New Local Rules For The Western District Of North Carolina

The United States District Court for the Western District of North Carolina issued its new Local Rules today. There isn't a blacklined version available, but there don't appear to be a large number of changes as far as deadlines. Many of the Western District's deadlines were already in the seven and fourteen day periods adopted by the revised Rules of Civil Procedure, and didn't need to be revised.

The changes I saw were as follows:

Local Rule 16.1(B): Deadline for filing the Certification of Initial Attorney's Conference.  Now due seven days (before it was five) after the Initial Attorney's Conference.

Local Rule 16.1(C): Filing of Joint Stipulation of Consent to Magistrate Jurisdiction.  Now, if the Court rules on a motion to stay, the Joint Stipulation is due seven days after the Court's ruling (it was five before).

Local Rule 54.1(D): Objections to Bill of Costs.  Objection within fourteen days of the electronic filing of the bill of costs (formerly ten days); response from prevailing party within seven days thereafter (before, five days).

Local Rule 54.1(E): Objections to the Ruling of the Clerk of Court. Request for review of ruling by Clerk on costs due seven days after the Clerk's action (formerly five days).

 

 

New Local Rules For North Carolina's Eastern, Middle, and Western District Courts

The Local Rules for the Eastern, Middle, and Western Districts of North Carolina are going to be amended to square up with the new time periods for various filings contained in the revised Federal Rules of Civil Procedure.

The Revised Middle District Rules, blacklined to show the changes, are already available. So are the Revised Eastern District Rules, also blacklined. The new Western District Rules are in the works and expected to be available shortly.

The Middle District has an entire page on its website devoted to the changes in its Local Rules and Standing Orders, which includes a summary of the Rules changes. The Middle District also has a brand new Rule 6.2, which defines what constitutes "inaccessibility" of the Clerk's office and what should be done if there is an instance of inaccessibility.

The Eastern District didn't do a summary of the changes to its Rules, but I've prepared one, available here. The Eastern District has a LOT of Rules and there are around 50 changes. I categorized them by subject, including general motions practice, trial, mediation, admiralty, and patents.

The changes to North Carolina's Local Rules further the implementation of the new "a day is a day" time computation rules, which I wrote about last month. The new Local Rules, like the Federal Rules, take effect on December 1.

If you've been keeping up with this blog, you know that there's an issue with exactly what that effective date means for deadlines calculated under the old Rules and already running on December 1.

What North Carolina's Superior Court Judges Talked About Last Month

North Carolina's Superior Court Judges met for their bi-annual Conference last month. There are always presentations at these conferences useful to those of us standing on the other side of the bench, and this Conference was no exception.

You can see the full list of papers and handouts from the October 2009 Conference here, but worth mentioning are:

An Administration of Justice Bulletin which contains a thorough examination of the law of recusal from Professor Michael Crowell, including the United States Supreme Court's decision in Caperton. The Bulletin contains a subject matter overview of what looks like every North Carolina appellate decision on recusal

If you are a medical malpractice lawyer, you'll certainly want to read Practical Tips for Trying Medical Negligence Cases, written by Judges Richard Doughton, Ed Wilson, and Catherine Eagles.

A presentation titled Ex Parte Contacts: When Can a Judge Trust a Lawyer? by Paul Ross, the Executive Director of the Judicial Standards Commission, and Judge Catherine Eagles.

And last but not least, there is Computer Essentials For Judges from Judge Ripley Rand and Professor Jessica Smith of the IOG. That lists a number of legal websites and "blogs of note," including this one.

I've written before about the materials from these Conferences, all of which are available on the IOG website. Those records back to February 2002, and there are literally dozens of papers on all sorts of subjects available.

A Problem With The Soon To Be Effective Time Computation Changes To The Federal Rules Of Civil Procedure?

It looks like there is a small problem with the impending amendments to the Federal Rules of Civil Procedure.

The drafters seem to have overlooked an important point: exactly how will the Rule changes apply to deadlines which have started running before December 1st, the date on which the changes become effective?

If you aren't aware of the amendments about to take effect, the way in which you count the days to respond to a federal court filing will change on December 1, 2009. Time periods will change as well, usually from five days to seven days or from ten days to fourteen days.

