When You Settle A Case, Don't "Over-Release" The Defendant

The parties to Security Camera Warehouse, Inc. v. Bowman, 2017 NCBC 38, had been adverse to each other in a previous lawsuit (not in the Business Court), which they settled.  Security Camera released Bowman, one of its former owners, from all claims in that settlement.  But during the settlement negotiations which resulted in the settlement of lawsuit #1, Bowman had control of Security Camera's computer server, and downloaded what Security Camera said was trade secret information (Security Camera's customer list and other information regarding those customers).

After the settlement was done, Bowman incorporated Defendant Arcdyn to compete with Security Camera, using the customer information he took during the settlement discussions.

Security Camera, understandably aggrieved, sued Bowman and Arcdyn on a variety of theories, including misappropriation of trade secrets and breach of fiduciary duty.

The Defendants said that these claims were barred by the Release.  In his Opinion, Judge Conrad agreed and dismissed most of the claims.

Here are the terms of the Release: Security Camera and Nederlanden (who became the sole owner of Security Camera via the settlement) said that they:

generally release and forever discharge Bowman, his agents, heirs,successors and assigns, from any and all claims, demands, and causes of action of whatever kind or character which [Security Camera and Nederlanden] have, or may have in the future, against Bowman, based on any acts or events that have occurred on or before the execution of this Agreement, whether or not growing out of or connected in any way with operations or business transactions of [Security Camera].

Op. 8 (emphasis added).

Judge Conrad framed the issue as follows: "whether the parties’ mutual release bars recovery for the post-release use of a trade secret wrongfully acquired before the execution of the release."  Op. 24. 

Don't Release Claims Which You "May Have In The Future"

The Court dismissed as "untenable" Security Camera's  main argument that the release was not prospective.” The language contained in the Release, that it covered claims Security Camera “may have in the future," made this pretty clear.  Op. 28.

Judge Conrad noted that Security Camera had not limited the terms of the Release to preserve its trade secrets claims, and that the alleged misappropriation of trade secrets had happened before the execution of the Release. He said:

  • In negotiating the release, Security Camera could have required Bowman to return its property, reserved any potential trade-secret claims, or refused to release claims accruing after the execution of the Agreement.
  • It did not, and it is now far too late to import limitations that were not the subject of the parties’ bargain.

Order 30.

But not all of Security Camera''s claims were dismissed. The Court left standing a claim for the Defendants' interference with a website which the Plaintiff claimed it owned (SCWddns.com).  It said that the Defendants had disabled the website, and that it had to buy a new domain to restore its website.

Although the Defendants claimed that they owned the website, Judge Conrad found that there was an issue of fact on that point, and he refused to dismiss the claim.  Op. 42-43.

On the subject of releases, it's pretty common to release a party from all claims, whether "known or unknown" at the time of the release.  So, it was not out of the ordinary for Security Camera to give up claims it was unaware of that arose during the settlement negotiations.

 

 

It Doesn't Take Magic Words To Revoke An Offer

The lawyers in Baker v. Bowden, 2017 NCBC 30, decided this week by Judge Robinson, were negotiating a settlement agreement by email.  The Plaintiff thought that it had a deal.  When the Defendant balked, the Plaintiff moved the Business Court to enforce the settlement. 

The Plaintiff, whose lawyer had sent an email to the Defendant's lawyer stating "[m]y client accepts the offer," found that there was no offer anymore, and no enforceable agreement.

The Plaintiff's lawyer thought in accepting the offer that the Defendant's offer was still open for acceptance.  But even the Defendant's lawyer wasn't sure if it was.  His last email to Plaintiff's counsel said:

in the interim since yesterday afternoon my client is actually having second thoughts about his offer, so I’m not sure it’s still on the table. I’m not saying it isn’t, but I need to talk with him and see if I can work him through this. I’ll let you know later this afternoon.

Op. ¶12.

The Plaintiff's email accepting the by then questionable offer followed this email, but Judge Robinson concluded that the "second thoughts" email was a valid revocation of the offer.  Op. ¶23.  You don't need to use the word "revoke" to withdraw an offer, and "[a]ny clear manifestation of unwillingness to enter into the proposed bargain is sufficient."  Op. ¶23.

The situation before the Court was spelled out in the Restatement (Second) of Contracts, which gives this example of a similar situation when an offer is revoked:

when an offeror states, “Well, I don’t know if we are ready. We have not decided, we might not want to go through with it." 

Op. ¶22 (quoting Restatement (Second) of Contracts sec. 42, comment d).

Reliance on the Restatement as authority seems like a firm foundation.  The Restatement is said to be "a work without peer in terms of overall influence and recognition among the bar and bench."

NC Business Court On Conflicting Rules Of Civil Procedure: Do You Need Leave Of Court To Amend Your Answer To Add A Counterclaim?

If I asked you if you were familiar with Rule 13(f) of the NC Rules of Civil Procedure, I'm betting that you would respond with a glassy stare and a slack jaw.  That Rule deals with a counterclaim that you should have made in your Answer, but which you left out.  It says that "[w]hen a pleader fails to set up a counterclaim through oversight, inadvertence, or excusable neglect, or when justice requires, he may by leave of court set up the counterclaim by amendment."

Leave of Court?  Asking permission?  Well, how does that square up with NCRCP 15, which deals with "amended pleadings?" That Rule says that you can amend your Complaint "as a matter of course" (i.e. without "leave of the Court") at any time before a "responsive pleading is served."  But Rule 13(f) seems to contemplate that the permission of the Court is needed before amending an Answer to raise an overlooked counterclaim. 

Judge Robinson dealt with these apparently conflicting Rules last week in Recurrent Energy Development Holdings, LLC v. Sunenergy1, LLC, 2017 NCBC 18.  Defendant Sunenergy1 had amended its Answer to add a counterclaim.  It did so within thirty days of filing its original, counterclaim-less Answer, but without asking for the permission of the Business Court.

The Plaintiff moved to strike the Answer, contending that NCRCP 13(f) required leave of Court  to add the counterclaim.

Judge Robinson, finding no North Carolina appellate authority on the point, looked to federal court decisions, though he found the federal case law to be "scant."  The majority of federal courts looking at the federal version of the Rule had decided that:

a party may amend its answer to add a counterclaim as a matter of course under Federal Rule 15(a), and that leave of court under Federal Rule 13(f) was only required after the period for amendment under Federal Rule 15(a) had expired.

