The attorney for the Plaintiff in Preiss v. Wine and Design Franchise, LLC, 2018 NCBC 53, apparently didn’t bother to read the Business Court’s Rules on what must be done in order to file a document under seal.  That lawyer failed on three separate occasions to comply with the Court’s procedures for sealing a document.

So Judge McGuire took the Plaintiff’s lawyer to school, though pretty gently.  He said:

On the charitable assumption that Plaintiffs counsel’s continued failure to comply with the applicable BCR regarding filing under seal is a result of ignorance of the procedures, rather than a flagrant disregard for this Court’s authority, the Court will outline the applicable rules and procedures below.

Op. at 3.

Those procedures?  It’s best to read the Business Court Rules, mostly Rule 5.2, but if you want a document to stay under seal, you have to file it “provisionally” under seal along with a Motion for leave for it to be filed under seal.  BCR 5.2(b).  Your Motion has to be accompanied by a brief.  BCR 7.2.

The motion and brief must contain enough information to persuade the Court that sealing is warranted. The Rule lists seven categories of necessary information:

(1) a non-confidential description of the material sought to be sealed;

(2) the circumstances that warrant sealed filing;

(3) the reason(s) why no reasonable alternative to a sealed filing exists;

(4) if applicable, a statement that the party is filing the material under seal because another party (the “designating party”) has designated the material under the terms of a protective order in a manner that triggered an obligation to file the material under seal and that the filing party has unsuccessfully sought the consent of the designating party to file the materials without being sealed;

(5) if applicable, a statement that any designating party that is not a party to the action is being served with a copy of the motion for leave;

(6) a statement that specifies whether the party is requesting that the document be accessible only to counsel of record rather than to the parties; and

(7) a statement that specifies how long the party seeks to have the material maintained under seal and how the material is to be handled upon unsealing.

BCR 5.2(b).

Most of those items are pretty easy to assemble.  But it is clear that the most critical ingredient is 5.2(b)(2), “the circumstances that warrant the sealed filing.”  What is it that you are asking the Court to take out of the public eye?  I’m not aware of a published Business Court Opinion discussing what will justify a sealed filing, but Judge Bledsoe said this in a 2016 unpublished Order granting a Motion to Seal: “sealing documents from the public record may be appropriate where the documents contain business information, including pricing and cost information, that could harm a litigant’s competitive standing.”  Order at 2.

Remember that you start on a Motion to seal by running uphill. The Business Court will begin its consideration of a Motion to Seal:

with the ‘presumption that the civil court proceedings and records at issue.  .  . must be open to the public.’ The party seeking to have a filing sealed bears the burden of overcoming this presumption ‘by demonstrating that the public’s right to open proceedings [is] outweighed by a countervailing public interest.’

Op. at 6 (quoting France v. France, 209 N.C. App. 406, 414, 705 S.E.2d 405, 406 (2011).

So what could be such a “countervailing public interest”?  The Business Court Rules give no guidance, but Plaintiff didn’t have whatever it takes.  The document filed under seal (a brief) was immediately unsealed by the Court.

What do you have to do while your Motion to Seal is pending?  BCR 5.2(d) says that you must:

Within five business days of the filing or provisional filing file a public version of the document. The public version may bear redactions or omit material, but the redactions or  omissions should be as limited as practicable.

If you are attempting to file an entire document under seal (as this Plaintiff was):

the filing party must file a notice that the entire document has been filed under seal. The notice must contain a non-confidential description of the document that has been filed under seal.

BRC 5.2(d).

This Plaintiff”s counsel repeatedly ignored the Business Court Rules about sealing.  Judge McGuire lectured that “[t]hese rules and procedures for making sealed filings are not frivolous ‘make-work’ for attorneys, nor are they intended to be optional exercises”  Op. at 5 (emphasis added).

So did Judge McGuire sanction the Plaintiff?  Not now, but he reserved the right to do so.  He said:

because Plaintiffs have now failed for the third time to make efforts to comply with the applicable BCR or this Court’s past Orders, the Court takes under advisement such further relief as may be just and appropriate, including whether the complained-of conduct of Plaintiffs’ counsel merits imposition of sanctions under Rule 11 or other authority.

In Plaintiff’s counsel’s defense, he may have thought he was entitled to file documents under seal because the parties had agreed to a Consent Protective Order which said that “documents designated by any Party as Confidential ‘shall be filed under seal.'”

