Mattress Now, Inc. v. Vickers, September 21, 2009 (Jolly)(unpublished)

The Court sanctioned a pro se party for failing to appear at a scheduled mediation. The sanction included (1) requiring the party to pay her share of the mediation she did not attend, (2) being compelled to attend another mediation to be scheduled at the mediator's discretion, and (3) requiring her to pay the total expense of the new mediation.

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Clemenzi v. Freer, April 23, 2009 (Diaz)(unpublished)

This case, which involved four related lawsuits between the shareholders of a closely held corporation, contains a discussion of when a claim is a compulsory counterclaim.  The Court said "Rule 13(a) of the North Carolina Rules of Civil Procedure provides that a party is required to plead as a counterclaim: (1) “any claim which at the time of serving the [responsive] pleading the pleader has against any opposing party”; (2) “if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim”; and (3) if it “does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.” N.C. R. Civ. P. 13(a) (2007)."

The Court dismissed some of the claims, finding that they should have been brought in an earlier action, and discussed also the distaste of North Carolina courts for claim splitting. It held "North Carolina law requires that all damages incurred as a result of a single injury, transaction, or occurrence be recovered in one lawsuit."

The Court also held that an individual shareholder was not entitled to maintain a derivative action on a pro se basis, ruling that "an individual non-attorney litigant may not proceed derivatively on behalf of a corporation without counsel."  This would presumably have been the unauthorized practice of law.  The Court said there was no authority in North Carolina on this point.

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Burgess v. Vitola, 2008 NCBC 7 (N.C. Super. Ct. March 26, 2006)(Diaz)

The Court found that an out-of-state lawyer who had assisted a pro se litigant in preparing her Answer had engaged in the unauthorized practice of law.  N.C. Gen. Stat. Sec. 84-2.1, which defines the "practice of law," includes "preparing or aiding in the preparation of any petitions or orders in any probate or court proceeding" and "assisting in any legal work."  The unauthorized practice of law is a Class 1 Misdemeanor.

The Court declined to strike the Answer, since doing so would "unfairly penalize the [defendant] for the conduct of [her] attorney."  But the Court ruled that the defendant could not file further papers in the case unless she agree to proceed on a true pro se basis or she retained a licensed attorney to represent her. 

On the merits of the case, the Court deferred ruling on the defendant's motion to dismiss, finding that the Affidavit in support of her motion was not in proper form.  The Court held that North Carolina law requires "strict compliance with the requirement that an affidavit be properly sworn."  Compliance with the federal statute permitting a declaration to be signed "under penalty of perjury" (under 29 U.S.C. §1746) was not sufficient. 

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Bueche v. Noel, March 25, 2008 (Diaz)(unpublished)

pro se defendant could not file an Answer on behalf of a corporation, because "a corporation must be represented by counsel and cannot appear pro se."  The Court found this to be the unauthorized practice of law and struck the Answer filed by the defendant.

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Symphony Service Corp. v. Motricity, Inc., October 23, 2007 (Jolly)(unpublished)

Plaintiff's counsel violated the Rules of Professional Responsibility by contacting a former employee of the defendant, who had participated substantially in the legal representation of the defendant before his termination.  The Court struck the affidavit from the witness proferred by the plaintiff, and ruled that he could not be presented by the plaintiff as a witness going forward.  The Court denied, however, the motion to disqualify plaintiff's counsel.

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Egelhof v. Szulik, 2008 NCBC 2 (N.C. Super. Ct. Feb. 4, 2008)(Tennille)

The Court found that plaintiff was an inadequate representative to lead a derivative action.  A derivative action plaintiff has fiduciary obligations to the company on whose behalf he brings a suit.  This plaintiff had no experience in litigation, no involvement in the suit, and only a small stake in the company.  On the point of plaintiff's minimal stock ownership, the Court held that "[w]hile the size of ownership is not determinative of standing, a potential plaintiff's lack of a real financial stake in the litigation is a warning sign that he or she may not be willing or able to devote the time necessary to fulfill the fiduciary obligations imposed by law on a shareholder derivative plaintiff."

