North Carolina Business Litigation Report : North Carolina Business Litigation Lawyer & Attorney : Mack Sperling : Brooks Pierce Law Firm : Greensboro, Raleigh, Winston-Salem, Charlotte

In modern business litigation in North Carolina, it is increasingly rare to see a complaint that does not contain a claim under G.S. § 75-1.1 for unfair or deceptive trade practices.  Courts that have prevented the statute from having almost unlimited application have done so by determining that particular activities are not "in or affecting commerce."  The Supreme Court continued that pattern last week, holding that a dispute between partners did not trigger Chapter 75 liability.

In White v. Thompson, partners in a Bladen County fabrication and welding business enjoyed initial success, but "eventually fell victim to disagreements and infighting among the partners."  Two partners filed suit alleging that the third partner started a competing business that diverted the business of the original partnership.  The plaintiffs asserted that their partner's conduct constituted breach of fiduciary duty and unfair and deceptive trade practices.  The jury found in plaintiffs' favor and awarded judgment in the amount of $138,195 against the former partner.  The trial court ruled that the acts were unfair and deceptive and trebled the judgment amount pursuant to G.S. § 75-16.

Both defendants appealed, and a divided panel of the Court of Appeals reversed as to the former partner.  (Mack Sperling reported the Court of Appeals' decision to you last May).  Plaintiff appealed to the Supreme Court as of right based on the dissent in the Court of Appeals.

Justice Newby examined several prior Chapter 75 cases, including HAJMM Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 403 S.E.2d 483 (1991).  HAJMM established that securities transactions and other "capital-raising activities" are not "in or affecting commerce" so as to trigger Chapter 75 liability.  The Court also cited Bhatti v. Buckland, 328 N.C. 240, 400 S.E.2d 440 (1991), for the proposition that the General Assembly intended to regulate conduct between market participants in two categories:  "(1) interactions between businesses, and (2) interactions between businesses and consumers."  (The Business Court has relied on the HAJMM line of cases to reject internally-generated Chapter 75 claims on several occasions,  including J Freeman Floor Co., LLC v. Freeman (May 14, 2009) (unpublished) (usurpation of LLC opportunities, dismissed on basis of Court of Appeals' opinion in White); Reid Pointe, LLC v. Stevens, 2008 NCBC 15, 2008 WL 3846174 (Aug. 18, 2008) (discharging LLC manager and demanding capital call); Kaplan v. O.K. Technologies, LLC (June 27, 2008) (unpublished) (dispute among LLC members), and Maurer v. Slickedit, Inc., 2005 NCBC 1, 2005 WL 1412496 (May 16, 2005) (dismissal as CEO, denial of board participation, and failure to take action to sell company)).

As the Supreme Court stated, Section 75-1.1 "is not focused on the internal conduct of individuals within a single market participant, that is, within a single business. . . .  As a result, any unfair or deceptive conduct contained solely within a single business is not covered by the Act."  Because the dispute was between partners, the Court affirmed the decision of the Court of Appeals reversing the trial court judgment.

Justice Hudson, joined by Justice Timmons-Goodson, dissented.  She criticized the majority's holding for relying on an outdated statement of purpose contained in a disco-era version of the statute.  She also distinguished HAJMM  on the grounds that the capital-raising activities in that case were not the core function of the company, whereas the disputes in White involved two partnerships competing for the business of a particular customer.

The bottom line is that, although White doesn't exactly break new ground given that HAJMM has been the law of North Carolina for nearly 20 years, the Supreme Court declined the opportunity to retreat from HAJMM and expand the scope of the unfair and deceptive trade practices statute.  The upside for North Carolina businesses is that treble damages should continue to be unavailable in internal corporate disputes.

Supreme Court Opinion

Court of Appeals Opinion

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Claims involving the "raising of capital" don't fall within the scope of North Carolina's unfair and deceptive practices statute. That was the basis for the dismissal of Chapter 75 claims yesterday in two cases, one decided by the North Carolina Court of Appeals and the other by the North Carolina Business Court.