But the agreement of the parties had no bearing on whether the described documents could be filed under seal.  BCR 5.2(a) says explicitly that a Protective Order dealing with sealing of documents “should include procedures similar to those described in subsections (b) through (d) of this rule.”

I guess that every North Carolina lawyer doesn’t know that since October 2014, appeals of final decisions by the NC Business Court go directly to the NC Supreme Court instead of to the NC Court of Appeals.

You didn’t know that?  Well you are not alone.  The Notice of Appeal of Judge Gale’s Opinion in Zloop, Inc. v. Parker Poe Adams & Bernstein, 2018 NCBC 16 dismissing all of Plaintiff’s claims was addressed to the COA, not the Supreme Court. Judge Gale dismissed the appeal yesterday, in Zloop, Inc. v. Parker Poe Adams & Bernstein, 2018 NCBC 39.

In all other respects, the appeal was totally compliant with the Rules of Appellate Procedure.  It was timely, and the Notice of Appeal was properly filed in Mecklenburg County.

There are a bunch of minefields along the path of a Business Court appeal.  I’ve written about the ones that have exploded on an appealing party, like: not filing the Notice of Appeal in the county where the case originated, not including the Notice of Designation to the Business Court in the Record on Appeal, and like the Zloop Notice of Appeal, sending the Notice of Appeal to the wrong appellate Court.

The attorneys for the Defendant in the Zloop case, picking up immediately on the misdirection of the Notice of Appeal, moved to dismiss the appeal.

Plaintiff moved, in response, to be allowed to amend its Notice of Appeal to properly address it to the NC Supreme Court.  By then, the thirty day period to file a Notice of Appeal had run out.

Judge Gale’s ruling was that he did not have jurisdiction to allow the amended Notice of Appeal and he granted the Motion to Dismiss the appeal.

Why was the trial court judge ruling on matters concerning an appeal?  You might be thinking that the motion to amend the Notice of Appeal should have been decided by the appellate court.  Rule 25(a) of the North Carolina Rules of Appellate Procedure seems to provide that.  But the Rules also provide that a case is not fully before an appellate court until the Record on Appeal is filed, and that the trial court has jurisdiction over the case until then.

Couldn’t Judge Gale have shown some mercy for this minor error? Maybe you think that Judge Gale is too cold-hearted and that he could have given the Plaintiff a pass on this mistaken Notice of Appeal.  Well, no, because as Judge Gale noted in his first decision on exactly the same issue (an unpublished decision, Christenbury Eye Center, P.A. v. Medflow, Inc., he had "no discretion to allow Plaintiff to amend [its] appeal."

Can the NC Supreme Court still accept the appeal?  Yes, as the NC Supreme Court has the power to allow a deviation from its own Rules.  Appellate Rule 2, captioned "Suspension of Rules" specifically allows that.  Maybe the High Court will show some empathy for this Plaintiff as the case involves issues of first impression: whether claims for professional malpractice can be barred by the doctrine of in pari delicto, and whether North Carolina recognizes a tort claim for aiding and abetting breach of fiduciary duty (the Business Court seems pretty sure that it doesn’t).

[Note: This is the first time in a long while that I have blogged about a case the day after the Opinion was handed down as opposed to a week later.  That doesn’t mean that I have recovered my zip.  It means that Judge Gale’s Zloop Opinion was only five pages long.  I encourage more short Opinions.  Those are easier for me to write about.]

What choice of law rule applies to trade secrets claims?  No North Carolina appellate court has answered that question, but Judge Robinson of the NC Business Court stepped into that breach in his Opinion in SciGrip v. Osae, 2018 NCBC 10.

The Plaintiff certainly didn’t like the answer, as it resulted in the dismissal of its claim for the misappropriation of its trade secrets.

Defendant Osae had worked for the Plaintiff SciGrip for years developing its adhesive products.  He then left to join a competitor, Scott Bader, Inc. (SBI).  SciGrip sued both Osae and SBI in 2008 (in another lawsuit) for Osae’s violation of confidentiality restrictions which he had signed while working for SciGrip.  That first lawsuit was settled via a Consent Order, which specified that Osae could not disclose SciGrip’s confidential information, and that SBI could not use it.