The plaintiff was sanctioned by the Court, as were his lawyers, for violating Rule 1.4 of the Rules of Professional Conduct by failing to properly inform their client. The Court also found that the firm had failed in its "duty to know its client" and to "have confidence in the client's knowledge and ability to fulfill his or her fiduciary duties." Instead, the firm had "borrowed" the plaintiff's name, "treated the lawsuit as its own," and made all litigation decisions without input from their supposed client.  The lawyers had also failed to obtain pro hac admission from the Business Court before arguing the motion for sanctions.

The Court also noted the obligations of local counsel in representing a derivative action plaintiff.  It held that "the Court does not believe that it is the primary duty of local counsel to know and communicate with a client who has an established relationship with out-of-state counsel to the same extent as the primary counsel. The local lawyer's role is more limited, and local counsel should be able to rely on primary out-of-state counsel to communicate with the client. Where local counsel signs pleadings and briefs, they are representing to the Court that the positions taken therein have merit and that Rule 11 has been followed. Local counsel would be well advised to consider as a practical matter some of the things a court might consider in reviewing the pleadings. Is there a real plaintiff capable of fulfilling his or her fiduciary duties? Is the complaint being filed in a race to the courthouse? Are the allegations based on known facts or media stories? Has there been any effort to review the books and records of the company to support demand futility claims? Are the claims meritorious, and are there allegations that would support a finding that red flags existed to warrant board action in a derivative case? Is there clear precedent supporting or contrary to the positions taken?"

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Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

Chemcraft Holdings Corp. v. Shayban, 2006 NCBC 13 (N.C. Super. Ct. Oct. 5, 2006)(Tennille)

Plaintiff's counsel had verbal discussions with the defendant, before litigation began, about the possibility of representation against his former employer. In the course of those discussions, the defendant sent counsel an email containing confidential information about the potential litigation. Plaintiff's counsel had never looked at the contents, and thereafter represented the employer.

Defendant moved to disqualify plaintiff's counsel. The Court granted the motion, notwithstanding its finding that there had been no unethical conduct and no violation of the Rules of Professional Conduct. It held that the attorney had an obligation of determining that he had no conflict at the outset of the representation, that he was responsible for having read what was sent to him, and that "the goal of maintaining public confidence in our system of justice demands that courts prevent even the appearance of impropriety and thus resolve any and all doubts in favor of disqualification."

The Court also considered Rule 1.18 of the North Carolina Rules of Professional Conduct, which deals with duties of attorneys to prospective clients. It held that "[t]he aim of Rule 1.18 is to prevent a lawyer who acquires strategic information from a prospective client from using that information against the client. On the battlefield, stumbling upon an opponent’s secret plans may determine the outcome of an engagement; but in the courtroom, Rule 1.18 protects litigants from this fate by prohibiting an attorney from using confidential information to the detriment of a prospective client. The type of information prohibited by Rule 1.18 is exactly the type of information to which [the lawyer] has had access since receiving [the] email—a client’s personal thoughts and impressions regarding the facts of his case and possible strategies for a lawsuit. The Court cannot allow Plaintiffs to be represented by counsel who has had access to such potentially damaging information."

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In re Senergy and Thoro Class Action Settlement, 1999 NCBC 7 (N.C. Super. Ct. July 14, 1999)(Tennille)

Class action counsel were entitled to an award of attorneys' fees where the settlement had created a common fund. The Court discusses various applications to an award of fees, including the lodestar method and the percentage method, and elects to take a hybrid approach which takes into account the reasonableness of the fees under the Rules of Professional Responsibility.

The Court further determines that the fee award must be based on the actual benefits received by class members.

After noting issues involving "consortium litigation" by the lawyers for the class, the Court holds that "class counsel in cases similar to this would be well advised to maintain and submit to the court detailed time records which would help the court" in resolving issues regarding fees.

Full Opinion