Reporting on Judicial Decisions of Significance to Business & Shareholders
The Court found no bias or prejudice warranting that it enter an order recusing another judge. Bias requires a showing of personal enmity by the judge toward the party seeking to disqualify. Errors of law will not support recusal, as those are a matter for appeal. Nor did the judge’s threats to hold counsel in contempt warrant recusal. The fact that the judge, who was partially retired, also conducted a mediation practice did not warrant recusal either.
This opinion contains a thorough discussion of the economic loss doctrine. Plaintiff had purchased "sight chambers," used for monitoring intravenous feeds, made with raw material supplied by defendant. Defendant had used low grade materials to fulfill its end of the contract, which led to plaintiff having to recall millions of sight chambers.
As the Court saw it, plaintiff was clearly seeking to recover for economic loss, which were the financial losses it suffered when it was forced to recall a product that did not perform as expected because of a defect in a component part. The Court was sensitive to the notion that a plaintiff should not manufacture a tort claim out of a simple breach of contract claim and held that "[b]oiled to its essence, [defendant’s] claim is that [plaintiff] should have anticipated and planned for the possibility of fraud in this transaction and that, having failed to do so, it may look only to its contract remedies under the UCC. The law, however, should not foster commercial negotiations that ‘begin with the assumption that the other party is lying.’"
The Court recited the principles it later reiterated in the Club Car, Inc. v. The Dow Chemical Company case, and held that plaintiff was entitled to proceed on a fraud claim because plaintiff’s claim "smacked of tort." The Court also distinguished Judge Tennille’s opinion in Coker v. DaimlerChrysler Corp.
It further held that a claim for negligent misrepresentation is not barred by the economic loss doctrine. Plaintiff’s claim for unfair and deceptive practices was allowed to proceed as well. The Court did, however, dismiss plaintiff’s negligence claim, holding that "North Carolina law prohibits the bringing of a negligence action against the manufacturer or seller of a product for economic losses sustained as a result of the product’s failure to perform as expected."
Thanks to Brad Kutrow at Helms Mullis & Wicker for sending me this opinion.
Plaintiff sought to enjoin a merger. He alleged that the defendants, directors of the company to be acquired, had breached their fiduciary duties by failing to disclose pertinent information to the shareholders, failing to maximize shareholder value, and agreeing to a coercive and unreasonable termination fee.
The Court noted that it was uncertain whether plaintiff was entitled to make direct claims, as directors of a corporation owe their fiduciary duties to the company, as opposed to the shareholders, and a claim for breach of those duties belong to the corporation. North Carolina does not impose Revlon duties on directors.
It held that the directors here were entitled to rely on their advice of their counsel and their investment advisors, as provided for in N.C.G.S. §55-8-30, and denied the Motion.
Plaintiff sought to enjoin a foreclosure sale to be conducted for the benefit of the secured lender. Plaintiff was a general contractor who had done substantial work on the property which was the subject of the sale, for which it was owed more than $ 8 million. Efforts of the owner of the property to find a buyer had been unsuccessful.
The Court refused to enjoin the sale, holding that there was a serious question whether a lienholder had standing to enjoin a sale, and that the stated basis that the sale might not bring enough proceeds to satisfy plaintiff’s liens were not a basis for an injunction.
The Court approved an award of attorneys’ fees of $4 million to class counsel. It found the fees to be reasonable under the percentage of fund approach, the lodestar-multiplier approach, and the fee factors considered in North Carolina cases based on Rule 1.5 of the North Carolina Rules of Professional Conduct.
The Court found sufficient grounds for the appointment of a receiver, given disputes between the developer of timeshare properties and the homeowners association.
Defendant had sufficiently pled an agency relationship to survive a motion to dismiss.
The Court found that an arbitration agreement involved commerce so as to implicate the Federal Arbitration Act, and found the arbitration provision to be enforceable. The principal issue, however, was whether the Court had jurisdiction to award provisional relief. In this case, that meant the appointment of a receiver.
The Court found that it had that power, but denied the remedy. It held that "[t]he appointment of a receiver is a harsh and cumbersome remedy, and is arguably outside the permissible interpretation of the Arbitration provision under the FAA." The Court determined, however, that it would grant a limited preliminary injunction.
The Court denied plaintiff’s Motion to Compel because it failure to file a brief in support of its Motion, as required by Rule 15.11 of the Business Court Rules.
The Court denied an objection to designation of a case as a complex business case, apparently made on the ground that the law of North Carolina might not apply. The Court held that "[]t is sufficient for purposes of removal to the Business Court that there are issues concerning which law applies which will have industry-wide application. The potential thus exists for the establishment of case law which may prove useful to consumers of and businesses selling financial products."