North Carolina Business Litigation Report : North Carolina Business Litigation Lawyer & Attorney : Mack Sperling : Brooks Pierce Law Firm : Greensboro, Raleigh, Winston-Salem, Charlotte

You all know the procedure for getting into and out of the jurisdiction of the Business Court.  It's kind of like the Hotel California: "you can check in any time you like, but you can never leave."  I don't know why people fight so hard to leave "such a lovely place," but there are often challenges to the Court's mandatory jurisdiction, and the Chief Judge rarely grants them.

There's a "check out" procedure in G.S. §7A-45.4 which has never been used before.  It is about to be tested for the first time.   Section 7A-45.4(e) says:

Based on the opposition or ex mero motu, the Business Court Judge may determine that the action should not be designated as a mandatory complex business case. If a party disagrees with the decision, the party may appeal to the Chief Justice of the Supreme Court.

Unless I've missed it, which seems unlikely to me, no party has exercised the statutory right to challenge a Business Court Judge's denial of an opposition to its jurisdiction by an "appeal to the Chief Justice of the Supreme Court."

Well, now that is happening, in a case called Ekren v. K&E Real Estate Investments, LLC.  I am so excited that I can barely wait to see what will happen. 

The Ekren case, which from the Complaint looks like it is well within the scope of the Court's mandatory jurisdiction, has already been through the opposition procedure.  Judge Jolly denied the opposition to jurisdiction on April 4, 2012.

A "Motion for Supreme Court to Revoke Status As Mandatory Business Court Case" was filed by the Plaintiff on April 23rd.

Does the Motion qualify as an "appeal," which is what the statute dictates?  The Defendant has raised exactly that challenge in its Brief in Response to the Motion.  It says that the Plaintiff hasn't appealed by filing a Motion, and that it should have filed a Notice of Appeal.  The Plaintiff could have done that because Rule 3(a) of the Appellate Rules says that "[a]ny party entitled by law to appeal from a judgment or order of a superior or district court rendered in a civil action or special proceeding may take appeal by filing notice of appeal with the clerk of superior court and serving copies thereof upon all other parties within the time prescribed by subsection (c) of this rule."

An "appeal" is defined in one of my dictionaries as "an application or resort to another person or authority, esp a higher one, as for a decision or confirmation of a decision."  The Motion by Ekren certainly fits that definition.  It might have been more appealing to title it as  "Appeal to the Chief Justice to Revoke Status As Mandatory Business court Case."  And as far as whether a Notice of Appeal was necessary, can you even file a Notice of Appeal just to the Chief Justice, as opposed to the entire Supreme Court?

And there's one last question that I see.  The way that Section 75A-4(e) is worded, it seems to be limited to appeals from the Business Court's determination that a case is outside its jurisdiction, which is the opposite of the ruling in Ekren.

What happens now?  Only Chief Justice Sarah Parker can decide to handle this unusual procedure.  The eyes of the world are upon her.

[Update:  The Chief Justice denied the "appeal" in a summary order on May 17th.  I wrote about that here.]

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The NC Court of Appeals said earlier this month in Browne v. Thompson that the decisions of the Business Court have "no precedential value."  Being a big fan of the Business Court, that rankled me. And being the author of a blog which focuses on the Business Court, it caused me to question my reason for writing.

In the Browne opinion, which affirms an opinion from Judge Jolly granting a motion to dismiss the case, Judge Steelman of the COA dissed the Business Court at the same time he affirmed it.  Judge Steelman was scoffing at the Plaintiffs’ reliance on several Business Court decisions in support of their unsuccessful appeal. He said:

The remaining cases cited by plaintiffs are decisions of the North Carolina Business Court. The Business Court is a special Superior Court, the decisions of which have no precedential value in North Carolina.

That was a strong statement. NO precedential value? Really?  Not even a little bit? So why should North Carolina lawyers care what the Business Court does (or why should they even bother reading this blog)?

Here are my top five reasons to disagree with Judge Steelman:

First, the Business Court is on the front line of business law issues in North Carolina. If you want to be up to date on corporate matters, you need to know what the Court is dealing with.  Disregard it at your peril, precedential or not

Second, the Court was formed, as stated by Rule 2.2 of the General Rules of Practice, in recognition of the "desirability of a state having a substantial body of corporate law that provides predictability for business decision making. Also, it is essential that corporations litigating complex business issues receive timely and well reasoned written decisions from an expert judge."  There's no predictability without precedent.

Third, the Business Court is a quality court. It has smart, capable Judges. The opinions are thorough, well-reasoned, and well-written. The Court has been described as “a model for the nation.”  The opinions are worth treating as having precedential value.

Fourth, while Judge Steelman is probably right from a legal standpoint that the Business Court's decisions are not binding precedent, he is ignoring the value of those decisions as “persuasive precedent."  What's the difference in the types of precedent?

Persuasive precedent:

is precedent or other legal writing that is related to the case at hand but is not a binding precedent on the court under common law legal systems such as English law. However, persuasive authority may guide the judge in making the decision in the instant case. Persuasive precedent may come from a number of sources such as lower courts, "horizontal" courts, foreign courts, statements made in dicta, treatises or law reviews.

I don't think the term has ever been used by the NC Court of Appeals.  The best definition I've found for it comes from Wikipedia. 

It's not unusual for appellate courts to look to trial courts for persuasive guidance.  Does the Fourth Circuit Court of Appeals disregard the opinions of the District Courts within the geographic area of the Circuit?  Of course not.  And other state appellate courts look to trial court opinions for their persuasive value  See, e.g.,State Farm Fire & Cas. Co. v. Estate of Mehlman 589 F.3d 105, 108 (3d Cir. 2009)("Inasmuch as Pennsylvania law governs this action we treat Pennsylvania Supreme Court opinions as binding precedent and Pennsylvania Superior Court opinions as persuasive precedent.").

Last, if you are litigating in the Court, and you don't know how Business Court Judge Jolly, Judge Gale, or Judge Murphy ruled in the past in similar cases, you are litigating in the dark.  Maybe their past rulings are not precedent but only representative of their individual habit, but it's good to know about them nevertheless.

Maybe the Court of Appeals could take their heads out of the sand about the precedential value of Business Court opinions.

And if you have time, let me know if any of you have been successful in persuading non-Business Court Superior Court Judges that they should follow a decision of the Business Court or whether their reaction was to say there's "no precedential value."

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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."

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The North Carolina Business Court was formed in 1995, largely inspired by Delaware's Chancery Court.  Our state recently returned the favor:  Delaware now has created its own business court division of its Superior Court, sparked by the experiences of North Carolina and sixteen other states.  Delaware's new Complex Commercial Litigation Division (“CCLD”) shares some common elements with our Business Court, but differs in other aspects.

For the core details of the CCLD, we recommend the summaries from two blogs that you should be reading anyway:  the Delaware Corporate and Commercial Litigation Blog and the Delaware Business Litigation Report.  In addition, if you'd like to see how business courts in other states are structured, you should check out the appendix to the report of the Delaware special committee that was appointed to survey such courts.

Like our Business Court, the CCLD features assignment of a case to a single judge from cradle to grave and more uniform, intense, and proactive case management than in the courts of general civil jurisdiction.  Here are a few interesting comparisons and contrasts between the CCLD and our Business Court:

Topical Definitions of Jurisdiction:  To qualify for mandatory complex business designation in North Carolina, a case must fit into at least one of seven defined categories:  corporate or other entity law, securities law, antitrust law, state trademark or unfair competition law, intellectual property law, Internet / e-commerce / biotechnology, and certain tax cases.  The CCLD, on the other hand, has a list of categories that will be excluded per se from its jurisdiction:   personal, physical, or mental injury cases; mortgage foreclosure cases; mechanics’ lien cases; condemnation proceedings; and any case involving an exclusive choice of court agreement where a party to the agreement is an individual acting primarily for personal, family, or household purposes or where the agreement relates to an individual or collective contract of employment.

