The Business Court denied the Defendant’s request to amend its Answer to add a statute of limitations defense and a defense of ERISA preemption.  Judge Tennille found that the Defendant had unduly delayed by raising the statute of limitations defense fourteen months after the filing of its Answer, and that the Plaintiff would be prejudiced if it were allowed.  The Court denied the ERISA amendment for another reason, finding it to be futile.

The Court held that "[a] delay of over fourteen months before filing a statutes of limitation defense is an undue delay and causes undue prejudice to Plaintiff."  It also held that "[a] defense based upon statutes of limitation is, by definition, time sensitive. A delay of over fourteen months before asking for an amendment could be acceptable in certain circumstances. . . . The situation where statutes of limitations defense is raised is not one of those circumstances."

On the ERISA claim, the Court held that although the Complaint did reference the pension plan of the practice, this was insufficient to warrant ERISA preemption because the claim did not involve the existence or extent of benefits under an employee benefit plan. 

Full Opinion

Brief in Support of Motion to Amend

Brief in Opposition to Motion to Amend

Reply Brief in Support of Motion to Amend

The Court granted a Motion for Protective Order over the objection of the North Carolina Department of Revenue in tax refund litigation.  The opinion is very short, but the Briefs have good general discussion on protective order issues.

Full Opinion

Defendant’s Brief in Opposition to Motion for Protective Order

Defendant’s Brief in Support of Motion for Protective Order 

The Court of Appeals held on June 17, 2008 in Dailey v. Popma that a defendant’s Internet postings, even though available in North Carolina and causing injury in North Carolina, aren’t sufficient for personal jurisdiction unless the postings are "targeted" to residents of the State.

In Dailey, the plaintiff claimed that Popma had posted statements about him on the Internet accusing him of theft, embezzlement, and being the "equivalent" of a child molester, among others.

Popma asserted that the postings had been made by him in Georgia, and that the North Carolina courts could not exercise personal jurisdiction over him.

The Court held, relying on Young v. New Haven Advocate, 315 F.3d 256 (4th Cir. 2002), cert. denied, 538 U.S. 1035, 155 L. Ed. 2d 1065, 123 S. Ct. 2092 (2003), that "the dispositive question in such cases should be whether the defendant ‘through the Internet postings, manifest[ed] an intent to target and focus on [the forum state’s] readers.’"

After assessing the record, the Court found that plaintiff had "failed to establish that defendant posted the material in the bulletin board discussions with the intent to direct his content to a North Carolina audience" and that there was no basis for personal jurisdiction.

The Dailey decision isn’t the first time the Court of Appeals has addressed the interplay between personal jurisdiction and the Internet.  In 2005, in Havey v.Valentine, 172 N.C. App. 812, 616 S.E.2d 642 (2005), the Court of Appeals had adopted the Fourth Circuit’s analysis in ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707 (4th Cir. 2002), cert. denied, 537 U.S. 1105, 154 L. Ed. 2d 773, 123 S. Ct. 868 (2003).  

The ALS formulation calls for the Court to consider whether the Defendant (1) directs electronic activity into the State, (2) with the manifested intent of engaging in business or other interactions within the State, and (3) that activity creates, in a person within the State, a potential cause of action cognizable in the State’s courts.

The decision in Havey also established that  "a person who simply places information on the Internet does not subject himself to jurisdiction in each State into which the electronic signal is transmitted and received."  That the postings have an effect on a North Carolina resident is not enough to support jurisdiction. 

This is a list of the eight cases (my count) in which Motions to Dismiss are fully briefed and ready for a ruling, with links to the Business Court file for each case:

CompuChem v. Shealy Environmental Services, Inc.: whether employee owed employer a fiduciary duty, validity of claim for aiding and abetting breach of fiduciary duty, tortious interference claim against competitor.  Defendant also argues that the Court should apply the "new" standard for evaluating a motion to dismiss articulated by the U.S. Supreme Court in Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955 (2007).

Covenant Equipment Corp. v. Forklift Pro, Inc.: permissible geographic and temporaral scope of a confidentiality agreement (under South Carolina law).

