All lawyers know, from first year torts class, that if you are hit by a baseball at a baseball game, you are unlikely to have any claim against the operator of the baseball stadium.  There’s a well developed body of law to that effect.

Today in Allred v. Capital Area Soccer League, Inc., the North Carolina Court of Appeals held that the rules of the game may be different when it’s a soccer game being played.  The Allred case is apparently one of only three cases in the country that deals with injuries suffered by spectators from soccer balls kicked into the stands.

The Plaintiff in Allred was attending a women’s professional soccer game at State Capital Soccer Park in Cary, North Carolina.  She was sitting in the stands behind one of the goals, and was hit in the head by a ball during warmups, when "many balls were directed towards the nets in a relatively short period of time."  Op. at 4..  She suffered "substantial head injuries."   Op. at 2. 

The trial court granted Defendant’s Motion to Dismiss on Plaintiff’s claim of negligence, but the Court of Appeals reversed.  Judge Steelman began the unanimous opinion of the Court by observing that there were no reported cases in North Carolina involving injuries to spectators at soccer games, but that the cases involving baseball games "have been uniformly decided against the spectator, either on the basis that the stadium operator was not negligent or that the spectator assumed the risk of being hit by a baseball."  Op. at 5.

The Court’s analysis then turned to two issues: the duty owned by the sports facility operator to the spectator, and whether the Plaintiff had assumed the risk by attending the game.

Continue Reading Watch Out For Soccer Balls, They Can Be Dangerous

The Court allowed a stay of discovery while it considered the Defendants’ Motions to Dismiss, stating that "a brief stay of discovery initiatives has the laudable potential of minmizing fees, expenses and the various costs of litigation for the parties in this matter.  Such a stay is in the best interests of justice."

Full Opinion

Brief in Support of Motion to Stay Discovery

Brief in Opposition to Motion to Stay Discovery

Bonus: Delaware Court of Chancery Letter Opinion staying discovery

The Internet advertising activities of the Defendants, including the use by Defendants of Plaintiff’s trademark to generate "sponsored links" in a Google AdWords campaign and the use of the Plaintiff’s trademark in metatags, supported personal jurisdiction in an infringement action.  The case, Market America v. Optihealth Products, Inc,  was decided by Magistrate Judge Eliason of the Middle District of North Carolina on November 21, 2008.

The parties compete in the sale of food supplements containing oligomeric proanthocyanidins, an antioxidant which is presumably good for you.  The Plaintiff’s product is OPC-3, for which it has a registered trademark. The Defendants sell a competing product under the trademark OPCXtra. 

The Defendants had sold some of their product in North Carolina, but argued that none of their allegedly infringing activity had occurred in this State because none of the product shipped to the State included Plaintiff’s trademark. The Court disagreed, however, and denied the Motion to Dismiss for lack of jurisdiction.  It found that "Defendants engage in a number of activities using Plaintiff’s trademark, which is intended to draw individuals to their website, which, in turn, is used to make out-of-state sales." 

Among those activities was the Defendants’ participation in Google’s AdWords program.  The Defendants had purchased through AdWords the word OPC3, the name of Plaintiff’s trademarked product.  That meant that if a person using Google searched for OPC3, a link to Defendants’ website would be returned. 

The Defendants had also placed metatags on their website which used the Plaintiff’s trademark.  Metatags aren’t visible, but if a person searched for "OPC" or "OPC3," that person would be directed to the Defendants’ website due to the metatags being "seen" by the search engine.

With regard to the metatags, Magistrate Judge Eliason held that "the mere fact that a defendant did not visually display the plaintiff’s trademark through the use of a metatag is not determinative on the issue of use, but rather is more properly a factor to be used in deciding whether there is a ‘likelihood of confusion’ caused by defendant’s activity." The Court declined to follow a Second Circuit decision, 1-800 Contacts v. WhenU.Com, Inc., 414 F.3d 400 (2nd Cir. 2005), which holds that the use of a metatag does not amount to use of a trademark.

The Court further held that the Defendants’ use of the OPC3 metatags was "for the express purpose of increasing the chance that Internet search engines will point potential customers, including customers from North Carolina, to their website."