Choice of Court Agreements:  Speaking of that last clause, the CCLD has jurisdiction over any case not otherwise excluded in which the parties have selected the CCLD through an exclusive choice of court agreement.  There is no corresponding provision in our statutes or rules that permits parties to contractually "select" the Business Court if a case does not qualify through mandatory jurisdiction or Rule 2.1 practice, although it would be interesting to see how many North Carolina businesses would utilize such clauses in their contracts if permitted.

Amount in Controversy:  As long as the subject matter is not excluded, the CCLD will have jurisdiction over any case with $1 million or more in controversy.  North Carolina does not have any such qualifying amount.  Nevertheless, a large amount in controversy may influence the decision of a Senior Resident Superior Court Judge to recommend complex business designation under Rule 2.1 (or exceptional case designation under Rule 2.1).

Judicial Assignments:  North Carolina has three Special Superior Court Judges who focus on cases assigned to the Business Court.  They occasionally are drafted to fill in for other Superior Court judges for regular civil or even criminal trial calendars, but that is an irregular occurrence.  The three judges of the CCLD, in contrast, apparently will continue to hold regular civil terms hearing both CCLD cases and cases that do not qualify for CCLD designation.  CCLD cases automatically will take priority over non-CCLD cases on a judge's calendar.

Designation Procedure:  In North Carolina, a mandatory complex business case is designated by filing a Notice of Designation with the Clerk of Superior Court, with copies to the Chief Justice and the Chief Business Court Judge.  Cases outside mandatory complex business jurisdiction can be assigned to the Business Court upon motion to the Senior Resident Superior Court Judge, who makes a recommendation to the Chief Justice, who ultimately determines whether or not such a case will be assigned.  Delaware makes it easier:  a qualifying case can be designated by typing the appropriate four-letter code on Delaware's equivalent of our AOC's Civil Action Cover Sheet (AOC-CV-751, for those of you scoring at home).  In both states, a party opposing designation can challenge it by filing the analogue of a federal court motion to remand, and in both states, such a motion is resolved by the presiding judge of the specialized court.

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Read this if you litigate with the North Carolina Department of Revenue over tax matters, or know someone who does. The subject is a Business Court decision which makes clear an important prerequisite for obtaining review of a tax case in the Court.

The Business Court has jurisdiction over parties seeking judicial review of a contested tax case decided in the Office of Administrative Hearings by an Administrative Law Judge. It has had such jurisdiction since 2008 amendments to the General Statutes, including Section 7A-45.4(a)(7) and Section 105-24.16, which says that:

A taxpayer aggrieved by the final decision in a contested case commenced at the Office of Administrative Hearings may seek judicial review of the decision in accordance with Article 4 of Chapter 150B of the General Statutes. Notwithstanding G.S. 150B-45, a petition for judicial review must be filed in the Superior Court of Wake County and in accordance with the procedures for a mandatory business case set forth in G.S. 7A-45.4(b) through (f). A taxpayer who files a petition for judicial review must pay the amount of tax, penalties, and interest the final decision states is due.

The statute says that the taxpayer must pay the tax with penalties and interest, but it doesn't say when the payment is to be made and says nothing about payment being a prerequisite to judicial review .

In Franklin County Board of Education v. North Carolina Department of Revenue, 2009 NCBC 28 (N.C. Super. Ct., December 23, 2009), the first case in the Business Court seeking judicial review pursuant to the statute, Franklin County hadn't paid the tax and interest before filing its Petition. The Department of Revenue pointed this out to the County, and the County promptly paid in full. Nevertheless, DOR moved to dismiss because the payment had not been made before the filing in the Business Court.

Judge Tennille denied the Motion based on his power under G.S. §150B-45 to allow an untimely Petition "for good cause shown." He said that the statute "is not a model of clarity," and that it "should have made it clear that the tax, penalties, and interest had to be paid before or contemporaneously with the filing of the Petition." He also pointed out that DOR had not said in the Notice of Appeal Rights provided to the County that it was required to pay the tax before seeking judicial review. 

That pass given to Franklin County won't extend to future cases, and that's the important part. The Court said "[n]ow that the Statute has been clarified by the Court, attorneys are on notice of the requirement." DOR will presumably provide notice of this requirement to taxpayers, because the Court said that DOR "would be well advised to make the payment requirement clear in its notice of appeal procedures."

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Here are a few pictures of the new North Carolina Business Court in Raleigh, thanks to Judge Jolly and his staff giving me a quick tour yesterday. The Court moved to the Campbell Law School's new Raleigh building on October 1st.

You'll see that there is a broad stretch of windows behind the Judge's bench, which look out on Hillsborough Street. Most new courtrooms don't seem to have windows. In addition to letting in some natural light, these will prove useful for daydreaming during tedious trial moments.

Also, there are two colorful, modern paintings of downtown Raleigh in the courtroom. Those aren't your typical courtroom art of former judges holding law books.

Beyond that, the courtroom has all the technological bells and whistles of the Business Courts in Raleigh and Charlotte.

[If you can't see the slideshow, try this link: http://www.flickr.com/photos/43856857@N05/sets/72157622518330473/show/

Created with Admarket's flickrSLiDR.

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If you are getting ready to designate a case to the North Carolina Business Court, you might want to go ahead and do that in the next few days. That's because starting September 1, 2009, it's going to cost your client a bunch more money to have a case heard in the Business Court.

Effective September 1st, the fee due to the Clerk of Court in the county where the case was filed will increase to $1,000.  It was previously only $200.  The change will be codified at N.C. Gen. Stat. §7A-305(a)(2)("Costs in Civil Actions").

Business Court Rule 3.4 deals with the payment of the fee. It says that the payment is due to the Clerk of Court immediately upon counsel's receipt of the Order assigning the case to the Business Court.  The Rule also says that the fee is non-refundable in the event that the case is later remanded to Superior Court. 

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Once the Business Court takes jurisdiction over a case, that jurisdiction remains in place for the life of the case, regardless of dismissals of parties or changes in the nature of the claims.

That was the ruling of the Court last week in Mattress Now, Inc. v. KS Bank, Inc. in response to the Plaintiff's Motion to Remand.

The case had been designated to the Business Court by the Defendant Bank, which was one of two defendants. The Plaintiff challenged that designation, but the Court rejected Plaintiff's arguments in an earlier ruling and refused to remand the case.  After that, the Plaintiff settled the claims involving the Bank.

Plaintiff then moved again to remand.  It asserted in its Motion that the remaining claims "do not involve the corporate law and banking issues that justified removal of this case to the Business Court" and that none of the issues "require the expertise of the Business Court."

Judge Tennille, in a very short ruling, held "[t]his case was designated a mandatory complex business case pursuant to North Carolina General Statute Section 7A-45.4 on August 12, 2008. Once jurisdiction attaches, it remains attached for the entire case."

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The Business Court now has jurisdiction over utility pole disputes between communications providers and municipalities.  That surprising expansion of the Court's jurisdiction is thanks to a new law passed at the just concluded session of the North Carolina Legislature.

New section 62-55 of the General Statutes requires a municipality that "owns or controls poles, ducts, or conduits" to allow a "communications service provider" to have access to those resources at "just, reasonable, and nondiscriminatory rate." (The statute doesn't apply if the poles, ducts, or conduits are subject to federal regulation under the Communications Act of 1934).

If a provider makes a request for access, and the request is refused, the new statute provides that either party can have its claim resolved by the Business Court, which will have exclusive jurisdiction over the dispute. The jurisdiction kicks in only after the expiration of a 90-day negotiation period or before then if either side "believes in good faith that an impasse has been reached."

The law became effective July 10, 2009. Earlier this week, in Town of Murphy v. Verizon South, Inc., Judge Tennille discussed the new statute and the procedure that the Business Court intends to follow with respect to utility pole disputes. Among other things,the Court discouraged "gamesmanship" which might result in a party rushing to file a lawsuit before the expiration of the 90 day negotiation period. Judge Tennille said "[t]he parties would be well advised to use the mediation process if their negotiations are not proving fruitful and leave it to the mediator to declare an impasse."

