There weren’t any earthshaking decisions yesterday from the North Carolina Court of Appeals, but there are a couple of cases worth a quick mention, one on arbitration and one on discoverability in a medical malpractice case of a letter to a "medical review committee."  There was also a copyright case yesterday from the Fourth Circuit resolving an issue of first impression involving computer software.

Arbitration

In Griessel v. Temas Eye Center, P.C., the Court held that it was not error for the trial court to deny a motion to compel arbitration without making findings of fact.  Findings of fact were required under the North Carolina Uniform Arbitration Act, but the 2-1 majority found in a case of first impression that they are not required under the Revised Uniform Arbitration Act. 

The majority reasoned that since there is only one ground under the RUAA which allows the denial of a motion to compel arbitration (that there is no valid agreement to arbitrate), the court must have made that determination in denying the motion. Judge Steelman disagreed, and said "[i[f one takes the position that the trial court must have logically made the correct decision, then there is little need to have appellate courts."

Discovery And Medical Review Committees

In Woods v. Moses Cone Health System, the issue was whether a plaintiff in a medical malpractice action was entitled to discovery of a letter from the decedent’s surgeon to a hospital’s peer review committee.  The  Court determined that committee to be a "medical review committee" within the meaning of G.S. §131E-95 of the General Statutes, which provides that the records and materials of such a committee "shall not be subject to discovery or introduction into evidence in any civil action against a hospital."  This protection exists "because of the fear that external access to peer investigations conducted by staff committees stifles candor and inhibits objectivity."

Plaintiff said that since the surgeon had sent the letter to persons who weren’t on the committee, the privilege had been waived.  The Court of Appeals said the privilege couldn’t be waived by the dissemination of the letter, because the letter was absolutely privileged under the statute. The Court didn’t reach an interesting question whether the letter was discoverable because it had been provided to Defendant’s expert witnesses.

Copyright 

The Fourth Circuit Court of Appeals ruled in Quantum Systems Integrators, Inc. v. Sprint Nextel Corp. that software stored in a computer’s random access memory can be sufficiently fixed to support a claim for copyright infringement, following what it described as the leading case on the issue, MAI Systems  Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993). That was a question of first impression in the Fourth Circuit, but the Quantum opinion is unfortunately unpublished.

The Court partially granted an LLC member’s motion for an accounting, ordering the LLC to provide the member with periodic "(1) information regarding the status of the business and the financial condition of [the LLC] including a summary of all funds disbursed and spent and all revenue generated from 1 January 2009 to the present, and (2) a copy of [the LLC’s] federal, State, and local income tax returns as filed for each year the company has been in business."

Full Opinion

It’s hard to get an injunction enforcing a covenant not to compete that has a nationwide territory, but the Plaintiff was successful at that in the Middle District’s decision last week in Philips Electronics North America Corp. v. Hope.  The injunction was also based on the North Carolina Trade Secrets Protection Act.

This was a thorough 44 page opinion addressing a number of non-compete and trade secrets issues, so this is a long post.  You’ll have to read to near the end to see why the post gets a picture of, of all things, a sausage?

Background

Hope was the Executive Vice President of Sales for DLO, responsible for the company’s sales of iPod accessories throughout the United States and Canada.  Hope had substantial interaction in that position with a $75 million customer, Best Buy, and other major DLO customers.

In December 2006, Hope signed a Letter Agreement containing a broad covenant not to compete.  It prevented him from working in the same or similar position for a DLO competitor anywhere that DLO conducted business, potentially throughout the entire world, for a two year period.

The stock of DLO was purchased by Phillips Electronics six months later.  Phillips operated DLO as a separate entity until January 2009, when DLO was merged into Phillips.  (This created an interesting standing issue regarding the right of a corporate acquirer to enforce a non-compete, discussed below under the heading "Standing").

In 2008, while still employed by DLO, Hope began planning to compete with the company.  He contacted others at DLO about the possibility;  began discussions with a manufacturer about making competing products; and used confidential DLO materials in his efforts, including DLO’s business plan and internal financial information.

