The Court permitted an insurance carrier, which had reinsured part of the loss suffered by the Plaintiff and which had made payment to the Plaintiff, and which claimed to be subrogated to the rights of the Plaintiff, to intervene in the Plaintiff’s action to recover amounts it had paid paid. The Court found that intervention was appropriate both as a matter of right, and on a permissive basis. The intervention was permitted only for the limited purpose of the carrier being permitted to file amicus briefs.
Harco National Insurance Co. v. Grant Thornton LLP, February 16, 2009 (Tennille)(unpublished)
The Court denied a Motion to Amend, finding that there was undue delay in seeking the amendment. Discovery in the case had gone on for years and had been completed months before the Motion to Amend was filed. Plaintiff furthermore had the documents on which the Motion was based in its possession for two years.
The Court also denied the Motion based upon the prejudice to the Defendant. The new causes of action would have changed the Defendant’s approach to discovery. Furthermore, one of the proposed new claims was for punitive damages, and it would have been prejudicial to the Defendant to "change ‘the stakes of the lawsuit’ at this late stage of the proceedings."
Preliminary Injunction Denied In Case Under North Carolina Trademark Registration Act
Today, the Business Court denied Plaintiff’s Motion for a Preliminary Injunction in a state law trademark dispute between competing jewelry stores. The Order in Windsor Jewelers, Inc. v. Windsor Fine Jewelers, LLC, 2009 NCBC 2 (N.C. Super. Ct. Feb. 16, 2009) dissolved a Temporary Restraining Order which had previously been entered in the case. I wrote about the entry of the TRO back in November 2008.
Defendant bought two jewelry stores in Charlotte, planning to rename them "Windsor Fine Jewelers." Plaintiff, which operates a single jewelry store in Winston-Salem under the name "Windsor Jewelers," sought to enjoin the use of the Windsor name in the Charlotte area. It argued that it had sold jewelry there and that the use of the Windsor name would infringe on its common law trademark rights and its service mark registered under the North Carolina Trademark Registration Act.
Judge Diaz applied federal Lanham Act principles in deciding whether Windsor Jewelers 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.
Windsor Jewelers 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 Winston-Salem jeweler also struck out on 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.
This opinion adds to the precious little bit of law under the North Carolina Trademark Act.
Brief in Support of Motion for Temporary Restraining Order
Raleigh Business Court To Relocate To Campbell University’s Law School In Fall 2009
The North Carolina Business Court in Raleigh will be relocating to Campbell University’s Law School. The move will happen in Fall 2009, when the Norman Adrian Wiggins School of Law finishes its own relocation, from Buies Creek to Raleigh.
North Carolina then will have two law schools with courtrooms on the premises. The other one, of course, is the Business Court at the Elon Law School in Greensboro.
The plans at the top of this post shows the expected location of the Court on the third floor of the new Law School, which will be located at 225 Hillsborough Street in Raleigh. That’s an existing building which is being fully renovated. A representative of Raleigh’s Small Kane Architects, who are working on the project, said that the details of the plans may have changed.
There is more information about the project on the website of the Law School.
A Treasure Trove Of Material From North Carolina Superior Court Judges
If you were about to argue a motion in a case involving a breach of fiduciary duty, and the Judge hearing the motion had written a paper on that very subject, or had been to a presentation about it, wouldn’t you want to know that?
I’m writing this post because if you are looking for insight into the judicial thought process, you will certainly find value in materials on the website of the North Carolina School of Government.
The SOG runs, twice a year, the North Carolina Superior Court Judges Conferences. Presentations from the last 15 conferences are on the SOG website. There are a number of papers and powerpoints there that might be really useful to you, and it’s worth a look.
In October 2008, for example, Judge Robert Ervin gave a detailed presentation on cases involving claims for breach of fiduciary duty, and Judge Albert Diaz of the Business Court spoke about Recent Personal Jurisdiction Cases in North Carolina. In October 2007, Judge David Lee spoke about Documentary, Voice Identification, and "E-Evidence" – Foundational Requirements.
