Digital signatures and medieval law met today in the North Carolina Court of Appeals decision in Powell v. City of Newton, and the twenty-first century emerged the winner.

The Court enforced a settlement agreement involving a conveyance of land, even though no agreement reflecting the transaction had been signed as required by the Statute of Frauds. It relied, in part, on emails between counsel reflecting the settlement and circulating the necessary deed. It held that these satisfied the signature requirement, relying on North Carolina’s Uniform Electronic Transactions Act.

The case arose from the settlement by the parties of their lawsuit in open court, during trial. The transcript reflected Plaintiff’s agreement to convey property to the Defendant as a part of the settlement. A settlement agreement was circulated by email between the lawyers for the parties after that, but Plaintiff refused to sign.

The Electronic Signature Of Plaintiff’s Counsel Satisfied The Statute Of Frauds

Plaintiff based his refusal to follow through on the Statute of Frauds, which requires an agreement to convey land to be in writing, and "signed by the party to be charged." The trial court ordered Plaintiff to sign the settlement papers, and the Court of Appeals majority affirmed. It held that there had been "total compliance" with the Statute of Frauds. It based its decision, in part, on North Carolina’s Uniform Electronic Transactions Act, N.C. Gen. Stat. §66-311 et seq). As far as I know, this is the first mention of that statute by the Court of Appeals.

Judge Jackson, writing for the majority, said:

We note that this was not some barroom conversation between drunken neighbors, agreed to in jest, and written on a random scrap of paper. See Lucy v. Zehmer, 84 S.E.2d 516 (1954). This was an agreement among four parties represented by counsel, in a court of law, supervised by the presiding judge, who inquired of each party whether the terms were agreeable. The party to be charged — plaintiff — confirmed, ‘Yes, that’s my agreement.’

The Court observed that emails had then passed back and forth between counsel regarding the settlement, including drafts of a settlement agreement and a deed. This led to the Court’s first impression reliance on the Uniform Electronic Transactions Act. The Court said:

Pursuant to that Act, plaintiff’s counsel affixed his electronic signature to emails concerning the transaction. . . . When the hearing transcript, draft agreement, draft quitclaim deed, and associated emails are read together, as permitted by the statute of frauds, the settlement agreement that plaintiff was ordered to execute is in total compliance with the statute of frauds.

Other Grounds

The majority also provided other grounds for its decision, including the doctrine of judicial estoppel and a discussion whether the Statute of Frauds should apply at all to court announced settlements.

Continue Reading North Carolina Court Of Appeals Rules That Electronic Signature Satisfied The Statute Of Frauds

When lawyers are arguing over whether documents were properly withheld from production on the basis of attorney-client privilege, one side or the other will often say "let’s have the Judge do an in camera review."  (Translation for nonlawyers reading this blog: let’s drop all these documents on the Judge and let him or her decide).

Judges love this procedure, right? That would not be so.

A very short opinion the other day from the Business Court in Crockett Capital Corp. v. Inland American Winston Hotels is a good illustration. The decision suggests it is a good idea for both sides to take steps to make such a review as easy as possible for the Judge. There’s also a good point on the scope of attorney-client privilege.

The Documents For The In Camera Review Were Highly Repetitive

The parties were arguing over redactions made to a number of emails on claimed grounds of privilege. In the ensuing in camera review. The parties provided what the Court described as "two large three-ring binders," one of which had clean copies of the claimed-to-be-privileged emails and the other of which had redacted copies of the emails produced.

We all know that emails proliferate like bunnies. The problem for the Court was that the emails in the binders had done exactly that. They were repeated over and over, in what the Court described as "repetitive strings of the same email time and time again." 

There’s a process in e-discovery called "deduplication," which eliminates redundant copies of electronic documents. The lack of deduplication did not make the Court happy. Here’s a quote:

Seldom has the Court been called upon to waste so much of its time because counsel did not fulfill their responsibilities in the meet and confer required by the Court’s Local Rule 18.6. . . . It is apparent that counsel did not sit down and look at the documents. If so, they surely would have realized that the Court was being asked to look at repetitive strings of the same email time and time again. . . . If counsel had met and conferred they would have provided the Court with one copy of each email string rather than the copy for each recipient and saved the Court hours of wasted time. Eighty percent of the  documents would not have required Court review if counsel had done their job.