Crockett Capital Corp. v. Inland American Winston Hotels, Inc.: whether development agreement was a binding contract or an “agreement to agree.”

Fayetteville Imaging Associates, Inc. v. National Imaging Affiliates, Inc.: breach of fiduciary duty, internal affairs doctrine, duty of majority shareholder to minority, pleading fraud with particularity.  The Motion asserts that Tennessee law applies.

General Electric Capital Corp. v. Royal American Co., L.L.C.: impleader, propriety of third party complaint.

Hill v. StuHub, Inc.: Whether claim against on-line ticket website StubHub for scalping tickets is barred by the Communications Decency Act.

Hume v. Stevenson: unfair and deceptive practices (whether actions of defendant were "in commerce," whether transaction involved securities so as to be outside scope of statute), pleading fraud with particularity, motion for a more definite statement.

O’Henry, Inc.v. Advantage Marketing Wholesalers, L.L.C.: sufficiency of allegations of breach of contract (New Jersey law).

These are not complete descriptions of the pending issues, only a general summary. 

I did a similar post earlier this month on pending Motions for Summary Judgment, you can find that here.

The Business Court today granted in part, and denied in part, a Motion to Dismiss in Gateway Management Services, Ltd. v. Advanced Lubrication Technology, Inc. Judge Tennille ruled on claims of tortious interference with prospective economic advantage, negligent misrepresentation, and misappropriation of trade secrets, among others.

Plaintiff (Gateway) alleged that the Defendant (ALT) sold it faulty lubricant which was used by automobile and truck dealers to which Plaintiff sold warranties.  The lubricant allegedly turned out to be defective, and Gateway claims it was called upon to pay substantial warranty claims.  

The parties stopped doing business with one another, and ALT then began selling the same lubricant, under a different name, to Gateway’s competitor.  According to Gateway, ALT gave the competitor a list of Gateway’s customers which it used to solicit business.

The Motion to Dismiss was granted as to the tortious interference claim, which asserted that Gateway had lost business as a result of ALT’s sale of lubricant to the competitor.  The Court held that:

ALT sold product to a competitor of Gateway. It had the right to do so. Competition does not in and of itself represent tortious interference; rather it is a legitimate justification for seeking business from common customers. Here it is even one step removed since ALT sold product to Gateway’s competitor.

It is . . . clear that the complaint does not adequately allege interference with prospective economic advantage. To do so the complaint must allege interference with a trade or business by maliciously inducing a person not to enter into a contract with a third person, which he would have entered into but for the interference. A legitimate exercise on a person’s rights cannot support a claim for interference with prospective economic advantage.

The negligent misrepresentation claim was dismissed because Gateway’s claims were for breach of warranty and covered by the UCC, and also because of the economic loss rule.  Judge Tennille held:

This is a breach of warranty case. The complaint alleges any statements were made in the course of the contractual representation. It fails to establish any independent duty running from ALT to Gateway. To substitute negligent misrepresentation for breach of warranty under the circumstances of this case would eviscerate the pertinent sections of the UCC. Both the negligent misrepresentation claim and the negligence claim in Count VI are barred by the economic loss rule. Both are based upon a breach of contract or warranty and the recovery is limited to the contract or warranty claim. Our Court of Appeals has held that: “a tort action does not lie against a party to a contract who simply fails to properly perform the terms of the contract.” Spillman v. Am. Homes of Mocksville, Inc., 108 N.C. App. 63, 65, 422 S.E.2d 740, 741 (1992).

Finally, the trade secrets claim survived the Motion to Dismiss. The Court held that "[c]ustomer lists may or may not be trade secrets depending on the circumstances and the use made of them," and held that discovery on this claim would be necessary.

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

 

 

 

The case of  Land v. Land is a minority shareholder dispute among shareholders of a family business. 

The Business Court sees these kinds of disputes regularly, and there’s not much novel in the Court’s Order today denying summary judgment in a fight over a masonry business involving two brothers and their father.

