Laney v.Corn, November 9, 2009 (Diaz)(unpublished)

When the parties to a contract have negotiated and agreed to a mandatory forum selection clause, that clause is valid except when compelling reasons dictate otherwise. 

The Court enforced a forum selection clause in a franchise agreement, and transferred venue of the case from Gaston County to Buncombe County. 

Full Opinion

Crockett Capital Corp. v. Inland American Winston Hotels, Inc., 2009 NCBC 5 (N.C. Super. Ct. Feb. 13, 2009)(Tennille)

The Court ruled that the plaintiff could proceed with its case even though the Master Agreement at issue contemplated the need to negotiate the terms of future agreements.  The agreement was therefore not an unenforceable agreement to agree.

Judge Tennille described the Agreement at issue and its attachments as "a very sophisticated business transaction among parties of equal knowledge negotiating at arms length," and said that "the extensive nature of the documentation left very few terms to be negotiated for each side."  Op. ¶ 19.It contained what the Judge referred to as "impasse provisions" which dealt with situations where the parties did not reach agreement.

He denied the Motion to Dismiss, holding:

The impasse provisions in . . . the Master Agreement do not require the Court to supply any material terms. . . . Unlike the JDH case, in which the Court is asked to supply terms missing from a written letter of intent, this case involves the enforcement of specific remedies provided for in the agreement itself.

Op. ¶¶ 33-34.

Full Opinion

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

 

JDH Capital, LLC v. Flowers, 2009 NCBC 4 (N.C. Super. Ct. Feb. 13, 2009),(Tennille)

The Court granted a Motion for Summary Judgment, finding that a Letter of Intent containing language which said that it did "not create any binding, contractual rights between Flowers and JDH and shall serve only as an expression of intent between the parties" was an unenforceable agreement to agree.

The Court held that (1) the document itself supported the finding that it was a non-binding agreement, (2)  there were many significant terms left unaddressed in the LOI, (3) complicated real estate development projects "generally require the execution of lengthy, sophisticated, and detailed documents to govern the relationships between the parties," (4) courts should decline to fill in material gaps left open by contracting parties, (5) the LOI failed to provide any remedy in the event a contemplated LLC was never formed, and (6) JDH, as the drafter of the LOI, should have any ambiguity resolved against it.

The Court also rejected the argument that the subsequent oral agreements of the parties, and their partial performance, made the LOI enforceable; and also the argument that the Plaintiff was in the alternative entitled to a recovery in quantum meruit.

Full Opinion

Brief in Support of Motion for Summary Judgmen

Brief in Opposition to Motion for Summary Judgment

Reply Brief in Support of Motion for Summary Judgment

 

CITGO Wins Motion To Dismiss Gasoline Pricing Case In The North Carolina Business Court

In its first significant opinion of the new year, the Business Court interpreted the pricing mechanism contained in a contract between convenience store operator The Pantry and CITGO, its supplier of gasoline. The case, which handed a win to CITGO allowing it to charge higher prices than those urged by The Pantry, is The Pantry, Inc. v. CITGO Petroleum Corp.

Per the contract, The Pantry's price for gasoline was based on the average of the two lowest prices for "the applicable grade of motor fuel" as determined by an industry source. The dispute arose when CITGO started selling E-10 gasoline to The Pantry.  That's a blend of 90% "clear gasoline" and 10% ethanol, commonly called "gasohol."  E-10 is more expensive than clear gasoline.

The contract didn't contemplate the sale of E-10. CITGO said the contract price should be determined by the two lowest prices for E-10 gasoline, but The Pantry said it should be determined by the two lowest prices for clear gasoline.  CITGO's interpretation resulted in The Pantry paying a higher price.

The Pantry's argument was CITGO had unilaterally determined to substitute E-10 for clear gasoline, and that this meant that E-10 was "interchangeable with and a substitute for clear gasoline."  It also relied on the language of the contract referring to the "grade" of the fuel being purchased, arguing that "grade" referred to grades of clear gasoline.  The convenience store operator also stressed that the purpose of the agreement was to obtain pricing that would allow it to sell gasoline "at prices competitive with other retailers in its markets," and that CITGO's interpretation would impair that objective.