Hope resigned from DLO months later, the day after his new company obtained financing.  He misled his old employer about his intentions, saying he was going to work with his father.  The new company immediately began selling to some of DLO’s customers, including Best Buy.  Several months later, DLO discovered Hope’s involvement with the new competitor.

Continue Reading Nationwide Covenant Not To Compete Enforced By North Carolina Federal Court

The North Carolina Supreme Court adopted yesterday a comprehensive overhaul of the North Carolina Rules of Civil Procedure. The new Rules will apply to cases appealed on or after October 1, 2009.  This post has a quick summary of the major changes.

Assignments of Error Are Abolished

Far and away the most significant change is the welcome elimination of assignments of error, to be replaced by a list of proposed issues.

The new procedure set out in Rule 10(b) provides that "proposed issues that the appellant intends to present on appeal shall be stated without argument at the conclusion of the record on appeal in a numbered list.  Proposed issues on appeal are to facilitate the preparation of the record on appeal and shall not limit the scope of the issues presented on appeal in an appellant’s brief."  There are examples of proposed issues in Table 4 to Appendix C in the Rules.

Supplementation of Record on Appeal

There’s a new procedure for supplementing the Record on Appeal without leave of Court. Rule 9(b)(5)(a) says "if the record on appeal as settled is insufficient to respond to the issues presented in an appellant’s brief or the issues presented in an appellee’s brief pursuant to rule 10(c), the responding party may supplement the record on appeal with any items that could otherwise have been included, pursuant to this Rule 9. . . . The supplement shall be filed no later than the responsive brief or within the time allowed for filing such a brief if none is filed."

Transcripts To Be Delivered Electronically, Email Addresses Required

The amended Rules take a couple of steps into the electronic age.  The court reporter is required to deliver the transcript to counsel electronically (Rule 7(b)(1)), in .pdf format (Rule 7(b)(2)), and to file the electronic transcript with the appellate court (Rule 7(b)(2)).  Signature blocks need to include email addresses (Rules 26(g)(3) and 28(b)(8)).

Out-Of-State Attorneys

The revised Rules impose more oversight on lawyers admitted pro hac.  The Record on Appeal now requires the inclusion of any order that admitted an out of state attorney (Rule 9(a)(1)(n)). Furthermore, out of state attorneys intending to appear in the appellate courts must make a motion in order to do so (Rule 33(d)).

New Protections For Identity Of Juveniles

If you handle appeals involving juvenile law (like termination of parental rights cases), there are new procedures in Rule 3.1 to protect the identity of juveniles.

There’s a redlined copy of the Rules available which shows all the changes, including all of the many gender-neutralizing changes.

There were ten new cases designated to the North Carolina Business Court during June 2009, down from eighteen in May and fourteen in April.  The June cases are as follows:

Anderson & Associates of Virginia, Inc. v. Tuscany Development Co. (Guilford)(Tennille): whether an individual can be personally liable for the obligations of an LLC when the entity was erroneously designated in the contract documents.

Berton v. Jacobson (Wake)(Jolly):alleged misrepresentations to induce plaintiffs to invest in limited liability companies, allegations of a Ponzi scheme.  Claims under the North Carolina Securities Act, breach of fiduciary duty, fraud, negligent misrepresentation, N.C. RICO, and to pierce the corporate veil. Related to the Shareff case, below.

BB&T BOLI Plan Trust v. Massachusetts Mutual Life Ins. Co. (Forsyth)(Diaz): alleged mismanagement of $55 million securities investment by BB&T, which BB&T claims was to be reallocated into less risky investments if the value fell below a certain amount.   BB&T claims "despite knowing of the meltdown in the mortgage-backed securities market and that [the fund] was heavily investment in [mortgage backed securities] investments, [Defendant] failed to take timely steps to protect BB&T’s premiums."

Engineering Services, P.A. v. Dail (Wake)(Jolly): claims for breach of fiduciary duty and conversion by corporate officer and shareholder, counterclaim seeking dissolution of the corporation or redemption of defendant’s ownership interest.