SciGrip sued Osae again in 2013, after he had joined another company, EBS, which is also in the adhesives industry.  This is the case in the Business Court.  EBS had filed a provisional patent application regarding its adhesives in Europe.  SciGrip alleged that the patent application contained its trade secret information and that Osae was in violation of the Consent Order.

SciGrip also sued Osae for misappropriation of trade secrets.  It sued SBI as well.  SBI, based in the UK, moved for summary judgment on the basis that all of  the alleged misappropriation of trade secrets had occurred outside of the State of North Carolina, and that NC’s Trade Secrets Protection Act does not apply to misappropriation that occurred outside of the State.  Osae had done all of his work for SBBI and EBS outside of the State of North Carolina.

The case turned on whether North Carolina’s  law ought to apply to the trade secrets claim.  Plaintiff argued for the "most significant relationship" test, saying the North Carolina had the most significant relationship to the events leading to the misappropriation.

Judge Robinson went with SBI’s argument, that the proper test was lex loci delicti.  "Under this test, the situs of the claim is the state where the injury or harm was sustained or suffered — the state ‘where the last act occurred giving rise to [the] injury.’  Op. Par. 34.

So what was the last act causing harm to the Plaintiff?  Judge Robinson said that "[m]isappropriation occurs when defendant acquires, discloses, or uses another’s trade secret without the owner’s consent or authority."  Op. Par. 35.

Osae had worked for the Plaintiff in North Carolina when he acquired its trade secrets, so that would seem to be the end of the choice of law inquiry.  But Judge Robinson looked to a North Carolina federal court ruling, and decisions from other federal jurisdictions holding

that the lex loci delicti ‘is  not the place where the information was learned, but where the tortious act of misappropriation and use of the trade secret occurred.’  Domtar AI Inc. v. J.D. Irving, Ltd., 43 F. Supp. 3d 635, 641 (E.D.N.C. 2014)(concluding that plaintiffs could not bring a claim under North Carolina’s TSPA because defendants’ alleged misappropriation occurred in Canada); 3A Composites USA, Inc. v. United Indus., Inc., No. 5:14-CV-5147, 2015 U.S. Dist. LEXIS 122745, at *10 (W.D. Ark. Sept. 15, 2015) (applying North Carolina conflict of laws rules and following the approach taken in Domtar); Chattery Int’l, Inc. v. JoLida, Inc., No. WDQ-10-2236, 2012 U.S. Dist. LEXIS 57512, at *12−13 (D. Md. Apr. 24, 2012) (applying the lex loci delicti rule and stating that “[m]isappropriation occurs where the misappropriated information is received and used, not necessarily where it was taken or where the economic harm is felt”). 

Op. Par. 35.

Under this standard, Osae’s alleged misappropriation occurred either in the United Kingdom, where he had worked at SBI’s facilities, or in Florida, where Osae had worked for EBS.

Judge Robinson ruled that Plaintiff could not bring a claim under North Carolina’s Trade Secrets Protection Act, and granted summary judgment for the Defendants.

This means that claims for violations of NC’s TSPA cannot be pursued (at least in the NC Business Court) for misappropriation occurring outside of the State.  I’m already hearing gloom and doom about this decision, but Plaintiff almost immediately noticed an appeal, so we will be hearing from the NC Supreme Court on this choice of law issue.  Probably next year.

And if you are outraged at Judge Robinson’s blunting of the reach of the NC TSPA, remember that "state laws may not generally operate extraterritorially."  Carolina Trucks & Equip., Inc. v. Volvo Trucks of N.A., Inc., 492 F.3d 484, 489-90 (4th Cir. 2007).  So there is nothing unusual about Judge Robinson’s unwillingness to extend the TSPA’s reach to conduct taking place not only outside of North Carolina, but outside of this country.

 

 

The North Carolina Business Court sent a message to all lawyers practicing in the Business Court last week in Barclift v. Martin, 2018 NCBC 5.  Judge Gale said in the ruling that:

The  Court is publishing this Order & Opinion to provide guidance to the practicing bar on the statutory process for designating a case as a mandatory complex business case and to clarify apparent misconceptions regarding the requirements for designation.

Op. Par. 1 (emphasis added).

Barclift, contesting the Defendants’ designation of his case as a "complex business case," argued that there was nothing complex about his case, and that it could be handled by a regular (non-Business Court) Superior Court Judge.