Other items worth noting from other conferences are
Judge Robert Hobgood on Evidentiary Rulings and Enforcement of Settlement Agreements;
Judge Kimberly Taylor on Opinion Testimony by Experts;
Judge Richard Boner on Disqualification and Recusal of Judges;
Judge Susan Taylor on Contempt;
Judge Lindsay Davis with a powerpoint on Res Judicata and Collateral Estoppel and a paper on the subject; and
Judge J. Gentry Caudill on Jury Selection.
There are also high quality presentations here by lawyers, like Tom Fowler on Injunctive Relief; a powerpoint presentation and handout on TROs and Preliminary Injunction in Covenant Not to Compete Cases by Mark Weidemaier; and a presentation by David Pishko on the Trial of a Legal Malpractice Case. Also, every June, Don Cowan does a summary of the prior year’s significant appellate cases. The 2008 presentation is here.
Another resource on the SOG website is the Orientation for New Superior Court Judges run periodically by the School. The most recent Orientation took place just a few days ago, from January 26-30, 2009. The new Judges heard from Judge Lee on A Judge’s Perspective on Evidence, Judge Catherine Eagles on Jury Management, and from Judge Albert Diaz on Findings of Fact and Conclusions of Law, among other things.
There’s a whole lot more on the SOG website not mentioned in this post. The site is now searchable by keywords: you can go here to do that.
NC Supreme Court Rules That There Was Personal Jurisdiction Over Corporate Officer
Today, the North Supreme Court made it clear that there can be personal jurisdiction over a corporate officer even if his only contacts with the state were in his capacity as a corporate officer.
The case is Saft America, Inc. v. Plainview Batteries, Inc., The opinion reverses the April 2008 decision of the Court of Appeals, which had ruled in a split decision that the officer didn’t have sufficient minimum contacts with North Carolina to justify jurisdiction because he had no contact with the state in his "individual capacity."
The Supreme Court opinion is unfortunately a per curiam ruling, so it simply adopts without discussion the analysis of the dissenting opinion in the Court of Appeals. The key portion of that opinion, by Judge Arrowood, read as follows:
In sum, under North Carolina precedent the determination of whether personal jurisdiction is properly exercised over a defendant does not exclude consideration of defendant’s actions merely because they were undertaken in the course of his employment. In particular, the corporate actions of a defendant who is also an officer and principal shareholder of a corporation are imputed to him for purposes of deciding the issue of personal jurisdiction. On the other hand, personal jurisdiction cannot be based solely on a defendant’s employment status as the agent or officer of a company with ties to North Carolina, or on personal connections to North Carolina that fall short of the requisite "minimum contacts."
The contacts relied upon by the Court of Appeals dissent were that the corporate officer had been the plaintiff’s primary contact with the corporate defendant, he had traveled to North Carolina to visit the plaintiff’s facility, he had submitted purchase orders on behalf of the corporate defendant. and he had been personally involved "in negotiating and carrying out the contracts that gave rise to the instant lawsuit."
As Judge Arrowood put it in the opinion adopted by the Supreme Court, it does not "correctly state the law in North Carolina" that "actions taken by an individual in the course of his employment or in his ‘official’ capacity do not ‘count’ as part of a defendant’s contacts with the forum state."
Funds Stolen By Lawyer At Closing: NC Court Of Appeals Rules On Whether Buyer Or Seller Bears The Loss
When the attorney closing a residential real estate transaction steals the closing proceeds, does the buyer or the seller bear the loss?
The holding of the 2-1 majority today in the North Carolina Court of Appeals decision in Johnson v. Schultz is that in the typical transaction the loss will fall on the party whose lawyer absconded with the funds, at least in the absence of fault.
