Palles v. Hatteras Investment Partners LLC, July 27, 2009 (Tennille)(unpublished)

The managing member and president of an LLC could not be liable for tortious interference with contract for firing the Plaintff. "A party to a contract, including the party's managing agent, cannot be liable for wrongful interference of the contract." The defendant was not an outsider to the contract, and therefore could not be liable for wrongful interference for firing the Plaintiff

The Court dismissed Plaintiff's unfair and deceptive practices claim, ruling that it was outside the scope of the statute because it involved securities claims and employer-employee relations.

Full Opinion

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

 

J Freeman Floor Company, LLC v. Freeman, March 14, 2009 (Diaz)(unpublished)

The Business Court, relying on the Court of Appeals decision in White v. Thompson, dismissed an unfair and deceptive practices claim brought by an LLC member who claimed that another member and manager had usurped Company opportunities and converted Company assets.  It held that there was no assertion that the defendant's "actions had any impact in the broader marketplace" and that dismissal was therefore appropriate.

Full Opinion

BHB Enterprises, Inc. v. Waste Management of Carolinas, Inc., March 25, 2009 (Diaz)(unpublished)

A parent corporation can, under certain circumstances, be liable for the actions of its subsidiary under a conspiracy theory, notwithstanding the doctrine of intracorporate immunity.

This opinion summarizes prior law in North Carolina -- consisting of six cases -- addressing the doctrine of intracorporate immunity in the context of a claim for civil conspiracy under North Carolina law. 

The Court nevertheless dismissed the claim in this case, stating that 

"if plaintiffs were allowed to sue parent entities whenever the decision to cause a subsidiary to act in a certain manner originated with the parent, it 'would increase litigation costs and deter the use of subsidiaries, even when there is a legitimate purpose for doing so and there is no wrong to others in being forced to look only to the subsidiary for relief.'"

The Court also dismissed an unfair and deceptive practices claim, even though Plaintiff had alleged that the Defendants had never intended to honor the contract at issue.  The Court said the Plaintiff had failed to allege any facts in its Complaint to support this assertion, and that it was "nothing more than an 'unwarranted deduction[] of fact' that the Court need not accept."

Judge Diaz also rejected other arguments by the Plaintiff that it said would support an unfair and deceptive practices claim, including arguments that (1) the Defendants had owed fiduciary duties to the Plaintiff, (2) the Defendants had "inequitably asserted their position of power over Plaintiff," and (3) the unilateral price increases amounted to conversion.

The Court ruled that there was nothing before it other than a breach of contract, and it relied on settled law that "a mere breach of contract, even if intentional, is not sufficiently unfair or deceptive to sustain an action under" the unfair and deceptive practices statute. 

Full Opinion

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

Faruque v. Bishopric, November 18, 2008 (Tennille)(unpublished)

The Court dismissed unfair and deceptive trade practice claims in a dispute among doctors based on the "learned profession" exemption and because the dispute was not "in commerce." 

Plaintiff alleged that her partners had forced her out of their medical practice.  Judge Tennille (in a very short order), held that "North Carolina Appellate Courts have historically broadly interpreted the learned profession exemptions to the North Carolina Unfair and Deceptive Trade Practice Act, and the courts have also narrowly defined the definition of commerce for internal disputes between professionals."

Full Opinion

Complaint

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

A-1 Pavement Marking, LLC v. APMI Corp., 2008 NCBC 13 (N.C. Super. Ct. August 4, 2008)(Diaz)

Defendants' contention was that they were entitled to reformation of a contract because a page was inadvertently left out of the asset purchase agreement.  The missing page detailed long term liabilities which Defendants claimed the Plaintiff was obligated to pay.  Defendants argued that the failure to pay constituted a violation of the accompanying Promissory Note and Security Agreement, and relieved them from their obligations under their non-compete agreements.

The Motion for Judgment on the Pleadings filed by the Plaintiff asserted that even if reformation was allowed, the only remedy for Defendants was for Plaintiffs to pay the liabilities listed on the missing page.  Judge Diaz held:

The Court disagrees. While there is a strong presumption in favor of correctness of an instrument as written, Hice, 301 N.C. at 651, 273 S.E.2d at 270, a “court’s principle [sic] objective is to determine the intent of the parties to the agreement.” Holshouser v. Shaner Hotel Group Props. One Ltd. P’ship, 134 N.C. App. 391, 397, 518 S.E.2d 17, 23 (1999).'