That the documents were in electronic format was not an excuse. The Court said:

Discovery in a digital age is expensive and difficult. That does not relieve counsel  of their obligation to carefully review documents and to sit down with the documents before them in a meet and confer and reduce to the fullest extent work required by the Court. Such scrutiny obviously did not occur in this case.

Privilege Issues

The Court also questioned some of the claims of privilege, which involved documents exchanged between businesspeople but copied to lawyers. The Court described these as "emails on which lawyers were simply copied with information about business decisions and no advice was sought or given."

It said: "[b]usiness decisions are not protected just because a lawyer is copied on a memo. Businessmen making business decisions may not hide behind their lawyers. Lawyers making business decisions cannot hide behind a privilege."

Claims involving the "raising of capital" don’t fall within the scope of North Carolina’s unfair and deceptive practices statute. That was the basis for the dismissal of Chapter 75 claims yesterday in two cases, one decided by the North Carolina Court of Appeals and the other by the North Carolina Business Court.

In the Court of Appeals case, Carcano v. JBSS, LLC, the plaintiffs claimed they had invested money based on misrepresentations by the defendants that the funds were for an interest in an LLC. The LLC, however, had never been formed.

The appellate court affirmed the dismissal of an unfair and deceptive practices claim based on these allegations, holding:

the most egregious allegations made against defendants, and the crux of plaintiffs’ claims, is that defendants ‘marketed membership in a fictional LLC’ which involved ‘deception, lies, and misrepresentations.’ Even taken as true, these facts do not constitute unfair and deceptive practices so as to violate Chapter 75. The allegations merely assert that defendants asked plaintiffs to invest in a business arrangement. These are actions which are capital raising ventures among sophisticated business entrepreneurs.

The Business Court case, decided the same day, is Charlotte-Mecklenburg Hospital Authority v. Wachovia Bank. The Hospital alleges that Wachovia mishandled millions of dollars of its funds. The Hospital asserted an unfair and deceptive practices claim, and argued that this wasn’t an exempted securities transaction because it was really a claim involving "investment advice."

Judge Tennille dismissed the Chapter 75 claim, rejecting the Hospital’s characterization and finding the claim to involve a securities transaction beyond the scope of the statute. He held that "given the ‘raising capital’ nature of this relationship, the Court finds that any wrongdoing by Wachovia in its administration of the securities lending program clearly falls within the purview of the securities transactions exception." 

Get ready for changes in how to count the days for meeting deadlines under Rule 6 of the Federal Rules of Civil Procedure. The upcoming changes abandon the practice of excluding weekend days and holiday days in calculating a response date when the period for the response is less than eleven days.

On December 1st, when "time computation amendments" to the Federal Rules become effective, a day will be counted as a day, whether it is a weekend day, Thanksgiving, Christmas, or any other recognized holiday day. That will be true regardless of the number of days allowed for the response.

New Rule 6(a)(1)(B) says to "count every day, including intermediate Saturdays, Sundays, and legal holidays." The objective of this change, according to the Report of the Judicial Conference, was to "make the method of computing time consistent, simpler, and clearer." If a deadline is measured in hours, The new Rule says hours are counted the same way. Every hour counts.

The full text of the new Rules is here, and what follows is a short summary of important time calculation points.

Counting Will Be A Little Different Depending On Whether You Are Counting Forward Or Backward

The basic rules of when to start counting days, and when to stop, won’t change under the new Rule. The day of the act or event that triggers the count still isn’t included. You start counting the following day. If the last day of the count falls on a weekend day or on a state or federal holiday, the count still extends forward to the next day that is not a weekend day or holiday.

The count also gets extended if the final day falls on a day that the court is "inaccessible," to the first accessible day. The term "inaccessible" isn’t limited, as it is currently, to lack of accessibility caused by "weather or other conditions." The new advisory committee notes to Rule 6 suggest that inaccessibility might include "an outage of the electronic filing system."

