June 2009

The Fourth Circuit today affirmed the dismissal of a personal injury action based on a forum selection provision requiring that any claims would be resolved in the courts of Amsterdam.  The case is Baker v. Adidas America, Inc.

Plaintiff, who had sued in federal court in North Carolina, argued that she was a college student without the financial means to fund a lawsuit in Amsterdam, that contingency fee arrangements were not permitted in Amsterdam, and that she wouldn’t be able to pursue her claim if the forum selection clause was enforced.

The Fourth Circuit, relying on the Supreme Court’s decision in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), held that the inconvenience of litigating in a foreign forum doesn’t warrant setting aside a selection clause "where it can be said with reasonable assurance" that at the time the contract was made the parties contemplated the claimed inconvenience.  The party seeking to avoid a forum selection clause also must show that a trial in the specified forum "will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court." 

The Fourth Circuit found the clause to be valid, ruling that the claimed burden of a trial in Amsterdam should have been foreseeable when Plaintiff accepted the benefits of the agreement, and that she had presumably been compensated for those burdens.

The North Carolina Business Court rejected an attack earlier this year on a forum selection clause specifying litigation in the Commercial Court of Paris, in Speedway Motorsports International Ltd. v. Bronwen Energy Trading, Ltd., 2009 NCBC 3 (N.C. Super. Ct., February 18, 2009).  The party objecting to the application of that clause said that litigation in France would deprive it "of the full scope of discovery that would otherwise be available in" the North Carolina Courts. 

In the Speedway case, Judge Diaz held that there was "no authority . . . for the proposition that merely requiring a party to litigate in a forum with substantially different discovery rules than those applied in a U.S. court is sufficient cause to override the parties’ choice of forum."  He ruled that the party forced to fight its claim in France was neither "deprive[d] of its day in court" nor "without an adequate remedy."

Another issue in the Fourth Circuit decision today concerned whether Plaintiff, a professional tennis player who was a minor when the contract with Adidas was signed by her agent, had acted promptly enough to disaffirm the agreement after she attained the age of majority.  The Fourth Circuit said that she hadn’t, because her agent had accepted payments from Adidas after she turned 18, and she didn’t inform Adidas that she was voiding the contract until 32 months after her 18th birthday.

An accountant who had prepared financial statements did not need to be designated as an expert witness in order to provide testimony regarding those financial statements, per the Business Court’s ruling in A-1 Pavement Marking, LLC v. APMI Corporation, 2009 NCBC 15 (N.C. Super. Ct. June 26, 2009).  The opinion also discusses generally accepted accounting principles ("GAAP") relevant to financial statements of consolidated entities.

The issue in A-1 was Plaintiff’s calculation of a bonus due one of the Defendants, which was to be based on Plaintiff’s gross profits. The Plaintiff’s consolidated financial statements had eliminated a significant receivable due from a subsidiary. The Defendant asserted that his bonus would have been substantially higher with the inclusion of that receivable in the gross profit calculation, and brought a claim under the North Carolina Wage and Hour Act.

The Plaintiff moved for summary judgment, relying on an affidavit from the accountant who had prepared the financial statements on which the calculation was based.  The Defendant objected to what it termed "improper opinion testimony," and argued that the accountant had never been designated as an expert witness.

Judge Diaz rejected the argument that the accountant was an undisclosed expert who shouldn’t be allowed to testify, holding:  

Continue Reading Accountant Who Prepared Financial Statements Didn’t Need To Be Designated As An Expert Witness In Order To Testify

The Court denied a motion for "alternative service of process" on a foreign defendant, ruling that the Plaintiff had not shown it had exhausted the traditional means of service available under Rule 4(j3) by attempting service through the means specified in the Hague Convention.

The Court further stated that if Plaintiff could not with due diligence serve the foreign defendant through traditional means, that it would allow for service of process by publication.  The Court referenced an earlier order in another case in which it had done so.

Full Opinion

If you have privileged documents, you shouldn’t share them with your wife and daughter.  You should also be careful with technology, which lets you do "dumb things".  Those are the lessons of Judge Tennille’s very short opinion last week in Crockett Capital Corp. v. Inland American Winston Hotels, Inc.

An executive of the Defendant had sent his wife and daughter emails which included attorney-client communications.  The reason for sending the emails to his wife was to "vent frustration" about work-related matters.  The daughter was apparently asked for grammatical advice.

The Plaintiff said that the privilege had been waived by this intentional production.  Judge Tennille determined that the privilege had not been waived, emphasizing that his decision was based on the specific circumstances before him.  Here’s what he said:

Technology multiplies the opportunities for man to do dumb things and increases the speed at which he can do them.

Venting one’s frustrations about work to a spouse is an everyday occurrence.  Attaching a string of emails containing attorney client information to an email to a person’s spouse venting one’s frustration at work is just not smart. The Court does not believe it constitutes a waiver of the attorney client privilege under these circumstances.