In the Court of Appeals case, Carcano v. JBSS, LLC, the plaintiffs claimed they had invested money based on misrepresentations by the defendants that the funds were for an interest in an LLC. The LLC, however, had never been formed.

The appellate court affirmed the dismissal of an unfair and deceptive practices claim based on these allegations, holding:

the most egregious allegations made against defendants, and the crux of plaintiffs' claims, is that defendants 'marketed membership in a fictional LLC' which involved 'deception, lies, and misrepresentations.' Even taken as true, these facts do not constitute unfair and deceptive practices so as to violate Chapter 75. The allegations merely assert that defendants asked plaintiffs to invest in a business arrangement. These are actions which are capital raising ventures among sophisticated business entrepreneurs.

The Business Court case, decided the same day, is Charlotte-Mecklenburg Hospital Authority v. Wachovia Bank. The Hospital alleges that Wachovia mishandled millions of dollars of its funds. The Hospital asserted an unfair and deceptive practices claim, and argued that this wasn't an exempted securities transaction because it was really a claim involving "investment advice."

Judge Tennille dismissed the Chapter 75 claim, rejecting the Hospital's characterization and finding the claim to involve a securities transaction beyond the scope of the statute. He held that "given the 'raising capital' nature of this relationship, the Court finds that any wrongdoing by Wachovia in its administration of the securities lending program clearly falls within the purview of the securities transactions exception." 

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Plaintiff's bribes to an employee of the Defendant didn't bar the Plaintiff's unfair and deceptive practices claim, per the Court of Appeals decision today in Media Network, Inc. v. Long Haymes Carr, Inc., The ruling upheld a $1.3 million jury verdict in favor of the Plaintiff, trebled by the Business Court to $3,776,085.

The bribes -- determined to be such by the jury -- included cash payments, use of a BMW, and tickets to all manner of entertainment and sporting events.  Those included everything from tickets to the circus, tickets for Broadway shows, and World Series tickets (2004, Cardinals vs. the Red Sox).

The payments were made to induce the Defendant to hire Plaintiff to participate in a lucrative advertising program for Defendant's client.  The client learned of the bribes, and conducted a confidential attorneys' eyes only investigation which confirmed the payments.  The employee was then fired by the Defendant.  Shortly after that, the Defendant terminated its contract with the Plaintiff, which Plaintiff contended had been represented to be non-cancelable.

The Plaintiff sued, making a variety of claims.  All of its claims were dismissed in pretrial rulings by the Business Court except for an unfair and deceptive practices claim.  The jury found for the Plaintiff.  It also found that the Plaintiff had bribed the employee, but that the employer had known about the bribes.  The Business Court entered judgment on the jury's verdict of more than a million dollars.  On appeal, the Defendant contended that the Plaintiff's "commercial bribery" barred its claim.  It said "since every transaction that [the Plaintiff] performed for [the Defendant] was spawned from commercial bribery, [Plaintiff] cannot recover."

The Court of Appeals disagreed.  It held that "commercial bribery has not been recognized as a defense, complete or otherwise, to unfair and deceptive trade practices in North Carolina."  It distinguished a New Jersey decision, Jaclyn, Inc. v. Edison Bros. Stores, Inc., 406 A.2d 474 (N.J. Super. 1979), in which the Court had dismissed a contract claim based on the plaintiff's bribery of an agent of the defendant who had entered into the contract in question.

The Court held that unfair and deceptive practice claims "are not subject to the same defenses as traditional contract and tort claims."  Judge Elmore ruled that "not only is the defendant's intent irrelevant when evaluating a UDTP claim, the plaintiff's intent and conduct is also irrelevant."  He that it had been error even to charge the jury on whether commercial bribery had occurred, but that the error had not affected the outcome.

This case spawned four rulings by the Business Court: an opinion on the discoverability of a settlement agreement, an opinion refusing leave to the defendant to amend its counterclaim because of undue delay (which was also affirmed by the Court of Appeals), an opinion dismissing Plaintiff's claim for damages based on diminution in value of its business (also affirmed by the Court of Appeals), and an opinion denying the successful Plaintiff's motion for attorneys' fees (also affirmed).