Another factor in the denial of the Defendants’ Motion to Dismiss was their purchase of the domain name “www.opc3.com” so that Internet users typing in the “opc3” mark owned by Plaintiff would be directed to Defendants’ website and Defendants’ competing products.

The Court found the use of Google AdWords, metatags, and the OPC3 website were not "inadvertent choices," but rather "intentional activity seeking to use Plaintiff’s trademark in order to draw potential customers of Plaintiff to Defendants’ website. . . ."  That made out sufficient minimum contacts for personal jurisdiction, and the New York Defendant will as a result be defending this case in the Middle District of North Carolina.

The North Carolina Supreme Court reversed the Court of Appeals today in a case involving a claim of negligent misrepresentation over a realtor’s Multiple Listing Service (MLS) listing.

The Plaintiffs had purchased a home thinking it was connected to the city sewer system.  That’s what the MLS listing said.  That was wrong, the home actually had a septic tank, which repeatedly overflowed after the purchase.

Plaintiffs won a jury verdict, but the Court of Appeals reversed.  The basis for the reversal was that the version of the MLS listing given to the Plaintiffs was not the same version as put on the service by the Defendant real estate brokers. The Defendants’ listing stated "Information deemed RELIABLE but not GUARANTEED."  The version seen by the Plaintiffs did not have this language.

The Court of Appeals majority in Crawford v. Mintz, 653 S.E.2d 222 (N.C. App. 2007) held that "a buyer cannot demonstrate reliance on a representation made in an MLS listing unless that buyer relied on a version of the MLS listing containing the same qualifying language as was originally entered by the listing agent."

The Supreme Court’s reversal was based on Judge Steelman’s dissent.  He reasoned that the absence of the qualifying language "rather goes to the question of whether the plaintiffs relied upon the MLS listing, and whether any reliance was justifiable.  It was for the jury to determine the credibility of the witnesses, and the weight to be given to the evidence."

The Supreme Court didn’t write much of an opinion, it ruled Per Curiam, stating only that it was "reversing for the reasons stated in the dissenting opinion."

There were other several other rulings from the Supreme Court today, you can find them here.

The Plaintiffs in Fisher v. Communications Workers of America, 2008 NCBC 18 (N.C. Super. Ct. Oct. 30, 2008), a pending Business Court case involving the North Carolina Identity Theft Protection Act, are live and on YouTube, talking about their claims.

The Fisher case is the first court decision under the Act. It involves whether the posting of social security numbers on a bulletin board is a violation of the Act.  In his October 30th opinion, Judge Diaz denied the Defendants’ Motion to Dismiss.

The YouTube video (at the bottom of this post) brings out an interesting element of the case that isn’t mentioned in the Complaint. The Plaintiffs contend in the video that the bulletin board posting of their social security numbers was done by the defendant Union intentionally, to retaliate against them either because they wouldn’t join the Union, or because they wanted to (or had) quit the Union.  They say that the Union deliberately posted their social security numbers in order to expose them to the risk of identity theft. 

The video is on Freedom@Work, a blog associated with the National Right to Work Legal Defense Foundation.  The Foundation is representing the Plaintiffs and is publicly promoting their case, starting with a Press Release issued at the time the lawsuit was filed.

The use of YouTube in this way struck me as an unusual, and potentially risky, litigation strategy.  If you put your clients out on YouTube talking about their claims, you are not only creating deposition fodder for opposing counsel, you are also taking the risk that what they say about the lawsuit may not receive the absolute privilege that covers statements made in court proceedings. That’s true even if you put a faux courtroom background in your video, as the Foundation did in theirs.

https://youtube.com/watch?v=0AE4HnM7cSE%26color1%3D0x11645361%26color2%3D0x13619151%26hl%3Den%26feature%3Dplayer_embedded%26fs%3D1

 

 

 

 

A lawsuit regarding a residential property development, in which the Plaintiffs made claims against the developer of the project, its lenders, appraisers, and others under the Interstate Land Sales Full Disclosure Act, and for fraud, breach of fiduciary duty, and breach of contract, among others, fell within the Business Court’s mandatory jurisdiction.  Some of the Defendants’ marketing had been done over the internet.  The Court held:

This case involves material issues of corporate law and issues related to the internet and electronic commerce. This case specifically raises issues of corporate governance and fiduciary duties—areas of law plainly listed in N.C. Gen. State. § 7A-45.4(a)(1) as grounds for mandatory complex business designation. Furthermore, making sense of the complex relationships between the Defendants brings this action properly before the Business Court. The assignment of one presiding judge and use of the Business Court Rules will allow for the most efficient administration of justice. Lastly, the Chapter 11 filing made by several of the Defendants in this case is likely to add to the complexity of this litigation. Under these circumstances, mandatory complex business designation is proper.

Full Opinion

Brief in Opposition to Designation

Brief in Support of Designation (Scripps)

Brief in Support of Designation (Wachovia)

Complaint

Even if you read this blog regularly — and thanks if you do — you may not know that the Case Database feature here is a great place for researching a North Carolina business litigation issue. To get to that part of the blog, there’s a Case Database button near the top left:

Click on that.  You’ll see the interface down below.  Let’s say you were trying to decide whether a particular case fell within the Business Court’s statutory mandatory jurisdiction.  If you looked in the annotations to N.C. Gen. Stat. §7A-45.4, you wouldn’t find any cases at all on that point.  The same would be true if you searched that term on Westlaw.  But if you check the "mandatory jurisdiction" box in the search box, or type those words as a search term, you’ll get links to more than ten unpublished cases decided by the Business Court on that subject. 

That’s just one example.  The Database contains searchable summaries of every numbered decision of the Business Court, which currently total 150 opinions going back to 1996.   The Database also has nearly 100 summaries of decisions of the Court that didn’t get a number, and which therefore aren’t "published."   Every summary has a link to the opinion or order.  The unpublished orders and opinions can’t be found anywhere else other than the Court’s website.  They aren’t readily accessible there and they get taken off line when a case is closed.

Here are a few examples of unpublished cases in the Database:

You can enter your own search term or use pre-defined terms, like these:


The more recent summaries I’ve done include links to the briefs of the parties.  The briefs often have thorough discussions of the issues and extensive case citations.

It’s taken a while to get this feature working smoothly.  It’s still not perfect and it doesn’t have the sleekness or high functionality of a Westlaw or a Lexis, but it’s working well enough for me to mention it specifically and to ask you to please try it out.

The Court held that a party which failed to appear for a show cause hearing at the direction of the Court, having received notice of the hearing, would be held in contempt.  The Court determined that the non-appearance was a “[w]illful . . . failure to comply with schedules and practices of the court resulting in substantial interference with the business of the court.” N.C. Gen. Stat. § 5A-11(7) (2007).  Pursuant to N.C. Gen. Stat. § 5A-12(a) (2007), the Court fined the party $500, and further ruled that if the payment was not made by the date specified, that the failure would "subject its managing officers to additional criminal contempt penalties, including imprisonment for up to thirty (30) days," relying on State ex rel. Grimsley v. West Lake Dev., Inc., 71 N.C. App. 779, 782, 323 S.E.2d 448, 449 (1984) (a corporate officer may be punished for criminal contempt and imprisoned if that person fails to take appropriate action within his power to comply with a court order).

Full Opinion
 

Ehrenhaus v. Baker, 2008 NCBC 20 (N.C. Super. Ct. Dec. 5, 2008)

The North Carolina Business Court has denied Plaintiff’s Motion for a Preliminary Injunction with regard to the pending merger between Wachovia and Wells Fargo.

The opinion of Judge Diaz was issued early Friday evening, after the close of business.  The principal holdings of the 28 page opinion, briefly, were that (1) the Wachovia Board of Directors, in approving the merger deal, satisfied its obligations under the Business Judgment Rule in light of the dire economic circumstances and lack of alternatives faced by the Board, (2) the Board complied with North Carolina law in the issuance of new shares of stock to Wells Fargo which gave it 39.9% of the voting control over Wachovia, and (3) the grant of this voting bloc was not coercive to Wachovia’s shareholders. 