Moreover, when a court reforms an instrument, the general rule is that ‘”[t]he rights of the parties are measured by the instrument as originally intended, and the effect of the reformation, as a whole, is to give all the parties all the rights to which they are equitably entitled under the instrument that they intended to execute.” 66 Am. Jur. 2d Reformation of Instruments § 9 (2007) (citing Gurske v. Strate, 87 N.W.2d 703 (Neb. 1958)).

Thus, if Defendants establish by clear, cogent and convincing evidence that, because of a mutual mistake, the APA does not reflect the true intention of the parties at the original date of execution with respect to the long-term liabilities to be assumed by Plaintiff, they would be entitled to (1) have the agreement judicially reformed to correct the mistake, and (2) seek full relief for Plaintiff’s alleged breach of the APA and related contract documents. Long, 178 N.C. at 506, 101 S.E. at 13 (stating that when reformation is granted, the court not only corrects the contract as written, but enforces it in its amended form).

The Court dismissed an unfair and deceptive practices claim by one of the Defendants, who asserted that the Plaintiff had diverted funds rendering the Plaintiff unable to meet its contractual obligations to him.  The Court held that "A-1’s alleged accounting misdeeds arguably relate to matters of internal corporate governance, which are insufficient to sustain a UDTPA claim."  The Court further held that the claim was nothing more than one for breach of contract, stating "it does not matter that the purported breach resulted from A-1’s alleged accounting irregularities, as that fact alone is insufficient to elevate a contract dispute into an UDTPA claim."

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

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

 

Hinson v. Trigon Healthcare, Inc., August 23, 2001 (Tennille)(unpublished)

This was a dispute between insurance agents and an insurer for which they had sold policies.

Plaintiff asserted that the Court had personal jurisdiction over a parent company with an indirect subsidiary in North Carolina based on the alter ego doctrine.  The Court held that "if [the parent] has dominated and controlled. . . a second tier subsidiary doing business in North Carolina, to the extent that the corporate veil may be pierced, such action would justify assertion of jurisdiction over the parent."  Although the Court found the allegations of dominance to be somewhat vague and ambiguous, it found that there were questions of fact whether the corporate veil could be pierced, and denied the motion, suggesting that it be renewed at a later date.  The Court observed that "it will not be sufficient for plaintiffs to establish only a parent-subsidiary relationship and some involvement in the subsidiary’s business by the parent. The burden will be much heavier."

The Court dismissed, based on lack of personal jurisdiction, claims against several officers of one of the corporate defenants.  It held "plaintiffs may not assert jurisdictionover a corporate agent without some affirmative act committed in his individual official capacity," which the Court found to be lacking.  The Court found that it did have jurisdiction over one of the officers, who had been alleged to have made misrepresentations to the Plaintiffs while at a meeting in North Carolina. 

Also dismissed was a negligence claim, because the Court found that duties of the parties to be defined by their contract.  The Court noted the narrow circumstances under which North Carolina recognizes a claim for negligent breach of contract, and held that allowing such a claim would "open this particular tort to all parties to a contract."

Claims for tortious interference with contract were also dismissed, because Defendant's conduct in notifying insurance policyholders that Defendant would be exiting the insurance business and that they should find new insurance had a legitimate business purpose. 

The Court found insufficient aggravating circumstances to make out an unfair and deceptive practices claim, and dismissed that claim as well.

Full Opinion

Western Piedmont Anesthesia, P.A. v. Barnette, November 20, 2007 (Tennille)(unpublished)

The Court dismissed the derivative claim of a minority shareholder who alleged that the majority shareholders of the corporation had breached their fiduciary duty to the minority shareholders by failing to make distributions, failing to investigate allegations on that subject, and terminating the minority shareholder's employment. 

The Court held that this was not a proper derivative claim, because the shareholder had not alleged a cause of action belonging to the corporation or a remedy to which the corporation would be entitled.

The Court further found that even if the claim was derivative, that the minority shareholder did not fairly represent the corporation as required by North Carolina General Statute § 55-7-41(2).  The Court held:

The North Carolina Court of Appeals has applied the federal standard for determining when a shareholder “may fairly and adequately represent a corporation.” Robbins v. Tweetsie R.R., 126 N.C. App. 572, 579, 486 S.E.2d 453, 456, rev. denied, 347 N.C. 402, 494 S.E.2d 418 (1997). The federal standard uses a case by case analysis of whether a shareholder qualifies to represent the corporation. Id. (citations omitted). In Robbins, the court discussed the facts surrounding the plaintiff to conclude that plaintiff was not a suitable shareholder to bring a derivative suit. Id. at 579–80. Before the court addressed the facts of Robbins, it specifically set out that “a minority shareholder, who has uppermost a personal agenda rather than the best interests of the corporation, would [not] have standing to file and maintain a shareholder derivative action.” Id. at 578.