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The Court of Appeals split today 2-1 on whether two partners with claims against a third partner for self-dealing and breach of opportunity could make an unfair and deceptive practices claim.  The case is White v. Thompson.  Judge Wynn wrote the majority opinion, and Judge Ervin dissented. 

The partnership was Ace Fabrication and Welding, the partners were White, Ellis, and Thompson.  Ace did several jobs for a large customer, but Thompson then secured a number of jobs from that customer on his own, without performing them with the partnership.

The other partners obtained a jury verdict on a breach of fiduciary duty claim, and were awarded damages of $138,195.  The trial court trebled the damages, but the Court of Appeals majority reversed. 

Its reasoning was that the claim was for a breach of partnership duties involving matters of internal management of the partnership, so the claim did not make out the "in or affecting commerce" requirement of a Section 75-1.1 claim.  It said that the Defendant's activities had indeed harmed the partnership, "but had no impact in the broader marketplace."

Judge Ervin saw things completely differently.  He said:

"Impairing the ability of others to compete for work in this fashion is tantamount to unfair competition, a type of conduct which is clearly actionable" as an unfair and deceptive practice.

"The effect of such conduct was to deprive the partnership of the ability to actually perform certain specialty fabrication jobs . . . a fact which clearly implicates the 'activities the business regularly engages in and for which it [was] organized.'"

"Depriving the partnership of the opportunity to perform these . . .  jobs inevitably affected its financial viability, producing an inevitable impact on competitive conditions in the market for the performance of . . . jobs in the area served by the partnership."

The North Carolina Business Court has faced the issue of what is "in or affecting commerce" on a number of occasions.

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The Business Court provided a thorough discussion today on whether a subsidiary and its parent can conspire with one another, in BHB Enterprises, Inc. v. Waste Management of Carolinas, Inc.

Judge Diaz rejected Defendants' argument that a parent can never be liable for the actions of its subsidiary under a conspiracy theory.  But he dismissed the claim anyway, in the absence of any assertion that the subsidiary had been rendered unable to pay its debts by the action of the parent. 

The Court also rejected Plaintiff's attempt to bring an unfair and deceptive practices claim based on what was essentially a breach of contract, notwithstanding what the Court called "artful pleading."

Plaintiff runs a restaurant in Charlotte called Vinnie's Sardine and Raw Bar. It had contracted with Waste Management of Carolinas, Inc. ("WMC"), a subsidiary of Waste Management, Inc., for waste collection and disposal services.

WMC had unilaterally increased its monthly charges to Vinnie's, relying on contract provisions that permitted such increases under certain circumstances.  Vinnie's contested WMC's right to raise the charges and sought to represent a class of WMC customers.  Among other claims, Plaintiff asserted one for civil conspiracy, alleging that WMC and its parent were in cahoots on the unauthorized price increases. 

WMC responded that that it was not possible for a parent to conspire with a wholly owned subsidiary. Judge Diaz disagreed.  He stated that "the Court's research discloses only six (6) cases addressing the doctrine of intracorporate immunity in the context of a claim for civil conspiracy under North Carolina law,"  and summarized all six of them.  He observed that none of these cases dealt with the point "whether a parent and its wholly owned subsidiary are capable of committing a civil conspiracy under the doctrine."

Judge Diaz looked to Delaware law.  Relying on Allied Capital Corp. v. GC-Sun Holdings, LP, 910 A.2d 1020 (Del. Ch. 2006), he concluded that such a claim could be made, although he reiterated the concern raised by the Allied case in permitting such claims:

"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 dismissed the claim made by Vinnie's, stating that there was no allegation that WMC would be unable to satisfy a judgment if Plaintiff were to prevail, concluding that the civil conspiracy claim was barred by the intracorporate immunity doctrine.