Judge Diaz also found, however, that the continuation of Wells Fargo’s right to vote these shares for an 18 month period if the Wachovia shareholders reject the merger was invalid.  That narrow victory for the Plaintiff won’t, however, have any effect on the transaction.

The Court’s holdings, in more detail, were as follows:

Business Judgment Rule 

The Board satisfied its responsibilities under the Business Judgment Rule. The Court held that:

this case does not fit neatly into conventional business judgment rule jurisprudence, which assumes the presence of a free and competitive market to assess the value and merits of a transaction. But other than insisting that he would have stood firm in the eye of what can only be described as a cataclysmic financial storm, Plaintiff offers nothing to suggest that the Board’s response to the Hobson’s choice before it was unreasonable.

Op. at ¶¶124-25. As the Court put it:

The stark reality is that the Board (1) recognized that Wachovia was on the brink of failure because of an unprecedented financial tsunami, (2) understood the very real and immediate threat of a forced liquidation of the Company by government regulators in the absence of a completed merger transaction with someone, and (3) possessed little (if any) leverage in its negotiations with Wells Fargo because of the absence of any superior merger proposals.

Against that backdrop, the Board had two options: (1) accept a merger proposal that, although partially circumscribing the shareholders’ ability to vote on its merits, nevertheless still gave the shareholders a voice in the transaction and also provided substantial value; or (2) reject the Merger Agreement and face the very real prospect that Wachovia shareholders would receive nothing.

Pared to its essence, Plaintiff’s argument is that he would have voted to reject the Merger Agreement and take his chances with the government had he been sitting on the Board on 2 October 2008. But it is precisely this sort of post hoc second-guessing that the business judgment rule prohibits, even where the transaction involves a merger or sale of control.

Op. at ¶¶131-33.

The Share Issuance Was Valid

The Wachovia Board complied with North Carolina law in issuing new shares to Wells Fargo which represented 39.9% of the voting stock of Wachovia. Op. ¶¶107-11.  Shareholder approval was not required for the exchange of those shares for Wells Fargo shares, because shareholder approval for a share exchange is required only when the shares exchanged are "already outstanding" shares.  These were not.

The Share Issuance Was Not Coercive

The grant of 40% voting control to Wells Fargo was not coercive, because a majority of Wachovia shareholders were still free to accept — or reject — the proposed merger.  As Judge Diaz observed:

while it is certainly true that slightly over 40% of the total votes to be cast on the Merger Agreement have been spoken for, and that Plaintiff and those in his camp face a substantial hurdle in defeating this transaction, a majority of Wachovia shareholders (owning nearly 60% of all Wachovia shares) “may still freely vote for or against the merger, based on their own perceived best interests, and ultimately defeat the merger, if they desire.” In re IXC Commc’ns. S’holders Litig., 1999 Del. Ch. LEXIS 210, at *23 (concluding that a vote-buying transaction did not disenfranchise the remaining shareholders where a numerical majority of shareholders were still in position to independently vote against the merger).

Op. at ¶142.  Judge Diaz further observed, with regard to Plaintiff’s contention that the Share Exchange had deterred other potential bidders: "the sobering reality is that there are few (if any) entities in a position to make a credible bid for Wachovia that would be superior to the Merger Agreement."  Op. at ¶151.  If Wachovia’s Board had not taken the Wells Fargo deal, it faced "the obliteration of most, if not all, of the shareholder equity."  Op. at ¶152.

18 Month "Tail" Held Invalid

In a small, but meaningless victory for the Plaintiff, the Court found invalid the provision of the Merger Agreement providing that Wells Fargo would retain its 40% stake for at least 18 months after the vote of the shareholders.  It entered an injunction against that particular portion of the Merger Agreement.  

This looks like the end of the road for the venerable North Carolina institution known as Wachovia. It seems very unlikely that the merger won’t receive the 50% plus 1 vote of the outstanding shares required under North Carolina law for the approval of a merger.