Thus, The Pantry asserted, CITGO was bound to look to the two lowest prices for clear gasoline in setting the price.  Judge Diaz didn't agree.  He determined that the "only reasonable interpretation" of the contract was for the parties to look to the "precise motor fuel product purchased by The Pantry (whether clear gasoline or E-10 gasoline)" to determine the proper price. 

As to the argument that CITGO's interpretation impaired The Pantry's intention to obtain favorable pricing, Judge Diaz held that The Pantry's "remedy is not to contort the language of the 'market pricing' provisions of the [agreement] beyond their plain meaning but, instead, to renegotiate the contract terms or find an alternate supplier."  Op. Par. 60.

The Court held that the interpretation urged by The Pantry "does violence to the contract terms by 'mixing apples and oranges' as to the motor fuels offered by CITGO,"  Op. Par. 56, and granted CITGO's Motion to Dismiss.

You probably won't find much of help in this opinion as far as precedent for future North Carolina cases.  That's because of the narrowness of the issue and the fact that the Court applied Oklahoma law.

CITGO was represented by Brooks Pierce lawyers Jim Williams, Jennifer Van Zant, and D.J. O'Brien, and Scott Solberg and Lisa Meyer of Eimer Stahl Klevorn & Solberg in Chicago.

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

 

Brandson v. PCJ Ventures, LLC, February 22, 2008 (Jolly)(unpublished)

The Court found a shareholders agreement between the parties to be poorly drafted and ambiguous, determined that it would need to consider extrinsic evidence in order the properly interpret the agreement, and denied the parties' cross-motions for summary judgment. 

Full Opinion

Webb v. Royal American Company, LLC, March 17, 2008 (unpublished)

Claims against the lender which had financed an acquisition gone awry were barred by the exculpatory provisions of a subordination agreement.  Georgia law applied, and Georgia law permits one contracting party to waive all recourse in the event of breach by the other.  The exculpatory provision was valid and an absolute defense to plaintiffs' claims, and the Court granted the Defendant's Motion to Dismiss.

Plaintiffs did not have a claims for the breach of the duty of good faith and fair dealing, because the assertion of valid rights under an enforceable agreement does not give rise to such a claim just because the assertion of those rights adversely impacts the parties against whom the rights are asserted. 

The tortious interference with contract claim made the the Plaintiffs was also dismissed.  Although Plaintiffs had plead all of the elements of that claim, the face of the complaint demonstrated that there was a valid business justification for the Defendant's actions.  A lender exercising its rights to collateral under a standard commercial financing arrangement ordinarily has justification for its actions, and the plaintiff make something more than conclusory allegations about justification. 

The Court also rejected a facilitation of fraud claim, holding "[t]o the extent Plaintiffs’ theory is that a commercial lender would agree to defraud a seller of a business by making a loan to the purchaser which the lender agreed in advance would be put in default and that the purchasers of the business would pledge their own assets and provide personal guarantees of the loan knowing it was going into default, such a theory is simply not sustainable."

Plaintiff were also not entitled to proceed on their claim for marshalling of assets, because such a claim is inapplicable where a superior creditor has a right to certain assets.

There was no fiduciary duty under the loan agreement.  The lender had not stepped into the shoes of the majority shareholders by exercising its rights under the loan agreement. 

The Court granted leave to the Plaintiffs, however to make derivative claims against the lender.  It permitted Plaintiffs to assert these claims because a receiver had been appointed for the corporation and he had stated that he would not pursue claims for economic reasons.

Full Opinion

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

Epes v. Healthsouth Corp, February 8, 2008 (Tennille)(unpublished)

The issue was whether a letter formed an enforceable contract. After a thorough discussion of the elements of a valid contract, the Court found that the letter lacked mutual assent as to material elements necessary to create an enforceable contract, including the price to be paid, identification of the parties, and the subject matter of the contract. The letter merely expressed the intent and desires of the parties, rather than their agreement.

Plaintiff therefore could not state a claim for tortious interference with contract.

Nor could plaintiff proceed on its promissory estoppel claim, as North Carolina recognizes that doctrine only in limited, defensive situations.