Things are a little different if you are counting backwards. Why would you count backwards? Think of, for example, final pretrial disclosures due a certain number of days before trial.

The new Rule 6 says that to get to the "next day" when counting backwards, you continue to count backwards if the last day of the count is a weekend or holiday. So if your last day is Saturday, the filing is due the Friday before that Saturday.

Holidays are treated differently between a backward count and a forward count. If you are counting backwards, and the last day is a state holiday (not a federal holiday), then the count ends on the state holiday. If you hit a federal holiday, however, you continue counting backwards to the next business day. But forward counts treat state and federal holidays in the same way.

New Definition Of The "Last Day"

There’s now specific definition of the meaning of "last day," contained in new Rule 6(a)(4). For paper filings, the last day ends "when the clerk’s office is scheduled to close." For electronic filing, the last day ends "at midnight in the court’s time zone."

What About Three Days For Mailing?

Rule 6(d), which gives lawyers an additional three days if served by mail or e-filing, has survived. That seems odd, given the definition of "last day" taking into account e-filing procedures and the widespread use of electronic filing.

Response Periods For Discovery Responses, Summary Judgment, And Other Matters

The change in counting methodology resulted in the adjustment of a number of different response time periods set out in the Rules.

The drafters of the new rules changed most time periods to be in multiples of seven, the thought being that deadlines then would usually fall on weekdays. So most ten day periods in the Rules became 14 days. The time for responding to a complaint, formerly 20 days, will be 21 days.

As for summary judgment, there is a new version of Rule 56(c)(1)(A), which says that in the absence of local rule, a party can move for summary judgment at any time up until thirty days after the close of discovery. The response is due 21 days later, and the reply is due 14 days after that.

The time for responding to interrogatories and document requests wasn’t affected by the rule changes. Those remain at 30 days.

If you want a rule by rule breakdown of the change in time periods for responses, of which there are many, there are good summaries on the Smart Rules blog and also in an article at law.com. There’s also an powerpoint from the federal judiciary website, titled "The Days Of Our District Court Lives."

Other Rules

Similar amendments were made to the Federal Rules of Appellate Procedure and the Federal Rules of Bankruptcy Procedure. There’s an appellate rules powerpoint from the federal judiciary website, and also a bankruptcy rules powerpoint.

[I’ve done a followup post on the rules amendments about issues involving the effective date of the amendments. Specifically, it’s on how the amendments apply to deadlines that were already running on the December 1 effective date.]

Eleven new cases were designated to the Business Court in September 2009, including a class action against the North Carolina Department of Revenue claiming that the taxation of retirement benefits paid to certain state employees is unconstitutional (Pendergraph).

Bankers Life and Casualty Co. v. Barnes (Mecklenburg)(Diaz): claims for misappropriation of confidential information and trade secrets and violation of covenants not to compete.

Comor Corp. v. Comor Communications, LLC (Guilford)(Tennille): derivative action.

Global Promotions Group, Inc. v. Danas, Inc. (Wake)(Jolly): designated based on allegations that BB&T and its employee improperly allowed unauthorized electronic transfers of funds from Plaintiffs’ accounts.

Holden v. Morlando (Guilford)(Tennille): derivative claims for diversion of corporate funds and claim for dissolution.

Howard v. Dunaways, (Mecklenburg)(Diaz): claim for payment of shareholder dividend allegedly wrongfully withheld.

Laney v. Corn (Gaston)(Diaz): claims for breach of franchise agreements and breach of fiduciary duty of franchisor, issues regarding liability of successor to franchisor.

Mason v. Raich (Guilford)(Tennille): complaint seeking confirmation of an arbitration award.

McDermott v. Bankers Life and Casualty Co. (Guilford)(Tennille): claims for fraud and unfair and deceptive practices involving sale by  defendants of annuity policies.

Pendergraph v. North Carolina Department of Revenue (Wake)(Jolly): lawsuit by taxpayers to have declared unconstitutional North Carolina’s taxation of retirement benefits paid by the Local Governnmental Employees’ Retirement System and the Teachers’ and State Employees’ Retirement System for persons who began participating in those plans before statutory amendments in 1989, and seeking class certification.