In North Carolina, that’s in most cases going to be the buyer, who typically selects the closing attorney. The holding of Judge Robert C. Hunter, concurred in by Judge Martin, was as follows:
we conclude that where, as here: (1) one attorney is used to handle a residential real estate closing, (2) the attorney misappropriates the remaining balance of the purchase price owed to the seller, and (3) the risk of loss must be allocated to one or more parties, courts should first consider the existence of fault. However, if fault does not exist and the risk must be allocated between essentially “innocent” parties, courts should then consider which parties had an attorney-client relationship with the wrongdoing attorney and impose the risk of loss on those parties. Where multiple parties to the transaction have an attorney-client relationship with the offending attorney, the risk of loss should be shared among them.
The Court rejected the approach taken by the trial court, which had followed what is known as the "entitlement rule." Under that rule, the loss fell on the seller, who was the party entitled to the funds in the hands of the attorney. The theory of the entitlement rule is that that the holder of an escrow is the agent for the party for whom the funds are being held. An earlier Court of Appeals decision, GE Capital Mortgage Services v. Avent, 114 N.C. APP. 430, 442 S.E.2d 98 (1994), had followed the entitlement rule in a case involving an escrow held following a residential closing, but it was distinguished by today’s decision.
Judge Wynn dissented, and took a completely different approach. He would have placed the risk of loss on the seller, because the seller had opted to take its proceeds in the form of a check drawn on the closing attorney’s trust account, as opposed to the cash payment specified in the standard 2005 NCBA contract form. The majority reasoned that requiring sellers to walk away from the closing with cash "would significantly disrupt the way real estate transactions are traditionally closed in North Carolina."
The opinion contains a detailed discussion of how residential real estate transactions are closed in North Carolina. Those generally involve the "settlement closing" method, but sometimes involve what’s called an "escrow closing." The case also defines what an "escrow" is, for the first time in a reported North Carolina appellate opinion, and discusses obscure types of escrows like a "set-aside escrow" and a "deed and money escrow." (You’ll have to read the opinion if you want to know more about these things).
In the Johnson case, the closing attorney, now disbarred, had made off with more than $250,000 in closing proceeds owed to the seller. The case was apparently a big deal in the residential real estate closing world. The North Carolina State Bar weighed in with an amicus brief on behalf of the seller, which was countered by an amicus brief by the North Carolina Land Title Association for the buyer.
It’s now on to the Supreme Court. And even then, the case may not be over. That’s because the buyer claimed that the attorney had been acting for the seller as well, and the Court of Appeals held that the case needed to be remanded for resolution of this issue.
No Standing For North Carolina Taxpayer To Sue Over Public Financing Of Entertainment Theater
The North Carolina Business Court dismissed today a highly publicized case brought by a City of Roanoke Rapids taxpayer who sought to challenge the City’s investment of more than $13 million to build the "Randy Parton Theater" in Halifax County. (See here, here, and here for local and national articles about the lawsuit). The Court held that the Plaintiff, Garrett, lacked standing to bring the suit, either as an individual taxpayer or on a derivative basis on behalf of the City.
Roanoke Rapids, in reliance on a business plan presented by Randy Parton, the younger and less talented brother of Dolly Parton, had financed a music theater with Tax Increment Financing bonds. Those are a relatively new public financing mechanism authorized by a 2004 Amendment to the North Carolina Constitution. The Roanoke Rapids financing — by which the City was authorized to issue $21 million in TIF bonds to finance the Theater and a related development — was reportedly the first TIF financing in North Carolina.
After the Theater was built, there were allegations of misuse of funds by Parton (like a $600 pair of pants and trips to Las Vegas), conflicts of interest, and mismanagement of the venture. Parton, a regular headliner at the Theater, wasn’t much of a draw and reportedly showed up intoxicated for his shows. The Theater failed, and the City was unable to make payments on the TIF Bonds from the revenues of the Theater, which were the anticipated repayment source.
