Surratt v. Brown, 2015 NCBC 72, decided last week by the Business Court, involved an oral partnership to open and operate tattoo parlors throughout North Carolina.
Plaintiff and Defendant entered into an partnership (without any written agreement) to open a tattoo parlor in Winston-Salem. Defendant Brown was to finance the business for a 30% share of the profits; Plaintiff Surratt was to open and operate the business for a 70% share.
The parties later orally agreed to expand their tattooing business by opening additional retail locations in which they would each have a 50% interest. The new shops, according to Plaintiff, were to carry the "name. concept, design, and intellectual property developed" by Plaintiff in connection with the first store. Op. ¶28.
Over the next few years, Defendant Brown opened several new new North Carolina tattoo shops: in Greensboro, Greenville, Jacksonville, and Fayetteville. Surratt sued Brown over the new stores, alleging that he was entitled to an ownership interest in them.
Did The Agreement Need To Be In Writing?
Even if you are fascinated by tattoos, there is not much of interest in the Surratt decision. It’s mostly about whether Plaintiff’s claims were barred by the statute of limitations, but there are a couple of interesting tidbits about Section 75-4 of the General Statutes, which requires that certain types of contract be in writing, and also one about conversion. That statute says that:
No contract or agreement hereafter made, limiting the rights of any person to do business anywhere in the State of North Carolina shall be enforceable unless such agreement is in writing duly signed by the party who agrees not to enter into any such business within such territory.
N.C. Gen. Stat. §75-4 (emphasis added).
The Defendant said that the claimed unwritten promise that he would not open other tattoo shops in North Carolina was unenforceable per Section 75-4 because it limited his right to be in the tattoo business in North Carolina.
Judge Gale, relying on a Fourth Circuit decision, said that:
where an oral agreement merely concerns the use of intellectual property, section 75-4 may not apply so long as other terms do not ‘substantially’ limit the party’s right to do business.
Op. ¶31 (citing Ashley Furniture Indus. v. Sangiacomo, N.A., 187 F.3d 363, 378 (4th Cir. 1999)).
Judge Gale observed that "Plaintiff’s narrowed description of the agreement does not prohibit [the Defendant] from operating in the tattoo and piercing industry without [the Plaintiff] so long as [the Defendant] does not utilize the name, concept, or related intellectual property created pursuant and subject to the agreements between the parties." Op. ¶32.
Given the early stage of the case (this was a Motion to Dismiss), Judge Gale ruled that it was "premature to determine whether the agreement under which Plaintiff seeks to recover must be in writing in order to be enforceable." Op. ¶32.
You Cannot Convert A Partnership Interest
On Plaintiff’s conversion claim, which asserted that the Defendant had converted the profits of the Partnership as well as Plaintiff’s Partnership interest and his management rights, Judge Gale wrote that:
[a[lthough the law is unclear as to the dividing line between tangible and intangible property in some instances, it is clear that only goods and personal property are subject to a conversion claim: intangible interests, such as business opportunities or expectancy interests are not subject to conversion.
Op. ¶33 (emphasis added).
The Judge ruled that only the property interests of profits and distributions were subject to a conversion claim. Thus, Plaintiff’s conversion claim for "his right to partnership property, his business interest in the LLC/Partnership, and his right to participate in management of the LLC/Partnership" was intangible and not an appropriate conversion claim. Op. ¶34.