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Today, the North Carolina Court of Appeals allowed a plaintiff to proceed with her lawsuit that "litigation funding," the practice by which private firms make advances to plaintiffs involved in litigation in exchange for a substantial return in the event of a successful result, violates the law of North Carolina. Reversing the trial court, the Court of Appeals let stand claims for usury, unfair and deceptive practices, and a violation of the North Carolina Consumer Finance Act. The Court threw out, however, claims that this practice constitutes "unlawful gaming" and champerty. 

In the case of Odell v. Legal Bucks, LLC, the litigation funder had advanced Ms. Odell $3,000 for her motor vehicle accident claim.  Ms. Odell ultimately settled her claim for $18,000, but found that the terms of her agreement required her to pay Legal Bucks $9,582, or more than triple the advance that she had received. Ms. Odell, certainly unhappy at having to give up more than half of her recovery, then sued Legal Bucks, seeking class certification on her multiple claims.

The principal argument of Legal Bucks against the usury claim was that Ms. Odell was not under an absolute obligation to repay the money she had been advanced, and that the arrangement between them was therefore not usurious.  The Court recognized that the litigation funding was not a "loan," because a "loan" carries the requirement of an unconditional obligation to repay principal, but held that N.C. Gen. Stat. §24-1.1 also covers "advances," which do not have the same requirement. The Court found that the agreement between the parties demonstrated an understanding that the principal of the advance would be returned, meeting a key element of the test for usury. The Court further found that there was no dispute "that the rate of interest provided for in the Agreement substantially exceeds that permitted" by the statute, and that Legal Bucks had "intentionally entered into a contract to receive a greater amount of interest that that allowed" by law.

Since Legal Bucks wasn't licensed under the Consumer Finance Act, that made out a violation of the Act, as did its violation of the usury statute. The unfair and deceptive practices claim also went forward, over Legal Bucks' objection that the terms of the agreement had been fully disclosed to the plaintiff. The Court held that:

 "violations of statutes designed to protect the consuming public and violations of established public policy may constitute unfair and deceptive trade practices." In this regard, we note that it is a "paramount public policy of North Carolina to protect North Carolina resident borrowers through the application of North Carolina interest laws." N.C. Gen. Stat. § 24-2.1 (2003). [The] [d]efendants' practice of offering usurious loans was a clear violation of this policy.

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

The Business Court today threw out, 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. The Reid Pointe, LLC v. Stevens case also addresses a question of first impression involving an unlicensed general contractor.  There was a judicial dissolution issue as well.

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. 

Judge Diaz granted the Motion on the unfair and deceptive practices claim, holding that the actions 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. (There have been a series of cases from the Business Court reaching similar conclusions in cases involving disputes between members of LLCs or between corporate shareholders.  Those cases are Kaplan, Walters & Zimmerman, Schlieper, and Slickedit.)

The 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.

Plaintiff's claims seeking judicial dissolution of the LLCs survived, but barely. 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.

Last but not least, one of CDC's claim was for breach of a construction contract.  CDC, however, wasn't licensed as a general contractor in North Carolina, and our law is pretty clear that an unlicensed general contractor can't recover for its work.  The twist here was that CDC's contract called for some work that required a general contractor's license, and some that didn't.

Grimmer argued that CDC was barred from recovering anything at all on the contract, but 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.  Given the "indulgent standard" of inquiry required on a Motion for Judgment on the Pleadings, the Court denied the Motion because 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.

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

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

The North Carolina Business Court on August 4th denied a Motion for Judgment on the Pleadings on a counterclaim for reformation of an asset purchase agreement.  Judge Diaz, in denying the Motion, held that if the reformation were allowed, the remedies of the Defendants under the agreement would be broad.  The opinion in A-1 Pavement Marking, LLC v. APMI Corp, for which the link is at the top of this post, also dealt with an unfair and deceptive practices claim.

Defendants' contention was that 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 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, however, 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."

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

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Today, the North Carolina Business Court ruled in Hill v. StubHub, Inc. that the Communications Decency Act didn't provide a defense to on-line ticket seller StubHub against claims that it had violated North Carolina's anti-scalping laws.