In the Town of Murphy case, Judge Tennille remanded a utility pole dispute to Cherokee County Superior Court. The case had been filed before the effective date of the statute, and Judge Tennille ruled that the new law was not retroactive.

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Here's a new one. Can you make a mandatory designation of a case directly from North Carolina District Court to the Business Court?  Believe it or not, there are circumstances under which you might want to do that, so the Business Court's opinion this month in Bailey Pointe Homeowners' Association v. Strong is worth knowing about.

Start from square one: The District Court has jurisdiction over matters involving $10,000 or less and the Superior Court has jurisdiction over cases exceeding $10,000 (per G.S. §7A-243).  Since the Business Court is a part of the Superior Court division of the trial courts, a case that falls under District Court jurisdiction can't be designated to the Business Court because there isn't sufficient amount in controversy to qualify for Superior Court jurisdiction.

But it happens that cases are filed in District Court which involve more than $10,000.  Or there are District Court cases in which counterclaims are made for more than that amount and which properly belong in Superior Court.  Or there might be a case filed in District Court asking for injunctive relief against a statute, for which Superior Court is the correct division under G.S. §7A-245.  In all of these circumstances, there's a mechanism in G.S. §7A-258 for transferring a case from District Court to Superior Court.

So let's say you are representing the Defendant in a District Court case which wasn't properly filed there because it involves more than $10,000, or in which you are going to counterclaim for more than $10,000, and the issues in the case otherwise make it appropriate for mandatory jurisdiction in the Business Court   Can you jump the case straight from District Court to the Business Court?

The answer is no.  In Bailey Pointe, the Plaintiff sought to designate the District Court case it had filed to the Business Court.  The designation was based on counterclaims raising corporate governance claims and seeking in excess of $10,000 in damages.  Judge Tennille held that G.S. §7A-45.4(b) says that cases are designated "by filing a Notice of Designation in the Superior Court in which the action has been filed. . . ."  So, he held, "only actions filed in or transferred to Superior Court may seek mandatory complex business designation."

In other words, you can't hopscotch directly from District Court to Business Court.  Judge Tennille denied the Notice of Designation by the Plaintiff in Bailey Pointe, and held that the only route to the Business Court for that Plaintiff was a motion to the Chief District Court Judge, per Rule 2.1 of the General Rules of Practice, to recommend that the case be designated as a complex business case. 

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Until today, there wasn't any law in North Carolina on the proper choice of law analysis to decide what state's law to apply in an accounting malpractice case.  That changed with the North Carolina Business Court's decision today in Harco Nat'l Ins. Co. v. Grant Thornton LLP, 2009 NCBC 11 (N.C. Super. Ct. April 20, 2009)

Harco sued Grant Thornton, alleging that it relied on the accounting firm's audit of Capital Bonding Corporation, a Pennsylvania company, in deciding to participate in a bonding program.  Capital failed and Harco paid millions of dollars in claims for bonds issued by Capital.

The claim touched at least three states: Illinois, where both Harco and Grant Thornton are headquartered; Pennsylvania, where Capital was based and where Grant Thornton did its auditing of Capital; and North Carolina, where Harco directed its operations with regard to the bonding program, Harco's key officers were located, and where Harco paid its first and some of its most significant losses on the bonding program.

The three states have very different approaches to the duty of care owed by an auditor to a third party claiming reliance on an audit opinion.  Grant Thornton moved for summary judgment relying on Illinois law, which requires near privity, a standard very favorable to accountants when they are sued by third parties claiming to have relied upon an audit.  In fact, Judge Tennille said that Grant Thornton would have been entitled to summary judgment under Illinois law.

Harco argued for the application of North Carolina law, which is less favorable to accountants.  North Carolina follows the test  of the Restatement (Second) of Torts §552, which is not as stringent a standard as privity but which requires more than reasonable forseeability. 

Judge Tennille, however, ruled that Pennsylvania law should apply, under what he referred to as the "Audit State Test."  He held that "[t]he law of the state where an audit is performed, delivered, and disseminated (the 'Audit State') should control the scope of liability to third parties not in privity with an accountant."  Op. ¶30. 

The justifications for this choice of law standard, according to Judge Tennille, are that "the Audit State has the most significant public policy interest in the liability of auditors performing audits within the state for local companies," and that it "provides clarity, certainty, and consistency for the auditing profession and those relying on the auditor's work."  This will promote "clear risk analysis" for both the auditor and those relying on the auditor's work. Op. ¶¶31-32.

The clarity will be only short-lived, because Pennsylvania has not clearly staked out a position on the issue of the liability of auditors to third parties. 

The painting at the top is of Luca Pacioli, the "Father of Accounting."  According to the website of the American Institute of Incorporated Public Accountants, Pacioli said "do not go to bed at night until the debits equal the credits." 

Harco Amended Brief In Support Of Choice Of Law Determination

(Grant Thornton's Brief was filed under seal).

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The North Carolina Business Court in Raleigh will be relocating to Campbell University's Law School.  The move will happen in Fall 2009, when the Norman Adrian Wiggins School of Law finishes its own relocation, from Buies Creek to Raleigh.

North Carolina then will have two law schools with courtrooms on the premises.  The other one, of course, is the Business Court at the Elon Law School in Greensboro.

The plans at the top of this post shows the expected location of the Court on the third floor of the new Law School, which will be located at 225 Hillsborough Street in Raleigh.  That's an existing building which is being fully renovated.  A representative of Raleigh's Small Kane Architects, who are working on the project, said that the details of the plans may have changed.

There is more information about the project on the website of the Law School.

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Have you ever booked a hotel room through an online reseller like Hotels.com, Priceline, or Orbitz?  If you have, you might be interested in this post, even though you might not otherwise be interested in an issue of North Carolina state tax law.

Those companies, and other internet resellers of hotel rooms, have a significant tax dispute pending in North Carolina's courts.  And right now, the Fourth Circuit is directly at odds with the North Carolina Business Court on the proper outcome. 

The tax problem comes up because the customer is paying these companies more than the price at which the online company purchases the hotel rooms from the hotel operator.  That's obvious, that's how they make a profit.  What's not so obvious is that the online companies charge Occupancy Tax based on the full price of the room, but they only remit tax calculated at the lower price they paid to buy the room. They keep the difference, which they call a "nonitemized service fee."

This questionable practice has led to a flurry of litigation by municipalities against Hotels.com, Priceline, and other online vendors, like Orbitz and Travelocity. Four of those cases are being litigated in the North Carolina Business Court, brought by Dare County, Mecklenburg County, Wake County, and Buncombe County. Similar cases are pending throughout the country.

Last week, the online travel companies scored a big win when the Fourth Circuit affirmed the grant of a Motion to Dismiss in a case brought by Pitt County, in Pitt County v. Hotels.com, L.P.  (I read about that decision on the North Carolina Appellate Blog).  The Fourth Circuit ruling is apparently the first appellate decision in the country on this issue, but that ruling is directly at odds with a decision by Judge Diaz in the Business Court, Wake County v. Hotels.com, L.P., 2007 NCBC 35 (N.C. Super. Ct. Nov. 19, 2007).  

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The parties to the North Carolina lawsuit in which Wachovia's former CEO, Bud Baker, obtained a Temporary Restraining Order against Citigroup's efforts to acquire the banking operations of Wachovia have agreed to a Consent Scheduling Order.

The Order, if approved by Judge Diaz of the North Carolina Business Court, will move the Preliminary Injunction hearing from tomorrow (Thursday) at 2:00 p.m. to Monday, October 13th, at 2:00 p.m. in the North Carolina Business Court.

The Proposed Order provides that the supporting papers of the parties will be filed by Thursday, October 9th, at noon.  Responsive materials will be filed on Friday, October 10th, at noon.  Those papers will apparently be filed under seal, given that the parties have presented a Confidentiality Order to the Court asking to be allowed to file documents in that manner. 

I've written two previous posts about the North Carolina litigation, which have links to the Complaint, the TRO, and Affidavit of Wachovia's CEO, and other documents.  The first one is here, the second one is here.