What exactly does that mean if you are going to be dealing with a response to a filing made (or a deadline that starts running) before December 1, with a response or filing due after December 1? Should you count under the new "days are days" approach and use the time periods that are about to go in effect? Or do you apply the pre-December 1st Rules since the clock started ticking before then?

A Couple Of Examples Of The Problem

Does it make a difference on responses to motions? It could, because the Rule changes hit at a holiday time period, right after Thanksgiving. In North Carolina, there are two holiday days that week: Thanksgiving and the day after Thanksgiving. The old Rules excluded holidays from the count for certain response times, the new Rules don't.

So let's say you got served in an EDNC case via efiling with a Motion to Compel on Monday, November 16. You've right now got a ten day response time per EDNC Local Rule 7.1(e)(2). You count that ten days by excluding holidays and weekends and then add three extra days per FRCP 6(d). Under the current Rules, your response is due on Monday, December 7.

Under the effective-December-1-Rules, you have a 14 day response time, counted by including weekends and holidays and then adding the three extra days. That puts your response due on Thursday, December 3, four days earlier. Which deadline applies?

Here's an example which runs in the opposite direction, where you would have more time under the new Rules. Right now, Rule 59 gives you ten days after the entry of judgment to file a motion for a new trial or to move to alter or amend a judgment. The amended Rule 59 gives you a whole lot more time, 28 days. So if judgment is entered on November 30, can you take the 28 days or do you need to file within ten?

There Isn't A Clear Answer

I wish I could tell you that there was a clear answer, but there isn't. The "Statutory Time-Periods Technical Amendments Act of 2009," which approved the time computation changes, says without equivocation that "the amendments made by this Act shall take effect on December 1, 2009."

Rule 86 of the Rules of Civil Procedure speaks to amendments of the Rules. It says that amendments "take effect at the time specified by the Supreme Court" and apply to actions commenced after that date, but also to actions "then pending," unless the Supreme Court specifies otherwise or "the court determines that applying them in a particular action would be infeasible or work an injustice."

In the past, there has been more specification about effectiveness, which has usually been pegged to subsequently filed proceedings. That's true of the addition of Rule 502 to the Federal Rules of Evidence,  which applied to "all proceedings commenced after the date of enactment of this Act."

That approach is also true of the 2006 e-discovery amendments to the Rules of Civil Procedure, which said that they would take effect on December 1, 2006 and would "govern in all proceedings thereafter commenced."  The latter amendment specified its effect on pending cases, and said that it would apply "insofar as just and practicable, [to] all proceedings then pending."

Assuming motions are "proceedings," the drafters of the new changes didn't limit the Rule changes to subsequently filed proceedings, and they didn't address what happens with "then pending" actions.

The safest approach certainly is to apply the shorter time period, but it would have been nice if this issue wasn't out there.

The Business Judgment Rule Applies To Actions By Managers Of North Carolina Limited Liability Companies

It might seem self-evident that the Business Judgment Rule applies to decisions made by the managers of a limited liability company, but if you were looking for a North Carolina case to cite on that point before last week, you wouldn't have found one.

But now, we have Mooring Capital Fund, LLC v. Comstock North Carolina, LLCa November 13, 2009 decision from the North Carolina Business Court. The case addresses not only the business judgment rule, but also two other significant aspects of litigation involving LLCs.

The Business Judgment Rule And LLC Managers

Mooring Capital, a minority member of Comstock North Carolina, LLC, filed a lawsuit seeking an accounting and making derivative claims for a diversion of funds by the majority member and manager of the LLC, CHCI. CHCI contended that it was entitled to dismissal because it had limited liability as a member-manager.

Judge Jolly agreed that "member-managers generally are shielded from liability when acting as LLC managers," Op. ¶29, and further held that "the managers of an LLC may also be entitled to the protections of the 'business judgment rule.'" Op. ¶30. The Court based the business judgment rule portion of its ruling on G.S. §57C-3-22(b), which states that an LLC manager is bound to act "in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in the manner the manager reasonably believes to be in the best interests of the limited liability company."