Ferguson Fibers, Inc. v. Foster (Davidson)(Tennille): claims against former employee for unfair competition and misuse of proprietary information.

Kiser v. Shelby (Caldwell)(Diaz): claims for breach of operating agreement of LLC, breach of buy-sell agreement, breach of fiduciary duties, dissolution and misappropriation of intellectual property.

Oracle Flexible Packaging, Inc. v. Industrial Air Quality, Inc. (Forsyth)(Diaz): This is a Rule 2.1 case in which "Plaintiff seeks in excess of $31,000,000 for damages resulting from an explosion . . . at a manufacturing complex where it produced aluminum packaging materials" allegedly resulting from defendants’ design and installation of an "oily foil trim collection system."

Red Ventures, LLC v. Modern Consumer, LLC (Mecklenburg)(Diaz): alleged fraud in Plaintiffs’ acquisition of business sold by the Defendants.

Rouen v. Smith (New Hanover)(Diaz): plaintiffs allege that the defendants formed a sand mining business that was intended to include the plaintiffs as members, but failed to include them.  Also claims for usurpation of corporation opportunities and wrongful sales of member interests in the venture.

Shareff v. Lakebound Fixed Return Fund, LLC (Wake)(Jolly): alleged misrepresentations to induce plaintiff to invest in limited liability companies, claims under North Carolina Securities Act and North Carolina Investment Adviser Act and for common law fraud.  Related to the Berton case, above. 

The North Carolina courts are taking some serious strides towards the implementation of electronic filing in Superior Court.  The State has gone live with pilot e-filing programs in Chowan and Davidson Counties.  Wake County will be added shortly as a third pilot county.  The goal is full and mandatory implementation throughout the State within two years.

The State has selected a software program called E-Flex from Tybera to handle electronic filing.  If you want to bone up in advance on the filing procedures, there’s an on-line manual available from Tybera, as well as some general information about the program, including training opportunities with CLE credit.

The Supreme Court has approved a new set of rules for e-filing, which are titled Supplemental Rules of Practice and Procedure for the North Carolina eFiling Pilot Project for Chowan and Davidson Counties Initially, and then also for Wake County.

At the end of recent report from the Technology Committee of the AOC about the e-filing project, the author says "Bottom Line: E-Filing and E-Pay is here.  The money is in hand.  The implementation will be gradual but the estimated time for mandatory use throughout the state, barring any major problems, is less than two years.  Hold on tight — this will be quite a trip."

The Fourth Circuit today affirmed the dismissal of a personal injury action based on a forum selection provision requiring that any claims would be resolved in the courts of Amsterdam.  The case is Baker v. Adidas America, Inc.

Plaintiff, who had sued in federal court in North Carolina, argued that she was a college student without the financial means to fund a lawsuit in Amsterdam, that contingency fee arrangements were not permitted in Amsterdam, and that she wouldn’t be able to pursue her claim if the forum selection clause was enforced.

The Fourth Circuit, relying on the Supreme Court’s decision in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), held that the inconvenience of litigating in a foreign forum doesn’t warrant setting aside a selection clause "where it can be said with reasonable assurance" that at the time the contract was made the parties contemplated the claimed inconvenience.  The party seeking to avoid a forum selection clause also must show that a trial in the specified forum "will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court." 

The Fourth Circuit found the clause to be valid, ruling that the claimed burden of a trial in Amsterdam should have been foreseeable when Plaintiff accepted the benefits of the agreement, and that she had presumably been compensated for those burdens.

The North Carolina Business Court rejected an attack earlier this year on a forum selection clause specifying litigation in the Commercial Court of Paris, in Speedway Motorsports International Ltd. v. Bronwen Energy Trading, Ltd., 2009 NCBC 3 (N.C. Super. Ct., February 18, 2009).  The party objecting to the application of that clause said that litigation in France would deprive it "of the full scope of discovery that would otherwise be available in" the North Carolina Courts. 