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There were some late breaking developments today in the North Carolina lawsuit regarding the Wachovia-Citigroup-Wells Fargo situation, including the unsealing of detailed Affidavit testimony from Wachovia's CEO about Wachovia's courtship dance with its two potential acquirors, a modification of the TRO entered on Sunday evening, a transfer of the case to the North Carolina Business Court, and then a standstill agreement with regard to the three pending lawsuits. 

First, Judge Johnston unsealed the Affidavit of Robert Steel, Wachovia's CEO, which had been filed with the Complaint.  The Affidavit is identical to an Affidavit filed in the New York lawsuit brought by Wachovia against Citigroup.  It describes the chronology of the negotiations between Wachovia and the two banks which so badly want to acquire it.  Briefly: 

• Before September 29th, Both Wells Fargo and Citigroup were in negotiations to acquire either all of Wachovia's stock (Wells Fargo) or only Wachovia's banking subsidiaries (Citigroup).
• Wells Fargo ended negotiations on September 28th, saying that it could not complete the acquisition of all of Wachovia's stock on a compressed timetable without substantial government assistance.
• The Chairman of the FDIC then told Steel that the situation posed "a systemic risk to the banking system" and that the FDIC was prepared to "effect an open bank assisted transaction."
• The next day, Steel told the Wachovia Board of Directors that its only options were to file for bankruptcy or to negotiate a deal with Citigroup.
• The Wachovia Board voted to pursue the deal with Citigroup, and a three party Agreement-in-Principle was signed on September 29th by Wachovia, Citigroup, and the FDIC.  (The Agreement is Exhibit A to the Steel Affidavit).
•  Under the terms of the Agreement, the FDIC committed to limit Citigroup's losses on a $312 billion loan portfolio to $42 billion.  In exchange, the FDIC was to receive $12 billion of preferred stock in Citigroup. 
• The Exclusivity Agreement at issue in the lawsuit was also signed  on September 29th.
• Wachovia thereafter conducted negotiations with Citigroup "earnestly and in good faith," but those negotiations were "complicated and difficult," according to the Affidavit.
• The Chairman of the FDIC called Steel on October 2nd that Wells Fargo would be proposing a merger transaction, and encouraged him to "give serious consideration to that offer."
• Wachovia's General Counsel advised the FDIC Chairman that Wachovia could not consider this proposal without a signed and Board-approved merger agreement from Wells Fargo.
• That same day, at around 9:00 p.m., Wells Fargo presented an Agreement and Plan of Merger (which is attached to the Steel Affidavit as Exhibit C).
• Two hours later, Wachovia's Board of Directors met and reviewed the Wells Fargo Agreement.  Steel states in his Affidavit that "[t]he Company's advisors and I told the Board that we believed that unless a definitive merger agreement was signed with either Citigroup or Wells Fargo by the end of the day Friday, October 3 that the FDIC was prepared to place Wachovia's banking subsidiaries into receivership."
• Steel signed off on the Wells Fargo Agreement early in the morning on October 3rd, after receiving oral fairness opinions from Goldman Sachs and Perella Weinberg Partners.

Second, Judge Johnston entered an Order amending the TRO entered on October 5th, to DELETE the underlined language: 

“(i) filing or continuing any legal action against Wachovia or Wells Fargo to enforce the terms of the second paragraph of the Letter Agreement; (ii) making public representations about the validity of the second paragraph of the Letter Agreement; (iii) making public representations about the invalidity of the Wachovia/Wells Fargo merger agreement.”

There was no indication for the modification, but presumably there were prior restraint issues.

Third, the case was designated by Citigroup to the North Carolina Business Court.  It has been assigned to Judge Diaz.  The Preliminary Injunction hearing is currently scheduled for Thursday, October 9th, at 2:00 p.m.

Finally, it's not clear whether that hearing will be held, because the three banks have entered into a brief standstill while they attempt to resolve their dispute.  Per a Citigroup press release, the terms of the agreement are: 

1. A standstill of all formal litigation activity effective immediately;
2. Cease any formal discovery activities, and
3. Cooperate in good faith to agree among themselves to secure orders where necessary in all applicable cases in all jurisdictions tolling any schedules for the filing of litigation papers or court appearances or any other formal litigation deadlines, with the goal of preserving the status quo during the litigation standstill period.

This standstill agreement will terminate at noon on Wednesday, October 8, 2008, the day before the scheduled Preliminary Injunction hearing, unless otherwise extended.

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The fight between Citigroup and Wells Fargo for the remains of Wachovia moved into North Carolina's courts this weekend.  The new Complaint was filed by Wachovia's former CEO, Bud Baker, and another Wachovia shareholder to enjoin Citigroup from seeking to enforce its Letter Agreement to acquire Wachovia.

The Plaintiffs obtained an immediate Temporary Restraining Order in Mecklenburg County from Superior Court Judge Robert Johnston on Sunday, October 5th.  (Coincidentally, Judge Johnston entered a pivotal order in the North Carolina litigation over First Union's acquisition of Wachovia back in 2000.) 

The TRO enjoins Citigroup from:

“(i) filing or continuing any legal action against Wachovia or Wells Fargo to enforce the terms of the second paragraph of the Letter Agreement; (ii) making public representations about the validity of the second paragraph of the Letter Agreement; (iii) making public representations about the invalidity of the Wachovia/Wells Fargo merger agreement.”

If the TRO sticks, that means that Citigroup won't be able to continue with its New York state court lawsuit against Wachovia and Wells Fargo.  The New York Times Dealbook blog has an excellent summary of the New York litigation.

In the Conclusions of Law to the North Carolina TRO, Judge Johnston found that “Plaintiffs [are] likely to succeed on the merits of their claims because they have made a strong showing that the exclusivity provisions contained in the second paragraph of the Letter Agreement [between Wachovia and Citigroup] are invalid and unenforceable under North Carolina law.” 

The TRO doesn't reference any authority for the proposition that the exclusivity provisions are void.  The only reference to any North Carolina law in the TRO is to Section 53-128 of the North Carolina General Statutes, which is titled "[w]illfully and maliciously making derogatory reports."  That statute, under which there are no reported decisions, provides that: 

"Any person who shall willfully and maliciously make, circulate, or transmit to another or others any statement, rumor, or suggestion, written, printed, or by word of mouth, which is directly or by inference false and derogatory to the financial condition, or affects the solvency or financial standing of any bank, or who shall counsel, aid, procure, or induce another to state, transmit, or circulate any such statement or rumor shall be guilty of a Class 1 misdemeanor."

This promises to be interesting, though possibly short-lived.  If the case ends up in the North Carolina Business Court, that Court often stays North Carolina lawsuits if there is a forum which is the more logical center for resolution of the matters in dispute.  In fact, two of those recent cases were brought by Wachovia, and in both of them the Court stayed the North Carolina case to allow litigation involving the same matters to go forward in other states.  One is Wachovia Bank, N.A. v Harbinger Capital Partners Master Fund I, Ltd., 2008 NCBC 6 (N.C. Super. Ct. March 13, 2008) the other is Wachovia Bank v. Deutsche Bank Trust Company Americas, 2006 NCBC 8 (N.C. Super. Ct. June 2, 2006).

Wachovia's lawyers (the same lawyers representing the Plaintiffs in the North Carolina Citigroup lawsuit) tried exactly the same legal maneuver in Harbinger: obtaining an injunction barring litigation in New York so that Wachovia could have its claims resolved in North Carolina.  Judge Diaz of the Business Court granted a Motion to Stay the North Carolina case brought by Wachovia, ruling that there was a "practical reality that the New York Action is better able to arrive at a more comprehensive resolution of the litigation, given the broader scope of claims and parties before it." 

The North Carolina Complaint indicates that one of the Plaintiffs is a New York resident, so a stay in favor of a resolution in New York might be granted if requested by Citigroup.

[Update: Citigroup designated the case to the Business Court on October 6th.  The Notice of Designation is here.  The case has been assigned to Judge Diaz.]
 

