The Court granted a Motion for Summary Judgment, finding that a Letter of Intent containing language which said that it did "not create any binding, contractual rights between Flowers and JDH and shall serve only as an expression of intent between the parties" was an unenforceable agreement to agree.

The Court held that (1) the document itself supported the finding that it was a non-binding agreement, (2)  there were many significant terms left unaddressed in the LOI, (3) complicated real estate development projects "generally require the execution of lengthy, sophisticated, and detailed documents to govern the relationships between the parties," (4) courts should decline to fill in material gaps left open by contracting parties, (5) the LOI failed to provide any remedy in the event a contemplated LLC was never formed, and (6) JDH, as the drafter of the LOI, should have any ambiguity resolved against it.

The Court also rejected the argument that the subsequent oral agreements of the parties, and their partial performance, made the LOI enforceable; and also the argument that the Plaintiff was in the alternative entitled to a recovery in quantum meruit.

Full Opinion

Brief in Support of Motion for Summary Judgmen

Brief in Opposition to Motion for Summary Judgment

Reply Brief in Support of Motion for Summary Judgment

 

North Carolina does not recognize the "cardinal change doctrine" in government contract cases.

The Court also dismissed a claim for tortious interference with contract against a consultant who had advised the owner not to pay the Plaintiff for its work on a construction project.  The Court found the alleged interference to be justified, even though the Plaintiff alleged it was not. Judge Diaz ruled that Plaintiff’s allegation as to the lack of justification was "a legal conclusion the Court need not accept," and that Plaintiff’s allegations on this point were self-defeating.  

The Court determined that the consultant had a proper motive — the performance of its own duties under its own contract with the owner — in how it had dealt with the Plaintiff.  Thus, the Court concluded, the consultant’s actions were "reasonably related to the protection of a legitimate business interest."

Full Opinion

Brief in Support of Motion to Dismiss (Cardinal Change Issue)

Brief in Support of Motion to Dismiss (Tortious Interference Issue)

Brief in Opposition to Motion to Dismiss (Tortious Interference Issue)

Reply Brief in Support of Motion to Dismiss (Cardinal Change Issue)

N.C. Gen. Stat.  §41-23, which repealed the common law Rule Against Perpetuities as well as the Uniform Statutory Rule Against Perpetuities (N.C. Gen. Stat. §41-15) as they apply to trusts created or administered in North Carolina is constitutional.

The prohibition against “perpetuities and monopolies” found at Article I, Section 34 of the North Carolina Constitution applies only to unreasonable restraints on the alienation of property and not to the vesting of remote interests.

Full Opinion

Plaintiff’s Brief in Support of Motion for Summary Judgment

Defendant’s Brief in Opposition to Motion for Summary Judgment

Plaintiff’s Reply Brief in Support of Motion for Summary Judgment

Amicus Brief of North Carolina Bankers Association

When a Court is considering whether to apply the law of a foreign country, as permitted by Rule 44.1 of the North Carolina Rules of Civil Procedure:

  • The Court has "[b]road authority to conduct [its] own independent research to determine foreign law," but no duty to so.
  • Both parties have the burden to "raise[]the issue that foreign law may apply in an action, and the burden of adequately proving foreign law to enable the court to apply it in a particular case."
  • When the "parties fail to satisfy either burden the court will ordinarily apply the forum’s law."

The Business Court applied North Carolina law, because the parties hadn’t provided the Court "with any authority or evidence from which it might discern how French law would evaluate the validity and scope of the forum selection clause in the" Agreements. 

The Court also enforced a forum selection clause, even though the party asserting the benefit of it [Swift] hadn’t signed the agreement.  Judge Diaz reasoned that the only signature required should be that of "the party to be charged therewith," that Swift had signed the Agreement, and that the Agreements spoke to Swift’s obligations to the party seeking enforcement of the forum selection clause.  He also relied on cases involving arbitration provisions, which are often enforced against non-signatories when the claims are "intimately founded in and intertwined with the underlying contract obligations."  The Judge also noted the "strong seal of approval that our Supreme Court has given to contract clauses requiring litigation in a foreign jurisdiction."

The Court rejected the public policy argument that it simply wasn’t fair for Swift to have to litigate its claims in France.  Swift said it would "be deprived of the full scope of discovery that would otherwise be available in" the Business Court.  Judge Diaz said 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."  Swift was neither "deprive[d] of its day in court" nor "without an adequate remedy."

Full Opinion

Brief in Support of Motion to Dismiss Crossclaim

Brief in Opposition to Motion to Dismiss Crossclaim

Reply Brief in Support of Motion to Dismiss Crossclaim

 

The issue here was whether a Plaintiff located in Winston-Salem which held a state trademark registration was entitled to an injunction against a competing store with a similar name located in Charlotte.