Full Opinion

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

Avesair, Inc. v. Inphonic, Inc., 2007 NCBC 32 (N.C. Super. Oct. 16, 2007)(Tennille)

The Court interpreted an earnout provision in an asset purchase agreement, which called for the application of Delaware law. The Court granted relief to the plaintiff, which resulted in an award to the plaintiff of nearly $4 million in stock based upon defendant's failure to comply with its contractual obligation to provide "outside financial information" regarding its post-purchase performance. This was more than the defendant would have had to pay if the earnout target had been met, and it appeared both parties agreed that it had not been met.

The Court discussed the defendant's argument that this was both an unenforceable penalty and a windfall, but concluded that "the fundamental maxim [of contract construction is] that the parties are bound by the terms of their own agreement."

Full Opinion

State v. Phillip Morris USA, Inc., 2007 NCBC 27 (N.C. Super. Aug. 17, 2007)(Tennille)

The Court was, once again, called upon to interpret the obligations of the parties under the National Tobacco Grower Settlement Trust.

Full Opinion

Media Network, Inc. v. Mullen Advertising, Inc., 2007 NCBC 1 (N.C. Super. Ct. Jan. 19, 2007)(Diaz)

The issue here was whether the parties had reached an agreement by which defendant was to pay fees to plaintiff for managing an advertising program. Plaintiff alleged that the agreement was "non-cancellable" for a term of one year. The Court found that the correspondence relied upon by plaintiff did not establish a binding contract. Although the parties had agreed on the price to be paid for each advertisement, they had not agreed on the number of advertisements that would be posted by the plaintiff, or when or where they would be posted. Material terms had been left open for negotiation, hence there was no valid contract.

The Court also rejected the argument that the contract had been ratified It held that ratification occurs when the person making the contract purported to act for its principal. Plaintiff's argument, however, was that the principal had ratified the contract, which the Court found to be the "legal equivalent of attempting to force a square peg into a round hole." The Court further ruled that an oral promise of a guarantee term to the contract was barred by a merger clause, pursuant to the parol evidence rule.

The Court found, however, that there were material issues of fact as to plaintiff's unfair and deceptive trade practice claims. It ruled that the oral statements by the defendant as to the term of the contract, which it had no authority to make, might have been fraudulent and were certainly unethical, and the defendant had failed to do anything to correct them. The Court also found a factual question on whether the defendant which spoke the misleading statements was acting with the authority of another defendant. Whether the speaking defendant had the apparent authority to act on behalf of the other defendant was a question of fact.

Finally, the Court granted summary judgment on plaintiff's claim for damages based on diminution in business value. Plaintiff's remaining claim was essentially for fraud in the inducement, and the measure of damages for that claim is the difference between plaintiff's expected profit if it had been permitted to perform for the full year, and the amount that it was actually paid before being terminated." Furthermore, the only reason for plaintiff to be in business was to perform under the contract at issue, making a diminuntion in value theory inapplicable and one of "unbounded speculation." The business was a new one, and had value only to the extent that the defendant chose to renew the contract. Although new businesses can recover for loss of profits, they must show them with reasonable certainty like an established business.

Full Opinion

Wachovia Insurance Services, Inc. v. McGuirt, 2006 NCBC 23 (N.C. Super. Dec. 19, 2006)(Diaz)

Plaintiff, the former employer of the defendant insurance broker, sued to enforce his amended employment agreement. Defendant moved to dismiss, claiming that the agreement had been superceded by an exit agreement, that a later stock purchase agreement had served as a novation of the employment agreement, and finally that the non-competition provisions in the employment agreement were unenforceable.

The Court rejected the first argument, which was premised on the presence of a merger clause in the exit letter. The Court held that in order to determine the impact of the merger clause, it would have to make a fact intensive inquiry inappropriate on a motion to dismiss. On the novation argument, the Court found that the stock purchase agreement was not referenced in the pleadings and that it was inappropriate for it to consider that agreement on a motion to dismiss. The Court found, in any event, that whether a novation had occurred was a fact question.

The Court then discussed the general standards for the validity of non-competition agreement, and concluded that the plaintiff's claims for violation of that agreement would survive. It held the term, which was potentially as long as four years because of a "look back" provision, was reasonable. It further found that a client-based restriction, in lieu of a specific territorial restriction, can be valid.

It held this restriction invalid, however, because it created a conclusive presumption that if any client of plaintiff did business with defendant's new firm, even clients with whom defendant had not worked, that would be deemed to be a violation of the covenant. The Court blue penciled this provision of the restrictive covenant and let stand the claim on the remainder. (There was no claim before the Court for injunctive relief).

Full Opinion

Kornegay v. Aspen Asset Group, LLC, 2006 NCBC 12 (N.C. Super. Ct. Sept. 26, 2006)(Diaz)

Following a thorough discussion of the elements of a valid contract, the Court found a question of material fact whether the parties had agreed on all the material terms of the contract which plaintiff claimed entitled him to a significant bonus. Plaintiff was not required to show that the bonus had actually been paid in prior years in order to recover. The Court dismissed, however, plaintiff's claim for an additional bonus because it found that the parties had never agreed, during their negotiations over additional compensation, how it would be determined.

The Court further ruled that the individual defendants could be liable to plaintiff under his North Carolina Wage and Hour Act claim, and denied their motion for summary judgment based on the argument that plaintiff had been employed by the corporate defendant. It relied on cases interpreting the Federal Fair Labor Standards Act, which hold that individuals can be jointly and severally liable with a corporate employer for unpaid wages where they serve as part owners, officers, or directors of the corporation, or where they are involved in the management of the corporation.

The Court also held that plaintiff could proceed on his claims for unjust enrichment and fraud.

Full Opinion

State v. Phillip Morris USA, Inc., 2005 NCBC 5 (N.C. Super. Ct. Oct. 19, 2005)(Tennille)

This case returned to the Business Court following the North Carolina Supreme Court's decision reversing the Business Court's determination that no further payments were due to the National Tobacco Settlement Trust. The Court ordered the defendants to make payment.

Full Opinion

State v. Phillip Morris USA, Inc., 2004 NCBC 9 (N.C. Super. Ct. Dec. 23, 2004)(Tennille)

This case involved "tobacco law." The Court found that the enactment of the Fair and Equitable Tobacco Reform Act of 2004 ("FETRA") on October 22, 2004 activated the Tax Offset Adjustment provision in the National Tobacco Grower Settlement Trust created as a part of the Master Settlement Agreement, which permitted the Settlors under the Trust to offset their FETRA payments against payments owed to the Trust for calendar year 2004. This meant, in effect, that the cigarette manufacturers did not have to make a significant payment to the Trust.

The opinion contains an extensive discussion of the history of tobacco regulation and the sale of tobacco in the United States.

The Court was clearly pained by the result it felt compelled to reach, which was issued only two days before Christmas. It stated "[i] would be far more pleasing to the Court to play the role of Santa’s helper on this twenty-third day of December rather than be subjected to the inevitable comparison to the Grinch." The Court was later reversed by the North Carolina Supreme Court.

Full Opinion

Corr Services, Inc. v. Davidson County, 2004 NCBC 6 (N.C. Super. Ct. Sept. 30, 2004)(Tennille)

The Court found that Davidson County had breached its contract to pay for services provided.

Full Opinion

Smart Online, Inc. v. Opensite Technologies, Inc., 2003 NCBC 5 (N.C. Super. Ct. June 14, 2003)(Tennille)

A contract for the sale of software was a contract for the sale of goods, and therefore subject to the Uniform Commercial Code.

Full Opinion

Durham Coca-Cola Bottling Co. v. Coca-Cola Bottling Co., 2003 NCBC 3 (N.C. Super. Ct. Apr. 28, 2003)(Tennille)

The issue was whether plaintiff, which had presented a letter of intent to purchase the a non-party bottling company, had a valid and enforceable agreement. The Court found that the letter of intent was an agreement to agree at a future date which was subject to a future, more complete acquisition agreement, and it therefore was not enforceable. The Court further found that the letter of intent contained conditions precedent which had not been met.

Plaintiff's claims for tortious interference with contract were rejected because the Court found that there was no contract, although the Court observed that summary judgment would have been appropriate in any event on the basis of justification. The defendant, a competitor of plaintiff, was competing with plaintiff for the purchase of the bottling company and plaintiff could not show that it was acting with bad faith or malice so as to justify its tortious interference claim.

Full Opinion

Novant Health, Inc. v. Aetna U.S. Healthcare of the Carolinas, Inc., 2001 NCBC 4 (N.C. Super. Ct. Mar. 8, 2001)(Tennille)

This was a straight up contractual interpretation case, chockablock with rules of contract construction and a discussion of grammar, punctation, and antecedent clauses. The principle that all words in a contract must be given effect helped lead to a grant of summary judgment for the plaintiff.

Full Opinion

Caraustar Industries, Inc. v. Georgia-Pacific Corp., 2001 NCBC 2 (N.C. Super. Ct. Jan. 26, 2001)(Tennille)

In the absence of the negotiation by the parties to a requirements contract of specific performance as a remedy, the seller was not entitled to seek that remedy. Instead, its sole remedies were those permitted by Section 2-708 of the Uniform Commercial Code.

Full Opinion

Westpoint Stevens, Inc. v. Panda-Rosemary Corp., 1999 NCBC 11 (N.C. Super. Ct. Dec. 16, 1999)(Tennille)

The agreement at issue in this case was a long term requirements contract, in the form of a Cogeneration Energy Supply Agreement, by which steam and water were supplied to the owner of a textile mill.  The owner then sold its mill, and there were issues as to the rights and obligations of the buyer.

The Court found that the sale of steam and water involved the sale of goods under the Uniform Commercial Code, and that North Carolina law governed under applicable choice of law principles.

The issue then was whether the buyer had the right to assign its rights under the requirements contract.  The Court determined that the buyer was entitled to sell its rights to purchase steam and water, but that the right was subject to the supplier's right to approve the sale, which was in turn subject to the standard of good faith and fair dealing.

 Full Opinion

Praxair, Inc. v. Airgas, 1999 NCBC 9 (N.C. Super. Ct. Oct. 20, 1999)(Tennille)

This case involved the question whether a joint venture agreement, by which the defendant acquired 47% of the stock of a non-party, violated the plaintiff's right of first refusal under an agreement with the non-party.

The Court held that a restraint on the transfer of ownership must be strictly construed, particularly where the restraint may also have the capacity to limit competition in the marketplace.

The Court found that a party acting for a legitimate business purpose could not be liabile for tortious interference with contract.

Full Opinion

Praxair, Inc. v. Airgas, Inc., 1999 NCBC 5 (N.C. Super. Ct. May 26, 1999)(Tennille)

The claim here involved a Right of First Refusal. Plaintiff alleged that the defendants had engaged in a sham transaction designed to deprive it of its rights under the RFR, by effectively selling a controlling interest in the company in which plaintiff had the RFR through a Joint Venture Agreement.

The defendant sellers had been careful not to sell a majority interest to the buyer. The JVA gave the sellers various options to sell their remaining shares to the buyer after the expiration of the RFR, but buyer had no right to obtain those shares.

The Court held that the JVA did not violate plaintiff's first refusal rights, though it noted that "it is apparent from the Joint Venture Agreement that it was carefully and artfully drafted in an effort to avoid or negate any claims that the written agreement itself violated the RFR."

The Court, however, allowed the plaintiff to proceed on the theory that there was an oral agreement to convey the remaining shares, an agreement which the Court found would have violated the RFR.

The plaintiff was also permitted to proceed on its claim against the buyer for tortious interference with contract, though the Court dismissed the claim for tortious interference with prospective economic advantage, since the buyer had a lawful justification for competing with plaintiff to purchase the company. Since tortious interference is an unfair and deceptive practice, the motion to dismiss was denied as to that claim as well. It was also denied as to plaintiff's claim of civil conspiracy.

Full Opinion

Bradley v. U.S. Packaging, Inc., 1998 NCBC 3 (N.C. Super. Ct. Apr. 9, 1998)(Tennille), aff'd, 134 N.C.App. 184, 525 S.E.2d 860, disc. rev. denied, 351 N.C. 99, 540 S.E.2d 351 (1999)

The Court granted plaintiff's Motion for Summary Judgment with regard to a promissory note.

Full Opinion