Op. ¶87.

Judge Robinson observed that "a few other courts" had found otherwise.  Op. ¶88.

There really wasn't any need to decide which line of federal cases to follow because the Federal Rules were amended in 2009 to delete Rule 13(f).  The reason for the deletion was that the Rule was "largely redundant and potentially misleading."  Op. ¶93 (quoting Notes of Advisory Committee on 2009 amendments).  The Notes to Rule 15 state that the deletion of Rule 13(f) "establishes Rule 15 as the sole rule governing amendment of a pleading to add a counterclaim."

Judge Robinson interpreted the deletion of FRCP 13(f) to confirm that FRCP 15(a) "was always intended to apply to amendments to add counterclaims."

So, you do not need to file a Motion asking the Court to permit you to add a counterclaim to your Answer if you add that counterclaim within 30 days of your original Answer.  You can do that as "a matter of course."

NC Business Court: What Is Intrusion Into Seclusion?

I had never heard before of a "privacy tort" claim for "intrusion into seclusion."  But it exists in North Carolina per Judge Gale's Opinion in Dishner v. Goneau, 2017 NCBC 7, decided in the NC Business Court this week.  This is not a brand new tort.  It has been recognized by the NC Court of Appeals in the cases cited by Judge Gale (see below) and is even spelled out in the Restatement (Second) of Torts §652.

What is it?  "[T]he intentional intrusion, 'physically or otherwise, upon the solitude or seclusion of another or his private affairs or concerns.'”  Op. 43.  (quoting Miller v. Brooks, 123 N.C. App. 20, 26, 472 S.E.2d 350, 354 (1996) (quoting Smith v. Jack Eckerd Corp., 101 N.C. App. 566, 568, 400 S.E.2d 99, 100 (1991)).

The tort typically requires “a physical or sensory intrusion or an unauthorized prying into confidential personal records.”Op. Par. 43 (quoting Broughton v. McClatchy Newspapers, Inc., 161 N.C. App. 20, 29, 588 S.E.2d 20, 27(2003)).

The intrusion furthermore must be "highly offensive to a reasonable person."  Op. 43.

The allegations of the Plaintiff as to the intrusion into seclusion didn't pass muster.  He said that the Defendant, his former partner, had accessed his private email account without authorization and had sent emails to persons who were his contacts.  Judge Gale dismissed that claim without prejudice in the event that the Plaintiff could restate the claim "with adequate supporting detail."  Op. 46.

If you are thinking that this allegedly unauthorized intrusion into Plaintiff's computer sounds like a claim that could be brought under the Computer Fraud and Abuse Act, 18 U.S.C. §1030, so did the Plaintiff.

But that claim was dismissed as well.  That statute requires that the Plaintiff plead and prove at least $5,000 in loss as a result of the violation.  18 U.S.C. §1030(g).  Judge Gale said that "loss of goodwill, business opportunities, or revenue resulting from improperly acquired information do not constitute 'loss' within the meaning of the CFAA."  Op. 41.  He said that the $5,000 loss required under the statute must be "related to fixing a computer."  Id.

Judge Gale's narrow interpretation of "loss" under the CFAA was based on  Nexans Wires S.A. v. Sark-USA, Inc. 319 F. Supp. 2d 468, 475 (S.D.N.Y. 2004), aff’d, 166 F. App’x 559 (2d Cir. 2006), which contains a pretty thorough discussion of the point.

NC Business Court Starts Off 2017 By Denying A Motion For Sanctions And Adding A New Judge

In the NC Business Court's first Opinion of the new year, Judge Bledsoe denied Defendants' Motion for Rule 11 Sanctions in Kure Corp. v. Peterson, 2017 NCBC 1.  The decision holds a few lessons about the operation of Rule 11 of the NC Rules of Civil Procedure.

You Can't Avoid A Rule 11 Sanction in North Carolina By Withdrawing Your Complaint

Maybe you got carried away and filed a Complaint that you discovered later wasn't "well grounded in fact" or "warranted by existing law" and was therefore in violation of Rule 11.  That  conduct exposed you (and your client) to a sanction of having to pay "the reasonable expenses incurred because of the filing of the pleading . . . including a reasonable attorney's fee."  NCRCP 11(a).

Can you avoid the whole problem by dismissing or amending the Complaint?  If you are in federal court, the answer would be "yes."  There is a "safe harbor" under FRCP 11.  Judge Bledsoe observed that under the Federal Rules, "once a party serves a Rule 11 motion on the opposing party, the motion 'must not be filed or be presented to the court if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service or within another time the court sets.'  Fed. R. Civ. P. 11(c))."  Op. 7 & n.2.

The Federal Rules were amended in 1993 to add that "safe harbor" language.  The North Carolina Rule was last amended in 1986 and was nearly identical to the federal rule in effect at that time.  It therefore doesn't provide for any "safe harbor."

So even though the Plaintiff in the Kure case had amended its Complaint, and even though the counsel filing the Complaint had had new counsel substituted for them, the lawyers filing the original Complaint were still subject to Rule 11 sanctions.

Suing On Behalf Of An Incorrect Party Is Not Sanctionable Under Rule 11

The Plaintiff Kure Corp. was suing as a result of alleged misrepresentations made to it.  As the Defendant pointed out in its Rule 11 Motion, however, Kure had not been formed as a corporation until after the alleged misrepresentations were made.  The Defendant said that the Plaintiff's counsel were subject to Rule 11 sanctions because they had sued on behalf of the wrong party.

The Business Court, looking to the terms of NCRCP 17, which says in part that "[n]o action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed" for substitution of the proper party, denied that aspect of the Rule 11 Motion.

Judge Bledsoe's ruling was bolstered by an NC Court of Appeals decision holding that “[c]ourts should not impose sanctions under Rule 11 when relief is available under another provision which more specifically addresses the situation.”  Op. 21(quoting Overcash v. Blue Cross & Blue Shield, 94 N.C. App. 602, 618, 381 S.E.2d 330, 340 (1989)).

Wanting To Be The First To File Isn't An "Improper Purpose" Per Rule 11

The parties to the Kure case had met to discuss a resolution of their dispute before the lawsuit was filed.  Defendants alleged that at that meeting, Plaintiff's representative had demanded that the Defendants sign a settlement agreement or that "plaintiff would file its Complaint within the hour." Op. 27.