The part of the Order that warrants a mention, however, has to do with the Plaintiff’s claim of a breach of fiduciary duty by his brother Eddie, the majority shareholder of the business.  Eddie had an unusual defense to this claim by his brother, Alan.

The defense was that Eddie had an affair with Alan’s wife, that Alan had discovered the affair, and that Alan therefore could not have had any expectation of a fiduciary duty being owed to him by Eddie.  According to Eddie, Alan therefore could not have relied on the allegedly false statements made to him by Eddie regarding the affairs of the Company.

The Court rejected the argument, holding:

Eddie claims that Alan could not have reasonably relied upon any actions of Eddie’s because Alan caught Eddie in a compromising position with Alan’s then wife in the mid-1980s. (Def. Br. Summ. J. Alan 11.) Eddie asks the Court to hold that that circumstance alone defeats any claim to reasonable reliance or a fiduciary relationship between the two. Alan claims that his knowledge of the situation (which he kept secret until discovery in this case) gave him more leverage and reason to trust Eddie in business. (Alan Br. Opp’n 19; Def. Mot. Summ. J. Alan 4.) While the Court may have its own personal view of the wisdom of one brother trusting another under these circumstances, the Court believes that the overall question of whether there was a fiduciary relationship between Eddie and Alan is one for the jury after it sorts out all the sordid facts.

 

 

Today, Judge Jolly ruled on a Motion to Dismiss in Essa Commercial Real Estate, Inc. v. Five Trees, LLC, in which the issues involved defenses of issue preclusion based on an Arbitration Award. 

The Court determined that the Award was entitled to collateral estoppel effect — even though the Defendants had not been parties to the arbitration — and dismissed a number of Plaintiff’s claims.  It also held, however, that the Plaintiff could seek to enforce the Award against the Defendants.

The Award had been obtained by the Plaintiff against two members of a limited liability company based on an agreement which they had executed before the formation of the LLC.  Plaintiff contended that the agreement had been assumed by the LLC, and sought to make in the Business Court the same claims against the LLC and two of the other organizers of the LLC as it had made in the arbitration.  In the alternative, the Plaintiff sought to enforce the Award against the Defendants.

The Defendants argued that the Award, and a subsequent settlement agreement based on the Award, were a complete bar to Plaintiff’s claims based on collateral estoppel, res judicata, and the "one satisfaction doctrine."

In assessing the collateral estoppel defense, the Court compared the claims made in the Arbitration to the claims made in the Amended Complaint, and found them to be identical.  It further determined that the Plaintiff had "a full and fair opporutnity to litigate these issues." 

The Court concluded that "the doctrine of collateral estoppel serves to bar [the Plaintiff] from relitigating the issue of its damages resulting from breach of the Agreements and/or those services it provided to the Project before it ceased providing such services."  It therefore dismissed the claims which had been decided in the arbitration proceeding.

The Court found, however, that the Plaintiff was not barred from seeking to enforce against the Defendants the Award itself, because there were issues about whether the Award had been satisfied.  The Court stated that the settlement of the Award contained "numerous contingencies."  The claims on the Award were therefore not precluded by either res judicata or by the "one-satisfaction doctrine."

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

The only place that you are likely to find a written opinion from a North Carolina Court on a discovery issue is from the Business Court.  Those kinds of interlocutory issues just don’t get addressed by appellate courts. 

So, here’s a post about a (very) short June 10, 2008 Order in Harco National Insurance Co. v. BDO Seidman, LLP, on an interesting work product issue.

In Harco, the general counsel of the Defendant, an accounting firm, sent a representative to interview one of the key players in the audit that was at issue in the lawsuit. 

The Plaintiff deposed both the interviewer and the person interviewed.  The Defendant balked, however, when Plaintiff’s counsel asked the interviewer questions about the objectives of the interview and whether certain questions had been asked at the interview.  The Defendant also refused to produce the interviewer’s notes.  The Defendant contended that all of this information was protected by the work product privilege.  Plaintiff filed a Motion to Compel.