The "apparent misconception" referenced by Judge Gale?  That a case has to be complex in order to be designated to the Business Court.  The source of the supposed need for complexity stems from Rule 2.1 of the General Rules of Practice, which says that "the complexity of the evidentiary matters and legal issues involved" should be considered in the process of getting a case into the Business Court.

Rule 2.1 isn’t totally obsolete as a method for getting a case to the Business Court, but most cases (like the Barclift case) are designated there by way of G.S. sec. 75A-45.4.  A Rule 2.1 designation involves persuading a Superior Court Judge in the County in which the case was filed that it should be a "complex business case."  The factors included in making that persuasion include its complexity.  The "local" Judge, upon being persuaded that the case should be handled by a "Superior Court Judge for Complex Business Cases", (i.e. a "Business Court Judge") then makes a recommendation to the Chief Justice of the NC Supreme Court that he or she so designate the case. Those recommendations are usually rubber stamped and the case lands in the Business Court.

The practice under Section 7A-45.4 is much more streamlined and far more automatic.  The statute lists six categories of cases that can be designated to the Business Court so long as they raise a "material issue."  "Complexity" is not necessary for these cases.

Is this ruling about the lack of a need for complexity in a 7A-45.4 designation something new from the Business Court?  Not at all.  Judge Tennille said in a ruling, over ten years ago, pretty much the same thing.  He held in Johnson v. Johnson, an unpublished Order from 2007, that:

complexity or the lack thereof is not an issue under section 7A-45.4. Section 7A-45.4 simply requires that the action involves a material issue related to at least one of six subjects, including “[t]he law governing corporations” and “issues concerning governance” and “breach of duty of directors.” N.C. Gen. Stat. § 7A-45.4(a)(1).

Order at 1 (emphasis added).

 

 

You probably think that you can avoid having a confidentiality agreement struck down by an NC court because it doesn’t have to meet the stricter standard applied to non-compete agreements.

The NC Business Court’s Opinion this month in Duo-Fast Carolinas,, Inc. v. Scott’s Hill Hardware & Supply Co., 2018 NCBC 2 may get you thinking differently.

The validity of a non-compete often turns in part on whether the restriction is "reasonable as to time and territory, and designed to protect a legitimate business interest of the employer."  See, e.g., A.E.P. Indus., Inc. v. McClure, 308 N.C. 393, 402–03, 302 S.E.2d 754, 760 (1983).

But a confidentiality agreement is enforceable "even though the agreement is unlimited as to time and area, upon a showing that it protects a legitimate business interest of the promisee.” Chemimetals Processing, Inc. v. McEneny, 124 N.C. App. 194, 197, 476 S.E.2d 374, 376 (1996).

In Duo-Fast, Judge McGuire found a confidentiality agreement to be invalid because it was not reasonable as to time and territory, in Duo-Fast Carolinas,, Inc. v. Scott’s Hill Hardware & Supply Co., 2018 NCBC 2.  Wait, what about Chemimetals, which says that confidentiality agreements don’t need to be limited as to time and territory.?

The individual Defendant in Duo-Fast, Modero,had been an outside sales representative for the Plaintiff.  He had signed an Employment Agreement saying that he would "not make known to any person. . . the contents of any customer lists."  There was no time limit on this restriction. 

Modero kept Plaintiff’s customer information in his personal Yahoo email account.  Op. ¶¶5, 9.  After he left Plaintiff and began working as a sales representative for the Defendant, a direct competitor, Modero contacted some of his former customers using his Yahoo information.

Plaintiff made a number of claims against Modero and his new employer, including a claim for breach of the confidentiality provision of the Employment Agreement.  Judge McGuire ruled that provision to be unenforceable.  He found that "the non-disclosure provisions do not serve Plaintiff’s legitimate business interests, but rather seek to prevent Medero from soliciting Plaintiff’s customers in restraint of trade."  Op. 46.

Analyzing the "confidentiality provision" as a restrictive covenant, the Business Court concluded that:

prohibiting Medero’s use or disclosure of Plaintiff’s customer identities is overbroad. The non-disclosure provisions are not limited as to time, but rather are perpetual.  Such a restraint would prevent Medero from ever using the names  and contact information of Plaintiff’s customers.  Insofar as the non-disclosure provisions seek to prevent Medero from soliciting Plaintiff’s customers, they constitute an unenforceable restrictive covenant.