Using a child as a grammarian with the result that attorney client privileged information is included in emails to her is just not smart. The Court does not believe it constitutes a waiver of the attorney client privilege under these circumstances.

There isn’t much discussion in the opinion, so if you are looking for some law on the issue of privilege waiver, you might want to look at the briefs.  The principal brief was filed under seal, but the brief on why privilege hadn’t been waived and the reply brief in support of the waiver argument are available.

I don’t think Bart Simpson would carelessly share privileged documents.  Homer?  Probably.

Today, in TAI Sports, Inc. v. Hall, the Business Court denied Plaintiff’s’ Motion for a Preliminary Injunction freezing Defendants’ assets and appointing a receiver to manage the business of the Defendants.

The claim made by Plaintiff was that one of the Defendants had used his position as an officer of one of the Plaintiff’s companies to misappropriate over $1 million in cash and inventory.  The Defendants had disputed the allegations.

Judge Diaz observed that the bulk of the damages sought by Plaintiff were lost profits, and that Plaintiff had not shown that it would be able to prove those with the required "reasonable certainty."  He held:

the Court notes that TAI is a relatively new enterprise, having been formed in 2005, and the record is silent on Plaintiff’s history of profitability, if any. And while North Carolina law has no per se rule precluding an award of damages for lost profits here a business has no recent record of profitability, such businesses, like established businesses, must prove such damages with reasonable certainty. . . .  Plaintiff’s evidence here falls short of proving its lost revenue or profits with reasonable certainty, and thus, Plaintiff has not shown a likelihood of success on the merits of a substantial portion of its claim.  

The Court concluded, in denying the Motion::

At bottom, this is a case where Plaintiff seeks money damages. Plaintiff is asking the Court to issue a preliminary injunction to prevent the Hall Defendants from rendering a monetary judgment against them unenforceable. Plaintiff, however, has not sustained its burden to show that it will suffer irreparable injury should the injunction not issue. Specifically, there is no evidence in this record that the Hall Defendants have fraudulently transferred assets (whether those purportedly belonging to Plaintiff or their own) to a third party or taken any other action to thwart Plaintiff’s ability to recover damages should it prevail on the claims.

Brief in Support of Motion for Preliminary Injunction

Brief in Opposition to Motion for Preliminary Injunction


The Fourth Circuit ruled yesterday in Huttenstine v. Mast on the Defendants’ effort to back out of a class action settlement to which they had agreed, and affirmed an entry of judgment against the Defendants for the full amount of the settlement.

The Defendants, who apparently had second thoughts about their deal, refused to make the $425,000 payment called for by the agreement.  They took the position that their payment was a condition precedent to the effectiveness of the settlement agreement, and that their failure to comply with the condition precedent resulted in the entire agreement being void.

The Fourth Circuit rejected that argument in an unpublished opinion, finding it to be "incomprehensible."  The Court drew a distinction between promises and conditions precedent, ruling that the obligation to make the settlement payment was a binding promise on behalf of the Defendants, not a condition precedent.  When the Defendants failed to pay, they breached their promise, and the District Court had properly entered judgment against them in the full amount of the settlement, plus interest.

The Court further observed that the Defendants were not entitled to refuse to make the payment and to then benefit from their own failure to satisfy the condition.  It held, relying on a line of North Carolina cases, that "one who prevents the performance of a condition, or makes it impossible by his own act, will not be permitted to take advantage of the nonperformance."

There were three North Carolina Supreme Court decisions today which are worth a mention, involving personal jurisdiction, depositions, and the North Carolina Whistleblower Act:

In the personal jurisdiction case, the Court reversed the Court of Appeals in an alienation of affections case, Brown v. Ellis.  The Court ruled that there was jurisdiction over the out-of-state defendant in North Carolina even though the defendant had "never set foot in the State of North Carolina."  The Supreme Court based jurisdiction on defendant’s daily phone calls and emails to the plaintiff’s wife.  The Supreme Court didn’t accept defendant’s protestations that these extensive communications were "the normal pleasantries associated with a friendly working relationship."

The deposition case, Rodriguez-Carias v. Nelson’s Auto Salvage & Towing Service, Inc., resulted in an unfortunate 3-3 split.  Rodriguez-Carias involved the practical issue whether the court reporter for a telephone deposition needs to be in the physical presence of the deponent.  The Court of Appeals decision ruled that it was sufficient for the court reporter to be in the "vocal and aural presence" of the deponent, not his or her physical presence.  The effect of a 3-3 decision is that the Court of Appeals ruling stands, but without precedential effect.  The fact that there were three members of the Court willing to reverse this decision makes it risky to take depositions without having the court reporter at the other end of the phone line, with the deponent.

