A Big Day For Business Cases At The North Carolina Court Of Appeals

The Court of Appeals decided today cases involving a non-compete, dissolution of a partnership, the public policy exception to the termination of at-will employment, the rules of professional responsibility, and the economic loss rule.  Here are quick summaries of these five cases:

Non-CompeteIn Medical Staffing Network, Inc. v. Ridgway, the Court of Appeals reversed a judgment in a non-compete case.  It found the covenant at issue to be be overly broad because it prevented the Defendant not only from competing with or soliciting customers of the Plaintiff, but also those of "any parent, division, subsidiary, affiliate, predecessor, successor, or assignee" of the Plaintiff.   The Court also decided whether a covenant not to compete in an employment agreement was superceded by a later covenant in a stock purchase agreement.  The Court concluded that the two agreements had been "executed for two distinct purposes" and that they could be enforced consistently with one another, even though there was a merger clause in the second agreement.

Arbitration and DissolutionIn In re W.W. Jarvis & Sons, the Court held that an arbitration provision in a partnership agreement included claims for dissolution of the partnership, even though the agreement said that a withdrawing party had "the right to force . . . compulsory dissolution by court order."  The Court observed that "broad arbitration clauses contained within a partnership agreement will govern any dispute concerning the partnership amongst the parties to the agreement," and it rejected the argument that it should proceed to dissolve the partnership because that was the only possible correct result.  On that point, it held that the court could not "short-cut arbitration proceedings when only one viable arbitration conclusion is possible" and that "the purposes of arbitration would be substantially diluted if courts could freely resolve otherwise arbitrable disputes whenever a clear outcome is asserted."

Termination in Violation of Public Policy.  The Court narrowed the public policy exception to the right to terminate an at-will employee in McDonnell v. Tradewind Airlines, Inc.  It held that an at-will employment can be terminated at any time for any reason, and that "this is a bright-line rule with very limited exceptions."  The exception is available only "where (1) the public policy of North Carolina is clearly expressed within our general statutes or state constitution, or (2) potential harm to the public is created by defendant's unlawful actions."  The termination of the Plaintiff , a flight engineer, for refusing his employer's instruction to fly when Plaintiff said that would violate FAA regulations did not meet the exception.

Rules of Professional Responsibility.  In Sisk v. Transylvania Community Hospital, Inc., the Court reversed the disqualification of out of state counsel who had been admitted in North Carolina pro hac vice.  The disqualification had been based on alleged misconduct of the lawyers in Kentucky, but a Kentucky court had determined that the lawyers had not violated Kentucky's ethical rules.  The Court of Appeals based its reversal on Rule 8.5 of the North Carolina Rules of Professional Conduct, which states that "a lawyer is not subject to discipline if the lawyer's conduct conforms to the rules of a jurisdiction in which the lawyer reasonably believes the predominant effect of the lawyer's conduct will occur."

Economic Loss RuleThe Court reversed the trial court's summary judgment on a negligence claim which had been based on the economic loss rule, in Hospira Inc. v. Alphagary Corp.  It found that there was no contractual privity between the Plaintiff and the Defendant and that the rationale of the doctrine therefore did not apply.  That rationale, according to the Court, is that parties in a direct contractual relationship "are free to include, or exclude, provisions as to the parties' respective rights and remedies."  Since the parties in the case before the Court had no direct contractual relationship, there had been no ability to negotiate the risk of economic loss.  The Court affirmed the dismissal of claims for fraud, negligent misrepresentation, unfair and deceptive practices, and third party beneficiary breach of contract.

The lion in the picture at the top is one of the architectural details on the Court of Appeals building in Raleigh.  The photo is by Juliet Sperling.

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