If you’ve been practicing law for more than a few years, you’ve undoubtedly been asked to "domesticate" in North Carolina’s courts a judgment entered in another state. A pretty easy task you think, covered by North Carolina’s adoption of the Uniform Enforcement of Foreign Judgments Act, N.C. Gen. Stat. Sec. 1C-1701 to -1708.

Let’s say that the lawyer defending against the domestication tells you that the out-of-state judgment was obtained based on "intrinsic fraud, misrepresentation, and misconduct."  Those would probably be grounds for setting aside a North Carolina judgment under Rule 60(b) of the North Carolina Rules of Civil Procedure.  Can the foreign judgment be enforced in North Carolina under the Uniform Act?

Those of you who are particularly sharp are wondering about the constitutional principle of Full Faith and Credit.  Article IV, Section 1 of the Constitution says that "Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State."  Not surprisingly, there is a good bit of judicial discussion of the interplay between the Uniform Act and the Constitution, with the most recent comment this week from the North Carolina Court of Appeals, in DOCRX, Inc. v. EMI Services of NC, LLC.

DOCRX was on the receiving end of a judgment in Mobile County, Alabama, of nearly half a million dollars.  When EMI sought to have its Alabama judgment enforced in North Carolina, DOCRX argued per NCRCP 60(b) that the judgment  could not be enforced because it was obtained on the basis of intrinsic fraud.  

The trial judge refused to enforce the judgment based on the Rule 60(b) argument and the Court of Appeals noted that this interpretation was "warranted from the plain language of the statute." Section 1C-1703(c) states that a foreign "judgment so filed has the same effect and is subject to the same defenses as a judgment of this State and shall be enforced or satisfied in like manner[.]"  And Rule 60(b) refers to "[f]raud (whether heretofore denominated intrinsic or extrinsic)" as a ground for setting aside a judgment.

But the Constitution intervenes here.  The core of the Court of Appeals’ holding was that:

We hold that postjudgment relief from foreign judgments under N.C.G.S. § 1A-1, Rule 60(b) is limited to the following grounds: ‘(1) the judgment is based upon extrinsic fraud; (2) the judgment is void; or (3) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application.

Op. at 9 (quoting Craven v. Southern Farm Bureau Cas. Ins., 117 P.3d 11, 14 (Colo. App. 2004))(emphasis added)

These were the only grounds on which the trial court could have denied enforcement.  The arguments of "intrinsic fraud, misrepresentation and misconduct" were insufficient.  So, the Court of Appeals reversed the trial judge and remanded the case "for further proceedings."  Op. at 11.

Oh, and what about "intrinsic" fraud anyway?  What is that and how is it different from "extrinsic" fraud?  The federal Third Circuit called the terms a "most unfortunate" distinction, in Averbach v. Rival Mfg. Co., 809 F.2d 1016 (3d Cir. 1987).  Intrinsic fraud is fraud deceiving the court in obtaining a judgment. Extrinsic fraud is conduct which happens outside of court, but which deprives an adversary of the opportunity to present his case.

 

You don’t see a trademark infringement action in the Business Court every day, let alone a TRO decision, but a case with both came along last Friday in SCI Carolina Funeral Services, LLC v. McEwen Ellington Funeral Services, Inc.  Moreover, this was a common law trademark case, with no federal registration — or even a state registration — involved.

The Defendants had previously operated funeral homes under the McEwen name in the Charlotte, North Carolina area.  In 1986, they sold those funeral homes, and their trademarks and trade names, to the Plaintiffs.

Then, notwithstanding their agreement, the Defendants opened a funeral home under the McEwen name and began advertising under that name as well.  They also registered a trade name with the North Carolina Board of Funeral Services as McEwen Ellington Funeral Services.  

There’s very little North Carolina state law on trademark infringement, but Judge Murphy found enough to enter a temporary restraining order against the Defendants.

He held, relying on a 1907 North Carolina Supreme Court decision, that "North Carolina common law protects corporations’ trade names," stating that

It is well settled that an exclusive right may be acquired in the name in
which a business has been carried on, whether the name of a partnership or
of an individual, and it will be protected against infringement by another
who assumes it for the purpose of deception, or even when innocently
used without right, to the detriment of another; and this right, which is in
the nature of a right to a trade-mark, may be sold or assigned. 