Op. 47.

What probably harmed Plaintiff’s case was that the identities of its customers weren’t confidential at all.   They were "readily ascertainable" by visiting construction sites and speaking to contractors.  Op. ¶45.

Plaintiff did not come out well in its lawsuit.  Judge McGuire found a separate non-compete provision to be unenforceable and dismissed all of Plaintiff”s claims.

 

 

The Defendant in SQL Sentry, LLC v. ApexSQL, LLC, 2017 NCBC 105 was alleged to have copied the Plaintiff’s software program which was designed to make "resource intensive T-SQL queries. . . in the Microsoft enterprise database platform, SQL Server."  Op. Par. 5.  (Ask your IT person).

Adding insult to injury, the Defendant marketed the program it had copied under the same trademark used by the Plaintiff  to sell its competing program ("Plan Explorer"). 

So, when representatives of this Plaintiff walk into your office, what claims do you fire off in your Complaint against that thieving Defendant?  Trademark infringement, obviously.  How about a claim for conversion?

Maybe.  Electronic data is personal property, so it falls into the category of property which is subject to a claim for conversion.  Op. ¶14.

But the Plaintiff ran into a problem with its conversion claim.  It still had full access to its software, and that killed its conversion claim.

The NC Business Court has repeatedly "held that making a copy of electronically-stored information which does not deprive the plaintiff of possession or use of information, does not support a claim for conversion.” Op. ¶15 (citing RCJJ, LLC v. RCWIL Enters., LLC, 2016 NCBC 44, ¶67; accord New Friendship Used Clothing Collection, LLC v. Katz, 2017 NCBC 71, ¶77; Strategic Mgmt. Decisions, LLC v. Sales Performance Int’l, LLC, 2017 NCBC 68, ¶18; Addison Whitney, LLC v. Cashion, 2017 NCBC 50, ¶39.

Trying to fit a 21st century development like ESI into a tort like conversion, which has been around since the 1500’s, is like trying  to fit a round peg into a square hole.

If you are insistent on including a conversion claim in your lawsuit over improper copying of electronic data, you might do better suing in federal court.  The United States District Court for the Western District of North Carolina has recognized such a claimBridgetree, Inc. v. Red F Marketing, LLC, 3:10CV228-FDW, 2013 WL 443698 (W.D.N.C. Feb. 5, 2013).

But avoid the NC Business Court.

 

The North Carolina Rules of Civil Procedure are fairly identical to the Federal Rules of Civil Procedure.  In fact, I am hard pressed to think of any substantial differences.

But the lack of one word contained in FRCP 14 — "original" — but omitted from the parallel NC Rule made all the difference in the NC Business Court’s Opinion in AP Atlantic, Inc. v. Crescent University City Ventures, LLC, 2017 NCBC 91.

The case had to do with Plaintiff AP filing a third party complaint against multiple Defendants after Defendant Crescent University amended its Answer and counterclaim.  Big deal, you are probably thinking.  Rule 14 says that you can add as a third party Defendant anyone who "is or may be liable" to that party.  It is designed to "promote judicial efficiency and the convenience of parties by eliminating circuity of action . . . by consolidating [all] suits into one action."  Op. ¶26 (quoting Heath v. Board of Comm’rs, 292 N.C. 369, 376, 233 S.E.2d 889, 893 (1977)(quoting Charles Alan Wright et al., Federal Practice and Procedure § 1442 (1971)).

What made the AP Atlantic case unusual was that the counterclaim against AP which entitled it to add third party defendants who "were or might be liable to it" was first made in January 2016.  It wasn’t until a year and a half later (in July 2017), when Crescent amended its counterclaim, that AP made its third party complaint against thirteen new third party defendant subcontractors.

AP Did Not Need The Permission Of The Court To File Its Third Party Complaint

Defendant Crescent said that AP needed to leave of court to make its third party complaint.  Crescent, relying on NCRCP 14, disputed that it had needed leave of court.  North Carolina’s Rule 14 says:

At any time after commencement of the action a defendant, as a third-party plaintiff, may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to him for all or part of the plaintiff’s claim against him. Leave to make the service need not be obtained if the third-party complaint is filed not later than 45 days after the answer to the complaint is served.

N.C. R. Civ. Pro. 14(a)(emphasis added).