The Court nevertheless denied the manager's motion to dismiss, holding that "while the business judgment rule limits the liability of member-managers when acting on behalf of an LLC, this liability is not limited when managers act outside the scope of managing the LLC." Op. ¶33. Dismissal of Plaintiff's claims wasn't warranted because the Complaint made allegations that the manager had taken "actions clearly in conflict with the interests of the LLC" and had "entered into transactions from which" the manager had "derived an improper personal benefit." Op. ¶36. Those included unauthorized distributions from the LLC to the manager and entities with which the manager it was affiliated.

Derivative Actions On Behalf Of LLCs, And Stays Pending Investigation

There are at least two other LLC-related litigation points worth noting in Mooring Capital. One involves the standing of an LLC member to make a derivative claim, the other involves the right of the LLC to a stay of the action while it investigates the charges.

On the first point, although the LLC Act doesn't specify that a demand be made before a member can file a derivative action, the statute does require that the complaint "allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the managers, directors, or other applicable authority and the reasons for the plaintiff's failure to obtain the action, or for not making the effort." N.C. Gen. Stat. §57C-8-01(b).

The Defendant claimed the Plaintiff hadn't made sufficient effort to have the LLC take action. The Court disagreed, referencing Plaintiff's contentions that "its minority status alone show[ed]" that it lacked the authority to cause the LLC to bring suit," and furthermore that it had made "repeated requests for financial information" to which the LLC had not responded.

On the point of the LLC's right to a stay pending its investigation, the LLC had retained PriceWaterhouseCoopers to investigate some of the matters raised by Plaintiff. The LLC said that it therefore was entitled to a stay per G.S. §57C-8-01(b). The Court denied the stay, however, noting that it had concerns about the scope of the accounting firm's investigation. The engagement letter between the LLC and PWC said that the accounting firm would perform a review of the LLC's financial statements, but did not speak to an investigation of other allegations made by the Plaintiff in its Complaint.

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Brief in Support of Motion to Stay

Brief in Opposition to Motion to Stay

Parent Company Not Liable For The Actions Of Its Subsidiary

It is “an important and longstanding characteristic of corporate law” that a shareholder is not liable for corporate obligations. That principle led yesterday to the Business Court’s grant of summary judgment for a parent corporation, its subsidiary’s sole shareholder, in Griffin Management Corp. v. Carolina Power and Light Co., Inc. 

Plaintiff had a meter reading contract with CP&L. CP&L terminated the Plaintiff, who then sued not only CP&L, but also its parent company and sole shareholder, Progress Energy. Plaintiff said that Progress Energy was liable for the acts of its subsidiary because the two companies were engaged in a joint venture.

Judge Jolly’s opinion is chockablock with bedrock principles of the lack of shareholder liability for corporate obligations, including the following:

  • “In North Carolina, a corporation is an entity distinct from its shareholders, even if all of its stock is owned by a single individual or corporation.” Op. ¶15.
  • “That a parent company wholly owns the capital stock of its subsidiary and members of the board of directors of both corporations are the same, nothing else appearing, ‘is not sufficient to render the parent corporation liable for the contracts of the subsidiary.’” Op. ¶16.
  • “The parent-subsidiary relationship exists, in part, to limit the liability of a corporation’s shareholders.” Op. ¶17.

The Court made short shrift of the argument that Progress Energy was in a joint venture with its subsidiary. Judge Jolly found that none of the elements of a joint venture were met, and held that “application of joint venture principles to the relationship between a corporation and its shareholder as it exists in this matter would work an end-run around the limited liability” given to corporate shareholders.

That “limited liability” is a matter of statute in North Carolina. Section 55-6-22 of the General Statues says that the shareholder of a corporation “is not personally liable for the acts or debts of the corporation except that he may become personally liable by reason of his own acts or conduct.”

It is “an important and longstanding characteristic of corporate law” that a shareholder is not liable for corporate obligations. That principle led yesterday to the Business Court’s grant of summary judgment for a parent corporation, its subsidiary’s sole shareholder, in Griffin Management Corp. v. Carolina Power and Light Co., Inc. 

Plaintiff had a meter reading contract with CP&L. CP&L terminated the Plaintiff, who then sued not only CP&L, but also its parent company and sole shareholder, Progress Energy. Plaintiff said that Progress Energy was liable for the acts of its subsidiary because the two companies were engaged in a joint venture.