In February 2008, the City entered into a Settlement Agreement with Parton, paying him $750,000 for the privilege of being released from his $1.5 million per year management contract. The release included the "Moonlight Bandit" entities which had been formed by Parton and others in connection with the Theater.
The Plaintiff, backed by the North Carolina Institute for Constitutional Law, filed a Complaint notwithstanding the settlement against Parton, the Moonlight Bandit entities, and others involved in the failed venture. Taxpayers don’t get a vote on the issuance of TIF bonds. Former Supreme Court Justice Bob Orr, who is the Executive Director of the Institute for Constitutional Law, said on his More from Orr Blog that "the voting public was literally snookered into giving up their constitutionally guaranteed right to vote on the issuance" of these types of bonds.
The issue before Judge Jolly was whether Garrett, a resident of the City, had standing to sue. Garrett claimed that he was entitled to bring suit individually because the losses from the failed 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.
The fact of the City’s settlement with Parton 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.
The Theater has been renamed the "Roanoke Rapids Theater." The City is trying to sell it to a private investor.
CITGO Wins Motion To Dismiss Gasoline Pricing Case In The North Carolina Business Court
In its first significant opinion of the new year, the Business Court interpreted the pricing mechanism contained in a contract between convenience store operator The Pantry and CITGO, its supplier of gasoline. The case, which handed a win to CITGO allowing it to charge higher prices than those urged by The Pantry, is The Pantry, Inc. v. CITGO Petroleum Corp.
Per the contract, The Pantry’s price for gasoline was based on the average of the two lowest prices for "the applicable grade of motor fuel" as determined by an industry source. The dispute arose when CITGO started selling E-10 gasoline to The Pantry. That’s a blend of 90% "clear gasoline" and 10% ethanol, commonly called "gasohol." E-10 is more expensive than clear gasoline.
The contract didn’t contemplate the sale of E-10. CITGO said the contract price should be determined by the two lowest prices for E-10 gasoline, but The Pantry said it should be determined by the two lowest prices for clear gasoline. CITGO’s interpretation resulted in The Pantry paying a higher price.
The Pantry’s argument was CITGO had unilaterally determined to substitute E-10 for clear gasoline, and that this meant that E-10 was "interchangeable with and a substitute for clear gasoline." It also relied on the language of the contract referring to the "grade" of the fuel being purchased, arguing that "grade" referred to grades of clear gasoline. The convenience store operator also stressed that the purpose of the agreement was to obtain pricing that would allow it to sell gasoline "at prices competitive with other retailers in its markets," and that CITGO’s interpretation would impair that objective.
Thus, The Pantry asserted, CITGO was bound to look to the two lowest prices for clear gasoline in setting the price. Judge Diaz didn’t agree. He determined that the "only reasonable interpretation" of the contract was for the parties to look to the "precise motor fuel product purchased by The Pantry (whether clear gasoline or E-10 gasoline)" to determine the proper price.
As to the argument that CITGO’s interpretation impaired The Pantry’s intention to obtain favorable pricing, Judge Diaz held that The Pantry’s "remedy is not to contort the language of the ‘market pricing’ provisions of the [agreement] beyond their plain meaning but, instead, to renegotiate the contract terms or find an alternate supplier." Op. Par. 60.
The Court held that the interpretation urged by The Pantry "does violence to the contract terms by ‘mixing apples and oranges’ as to the motor fuels offered by CITGO," Op. Par. 56, and granted CITGO’s Motion to Dismiss.
You probably won’t find much of help in this opinion as far as precedent for future North Carolina cases. That’s because of the narrowness of the issue and the fact that the Court applied Oklahoma law.
CITGO was represented by Brooks Pierce lawyers Jim Williams, Jennifer Van Zant, and D.J. O’Brien, and Scott Solberg and Lisa Meyer of Eimer Stahl Klevorn & Solberg in Chicago.
