Detail of dirty hands – blacksmith

The  Business Court Opinion last month in Shaw v. Gee, 2018 NCBC 108,  deals with two interesting trial procedure issues: how to preserve all your arguments for making motions for judgment not withstanding the verdict and for a new trial.

Shaw had won at trial on one of his claims (that Gee had breached his fiduciary duty), but the jury had not considered damages (finding that Shaw’s claims were barred by his “unclean hands”).  Shaw moved for a judgment notwithstanding the verdict (a JNOV Motion), or alternatively, for a new trial.

JNOV Motions And Directed Verdict Motions

The problem with the JNOV Motion was that the Plaintiff hadn’t preserved the grounds stated in his earlier motion for a directed verdict.  What?  What does a motion during trial for a directed verdict (a DV Motion) have to do with a post-trial motion for JNOV?

Well, a JNOV Motion “is essentially a renewal of an earlier motion for directed verdict.”  Op. ¶21.  A DV Motion “must ‘state the specific grounds therefor’ in order to give “notice to the other party of possible defects and an opportunity to cure.”  Op. ¶21.

When you renew your DV Motion vioa a JNOV Motion, you can’t rely on grounds you didn’t assert during the trial.  In other words, no new grounds will be considered by the Court.  Since the Plaintiff had withdrawn the only basis on which his DV Motion as to the unclean hands defense was premised, he couldn’t argue the new ground that the evidence was insufficient to support the verdict.  But he did get to argue it when asking for a new trial.

Motion For A New Trial

The Motion for a new trial didn’t depend on what was said in moving for a directed verdict.  But it was still denied, after Judge Conrad said that the power to grant a new trial “must be used with great care and exceeding reluctance.”  Op. ¶32 (quoting In re Will of Buck, 350 N.C. 621, 626, 516 S.E.2d 858, 861 (1999)).

Shaw argued that the evidence was insufficient to support a finding that his hands were so “unclean” as to bar his fiduciary duty claim.  Judge Conrad said that this was a “classic jury question” and that “substantial evidence” supported the jury’s verdict.  Op. ¶¶ 38-39.

Can An LLC’s Derivative Claim Be Barred By The Unclean Hands Of An LLC Member?

The Opinion also devotes a good bit of discussion to whether a derivative claim (Shaw’s claim for breach of fiduciary duty was derivative, made on behalf of an LLC) can be barred by an individual  plaintiff’s unclean hands.

That’s a question of first impression in North Carolina, but Judge Conrad did not resolve it.  Instead, he ruled that Shaw had not preserved this issue.   He had not objected to the instructions to the jury, which had told the jury to consider whether Shaw’s conduct, not that of the LLC, had been sufficiently unfair to bar his claim.  Op. ¶53.

So maybe one day we will know the answer to that question, but not in this case.

This hurricane — Florence — has proved so far to be underwhelming in Greensboro.

But North Carolina is nevertheless taking this hurricane very seriously.  It’s seen as so devastating that the Chief Justice of the NC Supreme Court has issued blanket extensions of time in cases pending in 14 Counties, most on the coast or not far inland.  The Counties mentioned in his Order are Beaufort, Brunswick, Carteret, Craven, Currituck, Dare, Hyde, Jones, New Hanover, Onslow, Pamlico, Pender, Sampson, and Tyrrell.

Here’s the deal: if you have a case pending in any of those Counties, and you had a filing due between last Thursday (the 13th) and today, you have a nearly two week extension of time within which to make your filing, by the close of business on September 28th.

How could Chief Justice Martin even do that?  Section 39 of Chapter 7A, which is partly captioned “emergency orders in catastrophic conditions” gives him the power to extend deadlines, including tolling the statute of limitations.  Given the mandatory evacuations ordered in the fourteen Counties listed above,  Chief Justice Martin had the catastrophic conditions and the power to grant the extension of time which he did.  Per the statute, the extension of time had to be for at least ten days.

Chief Justice Martin also had the power to extend the statute of limitations in those Counties.  The statute gives him the power to:

[e]xtend . . . the time or period of limitation within which pleadings, motions,notices, and other documents and papers may be timely filed and other acts may be timely done in civil actions.

N.C. Gen. Stat. sec. 7A-39(b)(1).  Did he exercise that power?  Maybe, but I would be leery of relying on the language in his Order to extend the statute of limitations.  It says that “all pleadings. motions, notices, and other documents that were due to be filed [in the fourteen Counties] between the dates of 13 September 2018 and 17 September 2018 in civil actions, criminal actions, estates, and special proceedings shall be deemed to be timely done if they are done before the close of business on 28 September 2018.