The third party complaint adding the thirteen new parties was filed 21 days after the Answer amending the counterclaim against AP.  Timely?  Not under federal Rule 14, which says that:

the third-party plaintiff must, by motion, obtain the court’s leave if it files the third-party complaint more than 14 days after serving its original answer.

FRCP 14(a)(1)(emphasis added).

The absence of the word "original," or any reference to amended pleadings in NCRCP 14, led Judge Bledsoe to rule that the words "answer to the complaint" in NCRCP 14 were ambiguous.  Op. ¶18.  He then embarked on an effort to determine the intention of the North Carolina Legislature in adopting a rule that did not parrot the "original answer" language of FRCP 14.

It Was Fundamental To The Court’s Decision That The NC Legislature Is Presumed To Know Everything

He started with the proposition that:

Because North Carolina’s rule was first enacted in 1967, and because the Court must presume the legislature acted with full knowledge of prior and existing law, the Court must presume that the legislature knew of the language in Federal Rule of Civil Procedure 14 and — and continues to make — a deliberate decision not to use it in North Carolina’s rule.

Op. ¶21.

The presumption that the NC Legislature was omniscient and well versed in the Federal Rules of Civil Procedure is not something that Judge Bledsoe created out of thin air.  The North Carolina Supreme Court has said many times that "[i]t is always presumed that the legislature acted with care and deliberation and with full knowledge of prior and existing law."  See, e.g., State v. Benton, 276 N.C. 641, 174 S.E.2d 793, 805 (1970).

Judge Bledsoe moved on to considering the meaning of the words "original answer" in the federal rule, concluding that it "would be the first or earliest answer filed in a lawsuit, as no answer would have been filed before it."  Op. ¶23. It follows from that proposition that North Carolina’s version of Rule 14 doesn’t make a distinction between original or amended pleadings.  Op. ¶23.

So, AP was allowed to amend its third party complaint — without leave of Court — to add more than a doen new parties to the case well more than a year after the case was first filed.

Judge Bledsoe obviously had some uneasiness about this ruling, saying that he made his decision "reluctantly."  Op. ¶23.

 

.

If you have ever drafted a Complaint, you have undoubtedly used the words that your previous numbered allegations were "incorporated by reference."  It’s a way of not having to repeat yourself.  That  shortcut is specifically allowed by Rule 10(c) of the North Carolina Rules of Civil Procedure, which says that: "Statements in a pleading may be adopted by reference in a different part of the same pleading or in another pleading or in any motion in the action."

If you have a case where you have filed multiple briefs, you might "incorporate by reference" arguments you made in an earlier brief.  You probably haven’t thought twice about that. 

Well, Judge McGuire of the NC Business Court has thought about it, and he doesn’t like it.  In American Air Filter Co. v. Price, 2017 NCBC 54, he ruled that the use of incorporation by reference of earlier briefs could be a violation of the Rules of the NC Business Court and that it could result in the Court refusing to consider the referenced argument.

How could that be, you are wondering, as there is no mention (or any prohibition) of this practice in the Court’s rules.  The reason is that the inclusion of the pages of a previously filed brief might push you over the page limitations contained in the Business Court Rules for briefs.  The Rules require the lawyer for a party filing a brief to limit her words to 7,500, and to "include a certificate by the attorney or party that the brief complies with this rule." BCR 7.8.

Judge McGuire said in the American Filter case that: 

The General Rules of Practice and Procedure for the North Carolina Business Court (“BCR”) do not expressly permit parties to incorporate previously-filed briefs and documents outside of the brief at issue, at least not to supplement the substantive text of the brief at issue. In fact, BCR 7.8 provides strict word limits on briefs submitted to this Court. Even if incorporation of previous briefs were allowable, it appears a party incorporating a previously-filed brief would have to certify under BCR 7.8 that the brief and the incorporated brief did not exceed the word limits. Defendants have not done so in this case. As a result, the Court declines to consider Defendants’ arguments and authorities regarding choice of law issues contained in other filings with the Court.

Op. at n.2.

 

Continue Reading Incorporating By Reference In Your NC Business Court Brief? Don’t Do It!

The parties to Security Camera Warehouse, Inc. v. Bowman, 2017 NCBC 38, had been adverse to each other in a previous lawsuit (not in the Business Court), which they settled.  Security Camera released Bowman, one of its former owners, from all claims in that settlement.  But during the settlement negotiations which resulted in the settlement of lawsuit #1, Bowman had control of Security Camera’s computer server, and downloaded what Security Camera said was trade secret information (Security Camera’s customer list and other information regarding those customers).

