from "A" to "F," so long as he or she professed to be "somewhat familiar" with the courts of those states. 

North Carolina's 21st place ranking is based on the responses of 58 lawyers in the survey group who said that they met the standard of being "somewhat familiar" with North Carolina's courts.   (I wonder if these in-house counsel are satisfied if the lawyers representing them are "somewhat familiar" with their cases when they go to court).

The rating factors included things like:

  • overall treatment of tort and contract litigation
  • treatment of class action suits and mass consolidation suits
  • judges' competence

North Carolina's grade and ranking on each of the rating factors is here.  The State ranked highest overall in treatment of punitive damages (11th), and lowest in treatment of "non-economic damages" (37th). 

What state came in first?  Delaware, for the seventh year in a row.  Last?  West Virginia.


Fourth Circuit Court Of Appeals Requiring E-Filing Of Briefs

The Fourth Circuit Court of Appeals is going to require that all briefs be electronically filed, beginning June 1, 2008.  E-filing has been optional since April 1st. 

In order to e-file, you need to go through Fourth Circuit training, and you have to register for an "Appellate Filer Account."  The training is required even if you are already authorized to e-file documents in the District Courts.  Detailed instructions from the Fourth Circuit on this whole process are here and also summarized in the rest of this post.

At some point during the registration, you'll need to have a PACER account.  If you don't have one, or your firm doesn't have one, you'll need to register for that. 

You can register here at any time for the Appellate Filer Account, but your Account won't become active until after you've completed the training.  If you don't take the training and complete the process within a week after your registration for the Appellate Filer Account, you'll have to re-register for the Account.  It probably makes more sense to train first and register after.

On the training, you can sign up for live training here.  That's happening in Raleigh on May 21st and 22nd; in Charlotte on June 10th; and in Greensboro on June 18th and 19th.  The live training takes about two and a half hours. 

On-line training is also available. Information on that is available here.  What you need to do is to watch the Electronic Learning Modules for "Filing an Appearance of Counsel" and "Filing a Motion to Seal," then take the "Policies and Procedures Review," which is a 10 question quiz based on the CM/ECF User Manual, and then submit the On-Line Training Certification Form.  (I've heard that this takes about half an hour, so it's faster than the live training). 

The Court has adopted new Rules concerning e-filing.


A Party Can't Rely On Its Own Responses To Requests For Admission To Defeat Summary Judgment

Her v. Davis, April 16, 2008 (Diaz)(unpublished)

This opinion appeared yesterday on the Business Court website.  It's not a Business Court case (it's actually a car accident case), but it presents a good lesson on what it takes to properly oppose a Motion for Summary Judgment.

The issue was whether Defendant's insurance carrier had accepted a settlement offer from Plaintiff's counsel before the lawsuit was filed, thus barring the lawsuit from proceeding.

The Defendant presented an Affidavit from the insurance carrier stating that a lawyer representing the Plaintiff had offered to settle the case for $10,000, and that the carrier had accepted the offer.

Plaintiff disputed this, but didn't present any Affidavit in support of her position.  Instead, Plaintiff tried to rely upon her own responses to Requests for Admission served by the Defendant, in which she said that the true facts were that it was Defendant's carrier who had made the $10,000 offer, and that her lawyer had rejected it. 

The Court held that "while admissions of a party-opponent are not hearsay, 'a party may not utilize his own admissions at trial.'"  Since evidence that would not be admissible at trial may not be considered on a Motion for Summary Judgment, there was no competent evidence contradicting Defendant's properly supported factual position.  The Court also refused to rely on letters presented by Plaintiff's counsel containing unsworn facts.

As the Court put it, "the bottom line is that neither Plaintiff nor any member of the firm representing Plaintiff have submitted Affidavits refuting the facts set forth" in the Affidavit submitted by Defendant.  On the record before it, the Court granted Defendant's Motion for Summary Judgment and found that the case had been settled on the terms described by the Defendant.

Settlement Agreements Are Discoverable

Today, Judge Tennille issued a very short order in Azalea Garden Board & Care, Inc. v. Vanhoy, granting a defendant's Motion to Compel production of a settlement agreement entered into between the plaintiff and another defendant. 