Op. ¶9 (quoting Blackwell’s Durham Tobacco Co. v. American Tobacco Co., 145 N.C. 367, 374, 59 S.E. 123, 127 (1907).

Then, although there’s no reported state court decision on when a trademark infringement plaintiff has shown the likelihood of confusion necessary to prevail, Judge Murphy relied on a federal decision from the Western District of North Carolina holding that the factors to be considered are:

1) the strength or distinctiveness of the mark; 2) the similarity of the two
marks; 3) the similarity of the goods/services the marks identify; 4) the
similarity of the facilities the two parties use in their businesses; 5) the
similarity of the advertising used by the two parties; 6) the defendant’s
intent; and 7) actual confusion.

Op. ¶10 (quoting Wachovia Bank & Trust Co. v. Crown Nation Bancorporation, 835 F. Supp. 882, 886(W.D.N.C. 1993)).

If that standard sounds familiar, that’s because it is, and drawn from the Fourth Circuit Court of Appeals’ often cited opinion in Pizzeria Uno v. Temple, 747 F.2d 1522, 1527 (4th Cir. 1984)).

Given that the Plaintiffs had shown that their McEwen mark was distinctive, the marks in question appeared to be similar, the funeral services provided by the parties were identical, the parties use similar facilities, the parties’ advertising is similar, and that one of the Defendants had registered and operated under the challenged mark with the intent to cause confusion among the consuming public, it was any easy step to enjoin the Defendants from using the McEwen name in connection with funeral services.

It’s hard to tell how the Defendants defended this pretty clear case of infringement, given that they didn’t even file a brief in opposition to the motion for a TRO.

 

If you are a lawyer practicing in the Middle District of North Carolina, you will be excited about Standing Order #2, issued by the Judges of the Court on January 8th.

The Order authorizes the use of cellphones — even those with cameras — in the courthouses of the District.  The banning of cellphones with cameras has long been a bugaboo for lawyers practicing here.  And after all, can you even buy a cellphone without a camera anymore?

Here are the answers to some of the questions you may have about this sea change in Middle District procedures:

When is the new policy effective?  It is effective immediately.

What about my clients?  Can they bring their cellphones to Court?  No, the policy applies only to attorneys, including out of state attorneys who are appearing with local counsel per Local Rule 83.1(d).

What about paralegals and personnel of my law firm?  They are not covered by this policy.

Can I let someone with me use my cellphone in the courthouse?  No, the Standing Order says that "[p]ermitted attorneys shall maintain sole custody over the electronic device and shall not allow it to be used by anyone else unless they have been given court permission."

Is there anything I need to do to get my cellphone into the courthouses?  Yes, you need to fill out a form for an "Electronic Device Permission Card."  Submit the form with a self-addressed stamped envelope.  You’ll need to show the card upon entering a courthouse with your cellphone.

But I already have a Laptop Authorization Card.  Do I need to reapply for an Electronic Device Permission Card?  Yes. Here’s the form.

Does this new policy apply in the Bankruptcy Court courthouses?  Yes, it applies to all of the federal courthouses in the Middle District.

What about my iPad and other electronic devices?  They are all included.  The new policy extends to "cell phones, laptops, tablets [and] other electronic devices."

Are there any other restrictions I should know about?  Yes, you need to make sure that your device is not emitting any sounds while in the courtroom.  In most situations, it should be turned off while in the courtroom. As always, you are prohibited from "record[ing], broadcast[ing] or transmit[ting] any video images or audio sounds of the proceedings or the environs."  You agree in advance to these restrictions (and others) when applying for an Electronic Device Permission Card.

What if I violate the restrictions?  You might forfeit your privileges, have your device confiscated, or be held in contempt of court.

What about the Eastern and Western Districts?  The policy on electronic devices varies from District to District.  I wrote about the Eastern and Western District’s policies a couple of years ago.

 

 

The lesson in the Business Court’s first opinion of the year, Allen Smith Investment Properties, LLC v. Barbarry Properties, LLC, 2013 NCBC 1 is to be ready to present your calculation of damages at the summary judgment stage or to be prepared to have your claim dismissed.

