Valuing a closely held business is often a debate over hypothetical dollars, particularly when the company’s sole asset is unproven technology. The Business Court confronted such a situation recently in Vernon v. Cuomo.
The company in question developed a new technology with potential widespread medical application: silicone-free syringes, which would enable syringes (especially of high-priced
North Carolina law says that "one judge may not modify, overrule, or change the judgment of another Superior Court judge previously made in the same action." In a Business Court decision last week, Phillips and Jordan, Inc. v. Bostic, the Court granted a motion for Rule 11 sanctions on a fraud claim that another Superior Court Judge had refused to dismiss on a 12(b)(6) motion. It did so over the objection of the Plaintiff that the grant of the sanctions motion would be an overruling of the first Judge’s Order on the motion to dismiss.
The procedural facts are quirky. A group of defendants (the "Bostic Defendants") had made and lost a motion to dismiss a fraud claim before the case was designated to the Business Court. After the designation, another defendant moved to dismiss the same fraud claim made in an amended complaint. That dismissal motion was granted by the Business Court on Rule 9(b) grounds.
Judge Diaz referenced in his Order facts showing the Plaintiff had not relied on the statements it claimed were misrepresentations. He said, however, that he wouldn’t consider these facts as to the fraud claim against the Bostic Defendants because that would be "a backdoor attempt . . . to re-litigate the legal sufficiency of the fraud . . . claims in the face of a prior court order denying their Rule 12(b)(6) motion to dismiss."
He nevertheless admonished Plaintiff and its counsel to "consider carefully their obligations under Rule 11 of the North Carolina Rules of Civil Procedure before . . . pursuing the fraud claim against the remaining Defendants." Plaintiff didn’t take that advice, and in August 2009 the Bostic Defendants filed their motion for sanctions. Judge Diaz "again suggested to Plaintiff’s counsel that they consider the merits of the claim alleging fraud" after the motion was fully briefed. This time, the Plaintiff took the Court’s advice and dismissed its fraud claim.
Judge Diaz went ahead and granted the motion for sanctions. He applied a standard of objective reasonableness, and said that "a legal position violates Rule 11 if it "has absolutely no chance of success under the existing precedent." He found that total lack of potential success to be present because the basis of the fraud claim was that the Plaintiff had been deprived of information necessary to make a lien claim against a construction project, but Plaintiff had in fact been able to make this very claim. The Court ruled that the claimed misrepresentation "did not deceive Plaintiff."
The Order doesn’t address why this wasn’t an end run around the principle that one Superior Court Judge can’t overrule another. The Bostic Defendants addressed this in their opening Brief. Their position was:Continue Reading One Superior Court Judge Can’t Overrule Another, Right?
The Court had warned Plaintiff and his counsel in an Order granting a Motion to Dismiss to "consider carefully their obligations under Rule 11 of the North Carolina Rules of Civil Procedure before continuing to pursue a common law fraud claim" against the "Bostic Defendants".
The Court’s Order had dismissed the fraud claim against one
The Court granted an Opposition to Notice of Designation of Action as a Mandatory Complex Business case, ruling that:
This matter appears on the face of the pleadings to involve enforcement of a restrictive covenant contained in a settlement agreement. No additional issues involving the identification, delineation and protection of trade secrets appear from the
The Court denied a motion for sanctions because of the moving party’s failure to comply with the meet and confer requirements of Business Court Rule 18.6(a). The Court held that "[t]his reason alone is sufficient for the Court to deny the Motion."
The Court denied an opposition to the designation of a case as a mandatory complex business case, holding that "[t]he allegations in the Complaint involve a breach of fiduciary duty and the failure to pay dividends and fall within the mandatory jurisdiction of the Business Court."
The Court denied a motion opposing the designation of this case as a mandatory business case, holding that "this matter is a derivative action by a minority shareholder which involves issues relating to the law governing corporations," therefore "conclud[ing] that the allegations in the Complaint fall within the mandatory jurisdiction of the Business Court."
The Court dismissed claims against banks which had provided financing to lot purchasers under the Interstate Land Sales Full Disclosure Act. The Court held that there was no showing that the banks were "developers or developer’s agents" as defined by the Act, and furthermore no allegations that the banks’ involvement in the development had gone
Plaintiff could not make tort claims, including breach of fiduciary duty claims, against a Bank for mismanagement of its investments. "As a general rule, parties to a contract ‘owe no special duty to one another beyond the terms of the contract.’ This general rule even applies to bank-customer relationships like the one at issue."
Plaintiff
The Court overruled an opposition to designation in a case involving "real estate developments which failed during the current financial crisis."
The Court found these types of cases "especially suited" for consideration by the Business Court because "(1) they involve numerous parties, (2) they involve complex issues, (3) they involve current issues relating to real