Think You Can Appeal The Business Court's Denial Of Your Opposition To Designation? You Probably Can't

The NC Supreme Court's jurisdiction over appeals from the Business Court expanded significantly with the passage of a bill by the NC General Assembly "modernizing" the Business Court in 2014.  A party can appeal even interlocutory orders of the Business Court to the state's highest Court.  N.C. Gen. Stat. §7A-27(a).

What about an Order from the Business Court denying an opposition to a designation to the Business Court?  That's surely "interlocutory," so appealable, right?  Yes, sure, if it affects a "substantial right," as provided in  G.S. §7A-27(a).

Given a ruling from the NC Supreme Court this week, however, it seems unlikely that being forced against your will to litigate in the Business Court will ever be deemed to affect a "substantial right."

The case is Hanesbrands Inc. v. FowlerPlaintiff, suing the Defendant for breaching stock grant agreements, designated the case to the Business Court at the time it filed its Complaint in August 2015.  The Defendant objected to the designation in September 2015.  Judge Gale denied the Opposition the next month and the interlocutory ruling was appealed to the NC Supreme Court.

The Supreme Court ruled that a "substantial right" was not affected by the case remaining in the Business Court and dismissed the appeal.  It rejected the Defendant's argument that she was just an "ordinary" human being who shouldn't have to fight a large corporation in a "special court" designed for sophisticated business entities.  The Defendant had argued:

that requiring her 'to defend a case filed against her by a large, public corporation in a special court established primarily for disputes between businesses' denies her the substantial right to 'have this matter heard in the same manner as ordinary disputes involving ordinary citizens.'

Op. at 5.

I wonder if a "substantial right" would be affected if the Business Court were to grant an Opposition to a Designation in a case appropriate for designation, requiring the designating party to litigate its case outside of the Business Court.  That would involve being in regular NC Superior Court, a Court without electronic filing, without law clerks to assist the Judge in ruling on its claims, without a Judge with the business expertise of a Business Court Judge dedicated to the case from start to finish and without a blog focused on the Court.  If that's not "substantial" enough, it is at least probably unconstitutional.

Before the Business Court was "modernized," the General Statutes allowed precisely that sort of appeal.  Section 7A-45.4(e) used to say that a party dissatisfied with an Order kicking a case out of the Business Court "may appeal to the Chief Justice of the Supreme Court."  There was no procedure for that unique kind of appeal to a single Judge.  The only time I think that it was exercised resulted in nothing more than a form Order from the NC Supreme Court.  I wrote about that case back in 2012.

But even looking back at that no longer effective statute, it seems unlikely that there ever was a right of appeal to the NC Supreme Court for an Order refusing to overturn a designation.

I would not  have been aware of the interesting Hanesbrands decision but for my partner Jennifer Van Zant emailing it to me a couple of days ago.  Thanks, Jennifer.

Who Would Ever Have Thought That Sending A Preservation Letter Might Be Dangerous?

There is probably nothing more routine in litigation today than a Plaintiff's counsel sending a "preservation letter."    A preservation letter, if you've never sent or received one, is a letter sent at the outset of litigation -- or even before it begins -- telling the opposing counsel or party (or even a non-party) to make sure to withhold from destruction documents relevant to the claims.

But who would have ever thought that sending such a routine letter could form the basis for an abuse of process claim?  Apparently it can, based on Judge Robinson's Opinion last month in DDM&S Holdings, LLLC v. Doc Watson Enterprises, LLC, 2016 NCBC 86.

Abuse Of Process

if you need a refresher on what a claim for abuse of process is, it is "the misuse of legal process for an ulterior purpose."  Op. ¶23 (quoting  Chidnese v. Chidnese, 210 N.C. App. 299, 310, 708 S.E.2d 725, 734 (2011)). 

The requirement of an "ulterior purpose"?  That is met when the party accused of the abuse of process takes some willful action after the lawsuit is filed which is aimed at getting the advantage of the opposing party in "some collateral matter."  Op. ¶23.

Judge Robinson spoke to the routine nature of a preservation letter:

Plaintiffs argue that a preservation of evidence letter can never serve as the basis for an abuse of process claim. Indeed, all other things equal, there is nothing inherently improper about a plaintiff sending a letter to individuals who may have relevant evidence requesting that they preserve such evidence. It is a routine litigation practice. The fact that is a routine litigation practice, however, does not mean that such an act can never be used to gain an advantage with respect to some collateral matter. North Carolina courts consistently hold that acts otherwise routine and permissible can constitute an improper act sufficient to satisfy the “act” element of an abuse of process claim.

Op. ¶27 (emphasis added).

The parties to the lawsuit had sold a database, which collected police reports from across the United States, to LexisNexis.  The ulterior motive alleged by the Defendants (via a counterclaim) was that the preservation letter sent to LexisNexis to cause it to withhold distributions from a $2 million escrow fund established in connection with the sale. LexisNexiss did indeed instruct the escrow agent to withhold any distribution from the escrow fund.  The non-payment of money from the escrow fund was alleged by the Defendants to be aimed at coercing and pressuring them to pay more money to the Plaintiffs (which the Defendants said they were not due per the terms of the sale to LexisNexis).

The Allegations Of A Pleading Are Assumed By A Court To Be True

Judge Robinson rejected the argument that a "preservation of evidence letter can never serve as the basis for an abuse of process claim."  Op. ¶27.  The allegations of the Defendants' counterclaim satisfied the bare bones pleading requirements for an abuse of process claim.  As Judge Robinson observed, "[c]oercing a party into paying additional monies is not a purpose for which a preservation of evidence letter is intended." Op. ¶28.  Even though the Plaintiffs denied that coercion was the purpose of their preservation letter, that wasn't enough for them to succeed on their motion to dismiss, as all allegations in a Complaint or counterclaim are accepted as true at the motion to dismiss stage.

This decision highlights the broad latitude that judges, both state and federal, are required to accord to the allegations in a pleading.  Skepticism about the truth of the allegations in a Complaint or Counterclaim is hardly ever sufficient to support a dismissal.  The U.S. Supreme Court said way back in 2009 (in Ashcroft v. Iqbal, 566 U.S. 662 (Souter, J., dissenting) that "[t]he sole exception to this rule lies with allegations that are sufficiently fantastic to defy reality as we know it: claims about little green men, or the plaintiff's recent trip to Pluto, or experiences in time travel."

The allegations surrounding the preservation letter in the DDM&S Holdings case aren't so "sufficient[ly] fantastical" as to fall into the category of little green men, trips to Pluto, or experiences in time travel.

But it remains to be seen whether this abuse of process claim can survive a motion for summary judgment.

What other innocent acts performed in connection with a lawsuit might form the basis for an abuse of process claim?  What about talking to the press?  Sending a notice of deposition or a subpoena?

I don't see an increase in abuse of process claims lying head based on preservation letters being sent.  This ruling wouldn't stop me from sending a preservation letter.

 

Tags: