Nondisparagement Provision Wasn't Violated By "Barroom Gossip"

When law firms break up, litigation often follows.  The case of Merritt, Flebotte, Wilson, Webb & Caruso, PLLC v. Hemmings, decided Tuesday by the North Carolina Court of Appeals, involved claims between lawyers of defamation and violation of a nondisparagement provision in a settlement agreement.

The Defendants had left the Plaintiff's firm to start their own practice. The Plaintiff sued them over sharing of fees and reimbursement of costs. The fighting lawyers settled the first lawsuit. A nondisparagement provision was included in their settlement agreement.

Then came round two. Plaintiff sued the Defendants again, saying they hadn't complied with the settlement. The Defendants responded that they were excused from their obligations for several reasons, including a breach of the nondisparagement provision. They counterclaimed for defamation.

The defamation claim involved statements made by Plaintiff's office manager. He had been out one night at a bar in Raleigh called "White Collar Crime." He allegedly said to a friend of one of the Defendants that the Defendant was "untrustworthy" and "suggested" that the Defendant "had done something wrong or committed some kind of crime when he left the firm."

The Defendants said that the office manager had been acting on behalf of the Plaintiff law firm when he made these statements and that the nondisparagement provision had been breached. The Plaintiff disputed that the office manager was authorized to speak for the firm, and said that the after hours statements at the bar hadn't been made within the course and scope of his employment anyway.

The Court of Appeals affirmed the trial court's summary judgment for the Plaintiff, and said that the Defendants could "articulate no legal connection between these facts and the legal relationship of principal and agent. Defendants offered no evidence that the scope of [the office manager's] employment included barroom gossip about members of the firm, and cite no appellate opinions suggesting that an employee is considered an 'agent' of his employer even when he acts far outside the scope of his employment."

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

The Business Court dismissed 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.

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. 

The Business Court held that the conduct 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.

A 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.

Claims seeking judicial dissolution of the LLCs survived.  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.

The Court also held that CDC's claim for breach of a construction contract could proceed even though CDC was not licensed as a general contractor.  CDC's contract called for some work that required a general contractor's license, and some that didn't.  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.  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.

Full Opinion

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

 

Court Of Appeals Affirms Dismissal Of Business Defamation Case

Today, in Nucor Corp. v. Prudential Equity Group, LLC, the Court of Appeals affirmed the 12(b)(6) dismissal of a claim for libel per se against a securities firm. 

The firm had published a report about the plaintiff which stated that antitrust lawsuits against the company were possible, and that the company needed to give up its "monopoly dreams." 

The Court held that in order for words to be libelous per se, they "must be susceptible of but one meaning and of such nature that the court can presume as a matter of law that they tend to disgrace and degrade the party or hold him up to public hatred, contempt or ridicule, or cause him to be shunned and avoided."  The words must be defamatory on their face, "stripped of all insinuations, innuendo, colloquium and explanatory circumstances."

The Court ruled that the publication did not assert any illegal or wrongful conduct on the part of the company.  It further ruled that it could not consider the explanatory circumstances offered by the plaintiff to determine whether the words at issue were libelous.  The Court further found that it needed to consider the document as a whole, and that the "overall import" of the publication was not defamatory of the company.  It therefore affirmed the trial court's dismissal.

The Court also ruled that plaintiff could not base an unfair and deceptive practices claim as to the report on the alleged breach of a confidentiality agreement by an employee of the defendant, because that was a mere breach of contract without any "substantial aggravating circumstances."

International Legwear Group, Inc. v. Legassi Int'l Group, January 2, 2008 (Diaz)(unpublished)

The Court dismissed a defamation claim.  It found that the claims were not plead with sufficient particularity (omitting in some instances to state to whom the statements were made and when they were made).  One allegedly defamatory statement was subject to an absolute privilege, which covers "not only . . . statements made in the course of a pending judicial proceeding but also . . .  communications relevant to proposed judicial proceedings.”

Full Opinion

Webb Builders, LLC v. Jones, January 24, 2002 (Tennille)(unpublished)

The Court granted a Motion to Dismiss a claim for slander, ruling that plaintiff had failed to plead the allegedly defamatory statement with sufficient particularity. It held that, although plaintiff was not required to plead the words verbatim, it was required to plead them either substantially as they were said or at least with sufficient particularity to determine whether the statement was defamatory. The Court held that "it would be unduly harsh to require defendants to venture a response to weighty allegations of slander couched only in the most general of terms."

The Court let stand, however, plaintiff's claim for tortious interference with contract against the defendant, who was dissatisfied with the plaintiff homebuilder's work for him. Plaintiff had expressed his displeasure to others for whom the plaintiff was working, which resulted in them terminating their contracts with the plaintiff.

In reaching this conclusion, the Court considered the factors set out in the Restatement (Second) of Torts §767, which include "(a) the nature of the actor's conduct, (b) the actor's motive, (c) the interests of the other with which the actor's conduct interferes, (d) the interests sought to be advanced by the actor, (e) the social interests in protecting the freedom of the actor and the contractual interests of the other, (f) the proximity or remoteness of the actor's conduct to the interference, and (g) the relations between the parties." The Court held that this tort does not require the element of force, or threat, or intimidation, and also that it does not require independently tortious conduct.

Full Opinion

 

CNC/Access, Inc. v. Scruggs, 2006 NCBC 20 (N.C. Super. Ct. Nov. 15, 2006)(Tennille)

Plaintiff sued a departed employee, alleging that she had violated her confidentiality agreement and her non-competition agreement. The Court found defendant's new employer had not tortiously interfered with her contract. It found the provision on which plaintiff relied, restricting its employees from providing services to any of its clients for 180 days following the termination of employment, to be invalid, because it attempted to restrict defendant from providing services to any client of her former employer, even those with whom she had no contact during her employment.

The Court found the non-compete to be invalid for other reasons as well. It found the three-year restriction on employment to be overly long. It found the geographic restriction -- which extended to the entire state of North Carolina -- to be overly broad, as defendant had only worked in four counties. It also found the covenant, which purported to prevent the defendant from competing "directly or indirectly, individually or as an employee, partner, officer, director or stockholder or in any other capacity whatsoever of any person, firm, partnership or corporation" to be unnecessarily restrictive.

Also, given that individual defendant was in the business of providing medical care to patients, the Court found that there were policy issues counselling against the enforcement of the covenant.

The Court did allow the plaintiff to proceed on a claim for unfair and deceptive practices against defendant's new employer. It found that defendant had copied some of plaintiff's human resources documents without its knowledge or consent. It held that even though defendant had not obtained a competitive advantage as a result, the misuse was an unfair and deceptive practice.

The defendants had counterclaimed. On their claim for defamation, the Court found that plaintiffs were not entitled to an absolute privilege simply because some of the allegedly defamatory statements had been made to governmental agencies. The Court found that the absolute privilege applied only to agencies exercising a judicial or quasi-judicial function. Although plaintiff might have been entitled to a qualified privilege, the Court found that there was an issue of fact whether the statements had been made with actual malice.

The Court also found there to be questions of fact with regard to defendants' counterclaim for tortious interference with prospective economic advantage.

Full Opinion

Brief in Support of Plaintiff's Motion for Summary Judgment

Brief in Opposition to Plaintiff's Motion for Summary Judgment

Reply Brief in Support of Plaintiff's Motion for Summary Judgment

Brief in Support of Defendant's Motion for Summary Judgment

Brief in Opposition to Defendant's Motion for Summary Judgment

Reply Brief in Support of Defendant's Motion for Summary Judgment

Maurer v. Slickedit, Inc., 2005 NCBC 4 (N.C. Super. Ct. Aug. 12, 2005)(Tennille)

Plaintiff's former employer had violated the North Carolina Wage and Hour Act by failing to pay her bonuses when due. The Court granted summary judgment on this claim in favor of the plaintiff.

The Court granted summary judgment against plaintiff on her slander claims, finding that she had neither pled nor proven the alleged slander with specificity. Plaintiff furthermore had no evidence of special damages.

Full Opinion

Pack Brothers Body Shop, Inc. v. Nationwide Mut. Ins. Co., 2003 NCBC 1 (N.C. Super. Ct. Jan. 10, 2003)(Tennille)

The defendant told its insureds that that could not have the plaintiff body shop repair their vehicles. The plaintiff sued for defamation.

The Court granted summary judgment on plaintiff's claims of libel per se. The corporate plaintiff was unable to show that any potential customers regarded the claim as being defamatory on its face. The individual plaintiff, who was not named in the defamatory statement, was not entitled to argue that his name was highly identified with the company, or that he essentially "was the company" in the eyes of the public.

Summary judgment was denied, however, on the claim of libel per quod by the corporate plaintiff, as it was possible that the statement involved was capable of a defamatory meaning.

Defendant argued that its statements were protected by a qualified privilege, but the court found that there was a question of fact that precluded summary judgment.

Full Opinion