Does this affect cases in the NC Business Court?  Yes, more so than you might think.  I counted nearly 200 “active” cases in the Business Court filed in those Counties.  There were one hundred from New Hanover County alone.  And 42 from Brunswick County.

But given the electronic filing system in the Business Court, did lawyers really need the benefit of this extension?  Nobody has to slog through flooded streets to make a filing in the Business Court.  But, given that Business Court Rule 3.11 requires a paper filing to be made in the County where the case originated within five days of the date of the electronic filing, maybe yes.  I hate that Rule.  It seems totally unnecessary.

The title of Judge Bledsoe’s Opinion in Carolina Home Solutions 1, Inc. v. Crystal Home Solutions, Inc., 2018 NCBC 57, is ominous in itself.  It is titled “Order and Opinion Denying Pro Hac Vice Admission and Referral to the Georgia and North Carolina State Bars.”

How hard is it to get a pro hac vice (PHV) admission in the Business Court?  Not very.  You just have to comply with N.C. Gen. Stat. §84-4.1.  Who even gets denied pro hac admission to the Business Court?  (It happens.  Judge McGuire once revoked the previously granted pro hac admission of a lawyer and barred him from practicing in North Carolina for two yearsJudge Jolly once refused to admit a lawyer for the University of Maryland on a pro hac basis because of a conflict of interest.)  And what does one have to do that is so bad that they are referred to two separate state bars?

The attorney in question, trying to represent the Plaintiff and its President, is admitted in Georgia, not North Carolina.  He was not permitted to appear in any Court in North Carolina without being admitted PHV.  He was aware of this, because Judge Bledsoe warned him on multiple occasions.

I don’t think that I have ever criticized any lawyer by name on my blog for violating the Business Court Rules or for doing something stupid, and I won’t start now.  If you want to know the name of the lawyer who is the subject of this Opinion, you’ll have to look at the Opinion.  I’ll just refer to him as “Mr. Georgia Lawyer.”

Judge Bledsoe said in a written Order in the case earlier this year:

(i) that “unless Plaintiff is represented by a duly admitted and licensed attorney-at-law at trial, Plaintiff will not be permitted to participate in the trial,” and (ii) that “[Mr. Georgia Lawyer] may not represent Plaintiff in this action unless Plaintiff and he promptly comply with the requirements of N.C. Gen. Stat. § 84-4.1, including, in particular, Plaintiff’s retention of counsel duly licensed in North Carolina with whom Mr. [Georgia Lawyer] will be personally appearing in this action.”
Op. ¶12.
Mr. Georgia Lawyer did not immediately comply with the Court’s direction.  Though he did represent to the Court, via email, that he would associate with NC counsel and would file a Motion for pro hac admission the next day.  But he didn’t.
Meanwhile, pretrial deadlines were approaching.  One of the parties that Mr. Georgia Lawyer was supposed to represent went ahead and filed its portion of the Pretrial Order, signed by its President, not a lawyer.  The President also signed off on a trial brief.
Both the Pretrial Order and the Trial Brief appeared to Judge Bledsoe to have been prepared by a lawyer.  I have looked at the Trial Brief.  It might have been prepared by a lawyer, but if it was, it’s not a very impressive piece of work.
What difference does it make who prepared it?  The answer is that if it was “ghostwritten” by Mr. Georgia Lawyer, that would be the unauthorized practice of law.
Ghostwriting
Ghostwriting is worth a few words.  First, an attorney licensed in North Carolina can draft documents on behalf of a pro se party without appearing in the case.  Op. ¶22.  But an out-of-state lawyer can’t do that unless she complies with pro hac admission procedures.  Id.
If Mr. Georgia Lawyer drafted documents for his client to sign off on, he was engaging in the unauthorized practice of law.  So?  Well that is a Class 1 misdemeanor in North Carolina.  Op. ¶24.  How serious is a Class 1 misdemeanor in North Carolina?  I wondered, and finding the answer took a took a little bit of searching.  North Carolina has four classes of misdemeanors: Class 1A, 1, 2, and 3.  N.C. Gen. Stat. §15A-1340.23.  If Mr. Georgia Lawyer has no prior misdemeanors on his record, he faces 45 days of community service plus a fine in an amount to be determined in the discretion of the Court.  That penalty, if it is ever imposed, will be handed out by a state District Court Judge, not a Business Court Judge.

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.

 

.