The Middle District’s new Magistrate Judge, Patrick Auld, was invested yesterday in a ceremony at the federal courthouse in Greensboro.

Cameras are allowed in the courthouse on ceremonial occasions like this, so I’m able to share with you a couple of photographs of the ceremony. That’s Judge Auld in the photo on the left, and the four District Judges of the Middle District in the other (from left, Judge Tilley, Judge Osteen, Chief Judge Beatty, and Judge Schroeder, applauding Judge Auld).

Judge Auld attended Wake Forest University and then Yale Law School.  He clerked for Judge Woody Tilley of the Middle District, and then for Judge Phyllis Kravitch of the 11th Circuit Court of Appeals. He practiced in Atlanta after his clerkships, and then joined the U.S. Attorney’s office in the Middle District in 1998.  He has been Deputy Chief of the Criminal Division in this District since 2004.

Magistrate Judge Trevor Sharp, who introduced Judge Auld, noted the new Judge’s sense of humor and informed him that his jokes will now be much funnier, at least to the lawyers appearing before him. True to form when judicial humor is involved, there was robust laughter from the crowded courtroom at Judge Sharp’s remarks.

Judge Auld will be resident in Winston-Salem. He takes the seat held by Magistrate Judge Russell Eliason, who retired after more than thirty years as a Magistrate Judge.

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."

Full Opinion

Opposition to Designation

Response in Opposition to Designation

Complaint

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."

Full Opinion

Every so often, I add cases decided by the Business Court to the Case Database part of this blog. These cases are less significant than those that get a blog post– at least in my unbridled and unchecked editorial discretion over this blog — but nevertheless include some valuable points.

Email and RSS notifications don’t go out when I add these cases, so you won’t have seen them unless you’ve done some searching through the Database.

Here’s a short list of the last several cases I added to the Database, with links to the summaries:

Abraham v. Jauregui: denying a motion opposing mandatory designation of a case involving a real estate development, and setting out factors why the case was appropriate for designation to the Business Court. (There are many other cases in the database involving the mandatory jurisdiction of the Court).

Allen v. Land Resource Group: Dismissing negligence and fraud claims against lenders which had financed residential lot purchases in a failed real estate development. Also dismissing claims under the Interstate Land Sales Full Disclosure Act.

BB&T BOLI Plan Trust v. Massachusetts Mutual Life Ins. Co.: granting a motion to stay discovery pending resolution of a motion to dismiss.

Charlotte-Mecklenburg Hospital Authority v. Wachovia Bank, Inc.: granting a motion to dismiss fiduciary duty claims and unfair and deceptive practices claim by bank customer against the bank for alleged mismanagement of securities investments.

Griffin v. Carolina Power and Light: granting motion that a shareholder who guarantees the debt of a corporation does not have an injury "separate and distinct" from the injury sustained by the corporation itself giving him standing to sue for the breach of a contract with the corporation. Further holding that a shareholder "cannot assert claims against a third party for loss of its equity investment in a corporation."

Laney v. Corn: enforcing a mandatory forum selection clause.

Mattress Now, Inc. v. Vickers: sanctioning a pro se party for failing to appear at a mediation.

Napco, Inc. v. PBM Graphics, Inc.: denying a motion for preliminary injunction under the North Carolina Trade Secrets Protection Act.

You can get to the Case Database — where you can search by keyword — by clicking the link at the upper left hand corner of the blog.

The Business Court granted a Motion to Disqualify counsel today in Ferguson Fibers, Inc. v. Foster, and sent a cautionary word to lawyers who represent the employees of their corporate clients in what they might believe to be unrelated matters.

The issue was whether the attorney for Plaintiff Ferguson Fibers should be disqualified because he had previously represented Foster in a child support matter and in a lawsuit involving the sale of the business of Foster’s wife. The new lawsuit appeared to be completely unrelated to those past representations. It involved claims by Ferguson Fibers that Foster had engaged in inappropriate conduct while employed by Ferguson Fibers.

Rule 1.9 of the North Carolina Rules of Professional Conduct provides that "a lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related mater in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing."