The Court held that the minority shareholder had a personal agenda that affected his ability to adequately represent the bests interests of the corporation. 

The Court also dismissed the shareholder's unfair and deceptive practices claim because the shareholder was a physician and the Court found the learned profession exception to applied.

Full Opinion

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

 

Kaplan v. O.K. Technologies, June 27, 2008 (Tennille)(unpublished)

A minority member (Kaplan) of a limited liability company, who was the LLC's only source of funds and who controlled the LLC's checkbook, did not have fiduciary duties to the LLC and its other members.

Judge Tennille held:

Being an investor in a company does not create a fiduciary relationship. . . . Kaplan, as a minority shareholder, had no fiduciary duty to the other shareholders even though he was the sole financial contributor to O.K.  Like an investor in a corporation, Kaplan's position as the holder of the purse strings did not create a fiduciary duty.  At all pertinent times, Kaplan was a minority shareholder without dominance or control over either O.K. or any of the other shareholders and therefore without a fiduciary duty.

The LLC members also contended that Kaplan had not followed the procedures set forth in the LLC's Operating Agreement in making his loans.  The Court ruled, however, that these claims were barred by ratification and estoppel.  It held "Defendants are estopped from objecting to the loans by their continued acceptance of reimbursement and salary made possible by the loans, as well as their inaction when O.K. creditors were paid with the loaned money."  (Op. at 8).

Summary judgment was granted on Defendant's claim of negligent misrepresentation, because the Court found that Defendants, as majority shareholders of the LLC, could have investigated any questions of the validity of the representations made by Kaplan.  As members of the majority, the Defendants had "the opportunity to question and determine for themselves whether any documentation provided was inaccurate."  (Op. at 14).

Last, the Court granted summary judgment on Defendant's unfair and deceptive practices claim.  The Court held that "the dispute here arises from an internal dispute over the direction of O.K. by its shareholders.  Commerce is not affected by the parties' inability to work together as an LLC."  (Op. at 14).

Full Opinion

Plaintiff's Brief In Support Of Motion For Summary Judgment

Defendants' Brief In Opposition To Motion For Summary Judgment

Plaintiff's Reply Brief In Support Of Motion For Summary Judgment

Voyager Pharmaceutical Corp. v. Bowen, April 15, 2008 (Jolly)(unpublished)

The plaintiff corporation claimed that the defendant, one of its former directors, had made false statements which interfered with its initial public offering.  The director claimed that he was entitled to defend claims made against him for breach of fiduciary duty based on the business judgment rule.  The Court held that "such conduct, even if well-motivated, does not constitute the type of 'business decision' the business judgment rule is meant to insulate."

In determining choice of law, the Court looked to the place of the corporation's incorporation, per the internal affairs doctrine. 

The Court allowed fiduciary duty claims to proceed against a former employer.  The Court noted that "an employer-employee relationship is not generally a fiduciary relationship," but held that this determination involved a fact-intensive inquiry, and denied a Motion to Dismiss. 

The Court dismissed unfair and deceptive practices claims against the defendants.  It held that all of plaintiff's claimed injuries related to the failed IPO, and that "the IPO, which is clearly a securities transaction, is beyond the scope of Chapter 75."

The Court let stand claims for aiding and abetting breach of fiduciary duty.

Full Opinion

Bowen's Brief in Support of Motion to Dismiss

Atwood's Brief in Support of Motion to Dismiss

Voyager's Brief in Opposition to Motion to Dismiss

Fliehr v. Storick, December 3, 2007 (Diaz)(unpublished)

A manager of an limited liability company may not, as a condition of the payment of consideration from a merger of the LLC, require that the member receiving the consideration execute a general release exonerating the manager and insiders from any misconduct.  Holding the consideration "hostage" in exchange for such a release might amount to willful and wanton conduct warranting punitive damages.

An LLC member pursuing a derivative claim must be a member of the LLC at the time the suit is filed.  Where the LLC no longer existed at the time the lawsuit was filed, Plaintiffs lacked standing to bring their claim.  Plaintiff's claim for mismanagement was a "classic derivative claim," which was also barred by their lack of standing. 

The Court also dismissed Plaintiffs' unfair and deceptive practices claim, because "misconduct arising from a merger of business entities is not the type of 'regular, day-to-day' business activity that is the principal focus of North Carolina's Unfair and Deceptive Trade Practices Act."

Full Opinion

Cox v. Mitchell, February 6, 2008 (Tennille)(unpublished)

Paintiffs, who had suffered signficant losses on variable annuity policies sold to them by the defendant agents and insurance companies, asserted claims on multiple theories: breach of fiduciary duty, constructive fraud, unfair and deceptive practices, negligence, negligent misrepresentation, aiding and abetting breach of fiduciary duty, and unjust enrichment. 