The Plaintiffs in Allen Smith were suing their business partner for breach of fiduciary duty. They said that the Defendant’s decision to defer maintenance on an apartment complex that the parties co-owned had caused them damages in the form of lost profits.

The problem for Judge Murphy was the lack of any reasonably certain calculation of the claimed lost profits.  The damages witness had said in his deposition that he was "still trying to figure out how to quantify losses" and that he didn’t think he could calculate the lost profits until "[t]he day before the trial."  Op. ¶23.

Judge Murphy ruled that:

Although the parties conducted discovery for over a year, Plaintiffs could not provide sufficient evidence for the Court to determine the causation or amount of damages with reasonable certainty. Therefore, the Court concludes that [the Defendant] has met its burden of demonstrating Plaintiffs’ failure to provide adequate proof of damages to support their breach of fiduciary duty claim.

Op. ¶55.

He also rejected the efforts of the Plaintiffs to present a new calculation of damages after the discovery period had ended.  They tried this by way of an affidavit presented two months after discovery had closed.  The Judge said that the Plaintiffs had presented no reason why the late-breaking damages calculation could not have been provided during the discovery period, and said that "[s]uch conduct goes directly against the purpose of Rule 26(e) in preventing ‘untimely, evasive, and incomplete responses.’"  Op. ¶74.

It’s easy to lose sight of damages during discovery when you are focused on proving liability. Don’t let that happen to you or you may have your case dismissed.

 

It’s hard to like the result in Wake County v. Hotels.com, LP, 2012 NCBC 61.  The case is a consolidation of cases brought by several North Carolina counties (Mecklenburg, Wake, Dare, and Buncombe) against Hotels.com and other internet travel sites (like Orbitz.com, priceline.com, and travelocity.com).  Hotels.com, the first named Defendant, is an online booking service that promises the lowest available rates for a multitude of hotels.

The NC County Plaintiffs allege that Hotels.com and the other Defendants contract with hotels for rooms at a discounted rate, and then sell the rooms to consumers at a higher rate.  Their beef is over the non-payment by hotels.com of the Occupancy Tax ordinarily paid by hoteliers.  They allege that Hotels.com and the other Defendants charge their customers for tax at the higher rate at which the hotels actually sell the room, but then only remit taxes based on the discounted rate they pay the hotel operator.

What happens to the difference?  Hotels.com and the other Defendants pocket it.  Shouldn’t they pay the excess collected to the counties or the North Carolina Department of Revenue?  The Counties thought so.

But the upshot of Judge Murphy’s decision in the Wake County case is that the Counties had no cause of action against the Defendants.  He granted summary judgment in favor of the Defendants.

The why of it took 30 pages of statutory analysis of North Carolina’s taxation scheme.  The Occupancy Tax is not contained in the General Statutes.  Instead, the General Assembly passed statutes authorizing counties to levy an Occupancy Tax.  The counties levy the Occupancy Tax via resolutions or ordinances.

So the cases turned on the counties’ ordinances, and upon whom they placed the obligation to collect the tax.  In Mecklenburg and Wake Counties, it was the "operator of a taxable establishment."  In Dare and Buncombe Counties, it was the "operator of a business subject to a room occupancy tax."

Judge Murphy concluded that the Defendants were not responsible for collecting the Occupancy Tax.  If you are curious about how he reached that conclusion — and you must be a state taxation junkie if you are — you can read about it in Paragraphs 33 through 53 of the Opinion.

Other Interesting Things About This Opinion

For those of you who aren’t enamored  by the Occupancy Tax, you might find interesting Judge Murphy’s discussion of Rule 8 of the North Carolina Rules of Civil Procedure and his disposition of a conversion claim.

 

Continue Reading Hotels.com And Other Online Travel Vendors Don’t Have To Pay Occupancy Taxes To North Carolina Counties

Today’s post is really a thank you to Judge Gale for delivering the Christmas gift I requested in last week’s post: a decision from the North Carolina Business Court on an open question of North Carolina’s corporate law to write about because I was tired of writing about Delaware law on this North Carolina blog.