In the Speedway case, Judge Diaz held that there was "no authority . . . for the proposition that merely requiring a party to litigate in a forum with substantially different discovery rules than those applied in a U.S. court is sufficient cause to override the parties’ choice of forum."  He ruled that the party forced to fight its claim in France was neither "deprive[d] of its day in court" nor "without an adequate remedy."

Another issue in the Fourth Circuit decision today concerned whether Plaintiff, a professional tennis player who was a minor when the contract with Adidas was signed by her agent, had acted promptly enough to disaffirm the agreement after she attained the age of majority.  The Fourth Circuit said that she hadn’t, because her agent had accepted payments from Adidas after she turned 18, and she didn’t inform Adidas that she was voiding the contract until 32 months after her 18th birthday.

An accountant who had prepared financial statements did not need to be designated as an expert witness in order to provide testimony regarding those financial statements, per the Business Court’s ruling in A-1 Pavement Marking, LLC v. APMI Corporation, 2009 NCBC 15 (N.C. Super. Ct. June 26, 2009).  The opinion also discusses generally accepted accounting principles ("GAAP") relevant to financial statements of consolidated entities.

The issue in A-1 was Plaintiff’s calculation of a bonus due one of the Defendants, which was to be based on Plaintiff’s gross profits. The Plaintiff’s consolidated financial statements had eliminated a significant receivable due from a subsidiary. The Defendant asserted that his bonus would have been substantially higher with the inclusion of that receivable in the gross profit calculation, and brought a claim under the North Carolina Wage and Hour Act.

The Plaintiff moved for summary judgment, relying on an affidavit from the accountant who had prepared the financial statements on which the calculation was based.  The Defendant objected to what it termed "improper opinion testimony," and argued that the accountant had never been designated as an expert witness.

Judge Diaz rejected the argument that the accountant was an undisclosed expert who shouldn’t be allowed to testify, holding:  

Continue Reading Accountant Who Prepared Financial Statements Didn’t Need To Be Designated As An Expert Witness In Order To Testify

The Court denied a motion for "alternative service of process" on a foreign defendant, ruling that the Plaintiff had not shown it had exhausted the traditional means of service available under Rule 4(j3) by attempting service through the means specified in the Hague Convention.

The Court further stated that if Plaintiff could not with due diligence serve the foreign defendant through traditional means, that it would allow for service of process by publication.  The Court referenced an earlier order in another case in which it had done so.

Full Opinion

If you have privileged documents, you shouldn’t share them with your wife and daughter.  You should also be careful with technology, which lets you do "dumb things".  Those are the lessons of Judge Tennille’s very short opinion last week in Crockett Capital Corp. v. Inland American Winston Hotels, Inc.

An executive of the Defendant had sent his wife and daughter emails which included attorney-client communications.  The reason for sending the emails to his wife was to "vent frustration" about work-related matters.  The daughter was apparently asked for grammatical advice.

The Plaintiff said that the privilege had been waived by this intentional production.  Judge Tennille determined that the privilege had not been waived, emphasizing that his decision was based on the specific circumstances before him.  Here’s what he said:

Technology multiplies the opportunities for man to do dumb things and increases the speed at which he can do them.

Venting one’s frustrations about work to a spouse is an everyday occurrence.  Attaching a string of emails containing attorney client information to an email to a person’s spouse venting one’s frustration at work is just not smart. The Court does not believe it constitutes a waiver of the attorney client privilege under these circumstances.

Using a child as a grammarian with the result that attorney client privileged information is included in emails to her is just not smart. The Court does not believe it constitutes a waiver of the attorney client privilege under these circumstances.

There isn’t much discussion in the opinion, so if you are looking for some law on the issue of privilege waiver, you might want to look at the briefs.  The principal brief was filed under seal, but the brief on why privilege hadn’t been waived and the reply brief in support of the waiver argument are available.

I don’t think Bart Simpson would carelessly share privileged documents.  Homer?  Probably.