The Court dismissed some claims and ordered the Plaintiffs to replead others with more particularity. 

It held that Plaintiffs could proceed on their claims against some of the agents for breach of fiduciary duty, given the Plaintiffs alleged lack of financial sophistication and their allegations of reliance upon the expertise of the agents.  There was no claim for such breach against the insurance companies, since they had not obtained any benefit from the sale of the policies other than the commissions received. 

The causes of action for breach of fiduciary duty arose when the Plaintiffs knew or should have known of the facts giving rise to their claims.  The Court found the facts insufficient to determine whether the statute of limitations had run, and ordered Plaintiffs to replead their claims with more particularity.  The Court made a similar order with respect to the constructive fraud claim, and ordered Plaintiffs to provide more detail in their pleading as to when they were charged the commissions and surrender charges that formed the basis of their claims.  Those charges would have put Plaintiffs on notice of their claims and begun the running of the statute of limitations. 

The Court also demanded more particularity on the negligent misrepresentation claim.  It disagreed with Plaintiffs contention that their only burden was to allege the misrepresentations made, and that they had been made negligently.  Instead, Plaintiffs had to alleged "(1) there was a duty owed by defendants to plaintiffs, (2) the defendants did not use reasonable care in supplying information leading to (3) misrepresentations made to the plaintiffs which (4) the plaintiffs justifiably relied on (5) and that reliance caused pecuniary injury to the plaintiffs."

The Court dismissed the unfair and deceptive practices claim.  It found that variable annuity policies are subject to pervasive and intricate regulation, and that such policies involve securities transactions not within the scope of the statute.  It made no difference that the Plaintiffs did not understand that they were investing in securities.

The punitive damages claims against the insurance companies were also dismissed, because there is no vicarious liability for punitive damages. 

The unjust enrichment claims were also dismissed because there was an express contract between the parties. 

Full Opinion

Braun v. Earthworks Lawn & Landscape, Inc., June 2007 (Diaz)(unpublished)

The Court denied Defendant's motion to dismiss Plaintiff's unfair and deceptive practices claim.  It rejected the argument that the matter before the Court was simply a private dispute which did not implicate the consuming public or the general marketplace, and was therefore not "in commerce."

The Court held that the statute reaches "derivative claims arising out of fraudulent activities relating to the manner in which a business conducts its “regular, day-to-day activities, or affairs . . . .” It further held that plaintiff, in its derivative action, had alleged fraud and various breaches of the duties of good faith, loyalty, and due care, stating "North Carolina courts have consistently held that allegations of fraud or a breach of fiduciary duty will support a separate claim for unfair or deceptive trade practices."

Full Opinion

Media Network, Inc. v. Long Haymes Carr, Inc., January 14, 2008 (Diaz)(unpublished)

The Court declined to award attorneys' fees under the Unfair and Deceptive Practices Statute. It found that there was no unwarranted refusal to fully resolve the matter, the case involved unique issues of law, and the defendant had valid reasons to refuse to settle this matter and to litigate it to conclusion.

Full Opinion

Wake County v. Hotels.Com, LP, 2007 NCBC 35 (N.C. Super. Ct. Nov. 19, 2007)(Diaz)

Four North Carolina counties sued hotels.com, alleging that the online aggregator purchased blocks of hotel rooms from hotel owners and only paid occupancy tax based on the price paid, even though they sold those rooms to lodgers for more than they had paid and even though the lodgers paid occupancy tax based upon the higher price. (The Court referenced a series of cases filed across the country on the same issue).

The plaintiff counties had various ordinances and various administrative procedures regarding the enforcement of those ordinanances, and the Court observed that the case raised "thorny issues of statutory interpretation." It denied the motion to dismiss as to the principal claims because the defendant was collecting the tax and failing to remit it, and also failing to file the returns required by law.

The Court granted the motion as to an unfair and deceptive practices claim, however, holding that the act does not apply when the alleged wrong is already the subject of extensive governmental regulation and oversight, as there is for a failure to remit taxes. Otherwise, the Court observed, every tax dispute could become an unfair and deceptive practices claim, entitling the taxing authority to treble damages. The Court also noted that there was no commercial activity involved which implicated the deceptive practices statute.

The Court also dismissed the claims of one of the plaintiff counties, because it had failed to exhaust its own administrative remedies before filing suit. Having chosen to create such procedures, the county was not entitled to arbitrarily decide to ignore them.