The gift came in the decision in Blythe v. Bell, 2012 NCBC 60, decided Monday by the Business Court.  The Blythe opinion is the first decision under North Carolina’s Limited Liability Company Act construing the effect of a transfer of an LLC interest by an LLC member.

What’s Included in a LLC Member’s Interest

The definition of a membership interest is in G.S. §57C-1-03.  As Judge Gale observed, the statute recognizes the distinction between a member’s ‘economic interest’ (the right to receive distributions from the LLC) and the member’s ‘control interest’ (the right to vote or to participate in the management of the LLC).  Op. 27. 

Assigning an LLC Member’s Interest Doesn’t Make The Assignee A New Member Of The LLC

The LLC Act deals in N.C. Gen. Stat. §57C-5-02 with "assignment of membership interests."  Section 57C-5-04(a) covers the "right of assignee to become a member."

It’s worth a look at the statutes, which you can read by clicking on the links, as they were too long to quote.  As Judge Gale observed, Section 57C-5-02 makes it clear by its wording that "an assignment in and of itself does not entitle the assignee to become a member or to exercise a
member’s rights if he is not already a member. "  Op. 33.  

If there is an assignment of an LLC interest to someone who is not already a member of the LLC, then Section 57C-5-04(a)(2) requires the unanimous consent of the other members before the assignee can become a member.

What Happens To The Control Interest When There’s An Attempted Assignment To A Non-Member?  

The issue of the control interest’s assignability was the nub of the Blythe case.  One of the Defendants, Joseph, had assigned his membership interest in an LLC to HBI, which was not a member of the LLC.  Plaintiff said this meant that neither Joseph nor the assignee had a right to vote the 30% interest.

The effect of this argument, if accepted, was that the Plaintiff’s control interest went from 40%  to 57% (based on 40% of the 70% remaining with Joseph’s 30% out of the equation).  That turned a minority member into the controlling majority member.

Judge Gale rejected that argument focusing on the LLC Act as a whole.  He said that the control rights continued to reside with the assigning member until the assignee was admitted as a new member per the terms of Section 57C-5-04.  In particular, he relied on G.S. §57C-5-06, which prohibits a member from voluntarily withdrawing from the LLC without an express agreement from the other members allowing the withdrawal.  Accepting Plaintiff’s argument would have allowed a member to withdraw via assignment which Judge Gale found to be contrary to the Act.

The effect of this ruling was that Joseph had transferred his economic interest, but he remained a member of the LLC with voting rights unless and until until his assignee was admitted as a member by unanimous consent. 

It’s worth noting that the same result would have been reached under the terms of the Revised Uniform Limited Liability Company Act, Section 502(g).

There’s A Difference If The Assignment Is To An Existing LLC Member

 Here’s another part of the ground-breaking LLC news from Blythe:  Judge Gale held that he "interprets the Act to allow members, absent a contrary agreement, to transfer both their economic and control membership interests to existing members without unanimous member consent."  Op. 44. 

How Do You Avoid This Type Of Problem?

Is there a way to avoid this type of wrangling over assignments of LLC interests?  Of course.  The default provisions of the LLC Act control "unless otherwise provided in the articles of organization or the operating agreement of a North Carolina LLC."  Op. 24.  The LLC in Blythe had no operating agreement.  If there had been one, the assignment provisions of the LLC Act might have been varied.

 

 

Premier, Inc. v. Peterson, 2012 NCBC 59, decided last Friday by Judge Murphy, turned on a strict application of the parol evidence rule.

At issue was whether the defendants were entitled to a substantial earn-out payment under a Stock Purchase Agreement.  The Plaintiff had purchased the Defendants’ software business of selling a Web-based surveillance and analytic services to healthcare providers.

Interpretation of the Contract

The Stock Purchase Agreement called for the earnout payment to be made on a series of five year anniversaries of the acquisition date.  The calculation was to be based on the number of hospitals at which a "Product Implementation" of the software products purchased by the Plaintiff had occurred.