In addition to its requirement that a pleading be "well grounded in fact" or "warranted by existing law" Rule 11(a) also condemns filing for an "improper purpose."  It says that a signature on a Complaint is a certification that litigation it is not "interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation."

An improper purpose is “any purpose other than one to vindicate rights . . . or to put claims of right to a proper test.” Op. 26 (quoting Mack v. Moore, 107 N.C. App. 87, 93, 418 S.E.2d 685, 689).  Judge Bledsoe ruled that the sort of conduct complained of by the Defendants was not sanctionable.  He said that:

Defendants. . . have not pointed to any authority demonstrating that a desire to gain a litigation advantage is beyond the scope of 'vindicating rights' or 'putting claims of right to a proper test.' Finding that Plaintiff acted with an improper purpose would expose to sanctions countless attorneys who make pre-filing settlement demands or seek to file before the opposing party does.

Op. 28.

A Couple More Things: New Judge(s?) for the Business Court And My Resolution

The Business Court also started off 2017 with at least one new Judge.  Adam M. Conrad was nominated a Special Superior Court Judge by outgoing Governor Pat McCrory in December 2016.  I don't know new Judge Conrad, but he has an outstanding background including a U.S. Supreme Court clerkship and formerly being a partner at King & Spalding.  Judge Conrad takes his Business Court judgeship by way of the General Assembly's enactment of N.C. Gen. Stat. sec. 7A-45.1(a9), which created  a new special superior court judgeship which the Governor, prior to submitting the nominee for confirmation and in consultation with the Chief Justice, shall determine has the requisite expertise and experience" to be designated as a business court judge."  His nomination was confirmed by the NC General Assembly last month.

Judge Conrad has assumed his position and will be residing in the Business Court in the Mecklenburg County courthouse.

Governor McCrory also nominated Andrew Heath as a Special Superior Court Judge.  Mr. Heath, confirmed by the General Assembly last month, is the former North Carolina Budget Director and former Chairman of the North Carolina Industrial Commission.  I'm pretty sure that I've read somewhere that Judge Heath is in line for an assignment to the Business Court, but don't count on me being correct on that. In any event, a seat on the Business Court may become available, possibly due to Judge Gale's resignation from the Court last October, which is referenced in the General Assembly's confirmation of Judge Heath (What!?  I spoke with Judge Gale about whether he had resigned, and he explained a complicated series of events, including his retirement, which led to him being named a "Senior Business Court Judge" (per a 2015 amendment to the General Statutes, codified in N.C. Gen. Stat. §7A-52(a1)).  That position allows him to be recalled from retirement to serve on the Business Court and to continue to hear cases beyond the mandatory retirement age of 72.  He continues to be the Chief Judge of the Business Court.

Finally, I made the ill-advised resolution in 2014 to write about every numbered Business Court decision.  I have failed miserably at that and please know that this year I have resolved that I definitely will NOT write about every numbered Business Court decision going forward.  That will be an easier resolution to keep.  I hope that this won't cause you to stop reading.

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 Knew That A Motion To Transfer Venue Could Be So Complicated?

North Carolina cases that are filed in an "improper county" can be transferred to the "proper county" if the "defendant, before the time of answering expires, demands in writing that the trial be conducted in the proper county."  N.C. Gen Stat. §§1-83.

Multiple Claims With Different Venue Requirements

Well, what if there's a multiple count complaint, and only one of the claims was filed in an "improper county?"  That was the situation dealt with by Judge Robinson last week in Aldridge v. Kiger, 2016 NCBC 83.

Plaintiff a resident of Union County, sued the Defendants, including a corporation and an LLC which were based in Mecklenburg County, in Union County.  If there wasn't a specific venue provision applicable to the claims, the case was appropriately filed in Union County.  That would be so per G.S. §1-82, which says that an "action must be tried in the county in which the plaintiffs or the defendants, or any of them, reside at its commencement."

Dissolution Claims Have Their Own Venue Requirement

But Plaintiff's county of residency didn't control, because his complaint included a claim for dissolution of the corporate Defendant.  That claim has a specific venue provision which applies to it.  That provision isn't in Subchapter 4 of Chapter 1 of the General Statutes (G.S. §§ 1-76 to -87), where most of the provisions relating to venue are contained.

Instead, there is a provision regarding proper venue for corporate dissolution claims buried in the North Carolina Business Corporation Act.  Section 55-14-31(a) says that:

Venue for a proceeding to dissolve a corporation lies in the county where a corporation's principal office (or, if none in this State, its registered office) is or was last located.

Maybe you were aware of that provision.  I wasn't, and the attorneys for the Plaintiff obviously weren't either.

So Judge Robinson had no choice but to transfer the venue of the dissolution claim from Union County to Mecklenburg County.  But what about the other claims, which were properly venued in Union County?  Should they stay there?

The Court Did Not Sever The Claims So As To Let the Properly Venued Claims To Remain In The County Of Filing

Rule 42(b)(1) of the NC Rules of Civil Procedure allows the trial court to sever claims and it specifically speaks to venue considerations.  It says:

The court may in furtherance of convenience or to avoid prejudice and shall for considerations of venue upon timely motion order a separate trial of any . . .  number of claims.

While that Rule would seem to allow a severing of the claims, with one to be transferred to Mecklenburg County and the others to remain in Union County, Judge Robinson found the outcome to be dictated by one of the other venue statutes.  Section 1-87(a) of the General Statutes says that:

When a cause is directed to be removed. . .  all other proceedings shall be had in the county to which the place of trial is changed,

He ruled that  "[b]ecause all claims were brought in a single action in Union County , and Union County is an improper venue for the judicial dissolution claim, the entire action must be transferred to Mecklenburg County."  (emphasis added).

For those of you familiar with North Carolina geography, you know that there is not much inconvenience to the Plaintiff in having to litigate all his claims in Mecklenburg County as opposed to Union County.  Those two counties are right next to each other. The courthouses are about 25 miles apart!  The inconvenience is even less, since the case is in the Business Court, and will be overseen by the same Judge until conclusion.