Full Opinion

Battleground Veterinary Hospital, P.C. v. McGeough, 2007 NCBC 33 (N.C. Super. Ct. Oct. 19, 2007)(Diaz)

Defendant, a veterinarian, had signed a covenant not to compete with his former employer. He was, at the time, the sole shareholder, sole officer, and sole director of his employer, although the management of the company was controlled by an affiliated entity (VetCor). Defendant left the business and sold its stock, but before doing so he formally cancelled his own non-compete and that of his wife, another veterinarian.

His former employer sued for breach of contract, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unfair and deceptive practices, and violation of the North Carolina Trade Secrets Protection Act. The Court granted summary judgment on the breach of contract claim as to the former employer. It held that "a sole shareholder of a corporation is generally free to dispose of corporate assets as he sees fit, except where such actions harm or defraud the corporation's creditors, or otherwise violate public policy." Vetcor, however, was entitled to proceed on its breach of contract claim, because the contract had been intended for its benefit.

The Court held that summary judgment was inappropriate on the argument that the covenants were unenforceable becasue they had been signed after the commencement of employment. The date on the contracts was contemporaneous with the start of employment of defendant and his wife, and the Court held that the dates in the contract were prima facie evidence of the date of execution. The Court said that it would consider parol evidence on the actual date that the contracts were signed.

The Court also found that the covenants were ambiguous about whether they applied in the event of a resignation, as opposed to a termination, and that this was an issue for trial.

The Court granted summary judgment on the fiduciary duty claims. Defendant had no fiduciary duty to Vetcor, which was merely a creditor of a corporation that was not in a winding up mode, and he had not breached any duty to his former employer because he was the sole shareholder at the time of his alleged misconduct in setting up a competing business. The Court held that "to hold that [defendant] breached a fiduciary duty would mean only that he breached a duty to himself. Because this conclusion is a non sequitur, the Court declines to adopt it."

On the trade secrets claim, the Court ruled that customer lists are not protected if they contain information that is easily accessible or which can be retrieved by reviewing public information, and that plaintiff had no claim.

The Court let stand the unfair and deceptive practices claim, finding questions of fact on whether defendant was entitled to invoke the learned profession exemption from the statute.

Full Opinion

Schlieper v. Johnson, 2007 NCBC 29 (N.C. Super. Ct. Aug. 31, 2007)(Tennille)

The Court held that the plaintiffs could not state a claim for fraud because neither of them took advantage of their opportunity to investigate the facts presented to them or to seek clarification, and there was no allegation that they had been denied the opportunity to investigate.

Plaintiffs also had no claim for unfair and deceptive practices, because their claims were not "in or affecting commerce." Their claims were essentially a dispute over compensation due to them as employees under the terms of various documents that governed their relationship with their employer." Employee-related claims are generally not within the scope of the deceptive trade practices statute, with minor exceptions that were discussed and distinguished by the Court.

The Court held that the unfair and deceptive practices statute is not meant to apply to the internal affairs of business associations.

Full Opinion

State ex re. Long v. Custard, 2007 NCBC 26 (N.C. Super. Ct. Aug. 8, 2007)(Tennille)

The North Carolina Insurance Commissioner sued the defendants, shareholders of insurance carriers in liquidation, for breach of fiduciary duty. Defendants moved to dismiss, claiming that the claims were barred by the statute of limitations at the time of the filing of the petition for liquidation. The Court found the statute of limitations for breach of fiduciary duty to be the three year statute contained in N.C.G.S. §1-52(2).

The Court held that "[a]n ambiguous, ill-defined limitations period for breach of the standards of conduct for directors and officers would have a chilling effect on the willingness of individuals to serve in those capacities, and as such would be an unsound public policy." Thus, all breaches of fiduciary duty occuring more than three years before the filing of the petition for liquidation were barred by the statute of limitations.

The plaintiff argued that the statute should be tolled pursuant to the "adverse domination," doctrine, a theory the Court found was not recognized in North Carolina. The Court stated that it would not apply the doctrine in any event, because it tolled only claims based on a breach of the duty of loyalty like decisions made on the basis of self-interest, and that the claims before it were limited to claims for negligent management. There is no cause of action in North Carolina for negligent management.

As the Court put it, "[n]o rational business person would sit on the board of an insurance company if they were personally liable if the company's decision with respect to underwriting or investment proved faulty." Some of the decisions challenged here -- to enter a particular market and to write a particular kind of policy -- were "quintessential decisions subject to the business judgment rule."

Plaintiff was entitled to go forward on its claim that the defendants had submitted false or misleading financial statements to the Department of Insurance, as such conduct would violate the defendants' fiduciary duties to their policyholders.

