Covenant Equipment Corp. v. Forklift Pro, Inc., 2008 NCBC 10 (N.C. Super. Ct. May 1, 2008)(Tennille)
A service of process issue and a covenant not to compete issue in one decision from the Business Court. It doesn’t get any more exciting than this. But, seriously, this is a significant procedural decision from the Court, please read on. (As always, there is a link to the full opinion above).
On the service issue, the delivery of the Complaint to one of the Defendants, Carnie, had not been made in precise compliance with Rule 4 of the North Carolina Rules of Civil Procedure. The Sheriff had left the Summons and Complaint at Carnie’s house in South Carolina, but had not delivered it personally to Carnie and had not left it with another person at the residence. According to Carnie’s Affidavit, the papers had been "left stuck in a crack between my doors" by a Deputy Sheriff with the last name of "Fudge."
The Court overruled the Motion to Dismiss for insufficiency of service of process because it found that Carnie had evaded service. Looking at federal decisions, Judge Tennille ruled that leaving the Summons and Complaint at Carnie’s residence was adequate service given Carnie’s efforts to evade proper service.
But the groundbreaking part of the the decision on the service issue was the Court’s ruling that Carnie had waived his objection to service because he had filed a Notice of Designation of the case to the North Carolina Business Court. Judge Tennille held that "the filing of a Notice of Designation in an action constitutes a general appearance for the purpose of personal jurisdiction." Thus, the objection to the sufficiency of service was waived.
The Court’s decision goes beyond service of process. Most significantly, if you are representing a Defendant planning to move to dismiss for lack of personal jurisdiction, you will waive that argument by filing a Notice of Designation to the Business Court. To keep it alive, the Notice of Designation must contain an objection to personal jurisdiction. Carnie’s Notice did not.
In the non-compete portion of the opinion, the Court followed the principle it set out in Better Bus. Forms & Prods., Inc. v. Craver, 2007 NCBC 34 (N.C. Super. Ct. Nov. 1, 2007) regarding the right of an asset purchaser to to enforce a non-compete entered into between the seller and an employee. The buyer has the option to enforce the noncompetition agreement or to enter into a new agreement. As the Court held: "a noncompetition agreement that has been sold as part of an asset sale, as opposed to the sale of a business, gives the buyer the right to enforce the noncompetition agreement as of the date of the sale but not to enforce the noncompetition agreement as if it had been entered into originally by the buyer."
Brief in Support of Motion to Dismiss
Brief in Opposition to Motion to Dismiss