It's hard to see how the Defendants will see this "win" as accomplishing anything much.  They might have thought that they would succeed in getting a dismissal of the case due to improper venue, but "North Carolina case law is clear that a motion to dismiss based on improper venue made pursuant to Rule 12(b)(3) shall be treated as a motion to transfer, rather than a motion to dismiss."  Op. ¶14 (citing Coats v. Sampson Cty. Mem’l Hosp., Inc., 264 N.C. 332, 334, 141 S.E.2d 490, 492 (1965)).

Can You Compel An Insurance Carrier Representative To Attend A Mediation In Person?

You've undoubtedly been in a mediation where the lawyer on the other side has asked for a break so she can call her client's insurance carrier in order to get a response to your latest settlement offer.  You wait -- reliant on her summary of your devastating statement in the mediation about how the carrier will have to pay out to the policy limits after the verdict -- but your demand is rejected.

If only that insurance representative had been there to hear you, rather than getting a watered down version of your position.  Can you get a Court to order that an insurance representative attend the mediation in person?  What do the mediation rules say about a physical attendance at mediation?

Well, they are pretty clear.  Rule 4 of North Carolina's Revised Rules Implementing Statewide Mediated Settlement Conferences designates an "insurance company representative" as a person who "shall attend a mediated settlement conference."  It also specifies that: 

Each such carrier shall be represented at the conference by an officer, employee or agent, other than the carrier's outside counsel, who has the authority to make a decision on behalf of such carrier or who has been authorized to negotiate on behalf of the carrier and can promptly communicate during the conference with persons who have such decision-making authority.

But the Rules don't specifically give a Court the power to order attendance by an insurer representative.  Judge McGuire nevertheless ruled in an unpublished Order last month in Elliott v. KB Home North Carolina, Inc. that the Business Court "has the requisite authority to issue an Order to compel [an insurance carrier to mediation]."  Order ¶9.

He found that power in NC appellate decisions "which have recognized the discretion of the trial court to issue sanctions against parties and those obligated to appear in mediation under the Mediation Rules, but who failed to appear without good cause."  Order ¶9.  Judge McGuire said that "[i]t follows from these cases that the Court has the authority to issue an order to compel attendance at a mediated settlement conference."  Id.  Decisions from Courts in California and West Virginia bolstered his conclusion.  Order ¶10.

If you have that Order in your pocket, how easy is it to get the Business Court to order the representative of an insurance carrier to attend a mediation?  It's most likely tough.  The circumstances of the Elliott case were pretty unique.  The parties had met for mediation four times.  Three insurance carriers had potential liability for Plaintiffs' claims.  A fifth mediation was on the horizon at which the parties said a "global resolution" could not be reached without all carriers being in the room.  One carrier had said that its representative would appear.  That carrier had attended all four of the previous sessions.  Another carrier, whose representative had appeared at two of the previous mediations, opposed the requirement that it attend again.  The third carrier said that its representative would be on vacation during the scheduled fifth mediation, but that he could be available by telephone.

Judge McGuire recognized the costs that the carriers would incur by attending and that they had all attended at least some of the previous mediations, but said that:

the spirit of the Mediation Rules requires that the necessary parties continue to participate in the mediation process until either a resolution has been reached or the mediator has determined that an insurmountable impasse has occurred.

Order ¶10.

Judge McGuire's Order required the attorneys for all three carriers to attend what will hopefully be the final mediation session. and for representatives of two of the carriers to appear in person.  The representative who had an already planned vacation?  He doesn't have to appear in person, but was ordered to be available by telephone "from the starting time of the mediated settlement conference until such time as the mediator declares the mediation closed."  Order ¶14. That requirement could still ruin a vacation.

 

 

 

Does A Petition For Discretionary Review Divest A Trial Court Of Jurisdiction?

The place where a a trial court's jurisdiction over a case on appeal meets the competing jurisdiction of the appellate court over that same case is is a busy intersection.  It is often hard to tell when the trial court no longer has the jurisdiction to make rulings in a case that has been appealed. That power was the issue in two rulings from Business Court Judge Robinson, one in a published Opinion, in SED Holdings, LLC v, 3 Star Properties, LLC, 2016 NCBC 62, and the other in an unpublished Order in that case which followed several weeks later.

The General Rule And Its Exception

The "general rule", as observed by Judge Robinson, is that "an appeal divests the lower court of jurisdiction."  Op. ¶33.  So you would think that once an appeal is filed (and docketed) that the trial court is powerless.  But, that's not so:

the lower court nonetheless retains jurisdiction to take action which aids the appeal, and to hear motions and grant orders, so long as they do not concern the subject matter of the suit and are not affected by the judgment appealed from.

Id.

In the situation before Judge Robinson  last month in the SED case there were two separate appeals pending.  Neither were appeals from rulings of the Business Court, but were from rulings of the Superior Court for Durham County, made during the extended period of time before the case was designated to the Business Court.

Appeal Number One 

Appeal #1 is a long running appeal.  At the time of Judge Robinson's ruling the Court of Appeals had affirmed the trial court's grant of a preliminary injunction and its denial of a Motion to Dismiss.  Those appellate rulings were the subject of a PDR (a Petition for Discretionary Review) pending before the NC Supreme Court.

Appeal Number Two

Appeal #2 was filed this year, and has yet to be ruled on by the COA.  It is an appeal of several orders issued by the trial court holding the Defendants in civil contempt for not complying with the injunction that was the subject of Appeal #1. The Defendants are arguing that the trial court lacked jurisdiction to find them in contempt while the first appeal was pending.

Did The Business Court Still Have Jurisdiction Given The Two Appeals?

Whether the Business Court still had the authority to deal with the Plaintiff's Motion that he enter a mandatory injunction against a recently added Defendant (Charles A. Brown & Associates, PLLC) was the question faced by Judge Robinson.  Did he have any jurisdiction over the case with the two pending appeals? 

Appeal #2 was pretty easy to knock down as an impediment to the Business Court's jurisdiction.  Judge Robinson said that:

the issues presently before it are not embraced within the issues presently before the Court of Appeals in the [Appeal #2] and, thus, do not divest this Court of subject matter jurisdiction to consider and decide the Motion relating to newly added defendant Charles A. Brown.

Op. ¶32.

The Effect of A Petition for Discretionary Review On A Trial Court's Jurisdiction

But the rulings that were the subject of Appeal #1 were fundamental to a North Carolina court having jurisdiction over the entire case, since they concerned the validity or invalidity of a forum selection clause dictating that the case be litigated in Harris County, Texas.  The ruling from the Court of Appeals in Appeal #1 had affirmed the trial court's ruling that the forum selection clause was invalid.