According to Defendant’s Brief in opposition to the Motion, some of the objectionable questions were whether the interviewer had conducted the interview with particular questions in mind, whether she had focused on particular areas of the audit, whether she showed the interviewee particular documents, and what conclusions she reached after the interview.

Judge Tennille denied the Motion, holding that the interviewer (Ms. Lister):

declined to answer questions which called for her mental impressions and litigation strategy based upon attorney-client privilege and work product. Ms. Lister conducted the interview at the direction and under the supervision of the General Counsel of BDO in order to prepare BDO’s defense to the claims asserted in the lawsuit. The Court concludes that the limited amount of information withheld by Ms. Lister was protected as attorney work product under N.C. R. Civ. P. 26(b)(3). Harco elicited testimony about what was said and done at the interview. The information it now seeks relates to impressions and opinions Ms. Lister formed and conveyed to BDO’s General Counsel. Harco has not demonstrated any hardship as it has obtained discovery of the underlying facts. Harco’s Motion to Compel is denied.

Plaintiff’s Brief in support of its Motion isn’t available because it was filed under seal, but its Reply Brief is here.  The link to Defendant’s Brief is above.

Today, in Cope v. Daniel, the Business Court denied the Defendant’s request to amend its Answer to add a statute of limitations defense and a defense of ERISA preemption.  Judge Tennille found that the Defendant had unduly delayed by raising the statute of limitations defense, and that the Plaintiff would be prejudiced if it were allowed.  The Court denied the ERISA amendment for another reason, finding it to be futile.

The case involves a dispute between shareholders of a medical practice.  Plaintiff alleged that the Defendant engaged in financial misdoings, including charging unauthorized expenses to the practice, improperly reporting to taxing authorities, paying himself unauthorized distributions of salary and bonus, and overcharging rent.

The amendment on the statute of limitations was requested fourteen months after the original Answer was filed.  The Court noted that the Complaint asserted claims based on events beginning as far back as 1999, and stated "[n]o questions have been raised as to whether Defendants knew at the time the complaint was filed . . . what claims were being asserted against them and during what timeframe."

The Court denied the Motion, holding that "[a] delay of over fourteen months before filing a statutes of limitation defense is an undue delay and causes undue prejudice to Plaintiff."  It also held that "[a] defense based upon statutes of limitation is, by definition, time sensitive. A delay of over fourteen months before asking for an amendment could be acceptable in certain circumstances. . . . The situation where statutes of limitations defense is raised is not one of those circumstances."

The ERISA claim came in for a different analysis.

Continue Reading Motion To Amend To Add Statute Of Limitations Defense Denied Based On Undue Delay

The Court granted a Motion for Protective Order yesterday in Delhaize America, Inc. v. Hinton.  There’s nothing particularly remarkable about the entry of a Protective Order, which usually happens by consent, but this Protective Order may set some precedent in future Business Court cases.

The case involves the type of tax refund litigation which is within the Business Court’s mandatory jurisdiction under N.C. Gen. Stat. § 7A-45.4(a)(7).  The Order was entered against the North Carolina Department of Revenue over its objection. 

The Department of Revenue had sought extensive information regarding Delhaize’s business activities which Delhaize offered to produce subject to a Protective Order. 

The Department, in its Brief, raised a series of objections to the information being kept confidential.  It said that:

Delhaize was "attempt[ing] to cloak its tax refund litigation in a veil of secrecy;"

A Protective Order would "violate the public’s right of access [to the courts] under state and federal law," including the First Amendment;

The North Carolina Public Records Act compelled public disclosure of the information requested; and

Delhaize’s request for a refund operated as a waiver of its rights under the North Carolina "Taxpayer Bill of Rights."

All of these objections were effectively rejected by the Court’s entry of the Order.  The Order itself contains no discussion of the basis for the ruling and is a fairly standard Protective Order.

Delhaize’s Brief, setting out the reasons why a Protective Order was appropriate, is here.  (My partners Reid Phillips, Bill McNairy, and Andy Haile represent Delhaize in this case).