Judge Jolly’s opinion is chockablock with bedrock principles of the lack of shareholder liability for corporate obligations, including the following:

  • “In North Carolina, a corporation is an entity distinct from its shareholders, even if all of its stock is owned by a single individual or corporation.” Op. ¶15.
  • “That a parent company wholly owns the capital stock of its subsidiary and members of the board of directors of both corporations are the same, nothing else appearing, ‘is not sufficient to render the parent corporation liable for the contracts of the subsidiary.’” Op. ¶16.
  • “The parent-subsidiary relationship exists, in part, to limit the liability of a corporation’s shareholders.” Op. ¶17.

The Court made short shrift of the argument that Progress Energy was in a joint venture with its subsidiary. Judge Jolly found that none of the elements of a joint venture were met, and held that “application of joint venture principles to the relationship between a corporation and its shareholder as it exists in this matter would work an end-run around the limited liability” given to corporate shareholders.

That “limited liability” is a matter of statute in North Carolina. Section 55-6-22 of the General Statues says that the shareholder of a corporation “is not personally liable for the acts or debts of the corporation except that he may become personally liable by reason of his own acts or conduct.”

The Court Of Appeals Won't Be Sending You Oral Argument Calendars Any More

The march towards paperless courts continues in North Carolina. The latest step is the elimination by the Court of Appeals of paper copies of oral argument calendars.

You remember those. They came on yellow paper and listed all the cases to be heard during a particular week and the panels hearing them. The calendars also included the cases to be decided without oral argument, as permitted by Rule 30(f) of the North Carolina Rules of Appellate Procedure.

A few months ago, without fanfare, the Court of Appeals stopped sending out oral argument calendars.

That change came with the implementation in June of a new docketing system. The system will send electronic notification of oral argument hearings to attorneys who provide email addresses. The Court of Appeals will pick up counsel's email address from the Identification of Counsel page in the Record on Appeal.

While glitches in the notification system are being worked out, the Court is providing telephone notice to counsel of oral argument hearings a week or two in advance of the hearings. If you now are worried that you might be on a calendar in November but haven't gotten notice yet, here's the link to the calendar for that month. If you want to see the full lineup of cases set for hearing during a particular term of court, the calendars will continue to accessible on line.

The opinions of the Court will continue to be sent via regular mail.

7-11: Judge Diaz And Judge Wynn Nominated To Fourth Circuit Court Of Appeals

Judge Albert Diaz of the North Carolina Business Court was nominated today by President Obama to serve on the Fourth Circuit Court of Appeals.

Senators Kay Hagan and Richard Burr both issued glowing statements about Judge Diaz and North Carolina Court of Appeals Judge Jim Wynn, who was also nominated for the federal appellate court.

In the press release issued by the White House, President Obama said that the two Judges "have been exceptional public servants for the people of North Carolina." 

The Fourth Circuit has fifteen seats for active Judges, numbered in the order in which they were originally filled. Judge Wynn, if confirmed, will take Seat 7, formerly held by Judge J. Dickson Phillips, Jr. of North Carolina. That seat has been empty for fifteen years, longer than any other judgeship in the country.  It's actually the second time that Judge Wynn has been nominated for that seat. He was also nominated by President Clinton in 1999.

Judge Diaz will take Seat 11 if confirmed. That seat was formerly held by Judge William Wilkins of South Carolina and is still warm, as Judge Wilkins retired only a couple of years ago, in 2007.

NC Court Of Appeals Yesterday: Three Decisions

There were three decisions yesterday from the Court of Appeals worth a quick mention for the business litigator (and the baseball fan).

First, Fischer Investment Capital, Inc. v. Catawba Development Corp. is a piercing the corporate veil case. And not only that, a reverse piercing the corporate veil case. In a reverse piercing case, instead of a court disregarding the corporate entity to reach the assets of an individual owner, the court reaches the assets of the entity to satisfy an obligation of the individual owner. In a first impression holding, Judge Ervin rejected the argument that reverse piercing is limited to personal jurisdiction situations, and held that it also "is a recognized legal theory in North Carolina for substantive . . . purposes."