Judge Diaz applied federal Lanham Act principles in deciding whether the Plaintiff had a sufficient market presence in the Charlotte area to warrant injunctive relief.  He said that "North Carolina’s common law is no different" from federal law in determining the rights of a senior user. Op. n.7.

The established tests for injunctive relief when a senior user sues a junior user are "(1) the market penetration test, which applies where the senior user actually uses its mark in the market in which it seeks an injunction; or (2) the ‘zone of natural expansion’ test, which applies where the senior user has not actually penetrated the market, but may be likely to do so."  Op. ¶70.

The Plaintiff failed the market penetration test.  Although it had averaged annual sales in Mecklenburg County of $66,024 over a fifteen year period, the level of sales had fluctuated over that time and the sales were inconsequential when measured against the total sales of jewelry in that area. Mecklenburg County jewelery stores had sold $138,578,260 of jewelry in 2006, for example, much of it undoubtedly available for much less now in area pawnshops. 

Further leading to the Plaintiff’s lack of success was that it had completed only 88 transactions in Mecklenburg County in 2006, but the average jewelry store there completed 1,718 transactions.  Plaintiff also hadn’t done any advertising targeted at the Charlotte market. 

The Plaintiff also couldn’t meet the zone of natural expansion test.  Although it presented evidence that it had "considered" opening a Charlotte store, Judge Diaz found that Plaintiff had not taken any concrete steps to enter the Charlotte market. 

Full Opinion

Brief in Support of Motion for Temporary Restraining Order

Brief in Opposition to Motion for Preliminary Injunction

Reply Brief in Support of Motion for Preliminary Injunction

The Business Court held that an individual taxpayer did not have standing to sue over alleged misuse of taxes paid by residents of the City of Roanoke Rapids to build a music entertainment theater, rejecting his arguments that he was entitled to bring suit individually because the losses from the theater would be borne by all of the taxpayers of the City, and alternatively that he was entitled to sue derivatively on behalf of the City because the proper authorities had refused to act with regard to such losses. 

No Individual Taxpayer Standing

The law of North Carolina is that individual taxpayers don’t have standing to bring a suit in the public interest.  Op. ¶41.  Garrett argued that he was entitled to an exception to this general rule (under a case called Texfi Industries v. City of Fayetteville, 44 N.C. App. 268, 261 S.E.2d 21 (1979)) because the Theater had levied a tax on him "for an unconstitutional, illegal, or unauthorized purpose."

Judge Jolly rejected Garrett’s individual standing argument, holding:

here, the expenditures used in support of the Theater Project were funded by TIF bonds that were issued only after a feasibility study was conducted for the benefit of the City, and which was lawfully approved by the City and the [Local Government Commission]. . . .  Notwithstanding that the Theater Project ultimately failed and may well have been a very bad business decision by the City, the obligations undertaken by the City were neither illegal nor unauthorized.

Op. ¶43. 

No Derivative Taxpayer Standing

The Court ruled that Garrett didn’t have derivative standing either.  North Carolina recognizes derivative standing for taxpayers if "public authorities wrongfully neglect or refuse to act."  A taxpayer must show, however, that "their either (a) has been a demand upon and wrongful refusal by the proper authorities to act, or (b) the particular facts would make such a demand futile."  Op. ¶46. 

A settlement entered into by the City also doomed Garrett’s derivative standing.  Judge Jolly held that "the Settlement Agreement acts to resolve the very claims in behalf of the City that otherwise — given refusal or inaction after timely taxpayer demand — arguably might be available derivatively to a taxpaying citizen.  In fact, the City’s action in settling with Parton and Moonlight Bandit on terms with which the Plaintiff disagrees apparently is the very reason Plaintiff seeks to bypass the City." Op. ¶47.

Full Opinion

The North Carolina Court of Appeals ruled yesterday that a mediator doesn’t have the authority to excuse a party from attendance at a mediated settlement conference, in the absence of approval of either all the parties or of the Senior Resident Superior Court Judge.

The issue arose in Perry v. GRP Financial Services Corp., where the trial court had sanctioned some of the plaintiffs for failing to appear at the mediation session and awarded the defendant its attorneys’ fees.  The Court of Appeals reversed the award of sanctions, but the opinion highlights some things you might want to be aware of if you have a client that has to skip a mediation session, or if you are pursuing sanctions against a party who failed to show up.

Proper Procedure For Excusing A Party’s Attendance At Mediation

The Court said that  a mediator does not have authority to grant permission to a party to be absent.  The operative Rule is Rule 4A(2) of the Rules for Statewide Mediated Settlement Conferences, which states that a party can be excused from physical attendance either "(a) by agreement of all parties and persons required to attend and the mediator," or (b) by order of the Senior Resident Superior Court Judge, upon motion of a party and notice to all parties and persons required to attend and the mediator." 