The NC Supreme Court hadn't ruled on the PDR before Judge Robinson's first ruling.  I've observed in the past that your chances of getting the state supreme court to grant a PDR are on the same level as finding a four leaf clover.

Judge Robinson said:

with regard to Defendants' filing of the PDR, the Court concludes that, absent a motion to stay filed with and granted by the appropriate court, the filing of a petition for discretionary review with our State's highest court, by itself, does not divest the trial court of jurisdiction to consider matters after the Court of Appeals has determined a matter on appeal and has issued its mandate.

Op. ¶26.  By the way, what is the "appropriate court" in which to file a Motion to Stay?  Rule 8 of the North Carolina Rules of Appellate Procedure, titled "Stay Pending Appeal" says that:

After a stay order or entry has been denied or vacated by a trial court, an appellant may apply to the appropriate appellate court for a temporary stay and a writ of supersedeas in accordance with Rule 23.

Judge Robinson probably assumed that the NC Supreme Court would do the expected thing and deny the PDR.  Or he might have felt bound to follow the mandate from the Court of Appeals affirming the trial court's ruling that the forum selection clause calling for litigation to take place in Texas was invalid..  An "inferior court must follow the mandate of an appellate court in a case without variation or departure."  In re RAH, 641 S.E.2d 404, 407 (2007). 

But a few weeks after Judge Robinson delivered the published Opinion in 2016 NCBC 62, the NC Supreme Court did the nearly unthinkable and granted the PDR.  That made all the difference to Judge Robinson.  He held that the Business Court had been "divested of jurisdiction to proceed with the Injunction Hearing" because of the granting of the PDR.  Order ¶10.  That sua sponte reversal from Judge Robinson came in an unpublished Order.

So what Should You Do If You Don't Want The Trial Court To Rule Because Of Your Pending PDR?

So what do these rulings mean about the vitality of an NC Superior Court's jurisdiction in a case that is the subject of a pending PDR?  That if you want the Superior Court to refrain from ruling in your case in which a PDR is pending, that you should move for a stay "in the appropriate court" or argue that the PDR will be granted and that the Superior Court therefore no longer has jurisdiction and should not move forward in the case until the NC Supreme Court has made its ruling.  It's probably safer to request a stay given the four leaf clover nature of the granting of PDRs.

You might be wondering whether this case has been "over-appealed." Maybe it has.  In addition to the two appeals already pending, the Defendant has also appealed from Judge Robinson's ruling in 2016 NCBC 62.  That's the third appeal.  Even before that, it had filed a Petition for Rehearing in the COA following the Court of Appeals' decision.  (Good grief Charlie Brown).

But given that the successful PDR is likely to generate an opinion from the NC Supreme Court on the validity of a forum selection clause, all those appeals might be worthwhile.  Maybe the Appellants will ultimately be successful.

It Takes More Than Just $5 Million To Get A Case Into The NC Business Court

This week, I published a post on this blog in which I suggested that a case involving $5 million in controversy could be designated to the Business Court without the Court having to analyze the nature of the claims before it to see if they met any of the bases for mandatory jurisdiction contained in G.S. §7A-45.4.

That was wrong, and it provoked a torrent of controversy directed to me.  Well, probably not a torrent to you, but a torrent to me: an email and a phone call from Business Court Chief Judge Gale and an email from an eminent attorney friend in Raleigh.  I'm glad that Judge Gale looks at my blog (I think that Judge Bledsoe, Judge McGuire, and Judge Robinson look at it too), but I'm unhappy that I might have said anything on this blog that generated a phone call from Judge Gale and which could have steered anyone in the wrong direction.

Let me start by saying that you shouldn't rely on my blog for legal advice or its accuracy.  There is a disclaimer buried somewhere in this blog which says exactly that.

Notwithstanding that disclaimer, I'm pretty serious about getting it right with this blog.  So let's look at the part of the statute governing designations to the Business Court which I didn't describe correctly on Monday: G.S. §7A-45.4(b)(2).  It says:

An action described in subdivision (1), (2), (3), (4), (5), or (8) of subsection (a) of this section in which the amount in controversy computed in accordance with G.S. 7A-243 is at least five million dollars ($5,000,000) shall be designated as a mandatory complex business case by the party whose pleading caused the amount in controversy to equal or exceed five million dollars ($5,000,000).

So the statute is pretty clear that an amount in controversy of more than $5 million, standing alone, isn't enough to make a case mandatory for designation to the Business Court.

The case still has to fall within the grounds set forth in G.S. Section 7A-45.4(a)(1), (2), (3), (4), (5), or (8).  So when I suggested in my last post that Judge Gale didn't have to analyze whether the Complaint in Southeastern Automotive, Inc. v. Genuine Parts Co. 2016 NCBC 61 qualified as an intellectual property case because more than $5 million was in controversy, I was not right.

 

The Business Court Opens Its Door Wide To "Intellectual Property" Disputes

The Business Court doesn't often discuss its interpretation of the statutory bases for a designation to the Court, all of which are contained in G.S. sec. 7A-45.4.  So its published Order this month in Southeastern Automotive, Inc. v. Genuine Parts Co. 2016 NCBC 61, is worth noting.

The issue in Southeastern Automotive was whether the Complaint qualified for designation to the Business Court under G.S. §7A-45.4(a)(5), which says that a party may designate as a complex business case:

Disputes involving the ownership, use, licensing, lease, installation, or performance of intellectual property, including computer software, software applications, information technology and systems, data and data security, pharmaceuticals, biotechnology products, and bioscience technologies.

The statute, before the amendments effective October 1, 2014, mentioned only "disputes involving '[i]ntellectual property law, including software licensing disputes." Op. 19 (referencing former version of G.S. §7A-45.4(a)(5)). 

The Southeastern Complaint did not directly raise issues regarding the ownership of intellectual property. It centered around the Defendant's acquisition of the Plaintiff, and Plaintiff's claims that it had not been fully compensated in the sale.  The shortfall, according to the Plaintiff, was caused by the inadequate operation of Defendant's software programs with respect to the inventory which the Plaintiff had sold.