Unfair trade practice claims based on the false financials, and the defendants' alleged increased underwriting activity for their own personal gain, also survived the motion to dismiss.

Full Opinion

Lawrence v. UMLIC-Five Corp., 2007 NCBC 20 (N.C. Super. Ct. June 18, 2007)(Diaz)

The Court held that plaintiffs had failed to plead fraud with particularity, and dismissed their fraud claim pursuant to Rule 9(b) of the North Carolina Rules of Civil Procedure. Plaintiffs had attempted to plead both affirmative misrepresentations and fraud by concealment. With regard to the first, the Court held that the Complaint contained no specific allegations about the identity of the speaker, or the time or place when, or where, the supposedly fraudulent statements were made.

On the claim of fraud by concealment, the Court adopted the mutli-factor test adopted by the Court in Breeden v. Richmond Community College, 171 F.R.D. 189, 195 (M.D.N.C. 1997). It held that plaintiffs had presented no facts demonstrating what defendant would have gained by its alleged failure to disclose. Nor had plaintiff presented any facts showing why their reliance was reasonable and detrimental. Finally, plaintiffs' claim of damages was questionable.

The Court also dismissed plaintiffs' unfair and deceptive practices claims, on a variety of grounds. Plaintiffs were out of state residents, suing for an injury that had occurred in Texas. Their injury therefore did not arise from competition between the parties or from the consumption of goods or servies in North Carolina, and there was no substantial effect on North Carolina trade or commerce.

Full Opinion

Latigo Investments II, LLC v. Waddell & Reed Financial, Inc., 2007 NCBC 17 (N.C. Super. Ct. June 8, 2007)(Diaz)

The only issue before the Court in this case was whether it should dismiss plaintiff's unfair and deceptive practices claim. Plaintiffs had sought to raise money to recapitalize their business. Defendants had promised to provide the necessary capital, but then reneged on their commitment. Plaintifs suffered a loss as a result, and sued on a variety of theories, including unfair and deceptive practices.

The Court held, reluctantly, that the only relevant question was "whether the transactions at issue involved securities or other financial instruments involved in raising capital." The Court held that they did. Therefore, the transaction was not one "in or affecting commerce" under the statute.

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

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

State of North Carolina ex rel. Cooper v. McClure, 2005 NCBC 6 (N.C. Super. Ct. Oct. 28, 2005)(Tennille)

The Court refused to reconsider its decision that plaintiffs were not entitled to make an unfair and deceptive practices claim. It had previously found that such claims could not be made due to the extensive regulatory scheme surrounding the matters at issue.

The Court did reconsider, however, its determination that the plaintiffs were not entitled to damages under N.C.G.S. §133-28, which allows a governmental entity which enters into a contract which "is or has been the subject of a conspiracy" to recover damages. It held that this would be an issue for trial.

Full Opinion

State of North Carolina ex rel. Cooper v. McClure, 2004 NCBC 8 (N.C. Super. Ct. Dec. 14, 2004)(Tennille)

Plaintiff, a state agency, charged that the defendants had engaged in a conspiracy to fix prices for environmental consulting work. The defendants claimed that they were entitled to immunity under the Noerr-Pennington doctrine. The Court rejected this argument, characterizing defendants' supposedly protected conduct as involving the submission of false data for the purpose of inflating reimbursement rates. It held that the defendants were using anticompetitive means for the purpose of economic gain, which was not entitled to immunity under Noerr-Pennington or as protected free speech.

The Court further held, in a case of first impression, that some of the defendants were immune from liability under the North Carolina Nonprofit Corporation Act, which provides that directors of nonprofits are immune individually from civil liability for monetary damages, while others were not. Directors of non profits cannot act in bad faith, or engage in intentional misconduct for their own personal gain and then claim immunity under the Act.

The Court also discussed state action immunity and found that it did not apply, and also rejected the filed rate doctrine as a defense. Nor did intracorporate immunity apply, because not all of the persons involved were employed by the same entity.

In a small victory for the defendants, however, the Court dismissed the unfair and deceptive practice claims, determining that the services provided by the defendants were already extensively regulated, and therefore not the type of "regular, day to day" activities that the statute was meant to cover; and also dismissed the damages claims under N.C.G.S. §133-28.

Full Opinion

Sports Quest, Inc. v. Dale Earnhardt, Inc., 2004 NCBC 3 (N.C. Super. Ct. Feb. 12, 2004)(Tennille)

The plaintiff claimed that the defendant caused its business to fail. The defendant asserted plaintiff's business had failed because he used illegal drugs, had extramarital affairs, and because he "had a propensity to sleep and fish during the day."