The Court rejected plaintiffs’ argument that Mediation Rule 6A(1), which says that the mediator is "at all times . . . in control of the conference and the procedures to be followed," gave the mediator unilateral power to excuse a party’s attendance.

A Court Must Assess Whether There Is "Good Cause" For A Party’s Absence

Mediation Rule 5 specifies that if the party "fails to attend without good cause," then a superior court judge "may impose upon the party or person any appropriate monetary sanction including, but not limited to, the payment of fines, attorneys fees, mediator fees, expenses and loss of earnings incurred by persons attending the conference." 

So, before sanctioning a party for failing to attend a mediation session, the Court has to determine whether there was "good cause" for the absence. 

The sanctions order in the Perry case was reversed because the trial judge hadn’t made adequate findings of fact on the good cause issue.  The Court of Appeals ruled that one party’s excuse that her employer unexpectedly wouldn’t give her the day off to attend the mediation, and that she would have lost her job if she had, was arguably "good cause" for her absence.  It held that another party’s statement that she didn’t have the financial means to attend might also meet the "good cause" standard.  Travel problems experienced by another party might also suffice. 

Watch Out For Waiver

The Court suggested (but didn’t explicitly rule) that a party who participated in the mediation notwithstanding the absence of some of the opposing parties might waive its objection to their lack of attendance.  In Perry, the defendants presented an affidavit that they had objected at the outset of the mediation to the absence of some of the plaintiffs.

Reasonableness Of Attorneys’ Fees

Finally, the Court said that if attorneys’ fees are awarded for a violation of the Mediation Rules, the Court must make specific findings as to the reasonableness of the fees awarded.

The mediation cartoon at the top is from LawComix, by Charles Fincher. 

The adequacy of the consideration for a covenant not to compete entered into after the commencement of employment was the issue in Hejl v. Hood, Hargett, & Associates, Inc., decided by the Court of Appeals today.

In Hejl, the employer dealt with the consideration requirement by paying Hejl $500 to sign the non-compete.  Hejl signed and took the money, but argued after he left his employer that the consideration for the non-compete wasn’t "anything of substance."  He persuaded the trial court to invalidate the covenant for lack of consideration. 

The Court of Appeals disagreed with that aspect of the trial court ruling.  Judge McGee said that the  trial court shouldn’t have considered the issue of the adequacy of the consideration, and held:

the parties to a contract are the judges of the adequacy of the consideration. "‘The slightest consideration is sufficient to support the most onerous obligation, the inadequacy, . . . is for the parties to consider at the time of making the agreement, and not for the court when it is sought to be enforced.‘" Where there is no fraud and the "’parties have dealt at arms length and contracted, the Court cannot relieve one of them because the contract has proven to be a hard one.’"

Plaintiff makes no allegation the Agreement was induced by fraud. Further, the consideration was not illusory because Plaintiff accepted the $500.00 at the time he signed the contract. Therefore, because the parties dealt at arms length, and the Plaintiff received $500.00 as consideration for signing the Agreement, we find the Agreement is not void due to lack of consideration.,

The Court also summarized the types of consideration that can support a covenant not to compete entered after an employment relationship has begun:

Our Courts have held the following benefits all meet the "new" or "separate" consideration required for a non-compete agreement entered into after a working relationship already exists: continued employment for a stipulated amount of time; a raise, bonus, or other change in compensation; a promotion; additional training; uncertificated shares; or some other increase in responsibility or number of hours worked.

Notwithstanding the win on the consideration battle, the employer in the Hejl case lost the war on the issue of the reasonableness of the restriction.  Although the Court of Appeals held that the three year period of the restriction was presumptively reasonable, it found that the geographic territory was not. 

The employer had attempted to enjoin Hejl from competing not only in Charlotte, where its office was located, but also throughout North and South Carolina.  The restriction further extended to any potential customer to whom the employer had "quoted any product or service."  The Court found the two state restriction too broad, because Hejl did have "any personal knowledge of Defendant’s customers in those areas."  The attempted extension to customers who had only gotten a proposal, as opposed to having done any actual business with the employer, was also deemed by the Court to be too broad. 

I’ve been writing this blog for a year now. Thanks to all of you have been reading it, and thanks especially for the nice comments I’ve gotten from many of you.

Today is also another birthday in our house, the eighteenth birthday of my daughter Maddie.  We’ll have cake for Maddie later, but not the one on the manufactured Time Magazine cover.  That picture came from PinkCakeBox’s Photostream on Flickr. 

I created the magazine cover with WriteOnIt.