Judge Gale saw the 2014 amendment as expanding the Court's role in intellectual property lawsuits.  He held:

The Court concludes that the 2014 amendment to section 7A-45.4(a)(5) expanded the scope of disputes within the statute’s purview to include a dispute that involves a material issue regarding the use or performance of intellectual property, including computer software and data, without requiring a dispute regarding ownership of the intellectual property or another dispute that may require application of principles of the body of law known as intellectual property law.

Order 20.

In the end, this analysis by Judge Gale was unnecessary, as the amount in controversy, per the Southeastern Complaint, was in excess of five million dollars.  That made this a case in which designation would be mandatory regardless of whether it was requested by one of the parties.  Order 4 (referencing G.S. §7A-45.4b)(2)).

I frequently look at the Orders from the Chief Judge of the Business Court on challenges to designations (the Chief Judge handles all of the Oppositions to Designation) and don't find much to write about as they usually say nothing more than something like "the allegations in the Complaint fall within the mandatory jurisdiction of the Business Court,"  I collected a number of those unpublished Orders in this 2008 post.

That said, every once in a while the Business Court says something significant about the scope of its mandatory jurisdiction.  For example, in its unpublished Order in  Sonic Automotive, Inc. v. Mercedes-Benz USA, LLC, the Court spoke about its broad approach to designations involving antitrust matters (per G.S. §7A-45.4(a)(3).  

"Winding Up" A Law Firm Partnership Doesn't Necessarily Mean Liquidation

You can "wind up" a partnership without having to liquidate all of its assets and terminating its existence.  So ruled Judge McGuire last week in Hardin v. Lewis, 2016 NCBC 55.  But that may not be true for all partnerships.  This case involved a law firm partnership which was continuing to operate its practice after one of its partners left to start her own law firm.

The lawsuit concerned the amount due to the Plaintiff from her former partners for the value of her partnership share (along with a host of other claims on which the Court will rule later).  Her withdrawal had constituted a dissolution of the partnership as a  matter of law (Op. ¶4). She had also requested the winding up of the partnership.

What Is "Winding Up"?

North Carolina's Uniform Partnership Act seems to dictate that winding up is the final stage in the existence of a partnership.  Section 59-60 of the General Statutes says that: "[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed."  N.C.G.S. §59-60.

That is consistent with the definition often given to "winding up":

The last phase in the dissolution of a partnership or corporation, in which accounts are settled and assets are liquidated so that they may be distributed and the business may be terminated.

The Free Dictionary.

That a winding up ending in liquidation was not required of their law partnership was particularly good news for the Defendants in Hardin, as they were the remaining partners in the law firm which Plaintiff had left.  They had continued to practice law without their departing partner, and filed a Certificate of Amendment with the NC Secretary of State to change the name of the firm to delete Plaintiff's name.

Judge McGuire found support for his ruling that the old partnership would not have to liquidate as a part of its winding up in decisions from other states, observing that:

a number of courts have concluded that a 'winding up' is technically effected when an outgoing partner is compensated for their interest in the dissolving partnership, without any strict requirement that the dissolving partnership be liquidated.

Op. ¶18.

Judge McGuire said that given "the potential disruption to the representation of [the law firm's] current clients that would result from a liquidation of the Firm's assets" that an accounting and settling of accounts between the partners as of the date of the dissolution, with the new partnership continuing in business was the appropriate means of a "winding up."  Op. ¶19.

Law Firms Should Have Written Partnership Agreements In Place To Avoid Cases Like This

The Business Court has been called upon before to adjudicate breakups of law firms, like in Walters & Zimmerman, PLLC v. Zimmerman and in Mitchell, Brewer, Richards, Adams, Burge & Boughman, PLLC v. BrewerIn the Mitchell case, the Court struggled with the issue of how a withdrawing partner should be compensated for fees generated from a contingent fee engagement after the withdrawal.

in every one of these kind of cases in the  Business Court, the partnership (or the PLLC) did not have a written agreement regarding the relationship of its partner/members, which led to significant dispute.  If you are a lawyer practicing with one or more other lawyers, put your agreement in writing and avoid having to get a Business Court Judge to resolve your disagreement.

Even though the Defendants in the Hardin case didn't have to liquidate their firm and shut down their practice, they still have to deal with the annoyance of having a Receiver overseeing their practice while the amount to be paid to the Plaintiff for her partnership interest is determined.  And they have to bear the cost of the Receiver.

NC Court Of Appeals, Not Sure That It Had Jurisdiction, Dismisses Appeal From Business Court Decision

How does your appeal get dismissed when you've appealed to the "right", "appropriate", or "correct" court?  In other words, your appeal was to the Court with jurisdiction over your appeal.  It happened in the NC Court of Appeals this week.

The Date That Your Case Was Designated To The Business Court Is Critical To Your Appeal

For some context, you'll remember the NC Court of Appeals decision in Christenbury Eye Center P.A. v. Medflow, Inc., in which the COA dismissed an appeal from a Business Court ruling because the proper appellate court to hear that case was not it, but the NC Supreme Court.  That was because the case was designated to the Business Court after October 1, 2014, when G.S. § 7A-27(a)(2), became effective.  That statute specifies that appeals of the Business Court's final judgments will go to the NC Supreme Court. 

Since the Christenbury appeal was from a case designated to the Business Court after the October 1, 2014 effective date of the statute, it was to the "wrong" Court. the NCCOA concluded that the case should have been appealed to the NC Supreme Court and it lacked jurisdiction to hear the appeal.

But in Grasinger v. Williams, this week, the NCCOA dismissed an appeal from a Business Court decision which was properly appealed to it, the "correct" Court.  This case was designated to the Business Court before the effective date of the statute, so there was no appeal directly to the NC Supreme Court under the new Section 7A-27(a)(2).

So, why did the COA dismiss this appeal?  Because there was nothing in the Record on Appeal showing the date that the case was designated to the Business Court.  In other words, there was no way to tell whether the case was designated to the Business Court before October 1, 2014 (in which case the appeal would go to the COA) or after that date (in which case the appeal would go to the NC Supreme Court).  Judge Calabria said:

[w]ithout the precise date upon which this action was designated as a mandatory complex business case, we cannot determine with certainty whether jurisdiction lies with this Court or our Supreme Court. . . .  In the instant case, because plaintiff-appellants failed to include the designation approval or a designation order in the record on appeal and failed to note the date of designation in their brief, they have failed to confer jurisdiction on this Court and we dismiss.