The SPA contained a definition of "Product Implementation," and Judge Murphy not surprisingly held that "[b]ecause the goal of construing a contract is to arrive at the intent of the parties when he contract was executed, where a contract defines a term, ‘that definition is to be used.’"  Op. 31(quoting Woods v. Nationwide Mut. Ins. Co., 295 N.C. 500, 505-06, 246 S.E.2d 773, 777 (1978)).

The definition called for the hospital in question to have subscribed to or licensed the product and to have implemented it as well.  A representative of the sellers said that notwithstanding the definition, the parties had agreed during  the negotiations that a "Product Implementation" would include instances where the product was merely provided to the hospital, even without a subscription or license.

Judge Murphy rejected this argument, holding:

 this agreement, at best, adds to the unambiguous terms of the contract requiring a
subscription or license. As such, the parol evidence rule bars consideration of this
proffered agreement, and the Court must enforce the language as written. In doing
so, the Court concludes that Plaintiff’s interpretation construes all the terms
harmoniously, giving effect to the entire provision. Therefore, the Court concludes
that the language is unambiguous, and that Plaintiff has presented a reasonable
interpretation of “Product Implementation.”

 Op. 35.

Attorneys’ Fees?

Maybe you are thinking that the Defendants’ argument was so beyond the pale of the parol evidence rule that the Plaintiff should have been awarded attorneys’ fees.  And the Stock Purchase Agreement called for fees to be awarded to the "prevailing party."

So were fees awarded to the Plaintiff?  No, because of the NC Supreme Court’s decision in Stilwell Enter. v. Interstate Equip Co., 300 N.C. 286, 266 S.E.2d 812 (1980), in which it held that:

[e]ven in the face of a carefully drafted contractual provision indemnifying a party for such attorneys’ fees as may be necessitated by a successful action on the contract itself, our courts have consistently refused to sustain such an award absent statutory authority therefor.

Id. at 289, 266 S.E.2d 815-16 (emphasis added).

Statutory authority?  Wait a minute.  What about N.C. Gen. Stat. sec. 6-21.6(c), which says that:

If a business contract governed by the laws of this State contains a reciprocal attorneys’ fees provision, the court or arbitrator in any suit, action, proceeding, or arbitration involving the business contract may award reasonable attorneys’ fees in accordance with the terms of the business contract.

No to attorneys’ fees, said Judge Murphy, notwithstanding Section 6-21.6.  That statute applies only to business contracts entered into on or after that statute’s effective date, which was October 1, 2011.  This Stock Purchase Agreement was entered into five years before that effective date, in 2006.  Op. ¶46 & n.2.

 

 

 

If you are a derivative action plaintiff, and you make a demand on an LLC to take action which is then considered and rejected, may you still pursue your claims?  Judge Murphy answered that question, and others relating to derivative actions under Delaware law in this week’s opinion in  Scott v. Lackey, 2012 NCBC 58.

By the way, the reason that I am writing today about Delaware law, instead of North Carolina law, is that the entities involved in the Scott case were formed in Delaware, so Judge Murphy ruled that Delaware law controlled.

Derivative Action After Rejected Demand

In North Carolina, the answer is in G.S. §57C-8-01. If the Court appoints a committee of "two or more disinterested managers, directors, or other disinterested persons, acceptable to the limited liability company, to determine whether it is in the best interest of the limited liability company to pursue a particular legal right or remedy."  Then, if the committee determines that it would not be in the best interests of the LLC to pursue the claim, the Court can dismiss it.

In Delaware, the answer is a bit more complicated, as borne out by the Business Court’s decision  in the Scott case. 

Delaware law in this niche implicates the business judgment rule.  Three issues arise:

‘(1) whether the [managers] acted independently and not self interestedly; (2) whether the [managers] reasonably investigated the basis for the proposed litigation; and (3) whether the [managers] refused to act in good faith.  Seaford Funding Ltd. P’ship v. M & M Assocs. II, 672 A.2d 66, 70 (Del. Ch. 1995) (citing Spiegel, 571 A.2d at 777).

Op. ¶52.

in Delaware, by making a demand, the derivative plaintiff "tacitly concedes the independence of a majority of the board to respond."  Op. ¶52.  But Delaware law does not imply a concession that the managers of an LLC will act in a disinterested way in considering a demand.  Op. ¶53.