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I got an email invitation today to a seminar where one of the speakers will be speaking on "hot tubbing" with expert witnesses. I decided immediately that I would need to hire better looking experts in the future if this was going to catch on.

In all seriousness, it turns out that "hot tubbing" of experts had its origin in Australian courts, and it is becoming something of a "hot" subject here in the U.S.  There's an article in ABA Journal about it, and also an article in the New York Times.

What it means is that all of the experts on a particular subject are sworn in at the same time, and then sit as a panel to be examined jointly by the lawyers for the parties and the Court. The procedure even allows for one expert to question another expert directly. 

Given the way the procedure works, it makes sense that hot tubbing is also known as "concurrent evidence."  If you are interested in exactly how this procedure works, you can keep reading below.

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Reid Pointe, LLC v. Stevens, 2008 NCBC 15 (N.C. Super. Ct. August 18, 2008).

The Business Court today threw out, on a Motion for Judgment on the Pleadings, an unfair and deceptive practices claim stemming from a dispute between members of a limited liability company. The Reid Pointe, LLC v. Stevens case also addresses a question of first impression involving an unlicensed general contractor.  There was a judicial dissolution issue as well.

CDC, a minority member of the LLCs, argued that the member owning a 70% interest, Grimmer, had removed CDC as a manager and had made unnecessary capital calls in order to force CDC out of the LLC.  CDC also alleged that it had been defamed by Grimmer, that Grimmer had taken steps to cause banks to freeze the accounts of the LLCs, favored his son on a contract with the LLCs, and caused an improper $100,000 payment to be made by the LLCs.  CDC claimed these facts made out a claim under Chapter 75. 

Judge Diaz granted the Motion on the unfair and deceptive practices claim, holding that the actions involving removal and capital calls were "primarily matters of internal corporate governance that do not relate to the day-to-day business activities of the LLCs.  Accordingly, these matters are not sufficiently 'in or affecting commerce' to sustain an UDTPA claim."  Op. at 16. (There have been a series of cases from the Business Court reaching similar conclusions in cases involving disputes between members of LLCs or between corporate shareholders.  Those cases are Kaplan, Walters & Zimmerman, Schlieper, and Slickedit.)

The defamation claim met with dismissal because Judge Diaz found it had not been described with sufficient particularity, and the other claims were dismissed because they belonged to the LLCs, not to the members.

Plaintiff's claims seeking judicial dissolution of the LLCs survived, but barely. Judge Diaz found that Plaintiffs' allegations of waste and mismanagement were insufficient because they "fail to allege any specific action or conduct on the part of Grimmer that constitutes waste or demonstrates the misapplication of the LLC's assets."  Op. at 11.He ruled, however, that allegations Grimmer was refusing to pay CDC for services provided, badmouthing CDC to vendors and banks, making capital calls, and refusing to provide information regarding the operation of the LLCs might make out a claim for dissolution.  The Court held:

Applying an indulgent standard to Defendants' pleading, these allegations relating to the deteriorating relationship between Grimmer and CDC are sufficient to allow Defendants to pursue their claim that liquidation is reasonably necessary to protect Defendants' rights and interests in the LLCs.

Op. at 12.

Last but not least, one of CDC's claim was for breach of a construction contract.  CDC, however, wasn't licensed as a general contractor in North Carolina, and our law is pretty clear that an unlicensed general contractor can't recover for its work.  The twist here was that CDC's contract called for some work that required a general contractor's license, and some that didn't.

Grimmer argued that CDC was barred from recovering anything at all on the contract, but Judge Diaz held that:

Although the Court's research has not disclosed any binding precedent on point, there is persuasive authority suggesting that the denial of contract remedies to unlicensed general contractors or construction managers should properly be restricted to circumstances where the contractor seeks compensation for work falling within the statutory definition of general contracting or construction management.

Op. at 13.  Given the "indulgent standard" of inquiry required on a Motion for Judgment on the Pleadings, the Court denied the Motion because the contract extended to matters for which a license wasn't necessary, like selling lots in the development, hiring sales managers, developing budgets and implementing marketing plans.

Brief in Support of Motion for Judgment on the Pleadings

Brief in Opposition to Motion for Judgment on the Pleadings

Reply Brief in Support of Motion for Judgment on the Pleadings

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There was an article in the ABA Journal a few months ago about the Judges who are the "rock stars" of electronic discovery issues.  Two of those Judges, Paul Grimm of the District of Maryland and David Waxse of the District of Kansas, formed a "rock star trio" with Judge Tennille on an ABA panel earlier this year.

The subject was ethical issues in e-discovery.  You can download the whole presentation on the ABA website for a more than nominal fee.  But if you don't want to do that, here's some of what Judge Tennille had to say:

As Judge Tennille sees it, the "most important rule for lawyers' from an ethical perspective is Rule 1.1, which is "Competence."  That Rule requires "the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation."  According to Judge Tennille, state court judges are looking to the lawyers and expecting them to present solutions to e-discovery issues.  As he put it, Judges are saying “I expect you to have the knowledge to handle this problem. I expect you to meet and confer with each other and tell me how you’re going to solve this problem.”

Judge Tennille referenced a Business Court case where the lawyers for a party turned over a mirrored hard drive to opposing counsel, and then had to scramble when it turned out that there were privileged documents on the hard drive.  Using that example, Judge Tennille said “You really have a very basic obligation to be compeltent in this area. And in my view, being competent does not mean turning your client’s hard drive over to the other side.”  So, reaching agreement in advance to deal with this type of situation, and including a clawback provision providing for the return of privileged documents, is a part of that competence.  (Although Judge Tennille didn't name the case, it is Judge Diaz' opinion in International Legwear Group, Inc. v. Legassi International Group, Inc.)

The seminar turned to a discussion of the California case (Qualcomm) sanctioning lawyers for their failure to turn over a substantial quantity of emails and misrepresenting the situation to the Court, and Rule 3.3's duty of "Candor Toward The Tribunal."  Judge Tennille said “I think the best rule for you to keep in mind is not to follow the old suggestion that it is easier to ask foregiveness than permission. If you have a question, you ask for permission first. Because it’s really not worth risking your law license to ask for foregiveness later.”

On the subject of lawyers who play fast and loose with e-discovery, Judge Tennille said: “I think judges generally try to look at it from the standpoint of when we’re trying to determine if somebody is gaming the system, we look at process and motivation and if you’ve got a good process and we don’t have any question about your motivation, you’re not going to be in trouble. If you haven’t used a good process or we have any question about your motivation or the client’s motivation and what they did, chances are that we’re going to determine that you were gaming the system and your client will suffer from that, 99 times out of a 100.”

And then Judge Tennille said something that seems so easy to understand: "The best test is your common sense. And if you use it you’ll stay out of trouble. if you don’t, there’s going to be a judge somewhere who will penalize you for not using your common sense.”

Judge Tennille has written two Business Court opinions on the subject of e-discovery, Analog Devices, Inc. v. Michalski, 2006 NCBC 14 (N.C. Super. Ct. Nov. 1, 2006) and Bank of America Corporation v. SR International Business Insurance Company, Ltd., 2006 NCBC 15 (N.C. Super. Ct. Nov. 1, 2006), but that is still a largely uncharted territory in North Carolina's state courts.

The image at the top is from xkcd.com, edited.

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If a case involves only a breach of a covenant not to compete or a confidentiality agreement, it is not within the mandatory "unfair competition" jurisdiction of the North Carolina Business Court, based on two recent decisions.

The first case is Workplace Benefits, LLC v. Lifecare, Inc, decided by the Court on July 14, 2008.  In that case, which the Defendant designated to the Court, the Plaintiffs were a former employee of the Defendant and her new employer.

The Complaint asserted that the Defendant was improperly using a Confidentiality Agreement signed by the individual Plaintiff to threaten her so she wouldn't call on potential customers.  The Plaintiffs further alleged that potential customers had been impeded from doing business with the corporate Plaintiff as a result. 

The Complaint sought a declaratory judgment that the Confidentiality Agreement was invalid, and also made claims for tortious interference with contract and a breach of the duty of good faith and fair dealing.