Op. at 9.

Show The Designation Date In Your Record On Appeal

She said that the party appealing from a case designated as a complex business case, "bears the burden of showing the actual designation date"  Op. at 9.  In order to carry that burden in an appeal from a Business Court case designated before October 1, 2014, the appealing party:

must include in the record a copy of the dated designation and explicitly note the date of designation in the statement of grounds for appellate review portions of their brief in order to confer jurisdiction on this Court.

Op. at 9.

The COA rejected the argument that since the Amended Complaint (in the Record on Appeal) showed a filing date of November 6, 2013, the designation to the Business Court must have followed no more than thirty days later (if the statutory procedure for designation was followed), and would have been designated to the Business Court well before the effective date of the statute requiring appeals be made to the NC Supreme Court.  Judge Calabria outlined a possible set of events by which a designation could be entered beyond the thirty day period specified by the statute.  Op. at 7.

Couldn't The COA Have Taken Judicial Notice Of The Date Of Designation?

The COA also was not willing to take the few minutes it took me to find the Grasinger Designation Order in the readily accessible case file on the Business Court's website.  The Designation Order bears a date of October 25, 2013, putting the Business Court's decision squarely within the COA's jurisdiction.  Could the COA have done the same thing that I did?  Sure, the NC Supreme Court has said that "this Court may take judicial notice of the public records of other courts within the state judicial system." Alpine Motors Corp. v. Hagwood, 233 N.C. 57, 62 S.E.2d 518 (1950).

In fact, if the North Carolina Rules of Evidence apply to the Court of Appeals, judicial notice might have been mandatory.  Rule 201(d) says: "When mandatory.– A court shall take judicial notice if requested by a party and supplied with the necessary information."  Of course, the Appellant in Grasinger probably had no idea that the COA would focus so squarely on the date of the designation, and that it would be unwilling to spend a couple of minutes on the Business Court's website to satisfy itself that it had jurisdiction over the appeal.  The Appellant  therefore had no opportunity to request that the COA take judicial notice of the readily available Designation Order.

To be fair, as Judge Calabria pointed out, "it is not the duty of this Court to construct arguments for or find support for [an] appellant’s right to appeal[.]" (quoting Jeffreys v. Raleigh Oaks Joint Venture, 115 N.C. App. 377, 380, 444 S.E.2d 252, 254 (1994).

The Court then dictated a mandatory procedure for those appealing opinions in case designated to the Business Court before October 1, 2014: they must include the Designation Order in the Record on Appeal, and state the date of designation in the statement of grounds for appellate review in their brief.  Op. at 9. 

This Dismissal Looks Like A One-Off

Should we be worried about a deluge of dismissals from the COA because Appellants didn't specify the date their case was designated to the Business Court?  Apparently not.  I thought that there couldn't be that many cases that old around still on appeal, but I checked and there were more than ten.  I looked at most of the Records on Appeal in those cases, and found that each either included the Designation Order or a statement reflecting the date of designation. So it's unlikely that there will be any more dismissals of this type from the COA.

Be Careful With Your Records On Appeal Going Forward Anyway

But in case the NC Supreme Court is as unwilling as the COA to check the Business Court website to determine whether a case was designated after October 1, 2014, it's a good idea to follow the instruction from the Grasinger opinion in appeals to the NC Supreme Court.

                                                           *     *     *  

I would have missed this decision but for my colleague Dan Smith, who circulated an email this week around Brooks Pierce about this decision.  (This is the second time that I owe a thank you to Dan)  And, of course, I was "scooped" again by the North Carolina Appellate Practice Blog, which wrote about this decision a couple of days ago.  I am reconciling myself to being much slower than I used to be.  I don't like it.

NC Attorney General Reaches $9 Million Settlement With "American Indian Business" Western Sky Over Usurious Loans

You will remember the North Carolina Attorney General's lawsuit against Western Sky Fin'l, LLC. It generated an opinion from the Business Court last year in which Judge McGuire enjoined the Defendants from making further high interest loans in violation of North Carolina's usury laws.  The Defendants had claimed that as an American Indian related business, they were exempt from North Carolina's usury laws regarding their lending operations.

Judge McGuire signed off this week on a Final Judgment in State ex rel. Cooper v. Western Sky Fin'l, LLC resolving the case, based upon the consent of all parties.

If you have questions about the terms of the Final Judgment, here are some answers:

  • Can Western Sky make any more loans in North Carolina?  No.  Western Sky and the other Defendants are permanently enjoined from offering loans in North Carolina, unless they obtain a license to do so. (¶4)
  • Can Western Sky collect on its outstanding loans?  No, Western Sky is enjoined permanently from collecting on any loans that it has already made.  (¶4) It must adjust any outstanding loans to a "zero balance." (¶5)
  • Can Western Sky's North Carolina borrowers get refunds of the excessive interest they paid to Western Sky? Yes, the Defendants are required to put $9,025,000 in an escrow account to provide refunds to North Carolina consumers who borrowed money from Western Sky.  (¶8)  The $9,025,000 is due within ten days of the date of entry of the Final Judgment.  The refund amount to  be paid to each eligible Borrower is based on the amount of interest paid by each borrower to Western Sky in excess of the maximum of 16% interest allowed by NC law. (¶10).  But the refund amount apparently is not equal to the full amount of usurious interest paid.
  • How will the refund process be handled? The refund process is to be administered by a company called Dahl Administration.  The Defendants must cover Dahl Administration's fees and expenses up to $100,000.  Dahl Administration is required to notify all borrowers who may be entitled to a refund with a "Notification of Refund Eligibility" within sixty days. Any Borrower accepting a refund is required to sign a Release of the Defendants.
  • Does Western Sky have to pay anything else?  Yes, the Defendants must pay $250,000 to North Carolina "for the State's costs and attorneys' fees." (¶7).
  • My inability to pay back my loan from Western Sky has hurt my credit, what can be done about that?  The Defendants are required, within sixty days, to contact Equifax and Experian (two of the major credit reporting agencies in the U.S.) and to request that they remove any reporting regarding Western Sky's loans to North Carolinians. (¶6)
  • What If another State reaches a better settlement with Western Sky?  It is possible that another State might strike a better deal than the one obtained by the North Carolina Attorney General.   (There are multiple lawsuits pending against Western Sky in other States).  But the Final Judgment protects (in 20) against any other State obtaining a more favorable settlement.  A more favorable settlement is defined in the Final Judgment as a settlement that requires the Western Sky Defendants to pay restitution of more than $9,025,000 to borrowers in any other State and that amount is more than 40% of the amount of usurious interest collected in that other State.  (I guess that 40% figure means that Western Sky is only going to have to repay 40% of the highly excessive interest it charged,)
  • What If Western Sky sold my loan, am I still covered by the Final Judgment?  It looks like the Final Judgment doesn't cover loans which Western Sky sold on the secondary market.  Although the Final Judgment extends to the "successors" and "assignees" of the Defendants, the Final Judgment says that "[f]or the avoidance of doubt, the terrms 'successors' and 'assignees' do not apply to parties not subject to this Final Judgment that purchased loans from Defendants." Final Judgment 1.