After the settlement was done, Bowman incorporated Defendant Arcdyn to compete with Security Camera, using the customer information he took during the settlement discussions.

Security Camera, understandably aggrieved, sued Bowman and Arcdyn on a variety of theories, including misappropriation of trade secrets and breach of fiduciary duty.

The Defendants said that these claims were barred by the Release.  In his Opinion, Judge Conrad agreed and dismissed most of the claims.

Here are the terms of the Release: Security Camera and Nederlanden (who became the sole owner of Security Camera via the settlement) said that they:

generally release and forever discharge Bowman, his agents, heirs,successors and assigns, from any and all claims, demands, and causes of action of whatever kind or character which [Security Camera and Nederlanden] have, or may have in the future, against Bowman, based on any acts or events that have occurred on or before the execution of this Agreement, whether or not growing out of or connected in any way with operations or business transactions of [Security Camera].

Op. 8 (emphasis added).

Judge Conrad framed the issue as follows: "whether the parties’ mutual release bars recovery for the post-release use of a trade secret wrongfully acquired before the execution of the release."  Op. 24. 

Don’t Release Claims Which You "May Have In The Future"

The Court dismissed as "untenable" Security Camera’s  main argument that the release was not prospective.” The language contained in the Release, that it covered claims Security Camera “may have in the future," made this pretty clear.  Op. 28.

Judge Conrad noted that Security Camera had not limited the terms of the Release to preserve its trade secrets claims, and that the alleged misappropriation of trade secrets had happened before the execution of the Release. He said:

  • In negotiating the release, Security Camera could have required Bowman to return its property, reserved any potential trade-secret claims, or refused to release claims accruing after the execution of the Agreement.
  • It did not, and it is now far too late to import limitations that were not the subject of the parties’ bargain.

Order 30.

But not all of Security Camera”s claims were dismissed. The Court left standing a claim for the Defendants’ interference with a website which the Plaintiff claimed it owned (SCWddns.com).  It said that the Defendants had disabled the website, and that it had to buy a new domain to restore its website.

Although the Defendants claimed that they owned the website, Judge Conrad found that there was an issue of fact on that point, and he refused to dismiss the claim.  Op. 42-43.

On the subject of releases, it’s pretty common to release a party from all claims, whether "known or unknown" at the time of the release.  So, it was not out of the ordinary for Security Camera to give up claims it was unaware of that arose during the settlement negotiations.

 

 

The lawyers in Baker v. Bowden, 2017 NCBC 30, decided this week by Judge Robinson, were negotiating a settlement agreement by email.  The Plaintiff thought that it had a deal.  When the Defendant balked, the Plaintiff moved the Business Court to enforce the settlement. 

The Plaintiff, whose lawyer had sent an email to the Defendant’s lawyer stating "[m]y client accepts the offer," found that there was no offer anymore, and no enforceable agreement.

The Plaintiff’s lawyer thought in accepting the offer that the Defendant’s offer was still open for acceptance.  But even the Defendant’s lawyer wasn’t sure if it was.  His last email to Plaintiff’s counsel said:

in the interim since yesterday afternoon my client is actually having second thoughts about his offer, so I’m not sure it’s still on the table. I’m not saying it isn’t, but I need to talk with him and see if I can work him through this. I’ll let you know later this afternoon.

Op. ¶12.

The Plaintiff’s email accepting the by then questionable offer followed this email, but Judge Robinson concluded that the "second thoughts" email was a valid revocation of the offer.  Op. ¶23.  You don’t need to use the word "revoke" to withdraw an offer, and "[a]ny clear manifestation of unwillingness to enter into the proposed bargain is sufficient."  Op. ¶23.

The situation before the Court was spelled out in the Restatement (Second) of Contracts, which gives this example of a similar situation when an offer is revoked:

when an offeror states, “Well, I don’t know if we are ready. We have not decided, we might not want to go through with it." 

Op. ¶22 (quoting Restatement (Second) of Contracts sec. 42, comment d).

Reliance on the Restatement as authority seems like a firm foundation.  The Restatement is said to be "a work without peer in terms of overall influence and recognition among the bar and bench."