In his opinion, Judge Tennille allowed Plaintiffs to proceed on their unfair and deceptive practices claims against StubHub.  He dismissed, however, several other claims brought by the Hills, who were frustrated purchasers of Hannah Montana concert tickets for their eight year old daughter. 

According to the Amended Complaint, the Hills' daughter had  repeatedly told her parents that she had a "sincere and strong" wish to see this show.  Mrs. Hill tried buying tickets on-line when they went on sale, but they sold out in moments. The Hills, probably under unrelenting “sincere and strong” pressure from their daughter, bought four tickets to the concert on StubHub, at a price nearly $100 per ticket higher than the $56 face value of each ticket.

Then, the Hills sued, alleging that  StubHub, along with the unnamed John Doe defendants who actually owned the tickets, had violated North Carolina’s anti-scalping law. The Hills sought class certification, not just for those who had to purchase tickets via StubHub for the Hannah Montana show, but also for the purchasers of tickets to the “many concerts, sporting events and other events and at numerous venues throughout the State of North Carolina” for which tickets had been sold through StubHub. The Hills made multiple claims: (1) violation of North Carolina's anti-scalping statute (2) civil conspiracy, (3) tortious action in concert, (4) unfair and deceptive practices, and (5) punitive damages.

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Today, the Business Court entered an Order granting summary judgment against members of a limited liability company who contended that an investor who was the principal source of funding to the LLC had a fiduciary duty to the LLC and its members.

The case, Kaplan v. O.K. Technologies, arose following the dissolution of a company formed to commercialize a process for filtering hog waste.  Kaplan, a minority member of the LLC, was its only source of funds and controlled the LLC's checkbook.  Over time, he lent the LLC nearly $2 million, which the company used to pay salaries and legal expenses, among other things.

When the company's prospects faded, Kaplan stopped funding the company and asked for repayment of his loans.  The other members responded by voting to dissolve the LLC, which was placed in receivership.  Kaplan sued to collect his substantial debt.

The other members of the LLC claimed that because Kaplan had "complete control over all expenditures," and because he knew that the LLC was completely reliant on his contributions, he had an "enhanced fiduciary duty" to the LLC and the 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.

Op. at 5-6. Judge Tennille stated that, in any event, it was "unclear what Defendants believe Kaplan's fiduciary duty required him to do."  (Op. at 9).  The Court held that Kaplan was not required to provide "limitless funding" and he was entitled to seek to collect the debt owed to him.

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).

Two other claims made by the Defendants, for negligent misrepresentation and unfair and deceptive practices, are worth mentioning.

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There's an old Jackson Browne album called "Lawyers in Love."  Lately, there have been a lot of cases involving lawyers out of love, and dissolving their firms.  One was decided by the Business Court on June 2nd, Walters & Zimmerman, PLLC v. Zimmerman.

Plaintiff, a lawyer in the dissolved law firm who was a manager of the Professional Limited Liability Company, brought claims on behalf of the PLLC and in her own name for breach of fiduciary duty and conversion.  She also asserted trade secrets claims and a claim for unfair and deceptive practices.  Defendant, another lawyer in the dissolved firm, moved to dismiss on a variety of grounds.

The only claim on which Defendant was successful was a claim for unfair and deceptive practices.  Judge Tennille held that the claims between the lawyers involved an "internal dispute," and that such disputes did not "affect commerce" as required by the statute. 

The roadblock to the other grounds asserted for dismissal was one of standing, and whether the proper parties were before the Court.  The members of the PLLC were not the individual lawyers themselves, but professional corporations that each of the individual lawyers had formed.  The Court found issues about whether the proper parties were before it, and directed the parties to consider the Court of Appeals' recent decision in Crouse v. Mineo, 2008 N.C. App. LEXIS 546, 658 S.E.2d 33 (N.C. Ct. App. 2008).  That case dealt with another law firm dissolution. 