Brief in Support of Motion for Preliminary Injunction

Wachovia Brief in Opposition to Motion for Preliminary Injunction

Wells Fargo Brief in Opposition to Motion for Preliminary Injunction

Reply Brief in Support of Motion for Preliminary Injunction

Wachovia Sur-Reply in Opposition fo Motion for Preliminary Injunction

One of the unusual things about the litigation over the Wachovia-Wells Fargo merger (which I’m hoping will come to a close soon so this blog won’t be all Wachovia all the time) was the flood of letters and emails written to the Court.  Judge Diaz received over 200 pieces of correspondence about the case.

The most high profile of those communications was the one from State Treasurer Richard Moore, who had said in a television interview that the merger amounted to "highway robbery."  Ever since Moore wrote his letter, I’ve been wondering why he didn’t move to intervene in the case.  That would have let him speak directly on behalf of the North Carolina Retirement System (the NCRS), which has lost nearly $20 million on its investment in Wachovia.

A likely answer why that didn’t happen came this week from the unlikeliest of places, a decision from Judge Keenan of the Southern District of New York, in a case called Kuriakose v. Federal Home Loan Mortgage Company.  The opinion dealt with who should be the lead plaintiff in that class action under the Private Securities Litigation Reform Act (the PSLRA), and whether the State Treasurer has the power to seek to be a plaintiff in litigation.

The NCRS was vying in Kuriakose for the lead plaintiff position.  It looked like it had that spot locked up, because the Court determined that it was “the presumptively most adequate plaintiff under the PSLRA.”  This isn’t much of compliment, because adequacy turns mainly on the extent of the plaintiff’s financial loss.  The NCRS is down more than $18,000,000 on its investment in Freddie Mac stock, per an Affidavit filed by Moore in the case.

But Judge Keenan held that the NCRS couldn’t be lead plaintiff, because there was a substantial question whether Moore had the right to initiate litigation on its behalf.  In filings in the Southern District, the North Carolina Attorney General and the State Treasurer had gone to war over the authority of the State Treasurer to initiate the litigation and to retain outside counsel to represent the NCRS.

The battle started in late October 2008, with North Carolina’s Attorney General Roy Cooper writing to Moore’s counsel questioning Moore’s ability to retain counsel and to initiate litigation without his approval and demanding that he immediately withdraw his request for lead counsel status.  Moore’s lawyers wrote back, disputing Cooper’s assertions, and stating that he was "jeopardiz[ing] the ability of the Treasurer to protect the state employees’ retirement funds and to recover the significant losses."

The argument then spilled into the federal court in New York.  Cooper filed a Brief, explaining that while Moore served in various capacities to the various retirement systems which are members of the NCRS, that each of the constituent systems has its own "board of trustees with specific management and fiduciary duties specified by North Carolina law." Brf. at 2.  Cooper asserted that the Treasurer, while a member of some of those boards, "does not have independent authority to prosecute any legal action on behalf of the retirement system.  Such authority lies solely with the respective board of trustees."  Brf. at 4. 

That authority, according to Cooper, had not been sought by Moore from the respective boards.  Cooper further argued, relying on N.C. Gen. Stat. §114-2.3, that the approval of the Attorney General was necessary before the retention of private counsel for a state agency. That statute says that "every agency . . . shall obtain written permission from the Attorney General prior to employing private counsel."

Moore disputed Cooper’s statutory interpretation in a Response Brief, and pointed to N.C. Gen. Stat. §147-71, which says that the Treasurer has the power "to demand, sue for, collect and receive all money and property of the State not held by some person under authority of law," as well as N.C. Gen. Stat. §147-69.3(g), which empowers the Treasurer to "retain the services of . . . attorneys . . . possessing specialized skills or knowledge necessary for the proper administration of investment programs created pursuant to this section."

Judge Keenan didn’t pounce on the opportunity to resolve this North Carolina state government dispute, but instead held:

Given the uncertainty surrounding the Treasurer’s legal authority to act on NCRS’s behalf, the Court cannot accept his certification that NCRS is willing and able to serve as lead plaintiff. Nor would it be in the class’s interest to have a lead plaintiff likely to become bogged down in state court litigation concerning its participation in this federal securities class action. Therefore, Treasurer Moore’s motion to have NCRS appointed as lead plaintiff is denied. 

This is a thorny and interesting issue of the power of the State Treasurer versus that of the Attorney General.  Maybe it will be resolved one day in a court closer to home.