I'm mentioning the case only because this is an issue that recurs with some frequency.  There's often a non-party which might have been a defendant but for a pre-litigation settlement, or a co-defendant, like in Azalea Garden, who settles during the course of the litigation.  It seems pretty clear that the terms of such a settlement are discoverable, even if a confidentiality provision is included. 

The Order was limited to the discoverability of the agreement, and expressly states that it was not a ruling on the admissibility of evidence.

There was a more detailed opinion, by Judge Diaz, on the discoverability of settlement agreements in Media Network, Inc. v. Mullen Advertising, Inc., 2006 NCBC 6 (N.C. Super. Ct. April 21, 2006).


Claim That LLC Made Unlawful Distributions Was Derivative, Not Direct

Regions Bank v. Regional Property Development Corp., 2008 NCBC 8 (N.C. Super. Ct. April 21, 2008) (Diaz)

The Business Court ruled today that a member of a North Carolina LLC could not sue the LLC's lender for aiding and abetting a breach of fiduciary duty, because that claim was derivative, not direct.

Here are the facts: The LLC had defaulted on its loan.  The Bank then sold the loan to the other members of the LLC.  The Defendant asserted in a counterclaim that the Bank had done so knowing that the other LLC members would use their ownership of the defaulted loan as leverage to obtain a substantial cash distribution to which they were not entitled.

The Court relied on “[t]he well-established general rule . . . that shareholders cannot pursue individual causes of action against third parties for wrongs or injuries to the corporation that result in the diminution or destruction of the value of their stock.”   That principle applies "equally to suits brought by members of a limited liability company."

The unlawful distribution claim was "just another way of saying that the Individual Members wrongfully diverted Company assets."  That was a derivative claim belonging to the Company, not to its members.  The Motion to Dismiss the Counterclaim was therefore granted.

The Court did not resolve a parallel ground for the Motion to Dismiss: whether North Carolina still recognizes a claim for aiding and abetting a breach of fiduciary duty in light of the United States Supreme Court's decision in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994).  That question has come before the Business Court a number of times in recent years, but has not been resolved by North Carolina's appellate courts.

Brief In Support Of Motion To Dismiss

Brief In Opposition To Motion To Dismiss

Supplemental Brief In Support Of Motion To Dismiss

Supplemental Brief In Opposition To Motion To Dismiss

Deponent Can Materially Change Deposition Testimony During The Reading And Signing Process

Bueche v. Noel, April 17, 2008 (Diaz)(unpublished)

How extensively can a deponent change her deposition testimony during her post-deposition review of the transcript?  Pretty extensively, it turns out, according to an opinion yesterday from the Business Court.

In Bueche v. Noel, a non-party deponent made fifteen pages of changes and additions to her deposition testimony on errata sheets. The defendant moved to strike the changed and added testimony. Among other things, the defendant argued in its brief that the deponent had used the deposition as a "take home exam" to write answers on which its counsel had no opportunity to cross-examine her.  (Links to the briefs are at the bottom of this post)

The federal courts are split on the scope of a deponent's right to correct or add to her deposition answers, as demonstrated by the parties' briefs.  There was no North Carolina appellate court precedent on the issue.

The Court looked to Rule 30(e) of the North Carolina Rules of Civil Procedure, which authorizes changes "in form or substance" to the deposition testimony, so long as the deponent signs "a statement reciting such changes and the reasons given . . . for making them."  The Court held that a deponent has the freedom to make any type of correction, whether as to form or substance, so the changes and additions were allowed. 

The new testimony didn't replace the previous testimony, however.  The Court held that the original answers would remain part of the record and could be used for impeachment or any other relevant purpose.  The Court also permitted the defendant to reopen the deposition on the limited subjects of the corrections made on the errata sheet, the reasons for those changes, and any reasonable follow-up questions.

The Court also ruled on another first impression issue of North Carolina deposition procedure:

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Fiduciary Duty Claims Can Proceed Against Director And Employee Who Allegedly Sank $100 Million IPO

Voyager Pharmaceutical Corp. v. Bowen, April 15, 2008 (Jolly)(unpublished)

Voyager, a company engaged in pharmaceutical research directed at slowing or halting Alzheimer's disease, was attempting a $100 million public offering in 2005.  It alleged in its Complaint that it was unable to complete the IPO due to the actions of one of its directors, Bowen, and one of its employees, Atwood.  It made a variety of claims, including claims for breach of fiduciary duty.