The case was designated to the Business Court (by me) based on the Court's mandatory jurisdiction over cases involving "unfair competition law."  Judge Tennille disagreed that there was mandatory jurisdiction, and held:

every suit based upon a breach of a restrictive covenant or breach of a Confidentiality Agreement [will not] give rise to a mandatory business case based upon “unfair competition.” In order to raise a material issue of unfair competition, some additional factors must be alleged. For example, allegations of the theft of trade secrets which provide a competitive advantage to one party could give rise to a mandatory case. See e.g., Analog Devices v. Michalski, 157 N.C. App. 462, 579 S.E.2d 449 (2003). Also, actions designed to unfairly damage another’s business would give rise to an unfair competition claim. See, e.g., Sunbelt Rentals, Inc. v. Head & Engquist Equip., LLC, 174 N.C. App. 49, 620 S.E.2d 222 (2005).

The Court determined that those additional factors were lacking in the Workplace Benefits complaint. 

In the Order in the second case, decided yesterday, the Court remanded a lawsuit in which the plaintiff sought a declaratory judgment that a covenant not to compete was invalid. Judge Tennille remanded the case on his own motion, before any Answer had been filed, and referenced the Workplace Benefits decision.

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North Carolina's Business Court is a "model for the nation," according to Directorship Magazine's Annual Guide to State Litigation.

In addition to complimenting the Business Court, the Annual Guide gave North Carolina's litigation climate a green light, indicating that the "state's liability climate encourages growth and job creation."   It gave North Carolina a high national ranking, much higher than the State's ranking in the U.S. Chamber of Commerce rankings issued earlier this year.

The State's litigation climate ranking was sixth (behind Tennesse, Utah, Indiana, Ohio, and North Dakota), against twenty-first in the U.S. Chamber report.

Depending on your perspective, the litigation weather in North Carolina according to the Guide is partly cloudy or partly sunny.  The Guide said that North Carolina

"has maintained a fair and predictable liability climate that leads to growth and job creation.  It ranks among the three best states for monetary tort losses, improving from 7th in 2006.  However, North Carolina's product liability losses rank 36th, which indicates heightened litigation activity and a rise in jury verdicts.  Further, the state's plaintiffs' bar is very active in the state legislature: a bill defeated last year extending the statute of repose from 6 to 15 years would have made North Carolina one of three states with the longest period for filing claims.  There is a rule of law majority on the state Supreme Court and the state business court serves as a model for the nation.  North Carolina, however, is a state to be watched because of aggressive trial bar legislative efforts." 

The Directorship Magazine rankings took the U.S. Chamber of Commerce rankings and evaluated them in conjunction with the U.S. Tort Liability Index prepared by the Pacific Research Institute, blending the two into its own ranking.  North Carolina was ranked third in the Pacific Research Institute's study, which evaluates a myriad of empirical evidence.  The Institute's complete spreadsheet, containing data for all 50 states, is here.

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The North Carolina Court of Appeals has before it a number of the interesting issues decided by the Business Court over the past several months.

There are, by my count, fifteen Business Court decisions on appeal to the Court of Appeals.  The cases involve class actions, derivative actions, forum selection clauses, motions to stay, and antitrust law, among other matters.

The list of cases on appeal is below, with links to earlier posts or case summaries on this blog about the Business Court decision as well as the dates of the most recent filings in the Court of Appeals.

Antitrust

Teague v. Bayer AG (Appellant's Brief filed November 21, 2007; Appellee's Brief filed January 23, 2008).  Antitrust case involving issues of indirect purchaser standing. 

Class Actions

Blitz v. Agean (Record on Appeal filed June 16, 2008).  Denial of class action under the Federal Telephone Consumer Protection Act.

Moody v. Sears Roebuck and Co. (briefing concluded January 2008, argued March 5, 2008).  Need for court approval before dismissal of class action.

Derivative Actions

Egelhof v. Szulik  (Appellant's Brief filed June 5, 2008).  Sanctions against derivative action plaintiff and his lawyers.

Gaskin v. J.S. Proctor Co. (Record on Appeal filed June 24, 2008).  Whether claims of limited partners against general partner were derivative, or direct.

Regions Bank v. Regional Property Development Corp. (Notice of Appeal filed May 20, 2008).  Dismissal of derivative action by members of limited liability company. 

Employment

Kornegay v. Aspen Asset Group, LLC (Notice of Appeal filed June 18, 2008).  Appeal from jury verdict finding breach of contract to pay bonus compensation and existence of bonus agreement and violation of North Carolina Wage and Hour Act.  Post-trial, the Court refused to award liquidated damages under the Act.

Motions To Stay

Signalife, Inc. v. Rubbermaid Inc. (Appellants' Brief filed June 13, 2008).  Grant of Motion to Stay based on case filed earlier, through electronic means, in federal court. 

Wachovia Bank v. Harbinger Capital Partners Master Fund I (Record filed May 30, 2008).  Grant of Motion to Stay of North Carolina action in favor of a subsequently filed New York lawsuit. 

Forum Selection Clause

Sony Ericsson Mobile Communications USA, Inc. v. Agere Systems (Record on Appeal filed May 9, 2008).  Enforceability of forum selection clause.

Trusts

Heinitsh v. Wachovia Bank (Appellant's Brief filed 11/13/2007; Appellee's Brief filed January 14, 2008).  Dispute over distribution of trust proceeds, propriety of attorneys' fees incurred by trustee.

Miscellaneous Issues

Eleanor B. Johnson Limited Partnership v. Ball (Record on Appeal filed May 29, 2008).  Issues involving receivership and arbitration. 

Kintz v. Amerilink LTD (Notice of Appeal filed May 27, 2008).  Appeal of jury verdict in breach of contract case.

Media Network, Inc. v. Long Haymes Carr, Inc. (Notice of Appeal filed May 1, 2008).  Appeal of jury verdict regarding breach of advertising contract.

Schlieper v. Johnson (Appellant's Brief filed February 15, 2008; Appellee's Brief filed April 15, 2008).  Dismissal of claims for fraud, negligent misrepresentation, unfair and deceptive trade practices, and breach of contract regarding sale of business.

The photo at the top of this post is from Lance McCord's photostream on Flickr.

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This is a list of the eight cases (my count) in which Motions to Dismiss are fully briefed and ready for a ruling, with links to the Business Court file for each case:

CompuChem v. Shealy Environmental Services, Inc.: whether employee owed employer a fiduciary duty, validity of claim for aiding and abetting breach of fiduciary duty, tortious interference claim against competitor.  Defendant also argues that the Court should apply the "new" standard for evaluating a motion to dismiss articulated by the U.S. Supreme Court in Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955 (2007).

Covenant Equipment Corp. v. Forklift Pro, Inc.: permissible geographic and temporaral scope of a confidentiality agreement (under South Carolina law).

Crockett Capital Corp. v. Inland American Winston Hotels, Inc.: whether development agreement was a binding contract or an “agreement to agree.”

Fayetteville Imaging Associates, Inc. v. National Imaging Affiliates, Inc.: breach of fiduciary duty, internal affairs doctrine, duty of majority shareholder to minority, pleading fraud with particularity.  The Motion asserts that Tennessee law applies.

General Electric Capital Corp. v. Royal American Co., L.L.C.: impleader, propriety of third party complaint.

Hill v. StuHub, Inc.: Whether claim against on-line ticket website StubHub for scalping tickets is barred by the Communications Decency Act.

Hume v. Stevenson: unfair and deceptive practices (whether actions of defendant were "in commerce," whether transaction involved securities so as to be outside scope of statute), pleading fraud with particularity, motion for a more definite statement.

O’Henry, Inc.v. Advantage Marketing Wholesalers, L.L.C.: sufficiency of allegations of breach of contract (New Jersey law).

These are not complete descriptions of the pending issues, only a general summary. 

I did a similar post earlier this month on pending Motions for Summary Judgment, you can find that here.

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The Business Court has mandatory jurisdiction under N.C. Gen. Stat. §7A-45.4 over claims involving "antitrust law, except claims based solely on unfair competition under N.C. Gen. Stat. §75-1.1." 