If I had needed to borrow money from Western Sky, and was despairing about the vicious debt cycle its loan had thrown me into, I would consider this a pretty good resolution by the Attorney General.  The AG's office issued a Press Release regarding the case yesterday.

Why North Carolina Is Probably The Best State In Which To File A Voluntary Dismissal Of Your Case

You have a case set for trial in a state trial court.  You are tenth on the trial calendar, but the nine cases in front of you have crumbled and settled over the weekend.  Plus, your most important witness is gone from your state based on your guess that the case wouldn't be reached for trial.  You've been hobbled by an Order granting a Motion in Limine excluding some of your evidence from trial. Even worse, the statute of limitations ran on your claims while your case was pending.  And you really aren't ready (or don't want) to try this case anyway.

Wouldn't it be nice to wipe the slate clean and get a fresh start?  Well, you can do that in North Carolina, but probably in no other court.  If you are admitted to practice law in North Carolina, you know that in NC state court a plaintiff can dismiss his case "by filing a notice of dismissal [per Rule 41 of the NC Rules of Civil Procedure] at any time before the plaintiff rests his case." 

That is a much more generous allowance of the voluntary dismissal right than anywhere else.  In federal court (and under the Rules in many other states), by contrast, a voluntary dismissal must be filed much sooner: "before the opposing party serves either an answer or a motion for summary judgment."

The "Safety Net" Of Rule 41

The North Carolina Supreme Court (relying on North Carolina's civil procedure expert, Gray Wilson) has said that:

The Rule 41(a) voluntary dismissal “has salvaged more lawsuits than any other procedural device, giving the plaintiff a second chance to present a viable case at trial.” 2 G. Gray Wilson, North Carolina Civil Procedure § 41-1, at 32 (2d ed. 1995). Many plaintiffs have used “this rule to cure an unforeseen defect in a claim that did not become apparent until trial . . . . The rule also offers a safety net to plaintiff or his counsel who are either unprepared or unwilling to proceed with trial the first time the case is called.” 2 G. Gray Wilson, North Carolina Civil Procedure § 41-1, at 33.

Brisson v. Santoriello, 351 N.C. 589, 597, 528 S.E.2d 569, 572-573 (2000).

The longer period of time in which a plaintiff can take a voluntary dismissal (without the permission of the opposing party) is not the "distinct" feature of the North Carolina Rule which Judge Bledsoe referenced last week in  BBB&T BOLI Plan Trust v. Massachusetts Mutual Life Ins. Co., 2016 NCBC 34 at ¶17 .  That feature is the extension of the statute of limitations governing your claims.  The Rule says that so long as your dismissed lawsuit was timely filed, "a new action based on the same claim may be commenced within one year after such dismissal."  That's true even if the statute of limitations has expired at the time of the voluntary dismissal.

When Has A Plaintiff "Rested His Case"?

The words "rests his case" has a trial connotation to me.  When the Plaintiff has presented all of his documents and witnesses and turns the presentation of evidence over to the Defendant, he has rested his case.

But you can actually "rest your case"  much sooner than that, at least for Rule 41 purposes.  Defending your position in a summary judgment hearing means that you have rested your case within the meaning of Rule 41(a)(1)(i).  Op. ¶27 (citing Maurice v. Hatterasman Motel Corp., 38 N.C. App. 588, 591-92, 248 S.E.2d 430, 432-33 (1978)).  In fact, anytime that a plaintiff is facing a dispositive motion, he rests his case by "advanc[ing] its arguments about the merits of [his] case. . . ." Op. ¶28.

In the case before the Business Court last week, Plaintiff BB&T Trust filed its voluntary dismissal about three weeks before its trial was set to begin  During the course of the case (three years ago), Judge Murphy had denied a Motion to Amend in which the Trust tried to add additional theories of liability.  Shortly before trial, Judge Gale granted a Motion in Limine prohibiting the Trust from presenting evidence relating to those theories of liability that were the subject of its unsuccessful Motion to Amend.

So, can a voluntary dismissal be filed by a Plaintiff to avoid a Court's adverse ruling, or has he "rested his case" by contesting the ruling?

Bad Faith Dismissals Are Not Allowed

The NC Supreme Court said in the Brisson decision that a voluntary dismissal must "not be done in bad faith."  351 N.C. 597, 528 S.E.2d 569, 573.

Judge Bledsoe rejected the argument that the BB&T Trust's dismissal was taken in "bad faith."  He said that:

allowing Brisson’s bad faith exception to subject all voluntary dismissals to judicial scrutiny would undermine the intent of Rule 41(a) by creating unnecessary barriers for plaintiffs who wish to abandon their claims.

Op. ¶21.

So what makes out a "bad faith" dismissal?  It's a pretty narrow circumstance, and is limited to the situation where "the initial complaint fails to conform with the rules of pleading and merely seeks to take advantage of the savings provision"  Op. ¶2.  The rationale for that limitation " is that where an initial complaint does not conform with the rules of pleading, a plaintiff should not be entitled to the “safety net” of Rule 41(a)’s [statute of limitations] savings provision after dismissal."  Op. ¶26.

Defendant MassMutual took a run at arguing that "bad faith" had to be determined on a case by case basis, and that the Plaintiff had acted in bad faith by waiting three years after the rejection of its Motion to Amend to take its voluntary dismissal.  Judge Bledsoe said that he would not extend the bad faith exception "