Judge Murphy found a "reasonable doubt" as to whether two of the managers had acted in good faith in responding to the demand.  He noted that they had refused to meet with the Plaintiff to discuss his concerns.  He also observed that they stood to benefit directly from the challenged transactions, and he denied the Motion to Dismiss the derivative claims.

Adequacy Of Derivative Plaintiff

A Delaware derivative Plaintiff "must be qualified to serve in a fiduciary capacity as a representative of a class, whose interest is dependent upon the representative’s adequate and fair prosecution."  Op. ¶93.

The Defendants in the Scott case said that Scott was an inadequate Plaintiff because he had a personal interest in gaining control of the LLC.

Judge Murphy disagreed, holding that "selfish motives alone will not mandate Plaintiff’s disqualification as an inadequate representative."  Op. ¶96.  He added that "it is hardly unusual for derivative plaintiffs to have their own interests in mind when bringing a derivative action."  Id.

The Defendants pointed to a defamation claim lodged against them by the Plaintiff as evidence of Plaintiff’s vindictiveness towards them.  Judge Murphy shot down that argument as well, again looking to Delaware law:

absent some concrete fact revealing a conflict between Plaintiff and BHCM, ‘amorphous hostile feelings against defendants [are] not in [themselves] relevant.’ Emerald Partners, 564 A.2d at 677 (quoting Vanderbilt v. Geo-Energy Ltd., 590 F. Supp. 999, 1001 (E.D. Pa. 1984)).

Op. ¶99.

Defendants also argued that the Plaintiff’s derivative action did not have the support of other members of the LLC.  That too was an insufficient argument  Judge Murphy observed that "[a] derivative claim may be maintained . . . without the support of a majority or ownership or even the support of the entire minority."  Op. ¶100.

 

Breach of Fiduciary Duty

Judge Murphy found that the Defendants owed a fiduciary duty to the Plaintiff, stating that "unless otherwise stated in the LLC agreement, ‘the member-managers of a Delaware limited liability compan[y] owe traditional fiduciary duties to the LLC and its members."  Op. ¶69.

For a long time, that appeared to be the law of Delaware, but recent developments show that it is not.  In Gatz Properties LLC v. Auriga Capital Corp., No. 148, 2012 (Del. Supr. Nov. 7, 2012), the Delaware Supreme Court said that the issue of a "default fiduciary duty" remained an "open question," 

It chastised the Chancey Court Judge for saying otherwise, stating 

We feel compelled to address this dictum ‘because it could be misinterpreted in future cases as a correct rule of law,’ when in fact the question remains open. Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160, 167 (Del. 2002).

Gatz, supra, at n.62 (emphasis added).

Would it have made a difference to Judge Murphy’s opinion if Delaware law had been clear on the fiduciary duties of managers?  Probably not, as it seems inevitable that the Delaware Supreme Court will reach the conclusion that managers have a fiduciary duty to their LLC.  The North Carolina Court of Appeals  ruled three years ago that LLC managers owe such a fiduciary duty to the LLC, in  Kaplan v. O.K. Technologies, LLC.

I wrote about the differences between Delaware and North Carolina on the point of LLCs and fiduciary duty in April 2009.

*   *   *

If you are wondering what I want for Christmas, it would be a decision from the North Carolina Business Court on an open question of North Carolina’s corporate law to write about.  I’m tired of writing about Delaware law.  

 

If you’ve ever made a Motion for Costs following a win at summary judgment or a win at trial you know that the law on such motions is a quagmire.   Does the trial court have discretion in determining whether to award costs to a prevailing party?  Section 6-20 of the General Statutes implies that the Court always has discretion (it’s titled "Costs allowed or not, in discretion of Court"), but the answer is muddy.

Judge Gale ruled in a post-judgment ruling last Friday in Dunn v. Dart that the costs listed in and allowed by G.S. N.C. Gen Stat.§7A-305(d) must be awarded to a prevailing party, and that a trial judge lacks any discretion in determining to deny them.  He interpreted a less than year old Court of Appeals decision, Khomyak v. Meek, 720 S.E.2d 392 (2011), "[t]o eliminate that discretion and to compel awarding the prevailing party those costs allowed by N.C. Gen Stat.§7A-305(d)"

The Khomyak case represented an admirable effort by Judge McCullough of the Court of Appeals to harmonize the cases laying in the "troublingly divergent path" taken by the COA  in ruling on motions for costs that have come to it on appeal.