The Court gave a broad reading to its grant of its antitrust jurisdiction in an Order today in Sonic Automotive, Inc. v. Mercedes-Benz USA, LLC, in which it denied an objection to a Notice of Designation of the case as a mandatory complex business case. 

Sonic, which already owned nine Mercedes dealerships, sued Mercedes-Benz for refusing to approve its purchase of another dealership in Charlotte.  According to the Complaint, Mercedes-Benz withheld its approval because of Sonic's alleged failure to comply with the terms of a letter agreement executed when Sonic had acquired other Mercedes dealerships. 

The case was designated to the Business Court by Mercedes-Benz as being within the Court's mandatory jurisdiction over antitrust cases and the law governing corporations.  Sonic filed a Motion to Remand objecting to the designation.

There's no claim in Sonic's Complaint denominated as an antitrust claim, and the word antitrust isn't even in the Complaint. 

Mercedes-Benz argued in its Opposition to the Motion to Remand that Sonic's claim was based on a "contract in restraint of trade," which implicated "antitrust and unfair competition issues squarely within the Business Court's jurisdiction."  The car manufacturer was helped in its arguments by public statements made by Sonic's President that Sonic was being "extorted" by Mercedes-Benz and that Mercedes-Benz had "tied" the sale of the Charlotte dealership to Sonic's compliance with the letter agreement.

Judge Tennille found that the Court's antitrust jurisdiction was implicated, and also held that its mandatory jurisdiction was appropriate for other reasons presented by Mercedes-Benz in its Opposition:

Plaintiff has asked the Court to remand this action because the case “does not involve any . . . issue” regarding antitrust law or the law governing corporations. (Pl. Br. Supp. Opp’n 1.) The Court disagrees. First, this case potentially involves violations of antitrust law. Section 75-1.1 of the North Carolina General Statutes does not cover simple breach of contract. N.C. Gen. Stat. § 75-1.1 (2007). Thus, the unfair trade practices claim may involve antitrust issues. Second, this case may involve issues with broad ramifications for automobile dealers and manufacture[r]s. Third, this case may also involve the interplay between courts and administrative agencies. These parties and agencies will benefit from a single judge hearing this case. Fourth, this case involves the sale of a business or business assets. Fifth, the case is likely to be motion intensive.

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Looking ahead, there are a number of Business Court cases in which summary judgment motions have been fully briefed and in which rulings should be issued over the next few months.  In alphabetical order, with links to the Business Court electronic file, they are:

Edgewater Services, Inc. v. Epic Logistics, Inc.: dispute between competing third party logistics companies in the transportation industry including claims involving trade secrets, joint venture, tortious interference with contract by hiring employee subject to non-compete, tortious interference with prospective economic advantage, and unfair and deceptive trade practices.

Griffin Management Corp. v. Carolina Power and Light Co.: plaintiff, a supplier of personnel to Progress Energy and Duke Energy, alleges a destruction of its business through actions by those companies and plaintiff's competitor. It's hard to tell what issues are before the court, because 21 of the last 22 filings were made under seal.  Only those with appropriate security clearance (or at least a secret decoder ring) will be able to read the opinion.

JDH Capital, LLC v. Flowers: the issues include the binding effect of a letter of intent, whether a joint venture existed, and the legal effect of oral statement “we have a deal.”

Land v. Land: shareholder dispute involving claims for breach of fiduciary duty, and issues of statute of limitations and laches.

Leiber v. Arboretum Joint Venture, LLC: commercial paper issues inolving actual and apparent authority, conversion of checks by an allegedy unauthorized agent, and liability of drawee and drawer banks for payment over claimed unauthorized endorsements of checks.  In addition to the Motion on the principal claims, Bank of America and Wachovia are slugging it out here on who should end up holding the bag in the event of an adverse ruling on the agency question.

Marotta v. Datacraft Solutions, Inc.: issues include shareholder's right to vote for election of directors and whether an amendment to the corporation's Articles of Incorporation created dissenters' rights.

Miller & Long Co., Inc. v. Intracoastal Living, LLC: construction law case involving issues of collection on payment bond and enforcement of claim of lien.

Mitchell, Brewer, et al v. Brewer: issues regarding beakup of law firm that was a limited liability company.

Novo Nordisk Pharmaceutical Industries, Inc. v. Carolina Power & Light Company: issue of enforceability of provision limiting or excluding liability in a tariff approved by the North Carolina Utility Commision.

This summary is not meant to be anything near a complete description of the issues pending in these cases.

There are furthermore eight cases in which Motions to Dismiss are awaiting ruling.  I might write about those cases another time if I decide that a forward looking post like this is worthwhile.  You are welcome to give me input on that if you want, either directly (msperling@brookspierce.com) or by commenting below.

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Covenant Equipment Corp. v. Forklift Pro, Inc., 2008 NCBC 10 (N.C. Super. Ct. May 1, 2008)(Tennille)

A service of process issue and a covenant not to compete issue in one decision from the Business Court.  It doesn't get any more exciting than this.  But, seriously, this is a significant procedural decision from the Court, please read on.  (As always, there is a link to the full opinion above).

On the service issue, the delivery of the Complaint to one of the Defendants, Carnie, had not been made in precise compliance with Rule 4 of the North Carolina Rules of Civil Procedure.  The Sheriff had left the Summons and Complaint at Carnie's house in South Carolina, but had not delivered it personally to Carnie and had not left it with another person at the residence.  According to Carnie's Affidavit, the papers had been "left stuck in a crack between my doors" by a Deputy Sheriff with the last name of "Fudge."

The Court overruled the Motion to Dismiss for insufficiency of service of process because it found that Carnie had evaded service.  Looking at federal decisions, Judge Tennille ruled that leaving the Summons and Complaint at Carnie's residence was adequate service given Carnie's efforts to evade proper service.

But the groundbreaking part of the the decision on the service issue was the Court's ruling that Carnie had waived his objection to service because he had filed a Notice of Designation of the case to the North Carolina Business Court.  Judge Tennille held that "the filing of a Notice of Designation in an action constitutes a general appearance for the purpose of personal jurisdiction."  Thus, the objection to the sufficiency of service was waived.

The Court's decision goes beyond service of process.  Most significantly, if you are representing a Defendant planning to move to dismiss for lack of personal jurisdiction, you will waive that argument by filing a Notice of Designation to the Business Court.  To keep it alive, the Notice of Designation must contain an objection to personal jurisdiction.  Carnie's Notice did not.

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Ikerd v. Greenwood, 2008 NCBC 9 (N.C. Super. Ct. April 30, 2008)(Tennille)

Yesterday, the Business Court provided more clarification on the requirements for making a timely designation of a case to the Business Court. 

It held that a Notice of Designation must be actually filed in the county in which the case originated within thirty days of receipt of service of the Complaint in order to be timely, not just served within that time frame.

One of the defendants in the Ikerd case had faxed his Notice of Designation to the Chief Justice of the North Carolina Supreme Court and to the Chief Judge of the Business Court less than thirty days after he had been served with the Complaint.  But he didn't file the Notice of Designation with the Clerk of Court of Catawba County until more than thirty days after he'd been served. 

Judge Tennille held that this was not a timely Notice of Designation under the terms of N.C. Gen. Stat.Sec. 7A-45.4(b), which allows a defendant to designate an action as a complex business case "by filing a Notice of Designation in the Superior Court in which the action has been filed and simultaneously serving the notice" on opposing counsel, the Chief Judge of the Business Court, and the Chief Justice within thirty days after receipt of service of the Complaint.

"Filing" means actual filing within thirty days in the Court in the County in which the case was filed.  And in counting the thirty days, the Court also held that a defendant doesn't get to count an additional three days if the Complaint was served by mail. 

The full procedure for designating a case to the North Carolina Business Court is described here. 

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The answer to the question above is probably you, if you are reading this blog.

So, you might be interested in a powerpoint presentation that Judge Jolly and Judge Diaz made at the 2006 Conference of Superior Court Judges, on the Unfair and Deceptive Practices Act. 