Brief in Support of Motion to Dismiss
Brief in Opposition to Motion to Dismiss
Reply Brief in Support of Motion to Dismiss
North Carolina Court Of Appeals Reinstates Antitrust Class Action
The courthouse door in North Carolina is now wide open to antitrust plaintiffs making indirect purchaser claims, after the Court of Appeals’ decision this week in Teague v. Bayer. That decision reverses the North Carolina Business Court’s dismissal of the case for lack of standing.
For those whose hearts don’t start beating faster when reading about antitrust cases, an "indirect purchaser" is "one who purchases a product from some intermediary party rather than directly from the manufacturer."
Teague alleges that he purchased garden hoses, roofing materials, and other items which contained ethylene propylene diene monomor alastomers (EPDM) sold by the defendant chemical companies to the manufacturers of those items. Teague, an indirect purchaser of EPDM, claimed that the manufacturers of EPDM had conspired to fix its price.
Indirect purchasers can’t make claims under the federal antitrust laws after the Supreme Court’s seminal decision in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), but these types of claims can be made under state antitrust laws, per Associated General Contractors v. Carpenters, 459 U.S. 519 (1983). North Carolina has allowed such claims since Hyde v. Abbott Laboratories, 123 N.C. App. 572, 473 S.E.2d 680 (1996).
In the lower court ruling, Judge Tennille dismissed the case based on standing grounds, relying on a variation of the factors set out by the Supreme Court in the Associated General Contractors decision for determining standing under the federal antitrust laws. I summarized the Business Court decision in an earlier post, but this was the gist of what the Business Court considered in dismissing the case nearly two years ago:
the relevant market (it determined that plaintiff was a participant in a collateral market, a factor working against standing), the directness of impact (what the court termed a complex issue involving multiple distribution chains, which weighed against standing), that other indirect purchasers were likely to have been more heavily impacted (having absorbed some or all of the price increase without passing it on to plaintiff), and the daunting and complex nature of the calculation of damages (which the Court found even more complex than the calculation considered in its dismissal of an earlier case, Crouch).
The Court of Appeals reversed, holding that the Associated General Contractors factors don’t apply to antitrust claims by consumers. It acknowledged the Business Court’s point on the difficulty that plaintiff would have proving his claims, especially as to causation and damages, but said that these matters would be better addressed at the class certification and summary judgment stages. Here’s the key part of this week’s holding:
Defendants contend that courts would have to isolate the effect of the alleged conspiracy on the price of EPDM and rule out the numerous other factors that could cause a price increase in these products such as inflation, prices of other inputs, transport costs, product demand, and market conditions. Thus, a rigorous economic analysis would be required to determine whether increased prices were the result of the alleged price fixing or the result of some other factor.
The U.S. Court of Appeals for the Ninth Circuit has recognized, "Complex antitrust cases . . . invariably involve complicated questions of causation and damages." Forsyth v. Humana, Inc., 114 F.3d 1467, 1478 (9th Cir. 1997). Even if the present case proves to be no exception, that is not sufficient reason to dismiss for lack of standing. As the trial court found, considering several products containing EPDM adds to the complexity of apportioning damages in this case. The analysis described above would have to be conducted for every product at issue in order to accurately calculate Plaintiff’s damages. Our Court recognized in Hyde that a suit by indirect purchasers under our antitrust laws would be complex. However, "fear of complexity is not a sufficient reason to disallow a suit by an indirect purchaser, given the intent of the General Assembly to ‘establish an effective private cause of action for aggrieved consumers in this State.’" Hyde, 123 N.C. App. at 584, 473 S.E.2d at 687-88 (quoting Marshall, 302 N.C.at 543, 276 S.E.2d at 400). . . . We therefore hold that Plaintiff has standing to bring this antitrust and consumer fraud action.
The Teague decision also calls into question another Business Court decision, Crouch v. Compton Corp., 2004 NCBC 7 (N.C. Super. Ct. Oct. 26, 2004), in which the Court dismissed an indirect purchaser claim on standing grounds.