No Wrongful Discharge Claim For Firing Of Employee/Shareholder In Retaliation For Her Exercise Of Her Statutory Inspection Rights

You probably know that North Carolina is an employment-at-will state.  That means that in the absence of any employment contract, you can be fired from your job at any time, for good reason, no reason at all, or even a bad reason.

There's a skinny exception to that rule: that an employee cannot be terminated for a purpose that contravenes public policy.  So here's a head-scratcher for you: can a company terminate an employee for exercising her statutory right as a shareholder to inspect the company's books and records?

That was an issue before the Business Court in Brady v. Van Vlaanderen, 2013 NCBC 37, in which the Plaintiff, a minority shareholder and employee of a corporation called United Tool, said she was terminated in retaliation for attempting to exercise her shareholder rights to inspect the corporation's records.

Judge Gale dismissed her wrongful discharge claim in an Order last week, relying on two out-of- state cases.  He said he would not "adopt an additional public policy exception to North Carolina's terminable at will doctrine."  Op. 31.

Knowledgeable North Carolina readers of this blog might say "but what about Meiselman?"

For non-North Carolina readers of this blog (like my dad) , and those otherwise ignorant of the North Carolina Supreme Court's important decision in  Meiselman, Meiselman v. Meiselman, 309 N.C. 279, 307 S.E.2d 551 (1983) (probably including my dad), that case holds that a shareholder may not be treated by the corporation in a manner contrary to her "reasonable expectations."

Judge Gale indeed did take Meiselman into account, and said that "Plaintiff should pursue her claim for salary and benefits, if at all, through her Meiselman claim."  Op. ¶31.

No wrongful discharge claim for being retaliated against for exercising her inspection rights, but a Meiselman claim for the same bad conduct by the corporation. So that's six of one, half a dozen of the other, right?  I'm not so sure.  Let me know what you think.

The YMCA Wins Case In NC Business Court

It's hard to conceive of a more unlikely Business Court case than Keister v. National Council of the Young Men's Christian Assocation of the United States of America, a purported class action by YMCA members.  The Opinion, 2013 NCBC 36,  was issued late last week.

Keister and his family joined the YMCA in Asheville, North Carolina.  They said they did so based on advertisements that the YMCA provides a "healthy and safe environment" for families.

The environment turned out to be anything but healthy and safe, according to Mr. Keister.  The allegations in the Complaint were so graphic that Judge Jolly struck it in April 2012 and ordered it sealed.  He said it contained "unnecessary, extremely offensive, outrageous and explicit allegations."

The toned down Amended Complaint alleged that Mr. Keister observed homosexual behavior in the men's locker room showers, and that he was twice thereafter sexually assaulted on the Y's premises by fellow members of the Asheville YMCA.  He complained to the management and was told that the issue would be addressed.

The lead claim against the YMCA was that it engaged in an unfair and deceptive practice, in violation of G.S. § 75-1.1, by marketing its facilities as safe and healthy despite its knowledge of illicit sexual activities occurring at its facilities.  Plaintiffs said that the Y had been aware of such conduct for decades.

In law school, we would have called statements like "safe and healthy" mere "puff," and Judge Jolly indeed said that "such phrases defy precise definition and are not capable of objective verification."  Op. ¶27.  He ruled that the advertising by the Y was "neither false nor misleading on its face."  Op. ¶28.

He also dismissed a pretty weak claim for breach of fiduciary duty.  Plaintiffs said that "they placed a special confidence" in the YMCA to provide a safe and healthy environment and that the Y therefore owed them a fiduciary duty.  Judge Jolly said that Plaintiffs had "allege[d] nothing more than a traditional business-consumer relationship" (Op. ¶33) and that there was no fiduciary relationship.

 

NC Business Court Dismisses All Of Brazilian Plaintiff's Claims

The Plaintiff in Martinez v. Reynders, 2013 NCBC 35, had all of her claims dismissed last week in an Opinion from the Business Court.  The case illustrates why you might want to think twice about incorporating a business in Brazil, and how hard it is to make a fraud claim over a broken promise.

The Plaintiff is a Brazilian citizen.  She incorporated a pharmaceutical research and development company in Brazil in 2000.  The Brazilian company was sold to a Delaware corporation several years later.  Plaintiff became the sole manager of the purchased company.

Her claims arose from personal liability she claims she incurred as a result of her reliance on misrepresentations she claimed were made to her.  She personally guaranteed a lease in Brazil based on alleged representations that the Defendants would raise sufficient capital over a 90-day period to relieve her of her guaranty obligation.  She also became exposed to further liability because she was a "quota holder" of the Brazilian company.  (In Brazil, a quota holder is like a stockholder, but a quota holder can have personal liability for the corporation's debts).

She claimed that she had become a quota holder at the Defendants' request, allegedly upon repesentations that her status as a quota holder would be temporary and that the Defendants would replace her as a quota holder.  They didn't, and the Plaintiff said that the Brazilian government was holding her personally liable for unpaid corporate taxes.  Plaintiff said she was also on the hook under Brazilian law for the wrongful termination of the Brazilian company's employees due to the manner in which they had been terminated.

To the extent that the Plaintiff's liability rested on her being conned into becoming a quota holder, she premised her claims on a fraud theory.  Judge Jolly was buying none of that.  He held:

the allegation that [one of the Defendants] asked Plaintiff to become a quota holder for three months, until a new quota holder was found, on its face is not a misrepresentation of a past or existing fact. Defendants' assurance that it would replace Plaintiff as a quota holder within three months is, at most, a statement of future intent or promissory representation which cannot typically serve as the basis of a fraud claim. Leftwich v. Gaines, 134 N.C. App. 502, 508 (1999). A promissory representation may only serve as the basis of a fraud claim where the promissory representation is made with a present intent not to carry it out and may therefore be said to be a statement of existing fact. Id. In order for a promissory representation to be the basis of an action for fraud, facts must be alleged from which it may reasonably be inferred that the defendant did not intend to carry out such representation when it was made. Whitley v. O'Neal, 5 N.C. App. 136, 139 (1969). The court finds no facts alleged in the Complaint from which it might reasonably be inferred that Defendants did not intend to remove Plaintiff as a quota holder at the time they represented they intended to do so.

Op. Par. 29.

The claim that the guaranty was fraudulently induced failed for the same reason.  Judge Jolly said that:

Similar to the representations discussed above, there are no facts alleged from which it may reasonably be inferred that Defendants did not intend to relieve Plaintiff of her personal guaranty at the time they represented they would do so.

Op. Par. 37.

The photo above is by my daughter Juliet, who happens to be in Brazil right now.  Unfortunately, she left before I could warn her not to become a quota holder in a Brazilian company.  But she's pretty savvy. . . .