It seems like a claim under that statute is part and parcel of nearly every business case filed in North Carolina.

There are some good "Practical Pointers" about the statute at the end of the presentation, including the one in the box at the bottom. (The Meineke case referenced is Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331 (4th Cir. 1998), in which the Fourth Circuit threw out a $590 million unfair and deceptive practices verdict).

Notwithstanding my selection of excerpt from the powerpoint, this is by no means an anti-unfair and deceptive practices presentation.  It outlines a number of fact patterns that make out a UDPA claim, and has a good discussion of the respective roles of judge and jury in the trial of such claims and other useful information.

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Ross v. Autumn House, Inc., February 26, 2008 (Tennille)(unpublished)

If you are a plaintiff filing a Complaint, and you want to designate your case to the Business Court, when is the deadline for filing your Notice of Designation?

The answer is in the statute, it says: "[t]he Notice of Designation shall be filed: (1) By the plaintiff or third-party plaintiff contemporaneously with the filing of the complaint . . . in the action."  N.C. Gen. Stat. § 7A-45.4(d)(1).

In this unpublished case, the plaintiff filed its Complaint on December 6, 2007, and its Notice of Designation on January 3, 2008, 28 days later.  Per the Autumn House case, that is a contemporaenous filing which meets the requirement of the statute.

Judge Tennille relied on guidelines about the designation process filed on the Business Court website.  Those guidelines say that a plaintiff must file its Notice of Designation within 30 days of the filing of the Complaint.  Plaintiff had met that requirement, and the Court determined that the Notice was timely.

If you are wondering about the definition of "contemporaneously," the American Heritage Dictionary defines the word as "happening during the same period of time."  The definition in Webster's Revised Unabridged Dictionary is more strict.  It defines the word to mean "at the same time with some other event."   

Thanks to Ben Norman, a lawyer at Brooks Pierce who clerked for Judge Tennille, for telling me about this case.

Note that Autumn House was essentially overruled in August 2012.

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In case you missed it, you should read The New North Carolina Business Court, an article written by Judge Diaz and Jordan Sykes, one of the Judge's former law clerks. 

The Article highlights certain Rules of the Court which are "often overlooked."  It is certainly worth reading for that reason alone, because overlooking is not advisable and can lead to undesired consequences.

By the way, the Business Court Rules which are on this blog in the menu bar to the left are hyperlinked.  That means you can click back and forth between the table of contents and the Rules themselves.  So, you don't have to scroll all the way back to the top to get back to the table of contents when you need to look at a different Rule, or all the way down in order to find the Rule that you are looking for from the table of contents.  These Rules can be downloaded to your hard drive if you want to do that.

This article appeared in the Spring 2008 issue of the North Carolina State Bar Journal.  The article is the property of the North Carolina State Bar, and is being "reprinted" here with its permission. 

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The North Carolina Legislature created clear categories of mandatory jurisdiction when it expanded the jurisdiction of the Business Court in 2006 (see this post). 

The statute provides that a party can oppose a designation to the Court, but those challenges are rarely successful, as demonstrated by the cases at the end of this post.  But this month, the Court threw out two cases that met the requirements for its mandatory jurisdiction. 

In the first case, Goldstein v. Countrywide Homes, Inc. decided on April 1, 2008, the Court ejected a securities fraud case, smack within the scope of its mandatory jurisdiction. The reason the Court gave was that there were already two cases pending in Wake County making similar claims. One of those cases had already received a Rule 2.1 designation as an exceptional case. The Court found that it would be more efficient if discovery in the cases was coordinated, and that inconsistent rulings would be avoided, and recommended that the case receive a 2.1 designation.

In the second case, Ikerd v. Greenwood, decided on April 8, 2008, the Defendant failed to file its Notice of Designation to the Business Court within the thirty days of its receipt of either the Complaint or the Amended Complaint, as required by N.C. Gen. Stat. §7A-45.4.  The Court denied designation of the case as a mandatory complex business case due to the untimely filing, noting that the case could still be designated as a 2.1 case.

It is far more often that the Court overrules an objection to a mandatory designation, like in these cases, all of which are unpublished decisions denying a party's objection:

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The Business Court was formed in 1995.  Judge Ben F. Tennille was the first Judge of the Court, appointed by the Chief Justice of the North Carolina Supreme Court in 1996.  That appointment was pursuant to Rule 2.2 of the North Carolina General Rules of Practice, which provides that the Chief Justice may "designate one or more superior court judges as special judges to hear and decide complex business cases. . . ."  

Rule 2.2 contains commentary on the reasons behind the formation of the Business Court, which was a recommendation of the North Carolina Commission on Business Laws and the Economy.  The Commision noted the lead of Delaware's Chancery Court in the area of specialized courts hearing matters involving corporate law:

many national corporations incorporate in the state of Delaware because of that state's Chancery Court which provides a high level of judicial expertise on corporate law issues. It also observed the desirability of a state having a substantial body of corporate law that provides predictability for business decision making. Also, it is essential that corporations litigating complex business issues receive timely and well reasoned written decisions from an expert judge.

Over the last 12 years, the Business Court has issued nearly 150 "published" opinions (those given an official "NCBC" citation) and numerous unpublished decisions on significant legal issues affecting consumers, shareholders, and businesses operating in North Carolina.

If you are interested in the history of the Court, this article published in the Journal of the North Carolina Banking Institute is excellent.  And if you are delving into that subject, it is worthwhile to read the Report issued by the North Carolina Chief Justice's Commission on the Future of the North Carolina Business Court.  The Commission recommended an expansion of the Court, which led to the addition of Judge Albert Diaz and Judge John Jolly to the Court.  An article about the recent expansion of the Court written by Ben Norman, a Brooks Pierce lawyer who clerked for Judge Tennille, is here.

Judge Tennille reported to the North Carolina Legislature on the first several years of the Court, from 1996-2000, in a detailed report.  Another report, for 2000-2001 is here.  The most recent report, for 2006-2008 is here. 

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A case cannot be filed directly in the Business Court. It must be designated to the Court either by the Plaintiff, at the time of the filing of the Complaint, or by the Defendant, within 30 days of the receipt of the Complaint. Such a motion will be denied if it is untimely, as happened in this case.  The procedure is similar to removal to federal court based on diversity jurisdiction, and is set out in Section 7A-45.4 of the North Carolina General Statutes.

That statutue, as recently amended, describes seven categories of cases that qualify to be designated as “mandatory complex business cases.”  They are:

(1) The law governing corporations, except charitable and religious organizations qualified under G.S. 55A-1-40(4) on the grounds of religious purpose, partnerships, limited liability companies, and limited liability partnerships, including issues concerning governance, involuntary dissolution of a corporation, mergers and acquisitions, breach of duty of directors, election or removal of directors, enforcement or interpretation of shareholder agreements, and derivative actions.

(2) Securities law, including proxy disputes and tender offer disputes.

(3) Antitrust law, except claims based solely on unfair competition under G.S. 75-1.1.

(4) State trademark or unfair competition law, except claims based solely on unfair competition under G.S. 75-1.1.

(5) Intellectual property law, including software licensing disputes.

(6) The Internet, electronic commerce, and biotechnology.

(7) Tax law, when the dispute has been the subject of a contested tax case for which judicial review is requested under G.S. 105-241.16 or the dispute is a civil action under G.S. 105-241.17.

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Judge Ben F. Tennille, the Chief Judge of the Court, sits in Greensboro, North Carolina, in chambers located inside the Elon University Law School.  A bio and a profile of Judge Tennille are here.  This is an article written by Judge Tennille about the use of mediation in the Business Court. 

Judge Albert Diaz sits in Charlotte, North Carolina, where his chambers are in the Mecklenburg County Courthouse.  One bio for Judge Diaz is here, and here is another one. Here is an article about the new Business Court courtroom in the Mecklenburg County Courthouse.

The third Judge of the Court is Judge John Jolly, who sits in Raleigh, North Carolina.  Judge Jolly's bio is here.

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