The Whistleblower decision, Helm v. Appalachian State University, reversed the Court of Appeals. Plaintiff was a Vice Chancellor at Appalachian who claimed she was fired for objecting to the issuance of a $10,000 check from the University Endowment to obtain an option to buy property for $475,000.  Plaintiff complained that there weren’t funds available in her budget to exercise the option and she had blown the whistle about a "misappropriation of funds." The Court of Appeals majority affirmed the dismissal of her case, saying that the option had an "inherent, intrinsic value," and thus there had been no misappropriation to report.  The Supreme Court adopted Judge Calabria’s dissent in the Court of Appeals, in which she said "while the enforceable right to purchase does have theoretical value, its value under the facts as alleged by the plaintiff does not justify the expenditure of $10,000 from the public funds."

You can find the rest of today’s decisions from the Supreme Court here.

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).

Here’s a new one. Can you make a mandatory designation of a case directly from North Carolina District Court to the Business Court?  Believe it or not, there are circumstances under which you might want to do that, so the Business Court’s opinion this month in Bailey Pointe Homeowners’ Association v. Strong is worth knowing about.

Start from square one: The District Court has jurisdiction over matters involving $10,000 or less and the Superior Court has jurisdiction over cases exceeding $10,000 (per G.S. §7A-243).  Since the Business Court is a part of the Superior Court division of the trial courts, a case that falls under District Court jurisdiction can’t be designated to the Business Court because there isn’t sufficient amount in controversy to qualify for Superior Court jurisdiction.

But it happens that cases are filed in District Court which involve more than $10,000.  Or there are District Court cases in which counterclaims are made for more than that amount and which properly belong in Superior Court.  Or there might be a case filed in District Court asking for injunctive relief against a statute, for which Superior Court is the correct division under G.S. §7A-245.  In all of these circumstances, there’s a mechanism in G.S. §7A-258 for transferring a case from District Court to Superior Court.

So let’s say you are representing the Defendant in a District Court case which wasn’t properly filed there because it involves more than $10,000, or in which you are going to counterclaim for more than $10,000, and the issues in the case otherwise make it appropriate for mandatory jurisdiction in the Business Court   Can you jump the case straight from District Court to the Business Court?

The answer is no.  In Bailey Pointe, the Plaintiff sought to designate the District Court case it had filed to the Business Court.  The designation was based on counterclaims raising corporate governance claims and seeking in excess of $10,000 in damages.  Judge Tennille held that G.S. §7A-45.4(b) says that cases are designated "by filing a Notice of Designation in the Superior Court in which the action has been filed. . . ."  So, he held, "only actions filed in or transferred to Superior Court may seek mandatory complex business designation."

In other words, you can’t hopscotch directly from District Court to Business Court.  Judge Tennille denied the Notice of Designation by the Plaintiff in Bailey Pointe, and held that the only route to the Business Court for that Plaintiff was a motion to the Chief District Court Judge, per Rule 2.1 of the General Rules of Practice, to recommend that the case be designated as a complex business case. 

The Business Court today granted a Motion to Compel and delivered a harsh sanction to the Plaintiff: dismissal with prejudice of its Complaint.   The case is TelSouth Solutions, Inc. v. Voyss Liquidation Company, LLC.

Plaintiff’s failure to timely respond to discovery, standing alone, might not have warranted dismissal, but It had been preceded by a string of failures to meet deadlines. 

Those began with a failure to file the Case Management Report per Rule 17, continued with a failure to respond to a counterclaim resulting in an entry of default, then a lack of compliance with the deadlines in the Case Management Order for mediator selection and cost estimates, and culminated in Plaintiff no-showing at a hearing regarding the missed deadlines. 

The failure to respond to discovery was then the straw that broke the camel’s back. The due date came and went for responses to interrogatories and document requests.  Defendant’s counsel followed up and asked for responses, but Plaintiff’s counsel responded that he had "been traveling and [was] swamped."  The responses finally came about two months after they were due, and only after more prodding from Defendant’s counsel. 

Judge Diaz observed that Rule 37 provides for a wide range of sanctions for a party who doesn’t respond at all to interrogatories, including "[a]n order striking out pleadings . . . or dismissing the action or proceeding."  He said that "the Court may impose drastic sanctions for discovery violations, including dismissal of claims with prejudice when it is ‘just’ to do so," and that it wasn’t necessary for there first to be an order directing compliance.

Plaintiff’s counsel said at the Motion to Compel hearing that his inability to respond "was the result of factors beyond his client’s control."  The Court held that it was true that "if a party is unable to answer discovery requests because of circumstances beyond its control, an answer cannot be compelled," but said that there was no evidence presented as to the reason that Plaintiff was unable to respond.

The Court held that "Plaintiff has demonstrated (time and again) an unwillingness to give proper attention to litigation that it initiated. In light of Plaintiff’s most recent transgression, and because the fact discovery deadline has now expired, the Court concludes, in its discretion and after considering lesser sanctions, that the appropriate sanction is dismissal of Plaintiff’s Amended Complaint with prejudice."