I'm Back With An Update on Six Business Court Cases

i was gone (not fishin') for the entire month of September.  I haven't written on this blog since August and nobody has noticed.  Nobody has emailed me to ask where the heck I was or what I was doing or whether anything worth knowing had happened in the Business Court  The lack of any outcry about my absence hurt my feelings, but I am back even so with this September update on cases in the Business Court decided during the missing September.  They ran the gamut, from subpoenas to injunctions to how not to get an extension of time in the Business Court.

Standing to Object to Subpoenas to Non-Party Banks

In Deyton v. Estate of Kenneth C. Waters, Jr., 2011 NCBC 34, Judge Gale ruled that a party to a lawsuit lacked standing to object to a subpoena sent by the opposing party to a non-party bank.  The Judge observed that "as a general proposition, parties to a lawsuit typically lack standing to challenge a subpoena issued to a third party." 

Although there is an exception to that general rule if the objecting party has privilege in the documents requested,  the moving party attempted to invoke, Judge Gale held there is not a privilege created in bank records by the Federal Right  to Privacy Act of 1978 (12 U.S.C. §3402) or the North Carolina Financial Privacy Act (N.C. Gen. Stat. §53B-1, et seq.).

The rule might be different in federal court.  Judge Gale stated in a footnote that an Eastern District of North Carolina court has said in United States v. Gordon, 247 F.R.D. 509, 510 (E.D.N.C. 2007) that "[a] small number of courts have held that a party's claimed privilege with respect to his or her bank account records is sufficient to confer standing for purposes of challenging a subpoena."

In another case decided on the same day, Jones v. Sutherland, Judge Murphy, without the benefit of the Deyton discussion, considered an objection by a defendant to a subpoena to a non-party bank.  He denied the motion to limit the subpoena even though it covered a nine-year "extensive time period," saying it was not "designed to be a fishing expedition."

Preliminary Injunction for Breach of Fiduciary Duty

In GoRhinoGo, LLC v. Lewis, 2011 NCBC 38, Judge Jolly entered a preliminary injunction against a former LLC member and manager who conspired with the representatives of a landlord to terminate the lease of a Raleigh tavern, even though the tenant was not in default on the lease, and to open a competing tavern in the same space. The actions of the former member/manager were a breach of his fiduciary duty to the LLC.  The persons assisting the member/manager would be liable for conspiracy if the allegations were proven at trial, so they were also the subject of the injunction. 

Irreparable harm was established by the tavern showing that it stood to lose its business absent an injunction.  Judge Jolly cited United States v. Any and All Assets of Shane Co., 816F.Supp. 389, 400 (M.D.N.C. 1991) for the proposition that "[i]n the ordinary case, proof that a going concern will be forced out of business during the pendency of litigation raises a presumption of irreparable harm."

Order Dismissing Claims by Real Estate Broker

In Gunn v. Simpson, Schulman & Beard, 2011 NCBC 35, the plaintiff real estate broker alleged that he had been cheated out of a commission due him for arranging a lease agreement between  his longtime client LabCorp and a lessor, SN Commercial.

Gunn had an email from the owner of the property leased which said that SN Commercial would pay Gunn  a commission fee of 4% of the rent paid by his client.  The email came with a lease proposal which said it was "not contractually binding" until a formal lease was executed.  Judge Gale granted a motion to dismiss the case,holding that Gunn could not show the existence of an enforceable contract between him and the lessor.

Enforceability of Agreements to Indemnify  Attorneys' Fees

In GR&S Atlantic Beach, LLC v. Hull, 2011 NCBC 37, Judge Gale answered a couple of what I didn't even know were burning questions regarding the recovery of attorneys' fees from an opposing party.  He held that an agreement to indemnify an opposing party for its attorneys' fees has the  statutory authority required for the recovery of attorneys' fees  in G.S. §6-21.2.  He held that such an agreement is an "evidence of indebtedness"  which is therefore subject to the statute's cap of 15% of the amount recovered.  No appellate court in North Carolina has addressed that issue yet.  Judge Gale classified those types of attorneys' fees, incurred in litigation directly adverse to the party which has promised the indemnification, as "Direct Fees."

While he was mired in the deep body of law surrounding the recovery of attorneys' fees, Judge Gale also addressed an issue regarding what he called "Ancillary Fees."  In the GR&S case, those were fees incurred by GR&S in a proceeding brought against it by the NC Utilities Commission.  The ruling by the Judge on this point was not dispositive, but what he termed his "present inclination."  And that "inclination" was to rule that statutory authority is not needed for the recovery of "Ancillary Fees" and that such fees are not subject to the 15% cap of G.S.  §6-21.2

 Extensions of Time in the Business Court

Don't apply to the clerk of court in the county where your Business Court case was filed for an extension of time.  If you do that, the Business Court is likely to strike the order entered by the clerk as being null and void, as it's in violation of Business Court Rule 9.2.  Judge Murphy did that in Seraph Garrison, LLC v. Garrison.

Dismissal of Homeowners' Association Claim Against Developer Due To Lack of Standing

A lawsuit by a homeowners' association against the developers of the project was dismissed due to a lack of standing, in Queen's Gap Community Association, Inc. v. McNamee, 11 NCBC 36. The members of the  HOA were barred from maintaining the suit by the HOA's  own formative documents, which said that the homeowners could not elect a board of directors of the association (whose action would be required to initiate a suit)  until 90% of the lots were sold, or until March 31, 2015, whichever was first to occur.   Neither had happened.

The documents also required a 75% approval of the association's members before a lawsuit was filed.  Judge Murphy rejected the argument that the 75% requirement was invalid.  He said "that this type of requirement is 'common' and does not, in violation of law, 'eliminate the [Association's] right to file a legal action.'"  He said that the "litigation  approval requirement" was valid.  In the absence of a properly obtained 75% approval, the HOA members were booted from Court for lack of standing.

* * * 

It's good to be back.  But if you are a business litigator relying on my blog to keep you current, you shouldn't do that.  It makes me feel guilty when I am off on a frolic and detour.  You have a lot more than this blog you should be reading if you want to be on top of things.

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