When the defendant sought to question the owner of the plaintiff about these matters at his deposition, he took the Fifth Amendment. The defendant claimed it was entitled to a complete dismissal of plaintiff's claims as a result, but the Court determined that dismissal was not the appropriate remedy. Instead, the Court prohibited the plaintiff from presenting testimony about these matters at trial, and indicated that it would instruct the jury that it was entitled to draw an adverse inference from plaintiff's refusal to testify.

In a companion case, the plaintiff asserted that the defendant had tortiously interfered with a contract which it had to distribute die-cast race cars by the defendant selling those cars directly to plaintiff's customer. The Court held that interference with contract is justified if motivated by a legitimate business purpose, as when the parties are competitors.

The Court also dismissed plaintiff's conspiracy claim  There had been no illegal act, because "suppliers are free to contract with whomever they please and structure the distribution chain accordingly." Nor was there any claim for unfair and deceptive trade practices. The Court held that the defendant "merely took measures to protect its own business interests that happened to be detrimental to [the plaintiff's financial condition. Every business transaction impacts a party either through its participation in or through its exclusion from the deal. Absent the presence of an act that violates moral, ethical, or legal standards, the courts cannot punish a business solely because a transaction financially harms another entity. That is competition. An unfair trade practice requires more than a negative impact on a party."

Full Opinion

Alexander v. DaimlerChrysler Corp., 2004 NCBC 2 (N.C. Super. Ct. Jan. 30, 2004)(Tennille)

The law of North Carolina requires a disclosure by an automobile manufacturer when a repurchased vehicle (a lemon) is re-sold. Failing to do so constitutes "lemon laundering." Plaintiffs claimed that the manufacturer was responsible for policing its dealers to make sure that they made the required disclosures when the dealers sold a car that they knew had been repurchased. The Court found that so long as the manufacturer disclosed the fact of the repurchase to its dealers, it had no liability under the statute if the dealers then failed to make the required disclosure.

Nor was there any claim against the manufacturer for negligence or for unfair and deceptive practices. There was no statutory action against the dealers for then failing to disclose to the purchasing consumer, because the statute expressly stated that it did not create an action against dealers. Plaintiffs were, however, entitled to proceed against the dealers for unfair and deceptive practices.

Full Opinion

Jacobs v. Physicians Weight Loss Center of America, Inc., 2003 NCBC 8 (N.C. Super. Ct. Nov. 5, 2003)(Tennille), aff'd in part and rev'd in part, 173 N.C. App. 663, 620 S.E.2d 232 (2005), cert. denied, 360 N.C. 290, 628 S.E.2d 3

This was a class action for unfair trade practices against a weight loss clinic. Plaintiffs' claim rested partly on their argument that their contracts required them to buy prescriptions from the defendant at a price higher than they would have paid at an outside pharmacy. The Court granted summary judgment on this claim, holding that the Unfair Trade Practices Act "did not eliminate caveat emptor," and that the defendant had no obligation to inform the plaintiffs that there were less expensive means to meet their goals.

The Court held that plaintiffs had stated a claim with regard to defendant's refusal to write prescriptions to be filled at outside pharmacies because this violated medical ethics. The Court determined that it had the authority to modify the previous order of class certification to limit the class to those plaintiffs who had requested -- but been refused -- written prescriptions.

Those class members also had a claim for the tort of intentional interference with a fiduciary relationship, and also for constructive fraud because of a "special relationship" between them and the plaintiff because they had provided medical background and submitted to tests. The Court rejected arguments that the weight loss clinics were "health benefit plans" subject to North Carolina insurance law. Nor were plaintiffs entitled to make a claim that defendant had improperly referred them to entities in which the defendants were investors because only the Attorney General can make such a claim.

Full Opinion

 

Sunbelt Rentals, Inc. v. Head & Enquist Equipment, L.L.C., 2003 NCBC 6 (N.C. Super. Ct. July 31, 2003)(Tennille), aff'd, 174 N.C. App. 49, 620 S.E.2d 222, disc. rev. denied, 360 N.C. 296, 629 S.E.2d 289 (2005)

This is the third of a series of cases involving Sunbelt, this one involving the successful plaintiff's request for attorneys' fees pursuant to N.C.G.S. §75-16.1.

Full Opinion

Sunbelt Rentals, Inc. v. Head & Enquist Equipment, L.L.C., 2003 NCBC 4 (N.C. Super. Ct. May 2, 2003)(Tennille)

The Court found that the actions of the defendants in pirating away employees and accounts of the plaintiff exceeded the bounds of fair and ethical competition and therefore constitute unfair and deceptive practices.