Presidium Retirement Advisors, Inc. v. Alliance Benefit Group Carolinas, LLC (Chatham)(Jolly): corporate governance claims, including breach of duty of directors, the election and removal of directors, and dissolution.

Sea Ranch II, Inc. v. Gusler (Dare)(Tennille): class action, filed pursuant to a settlement agreement of a case that originated in the Business Court, seeking appointment of receiver to sell a timeshare condominium.

Litigation between shareholders can be as unpleasant and messy as a divorce. That was the situation today in Koopman v. Koopman Dairies, Inc., a case which the North Carolina Business Court called a "corporate domestic dispute."

That analogy to family law led the Court to award attorneys’ fees for the defendants’ contempt of court orders. Ordinarily, fees aren’t allowable in a contempt proceeding. Getting that type of award is as rare as, say, a 75th wedding anniversary.

In Koopman, two brothers and their wives each owned 50% of a family dairy farm. They squared off in a lawsuit seeking dissolution. During the course of the lawsuit, the defendants made a habit of taking funds out of the corporate account without the consent of the plaintiffs. The Business Court responded by ordering that neither party could remove funds except in the ordinary course of business.

The defendants violated that order, other directives of the Court, and a settlement agreement regarding the permissible use of corporate funds. You can read the opinion if you want the detail, but Judge Tennille summarized that the defendants "have routinely and repeatedly resorted to self-help when it suited their purposes and deliberately and without justification violated clear and direct orders of this Court. In doing so they also breached the settlement agreement they had reached. Their conduct has been willful and intended to harm [the plaintiff’s] business."

The Court held the defendants in contempt. The plaintiffs requested the attorneys’ fees they incurred in obtaining that ruling. Judge Tennille observed the "general rule" that "its inherent authority to issue sanctions for failure to obey its orders does not include an award of attorney fees." Op. ¶14.

Nevertheless, the Court awarded fees, relying on Hartsell v. Hartsell, 99 N.C. App. 380, 393 S.E.2d 570 (1990), a domestic case in which the Court of Appeals awarded fees for a party’s failure to comply with an equitable distribution award. 

Judge Tennille held "[t]his is a corporate domestic dispute in which the parties had agreed to an equitable distribution of the assets of the company. The rationale for awarding attorney fees under both circumstances is the same. If the parties can choose to ignore court orders and treat the assets at issue in any manner they choose, the system does not work. Parties could simply choose to comply with a court order on distribution in any way they saw fit, leaving the court and their adversary with no remedy." Op. ¶15.

 

The Court sanctioned a pro se party for failing to appear at a scheduled mediation. The sanction included (1) requiring the party to pay her share of the mediation she did not attend, (2) being compelled to attend another mediation to be scheduled at the mediator’s discretion, and (3) requiring her to pay the total expense of the new mediation.

Full Opinion

If you are a secured creditor trying to sell off the collateral securing your loan in a "commercially reasonable manner" under North Carolina’s Uniform Commercial Code, it’s not a good idea to advertise the sale right before Christmas and have the sale right after Christmas.

That’s at least part of the lesson from the North Carolina Court of Appeals last week in Commercial Credit Group, Inc. v. Barber, where the Court ruled that the secured creditor’s Christmas-time sale had not been commercially reasonable, and denied its request for a substantial deficiency judgment.

The Facts

Barber had given his lender a security interest in a Peterson Pacific 5400 heavy duty waste recycler, a specialized piece of commercial equipment which grinds logs into wood chips.

The recycler broke down almost immediately after Barber bought it. The dealer wasn’t able to repair it, and Barber defaulted on his loan to Commercial Credit because he couldn’t generate any revenue from the recycler. The creditor took possession of the broken down recycler and gave Barber written notice that it would sell it at public auction on December 27, 2007.

Commercial Credit complied literally with the terms of its security agreement with Barber, which said that a public sale "will be deemed commercially reasonable" if (1) the Debtor had ten days notice of the sale, (2) the sale was advertised twice in at least one newspaper in the area of the sale, and (3) the terms of sale were 25% down plus the balance within 24 hours.