The allegations as to what Bowen had done are pretty interesting.  Here's how the Court characterized some of them:

While Voyager's management was in the 4:30 p.m. conference with Hambrecht, Bowen was in a hospitality suite in the Marriott Marquis Hotel that had been set up to accommodate Voyager's shareholders. (Compl. ¶ 66.)  There, Bowen told one or more shareholders that the IPO was not going to proceed because "God had told him so," and because Voyager had refused to add "the glorification of God" to its mission statement.  (Compl. ¶ 66.)  Bowen also told the shareholders present that day that any further attempts to complete the IPO would fail until his demands were met, including giving credit to God in Voyager's mission statement.  (Compl. ¶ 66.)  Bowen also asked one of the shareholders whether he would be willing to serve as a director of Voyager "when I regain control of the Company."  (Compl ¶ 66.)  Bowen also falsely told one or more shareholders that there was a problem with the Phase I data that had not been resolved and also falsely stated that when he raised this issue with management, management had locked him out of his office.  (Compl. ¶ 68.)

The Court first confronted the issue of choice of law on Voyager's claims for breach of fiduciary duty. The Court noted that there was little guidance in North Carolina as to the proper application of the internal affairs doctrine.  It determined that it would apply the law of Delaware, the state of Voyager's incorporation, to those claims.

It then rejected Bowen's argument that his actions were protected by the business judgment rule.  It held:

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Court Of Appeals Affirms Dismissal Of Business Defamation Case

Today, in Nucor Corp. v. Prudential Equity Group, LLC, the Court of Appeals affirmed the 12(b)(6) dismissal of a claim for libel per se against a securities firm. 

The firm had published a report about the plaintiff which stated that antitrust lawsuits against the company were possible, and that the company needed to give up its "monopoly dreams." 

The Court held that in order for words to be libelous per se, they "must be susceptible of but one meaning and of such nature that the court can presume as a matter of law that they tend to disgrace and degrade the party or hold him up to public hatred, contempt or ridicule, or cause him to be shunned and avoided."  The words must be defamatory on their face, "stripped of all insinuations, innuendo, colloquium and explanatory circumstances."

The Court ruled that the publication did not assert any illegal or wrongful conduct on the part of the company.  It further ruled that it could not consider the explanatory circumstances offered by the plaintiff to determine whether the words at issue were libelous.  The Court further found that it needed to consider the document as a whole, and that the "overall import" of the publication was not defamatory of the company.  It therefore affirmed the trial court's dismissal.

The Court also ruled that plaintiff could not base an unfair and deceptive practices claim as to the report on the alleged breach of a confidentiality agreement by an employee of the defendant, because that was a mere breach of contract without any "substantial aggravating circumstances."

Court Of Appeals Splits On Personal Jurisdiction Over Corporate Officer

A panel of the Court of Appeals split today on the legal standard for when a corporate officer can be subject to personal jurisdiction based on contacts created through his or her capacity as an officer.

In Saft America, Inc. v. Plainview Batteries, Inc., the Court reversed the trial court's determination that there was jurisdiction over the defendant's president, who had conceded visiting plaintiff's factory in North Carolina.  The Court held that "personal jurisdiction over an individual officer or employee of a corporation may not be predicated merely upon the corporate contacts with the forum."  The majority ruled that all of the president's actions were in his official capacity as a corporate officer, not in his individual capacity, and reversed the trial court's finding of jurisdiction. 

Judge Arrowood dissented, so this issue may be headed for clarification by the North Carolina Supreme Court.  Here is the key quote from the dissent:

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A Plaintiff Has Thirty Days From The Filing Of A Complaint To Seek Mandatory Designation

Ross v. Autumn House, Inc., February 26, 2008 (Tennille)(unpublished)

If you are a plaintiff filing a Complaint, and you want to designate your case to the Business Court, when is the deadline for filing your Notice of Designation?

The answer is in the statute, it says: "[t]he Notice of Designation shall be filed: (1) By the plaintiff or third-party plaintiff contemporaneously with the filing of the complaint . . . in the action."  N.C. Gen. Stat. § 7A-45.4(d)(1).

In this unpublished case, the plaintiff filed its Complaint on December 6, 2007, and its Notice of Designation on January 3, 2008, 28 days later.  Per the Autumn House case, that is a contemporaenous filing which meets the requirement of the statute.