That "troubling path" includes Smith v. Cregan, 178 N.C. App. 519, 632 S.E.2d 2006 (2006), which held that a trial court does have discretion whether to award costs:

this Court’s decision explicitly holds that, for actions governed under section 6-20, such as negligence actions like the present case, the trial court has the discretion to determine whether or not to award costs to the prevailing party, and if the trial court chooses to exercise that discretion, then the trial court is confined to those costs expressly enumerated under section 7A-305(d) or any other statute." Id. at 222 (emphasis added).

Id. at 734, 596 S.E.2d 895.

Since one panel of the Court of Appeals can’t overrule another, and since the North Carolina Supreme Court hasn’t ruled on the discretion issue, the Smith case is still out there as good (but now questionable) law.

It doesn’t take much reading between the lines of the one page Order in Dunn v. Dart to take away that Judge Gale did not look kindly on this  Motion for Costs.  In fact, he stated that "[i]f the court did have discretion to do so, it would exercise its discretion here to deny all costs."  

And he certainly exercised some discretion, in awarding only about five thousand dollars in costs against Defendants’ request for more than $130,000 in fees and costs.  

Don’t forget that this case is a fight between lawyers to carve up a big fat fee about which I wrote last year.  There’s obviously no love lost between those lawyers, and maybe the Court of Appeals will get another chance to consider the law on Motions for Costs if there is an appeal of this ruling.

Maybe one day North Carolina will be the center of the business litigation universe, but for now the center of that universe remains in  Delaware.  

The Order last week in Justewicz v. Sealy Corp., 2012 NCBC 57 — in which the Business Court stayed a North Carolina class action in favor of parallel Delaware class actions — illustrates that.

The Justewicz case challenges the validity of the sale of Sealy (the mattress company) to Tempur-Pedic, asserting that the sale is overly preferential to Tempur-Pedic and tp Sealy’s board members.  Five similar class actions were filed in Delaware, one before the Justewicz case and the other four shortly thereafter.

The defendants in Justewicz moved to stay the case per N.C. Gen. Stat. §1-75.12, which says that: 

If, in any action pending in any court of this State, the judge shall find that it would work substantial injustice for the action to be tried in a court of this State, the judge on motion of any party may enter an order to stay further proceedings in the action in this State. A moving party under this subsection must stipulate his consent to suit in another jurisdiction found by the judge to provide a convenient, reasonable and fair place of trial.

G.S. §1-75.12(a).

In deciding to stay the North Carolina case, Judge Gale looked to several of the twelve factors identified by Judge Tennille in a 2007 decision, Levy Investors v. James River Group, Inc. (unpublished).

He ruled that the case presented an unsettled issue of Delaware law: whether a party could obtain a pre-closing injunction of a consent merger based on a defective process claim, and that this issue was better decided by a Delaware court.  

Also supporting the ruling was a finding that Delaware was at least as convenient a forum with an "equal or greater nexus to the controversy."  That was so even though Sealy is headquartered in North Carolina.  Judge Gale held that "[w]hile North Carolina does have an interest in the takeover of a business located in North Carolina, Delaware also has an interest in a corporation incorporated there and in the application of Delaware law."  Op. ¶34.

Judge Gale also found significant that the Defendants said that they would not protest Justewicz’s right to participate in the Delaware cases, and that the Justewicz case had not advanced further than the Delaware cases.

Next, he noted that Delaware has a procedural mechanism allowing for direct review by the Delaware Supreme Court  He said that this "expedited appeal process could be useful."  If you aren’t familiar with that expedited process (I wasn’t), it is contained in Rule 25 of the Delaware Supreme Court Rules.

Substantial Injustice.  And finally, Judge Gale held that:

 requiring Defendants to defend essentially the same lawsuit in two different states will work a substantial injustice on Defendants and unnecessarily raises the possibility of inconsistent decisions.

Op. Par. 48.