Commercial Credit gave ten days notice. It advertised the sale twice (on December 23rd and 26th) in general publication newspapers. It stated in the ads that 25% down would be required, but with a slight variation that turned out to be a problem, and said that the sale would be "as is," which also turned out to be a problem.

Only one bidder other than Commercial Credit showed up at the December 27th sale. Commercial Credit made the only bid of $100,000. Commercial Credit sold the recycler a few months later at a private sale for $90,000 more than its bid, but still sued to recover the full $128,000 difference between its auction bid and the outstanding balance on the loan.

The trial court ruled that the sale hadn’t been conducted in a commercially reasonable manner and rejected Commercial Credit’s claim for a deficiency judgment. The Court of Appeals affirmed, taking issue with the content of Commercial Credit’s advertising of the sale, and the timing of the advertisements about the sale.

Problems With The Timing Of The Advertisements

The Court of Appeals found fault with the timing of the ads run by Commercial Credit right before and after Christmas. Judge Robert N. Hunter said that a public sale was one where "the public has had a meaningful opportunity for competitive bidding," and that the advertisements by Commercial Credit were insufficient to generate that "meaningful opportunity":

The recycler at issue in this case has a narrow commercial use, and as a result, the pool of bidders potentially interested in this equipment was necessarily limited from the outset. This fact was then inexplicably exacerbated by Creditor’s decision to run advertisements for the auction in two general circulation newspapers just two days before and one day after the Christmas holiday. Obviously, scheduling a public auction for a highly specialized and expensive piece of inoperable machinery just two days after Christmas would almost certainly not enhance “competitive bidding” under N.C.G.S. § 25-9-610. Perhaps the best evidence of the result of Creditor’s decision was that only one other person in addition to Creditor attended the auction.

According to the Court, Commercial Credit "should have chosen a more appropriate date of sale, and tried considerably harder to market the recycler by targeting legitimate prospective buyers." It said "there is no excuse for putting forth clandestine advertisements that are misleading, obtuse, and targeted to no one during the busiest holiday season of the year."

Continue Reading Secured Creditor’s Sale Of Collateral The Day After Christmas Wasn’t Commercially Reasonable

Lawyers don’t have any obligation to disclose information harmful to their client’s position during settlement discussions, the North Carolina Court of Appeals ruled today in Hardin v. KCS International, Inc.

The parties in Hardin had settled an earlier lawsuit involving plaintiff’s claims over problems with his new yacht. Plaintiff then was dissatisfied with the repairs to the yacht undertaken pursuant to the settlement, and filed a second lawsuit notwithstanding the settlement agreement’s full release.

The plaintiff asserted that the release had been procured by fraud. He pointed to documents produced in the second lawsuit which showed that his yacht had been involved in a collision while being delivered to North Carolina. Plaintiff said he had never been told that his yacht had hit a tree while being transported down the road (really), and that he should have been informed of this fact during the settlement negotiations. He said he wouldn’t have settled in the first place if he had known about the accident.

Judge Geer disagreed that the defendants had any obligation to disclose the fact of the collision, observing that plaintiff had been obligated to use reasonable diligence to find out about the damage and that he could have easily done so through discovery. She furthermore emphasized the arms length nature of the settlement negotiations, and said that "no negotiation could be more arms length" than negotiations during "the course of on-going litigation."

The Court held that Plaintiff:

cites no authority — and we have found none — requiring opposing parties in litigation to disclose information adverse to their positions when engaged in settlement negotiations. Such a requirement would be contrary to encouraging settlements. One of the reasons that a party may choose to settle before discovery has been completed is to avoid the opposing party’s learning of information that might adversely affect settlement negotiations. The opposing party assumes the risk that he or she does not know all of the facts favorable to his or her position when choosing to enter into a settlement prior to discovery. On the other hand, the opposing party may also have information it would prefer not to disclose prior to settlement.

On a first impression point of appellate procedure, the Court held that a motion to enforce a settlement agreement should be reviewed under the same standard applicable to a motion for summary judgment.