The Court referred to defendants' conduct as "surreptitious and intentional," and undertaken while the employees solicited were still employed by the plaintiff. This activity had enabled the plaintiff to build competitive operations in a matter of days, through its "orchestrated, en masse, secret recruitment."

On the trade secret claim, the Court found that the plaintiffs' "compilation of information, including its special pricing information, customer information (identity, contacts and requirements of its rental customers), personnel and salary information, organizational structure, financial projections and forecasts, utilization rates, fleet mix by market, capital and branch budget information, and cost information, when taken together constitutes trade secrets."

The Court also found sufficient evidence to make out a claim for conspiracy.

The Court rejected defendants' claim that the claims were barred by laches. It also rejected defendants' counterclaim that the lawsuit was a sham and brought to hurt its business. The Court found that the lawsuit had been brought with a realistic expectation of success and that it was immunized under the Noerr-Pennington doctrine.

Finally, the Court drew an adverse inference from the failure of some of the defendants to testify.

Full Opinion

Pack Brothers Body Shop, Inc. v. Nationwide Mut. Ins. Co., 2003 NCBC 2 (N.C. Super. Ct. April 1, 2003)(Tennille)

The case considered post-trial motions, after plaintiff did not prevail on its claims for defamation and unfair and deceptive practices. The court awarded costs for expert witness fees, pursuant to its discretionary authority under under N.C.G.S. §6-20. The Court also awarded attorneys' fees pursuant to N.C.G.S. §75-16.1, which permits an award of attorneys' fees when the plaintiff knew, or should have known, that its unfair and deceptive trade practices action was frivolous. THe Court found that the plaintiffs had prosecuted their case in a frivolous and malicious manner, and that they had pursued it not to recover actual damages, but rather to "punch a lottery ticket or as an 'industry cause.'"

Full Opinion

Sunbelt Rentals, Inc. v. Head & Enquist Equipment, L.L.C., 2002 NCBC 4 (N.C. Super. Ct. July 10, 2002)(Tennille)

This is a significant Business Court opinion on unfair competition. The defendants were a competitor of the plaintiff, and former employees of the plaintiff who had left to join the defendant. The first issue addressed by the Court was whether the former employees owed a fiduciary duty to their former employer. The Court found there was a question of fact whether the former employees who had served in management positions had the ability to dominate and influence their former employer, so it denied summary judgment on the issue whether those employees had fiduciary duties. Summary judgment was granted, however, as to some of the employees who the Court found had only basic management responsibilities. Authority over day to day operations, even with substantial discretion over such operations, is insufficient to make out a fiduciary duty.

On the merits of the claims, the Court noted that merely planning to work for another company or planning to start a new company is not unlawful behavior. The proper focus, the Court held, is upon the actions taken by the former employees in furtherance of a plan to compete. The Court granted summary judgment as to the employees who it had found might have had a fiduciary duty, as the only evidence before the Court of their pre-departure activities was that they had met and discussed the possibility of competing.

The Court denied summary judgment on plaintiff's claim of tortious interference with prospective economic relations.

The claim for violation of the North Carolina Trade Secrets Protection Act also survived. The Court found that business plans, marketing strategies, and customer information could constitute confidential information protected under the Act. The substantial decrease in plaintiff's business, and the simultaneous increase in defendant's business, constituted circumstantial evidence that there had been a misappropriation.

A claim for unfair and deceptive practices also survived summary judgment, as did a claim for conspiracy. The Court denied summary judgment based on the defense of laches, finding that there had not been an unreasonable delay in bringing suit and that defendant was unable to show any prejudice as a result of the alleged delay.

Full Opinion

Reply Brief in Support of Motion for Summary Judgment

(All other briefs were filed under seal)

First Union Corp. v. Suntrust Banks, Inc., 2001 NCBC 7 (N.C. Super. Ct. June 26, 2001)(Tennille)

The challenge to the provisions of a merger agreement by a spurned acquiror would be governed by the law of North Carolina, because that was the place of execution of the merger agreement at issue and therefore the place of the last act causing injury, and also because North Carolina was the state having the most significant relationship to the controversy.

There was no unfair and deceptive practices claim to be made because the transaction involved securities.

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

Reeve and Assocs., Inc. v. UCB, 1997 NCBC 2 (N.C. Super. Ct. Oct. 6, 1997)(Tennille)

A senior lienholder had no fiduciary duty to a junior lienholder. The mere fact that the senior lienholder took action to cause its debt to be paid down did not establish domination and control of the debtor's business so as to give rise to a fiduciary duty. The senior lienholder's efforts to collect its debt did not constitute tortious interference with contract.

Full Opinion