The test for whether matters are "substantially related" is "if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter."

Foster asserted that he had discussed with his former lawyer during the past representations his employment and business dealings with Ferguson Fibers, his role in helping his employer move part of its business to Mexico, and his "strained relationship" with his boss. He said that disqualification was warranted because this information might be relevant to the lawyer in his representation of his former employer.

The attorney disputed that he had ever discussed such matters with his former client, but Judge Tennille held that this made no difference. He observed that a court should "prevent even the appearance of impropriety and thus resolve any and all doubts in favor of disqualification." He said "[t]he Court need not resolve this factual dispute. Its existence is sufficient to require disqualification," and that "Foster’s perception of events, as the client, is of ‘paramount importance’ in preventing the appearance of impropriety."

The Court also provided a quick word of advice to lawyers who represent organizations as well as their employees: "Attorneys who represent various constituents of an organization, be they investors, employees, suppliers, or customers, are in a better position than lay persons to protect against potential conflicts of interest. Where counsel represents both a company and its employees, it is the duty of the lawyer to inform the client about the implications of the dual relationship."

Other decisions by the Business Court involving Motions to Disqualify are The Cottages of Stonehenge Condominium Homeowners Association, Inc. v. Dominion Mid-Atlantic Properties II, LLC, Chemcraft Holdings Corp. v. Shayban, and Flick Mortgage Investors, Inc. v. The Epiphany Mortgage, Inc.

Brief in Support of Motion to Disqualify

Brief in Opposition to Motion to Disqualify

Reply Brief in Support of Motion to Disqualify

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 "beyond standard industry practices with respect to real estate transactions" so as to make them liable under the Act.

The Court also dismissed claims against the banks for negligence and negligent misrepresentation, holding that no facts supported those claims and that "’conclusions of law or unwarranted deductions of fact’ are not treated as true for purposes of a motion to dismiss."

Also dismissed were fraud claims against the Bank, which the Court ruled to be "insufficient to meet the factual particularity required under Rule 9(b)."

Full Opinion

If an attorney improperly removes a case to federal court, the Fourth Circuit concluded today in In re Crescent City Estates, LLC that he or she can’t be liable for attorneys’ fees. The Court interpreted 28 U.S.C. §1447(c), which says that "[a]n order remanding the case may require payment of just costs and and any actual expenses, including attorneys fees, incurred as a result of the removal." It held that this statute allows fees to be imposed only on parties, not their counsel.

The issue was whether the silence in the statute on the power to assess fees on attorneys should be read to allow it. The Appellants said that the lack of mention in the statute as to counsel was the equivalent of Congressional permission, but Judge Wilkinson held that  "the proper presumption is that when a fee-shifting statute does not explicitly permit a fee award against counsel, it prohibits it."

The Court premised its decision on the American Rule, which provides that "the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys’ fee from the loser."  It referred to the Rule as "a longstanding legal principle" and said that it was the Court’s "duty to keep the American Rule intact."

The potential chilling effect of imposing fees on counsel was a fundamental part of the Court’s decision.  It held that "holding counsel responsible under §1447(c) could begin to transform what it means to practice law. A lawyer should not be required to risk personal liability merely for acting in a representational capacity or for seeking to place a client in a more favorable litigation posture."

The Court observed that in an exceptional case, a "particularly blameworthy" removal could result in an imposition of fees on the attorney under Rule 11 or 28 U.S.C. §1927. 

The Fourth Circuit said that it is only the only Circuit Court to address whether fees can be assessed on counsel under the removal statute, and it observed that the district courts considering the issue "are badly divided."

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 also could not pursue an unfair and deceptive practices claim, because the relationship involved the "raising of capital" and was therefore within the securities transaction exception.

Full Opinion

Brief in Support of Motion to Dismiss

Brief In Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

The standard for getting past a 12(b)(6) Motion in federal court in North Carolina inched higher yesterday with the Fourth Circuit’s decision in Francis v. Giacomelli.  

The opinion from Judge Niemeyer, relying on the United States Supreme Court’s June 2009 decision in Ashcroft v. Iqbal, affirmed the grant of a Motion to Dismiss in a political firing case. 