Judge Tennille relied on guidelines about the designation process filed on the Business Court website.  Those guidelines say that a plaintiff must file its Notice of Designation within 30 days of the filing of the Complaint.  Plaintiff had met that requirement, and the Court determined that the Notice was timely.

If you are wondering about the definition of "contemporaneously," the American Heritage Dictionary defines the word as "happening during the same period of time."  The definition in Webster's Revised Unabridged Dictionary is more strict.  It defines the word to mean "at the same time with some other event."   

Thanks to Ben Norman, a lawyer at Brooks Pierce who clerked for Judge Tennille, for telling me about this case.

Note that Autumn House was essentially overruled in August 2012.

Judge Diaz's Article About The Business Court

In case you missed it, you should read The New North Carolina Business Court, an article written by Judge Diaz and Jordan Sykes, one of the Judge's former law clerks. 

The Article highlights certain Rules of the Court which are "often overlooked."  It is certainly worth reading for that reason alone, because overlooking is not advisable and can lead to undesired consequences.

By the way, the Business Court Rules which are on this blog in the menu bar to the left are hyperlinked.  That means you can click back and forth between the table of contents and the Rules themselves.  So, you don't have to scroll all the way back to the top to get back to the table of contents when you need to look at a different Rule, or all the way down in order to find the Rule that you are looking for from the table of contents.  These Rules can be downloaded to your hard drive if you want to do that.

This article appeared in the Spring 2008 issue of the North Carolina State Bar Journal.  The article is the property of the North Carolina State Bar, and is being "reprinted" here with its permission. 

Preliminary Injunction Denied In Law Firm Dissolution

Mitchell, Brewer, Richardson, Adams, Burge & Boughman, PLLC v. Brewer, April 9, 2008 (Jolly)(unpublished)

This is the second opinion from the Court in this case involving the dissolution of a law firm.  The principal issue is whether the plaintiffs, who left the law firm, are entitled to the proceeds of contingent fee cases resolved after their departure from the firm.  The earlier decision is summarized here.

Today, the Court denied the entry of a preliminary injunction preventing the defendants from distributing to themselves the proceeds from those cases.  Here is the key quote from the Court: "The Plaintiffs have not made a convincing showing that they either are likely to sustain irreparable loss unless the injunction is issued, or that such relief is necessary for the protection of their rights during the course of litigation.  Plaintiffs' contentions in this regard are implausible.  Their claim for an accounting will not be affected by the issuance or denial of the injunction sought; and their claims for money damages are adequately provided for at law, and are weak grounds for the issuance of an injunction."

As with all of these posts, you can click on the case name above to see the full opinion.  I may start including the briefs of the parties in these posts, I've done that below.

Congratulations to my partners, Jim Phillips and Charles Marshall, who happen to represent the defendants in this case. 

Plaintiff's Brief

Defendants' Brief

Business Court Throws Out Cases Subject To Its Mandatory Jurisdiction

The North Carolina Legislature created clear categories of mandatory jurisdiction when it expanded the jurisdiction of the Business Court in 2006 (see this post). 

The statute provides that a party can oppose a designation to the Court, but those challenges are rarely successful, as demonstrated by the cases at the end of this post.  But this month, the Court threw out two cases that met the requirements for its mandatory jurisdiction. 

In the first case, Goldstein v. Countrywide Homes, Inc. decided on April 1, 2008, the Court ejected a securities fraud case, smack within the scope of its mandatory jurisdiction. The reason the Court gave was that there were already two cases pending in Wake County making similar claims. One of those cases had already received a Rule 2.1 designation as an exceptional case. The Court found that it would be more efficient if discovery in the cases was coordinated, and that inconsistent rulings would be avoided, and recommended that the case receive a 2.1 designation.

In the second case, Ikerd v. Greenwood, decided on April 8, 2008, the Defendant failed to file its Notice of Designation to the Business Court within the thirty days of its receipt of either the Complaint or the Amended Complaint, as required by N.C. Gen. Stat. §7A-45.4.  The Court denied designation of the case as a mandatory complex business case due to the untimely filing, noting that the case could still be designated as a 2.1 case.

It is far more often that the Court overrules an objection to a mandatory designation, like in these cases, all of which are unpublished decisions denying a party's objection:

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