Second, in Telerent Leasing Corp. v. Boaziz, the Court allowed a recovery of attorneys fees that were more than 15% of the amount recovered by the Plaintiff, which the Defendant argued were in excess of the amount permitted by G.S. Sec. 6-21.2. The Court held this to be justified because the Plaintiff had expended attorneys' fees pursuing recovery through "multiple actions" and in "multiple venues." Those included fees incurred in a related out of state bankruptcy proceeding.

Finally, the case involving baseball is Reese v. Mecklenburg County. The Court held that the leasing of land by Mecklenburg County to the Charlotte Knights baseball team where the team would build a baseball stadium was a proper public purpose. That was true even though the team would own the stadium during the term of the lease.

 

Veil Piercing Allegations Aren't Enough For Mandatory Business Court Jurisdiction

If you are thinking of designating a case to the Business Court because the Complaint raises allegations that the corporate veil should be pierced, stop.  Those types of allegations, without more, aren't enough to invoke the mandatory jurisdiction of the Court. 

There was a short order on that subject yesterday in CCE Development Corp. v. Jebara Investments, LLC, in which the Court held that "[p]iercing the corporate veil alone is insufficient to establish mandatory jurisdiction." 

There was a similar ruling earlier this year, in Robert N. Pulliam, CPA/ABV PLLC v. Gardner, where the Court held "the presence of veil piercing allegations are not, in and of themselves, grounds for jurisdiction under N.C. Gen. Stat. § 7A-45.4(a)."

New Cases In The North Carolina Business Court: October 2009

There were ten new cases designated to the Business Court during October 2009. They include two lawsuits against former officers and directors of Wachovia regarding the collapse of Wachovia (Browne and Harris).

Abraham v. Jauregui (Onslow)(Jolly): fraud claims by 77 plaintiffs involving coastal real estate developments.

Blackburn v. L.E. Wooten & Company (Wake)(Jolly): claims regarding alleged breach of shareholders agreement, failure to pay dividends, frustration of reasonable expectations. The claims are similar to those made in the Kwong case, below.

Browne v. Thompson (Forsyth)(Jolly): claims by holders of Wachovia stock against certain officers and directors of the bank, as well as its auditors, for securities fraud and accounting misstatements relating to the collapse of Wachovia.

Building Union Investment And Local Development Fund Of America Trust v. Bromont Investments, Inc. (Mecklenburg)(Diaz): claims arising from foreclosure of defendants' membership and management interests in an LLC, and defendants' alleged refusal to turn over the assets, books, and records of the LLCs involved.

Danius v. India Abroad Publications, Inc. (Mecklenburg)(Diaz): defamation lawsuit against internet news organizations based in India, who allegedly reported without basis that one of the plaintiffs had abused his wife in a dispute over her dowry, and that he had attempted to murder her.

Franklin County Board of Education v. North Carolina Department of Revenue (Wake)(Tennille): petition for judicial review of a final agency decision in a contested tax case. The issue is whether the County Board of Education is entitled to a refund of sales and use paid in connection with construction projects when the actual payment was not made directly by it, but instead by Franklin County. The Administrative Law Judge denied the Board's refund request, ruling that the Board "cannot claim refunds of taxes which it did not pay."

Harris v. Wachovia (Mecklenburg)(Jolly): claim by Wachovia shareholder that Wachovia and its officers and directors  made incorrect statements of material fact and failed to disclose material information in connection with Wachovia's acquisition of Golden West Financial Corporation and concerning Wachovia's financial condition and prospects thereafter.

KLATMW, Inc. v. Electric Systems Protection, Inc. (Wake)(Tennille): allegations of breaches of asset purchase agreement, and dispute between buyer and seller regarding indemnification rights and right to escrowed funds.

Kwong v. L.E. Wooten and Co. (Wake)(Jolly): claims regarding alleged breach of shareholders agreement, failure to pay dividends, frustration of reasonable expectations. The claims are similar to those made in the Blackburn case, above.

McKee v. James (Robeson)(Diaz): minority shareholder lawsuit against persons who allegedly obtained a majority interest in the corporation based on fraudulent misrepresentations. The complaint seeks damages and dissolution of the corporation which manufactures "McKee Craft" boats, which the Complaint says are "unsinkable." That's what everyone thought about Wachovia, too.