Although Francis isn’t a business case, you should definitely look at it if you are dealing with a Motion to Dismiss in federal court. It takes a stern view of pleading requirements after Iqbal, including a discussion of the need to deter "strike suits" and to avoid the "high costs of frivolous litigation."

The Court actually went so far as to suggest that the Federal Rules never really allowed notice pleading:

Overlooking the broad range of criteria stated in the Federal Rules for a proper complaint, some have suggested that the Federal Rules, when adopted in 1938, simply created a “notice pleading” scheme, pointing for support to Rule 8(a)2), which requires only “a short and plain statement of the claim showing that the pleader is entitled to relief,” and Rule 8(d)(1), which provides that “[n]o technical form [for stating allegations] is required.” But the “notice pleading” characterization may itself be too simplistic, failing to recognize the many other provisions imposing requirements that permit courts to evaluate a complaint for sufficiency early in the process. Rule 8 itself requires a showing of entitlement to relief. Rule 9 requires that allegations of fraud, mistake, time, place, and special damages be specific. Rule 11 requires that the pleading be signed and provides that the signature “certifies” (1) that the claims in the complaint are not asserted for collateral purposes; (2) that the claims asserted are “warranted”; and (3) that the factual contentions “have evidentiary support.” And Rule 12(b)(6) authorizes a court to dismiss any complaint that does not state a claim “upon which relief can be granted.” The aggregation of these specific requirements reveals the countervailing policy that plaintiffs may proceed into the litigation process only when their complaints are justified by both law and fact.

Senator Arlen Specter has introduced legislation to repeal Iqbal.  It is called the Notice Pleading Restoration Act of 2009.  The legislation would reinstate the liberal pleading standard of Conley v. Gibson, 355 U.S. 41 (1957) discarded by the Supreme Court in Iqbal and an earlier decision, Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).

Courtroom View Network is the "leading provider of live and on-demand video for high stakes civil litigation."  CVN was in North Carolina providing that video coverage for the hearing on a Motion to Dismiss in BB&T’s lawsuit regarding a $55 million hedge fund investment turned sour. That’s certainly a "high stakes" matter.

The videos from CVN are part of a subscription service, but the company has graciously provided me with two clips of the hearing before Judge Diaz, which you can view below. 

Before you do that, a little background. The case is BB&T BOLI Plan Trust v. Massachusetts Mutual Life Insurance Co. BB&T invested in a Citigroup hedge fund, Falcon Strategies, LLC. The investment was made in connection with BB&T’s purchase of bank owned life insurance (BOLI) through Defendants MassMutual and Clark Consulting, Inc.

BB&T paid a $112 million premium to MassMutual for the BOLI. About $55 million was placed in the Falcon hedge fund. The hedge fund’s performance, according to BB&T, was so poor that it triggered BB&T’s right to reallocate that investment. 

BB&T claims that MassMutual and Defendant Clark nevertheless falsely advised them that no "reallocation event" had occurred, resulting in a significant loss.  The first video clip shows BB&T’s lawyer arguing the claimed false statement by the Defendants.

The Amended Complaint doesn’t specify the amount of BB&T’s loss, but Falcon is reported to have lost more than 80% of its value. That would mean BB&T lost $44 million on this investment.

Other banks had far more substantial losses in Falcon than BB&T. The bank formerly known as Wachovia lost $315 million.  Fifth Third Bank had $612 million invested in Falcon, and has sued over its losses in federal court in Ohio.

Another issue before Judge Diaz at the hearing was whether discovery should be stayed pending resolution of the Motion to Dismiss. The second clip shows Winston-Salem attorney Mike Robinson arguing in favor of the stay.  Judge Diaz granted that motion in a short order the following day. He hasn’t ruled yet on the Motion to Dismiss.

MassMutual’s Brief In Support Of Motion To Dismiss

BB&T Response

MassMutual’s Reply Brief

Clark Consulting’s Brief In  Support Of Motion To Dismiss

BB&T Response

Clark Consulting’s Reply Brief