That Court of Appeals held in Crouse that a manager of an LLC does not have the authority to bring suit on behalf of the LLC because such an action is not within the powers of a manager, which are limited to things necessary to "carry[] on in the usual way the business of the limited liability company."  Bringing a lawsuit against the LLC, the Court of Appeals held, was not within the course of usual business.  The Crouse court concluded, however, that the Plaintiff there had the right to make a derivative claim on behalf of the LLC under the circumstances presented.  You can click here for a more complete summary of the Crouse case. 

Turning back to the Walters & Zimmerman case, the Business Court also summarized when the moving party on a Motion to Dismiss can rely on documents outside of the pleadings.  It is good to know where the Business Court stands on that issue.  It held:

Furthermore, the Court may not consider “extraneous matter” outside the complaint, or else the Rule 12(b)(6) motion will be converted into a Rule 56 motion for summary judgment. See, e.g., Fowler v. Williamson, 39 N.C. App. 715, 717, 251 S.E.2d 889, 891 (1979). However, the Court may consider documents the moving party attaches to a 12(b)(6) motion which are the subject of the challenged pleading and specifically referred to in that pleading, even though they are presented to the Court by the moving party. See Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 60, 554 S.E.2d 840, 847 (2001) (considering a contract on a 12(b)(6) motion even though the contract was presented by the movant). The Court is not required to accept as true “any conclusions of law or unwarranted deductions of fact.” Id. at 56, 554 S.E.2d at 844. Thus the Court can reject allegations that are contradicted by the supplementary documents presented to it. See E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P’ship, 213 F.3d 175, 180 (4th Cir. 2000) (stating that the court “need not accept as true unwarranted inferences, unreasonable conclusions, or arguments”).

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

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The answer to the question above is probably you, if you are reading this blog.

So, you might be interested in a powerpoint presentation that Judge Jolly and Judge Diaz made at the 2006 Conference of Superior Court Judges, on the Unfair and Deceptive Practices Act. 

It seems like a claim under that statute is part and parcel of nearly every business case filed in North Carolina.

There are some good "Practical Pointers" about the statute at the end of the presentation, including the one in the box at the bottom. (The Meineke case referenced is Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331 (4th Cir. 1998), in which the Fourth Circuit threw out a $590 million unfair and deceptive practices verdict).

Notwithstanding my selection of excerpt from the powerpoint, this is by no means an anti-unfair and deceptive practices presentation.  It outlines a number of fact patterns that make out a UDPA claim, and has a good discussion of the respective roles of judge and jury in the trial of such claims and other useful information.

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

Voyager, a company engaged in pharmaceutical research directed at slowing or halting Alzheimer's disease, was attempting a $100 million public offering in 2005.  It alleged in its Complaint that it was unable to complete the IPO due to the actions of one of its directors, Bowen, and one of its employees, Atwood.  It made a variety of claims, including claims for breach of fiduciary duty.

The allegations as to what Bowen had done are pretty interesting.  Here's how the Court characterized some of them:

While Voyager's management was in the 4:30 p.m. conference with Hambrecht, Bowen was in a hospitality suite in the Marriott Marquis Hotel that had been set up to accommodate Voyager's shareholders. (Compl. ¶ 66.)  There, Bowen told one or more shareholders that the IPO was not going to proceed because "God had told him so," and because Voyager had refused to add "the glorification of God" to its mission statement.  (Compl. ¶ 66.)  Bowen also told the shareholders present that day that any further attempts to complete the IPO would fail until his demands were met, including giving credit to God in Voyager's mission statement.  (Compl. ¶ 66.)  Bowen also asked one of the shareholders whether he would be willing to serve as a director of Voyager "when I regain control of the Company."  (Compl ¶ 66.)  Bowen also falsely told one or more shareholders that there was a problem with the Phase I data that had not been resolved and also falsely stated that when he raised this issue with management, management had locked him out of his office.  (Compl. ¶ 68.)

The Court first confronted the issue of choice of law on Voyager's claims for breach of fiduciary duty. The Court noted that there was little guidance in North Carolina as to the proper application of the internal affairs doctrine.  It determined that it would apply the law of Delaware, the state of Voyager's incorporation, to those claims.

It then rejected Bowen's argument that his actions were protected by the business judgment rule.  It held:

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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."

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