Claims of limited partners against general partner were derivative, not direct.  Limited partners cannot bring an individual action against a general partner in the absence of an injury to the limited partner that is "separate and distinct" to him or that arose from a breach of a "special duty" owed to the limited partner by the general partner.

 Full Opinion

The Court discussed the consideration element of a post-employment covenant not to compete, nothing that an increase in compensation or a job promotion can be sufficient consideration.

The Court held the non-compete at issue invalid for other reasons, however, involving its temporal and geographic scope. First, the Court held that the covenant prevented the defendant from having even an indirect ownership in a competing company. It therefore did not protect a legitimate business interest of the former employer.

The Court futher found the time period of the restriction to be unreasonable, as the wording of the restriction required it to "look back" to a period of time when the employee began serving the customers as to which the restriction was sought.

The restriction also attempted, invalidly, to prevent the employee from dealing with "prospective customers," which the Court found to be "an undefined, and, therefore, unduly vague group."

Given that the covenant was customer based, as opposed to geographically based, the Court found the covenant to be invalid.

Full Opinion

The Court granted a Motion to Strike, finding that statements made in the Complaint had been made in the course of settlement negotiations, and therefore inadmissible pursuant to Rule 408 of the North Carolina Rules of Evidence. The Court rejected the argument that the statements concerned settlement of a different claim, not at issue in the lawsuit.

Full Opinion

There were parallel actions challenging a merger, one in Delaware and one, filed first, in North Carolina. Defendant filed a motion to stay the North Carolina action. The Court identified twelve factors it would consider in such situations, including whether the issues should be settled in the corporation’s state of incorporation, the convenience of parties and witnesses, and the significance, if any, of the first to file. The Court stayed the North Carolina action pending the Delaware Court’s consideration of a proposed settlement.

Full Opinion

The issue was whether a letter formed an enforceable contract. After a thorough discussion of the elements of a valid contract, the Court found that the letter lacked mutual assent as to material elements necessary to create an enforceable contract, including the price to be paid, identification of the parties, and the subject matter of the contract. The letter merely expressed the intent and desires of the parties, rather than their agreement.

Plaintiff therefore could not state a claim for tortious interference with contract.

Nor could plaintiff proceed on its promissory estoppel claim, as North Carolina recognizes that doctrine only in limited, defensive situations.

Full Opinion

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

The Court found that it lacked personal jurisdiction over out-of-state doctors and dentists who had allegedly sent internet advertising to plaintiff, a North Carolina resident.  The Court rejected plaintiff’s argument that there was jurisdiction under N.C.G.S. §1-75.4(4)(a), which allows for the assertion of jurisdiction when “solicitation or services activities were carried on within this State or by or on behalf of the defendant.”

The Court stated that “it makes absolutely no sense that Moving Defendants, all of whom operate law or dental practices in states far removed from North Carolina, would have any interest in soliciting [plaintiff], or any other North Carolina resident.” The defendants, via affidavits, in fact denied such interest.

The Court relied on the North Carolina Court of Appeals decision in Havey v. Valentine, 172 N.C. App. 812, 616 S.E.2d 642 (2005), in which the appellate court held 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.”

Full Opinion

The Court applied the literal definition of "first to file" in ruling on a Motion to Stay.  One party had e-filed in federal court several hours before the other party had hand filed a similar action in state court.  The Court held that the party which had e-filed had priority, and stayed the case before it because it was the second to be filed.  The Court rejected cases holding that cases filed on the same day should be deemed to have been filed simultaneously.

Full Opinion

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

The Court found that plaintiff was an inadequate representative to lead a derivative action.  A derivative action plaintiff has fiduciary obligations to the company on whose behalf he brings a suit.  This plaintiff had no experience in litigation, no involvement in the suit, and only a small stake in the company.  On the point of plaintiff’s minimal stock ownership, the Court held that "[w]hile the size of ownership is not determinative of standing, a potential plaintiff’s lack of a real financial stake in the litigation is a warning sign that he or she may not be willing or able to devote the time necessary to fulfill the fiduciary obligations imposed by law on a shareholder derivative plaintiff."

The plaintiff was sanctioned by the Court, as were his lawyers, for violating Rule 1.4 of the Rules of Professional Conduct by failing to properly inform their client. The Court also found that the firm had failed in its "duty to know its client" and to "have confidence in the client’s knowledge and ability to fulfill his or her fiduciary duties." Instead, the firm had "borrowed" the plaintiff’s name, "treated the lawsuit as its own," and made all litigation decisions without input from their supposed client.  The lawyers had also failed to obtain pro hac admission from the Business Court before arguing the motion for sanctions.

The Court also noted the obligations of local counsel in representing a derivative action plaintiff.  It held that "the Court does not believe that it is the primary duty of local counsel to know and communicate with a client who has an established relationship with out-of-state counsel to the same extent as the primary counsel. The local lawyer’s role is more limited, and local counsel should be able to rely on primary out-of-state counsel to communicate with the client. Where local counsel signs pleadings and briefs, they are representing to the Court that the positions taken therein have merit and that Rule 11 has been followed. Local counsel would be well advised to consider as a practical matter some of the things a court might consider in reviewing the pleadings. Is there a real plaintiff capable of fulfilling his or her fiduciary duties? Is the complaint being filed in a race to the courthouse? Are the allegations based on known facts or media stories? Has there been any effort to review the books and records of the company to support demand futility claims? Are the claims meritorious, and are there allegations that would support a finding that red flags existed to warrant board action in a derivative case? Is there clear precedent supporting or contrary to the positions taken?"

Full Opinion

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

Defendant, a terminated employee, owned one third of the outstanding stock of Classic Coffee Concepts. The issue was the price to be paid for the stock, which the corporation was obligated to repurchase under a Stockholders Agreement. The Agreement said that the price would be determined by looking to the fair market value of the stock as determined by an independent appraisal of the Employee Stock Ownership Plan. But no ESOP had ever been established.

A variety of conflicting appraisals were presented to the Court at trial.  Defendant would have been entitled to a multi-million recovery under two of them. The first, prepared pre-litigation for the accounting purpose of conducting a goodwill impairment, set the company’s "fair value" at $12,500,000. A "fair value" appraisal ignores discounts in value that are typical for closely held corporations, like those for lack of marketability and lack of control. Defendant’s shares would have been worth $4 million if this appraisal applied. A second appraisal factored in the discounts applicable to closely held corporations, and concluded that the corporation had a value of $8,390,000. If this appraisal had controlled, defendant’s shares would have been worth more than $2.7 million.

For purposes of the litigation, the company obtained a hypothetical appraisal which valued the company as if the ESOP required by the Agreement was in place. The value placed on defendant’s shares under this approach was markedly lower, only $120,000. Yet another appraisal assuming the existence of the ESOP valued defendant’s shares at $192,000, and the last of the many appraisals before the Court valued them at zero.

After analyzing this thicket of conflicting appraisals, the Court held that it would apply the first hypothetical ESOP appraisal, because that was "the only evidence of value that attempts to honor the parties’ agreement." The Court ruled that the establishment of the ESOP was not a condition precedent excusing performance by both parties, because conditions precedent are not favored in the law and also because neither party had argued the point at trial.

The Court also found that the company had materially breached the Stockholders Agreement by failing to redeem defendant’s shares within sixty days of the date of the termination of his employment, and that the pledging of defendant’s stock as collateral did not excuse it from having to do so. In a small victory for the defendant, the Court held that the company could not invoke its right to pay for defendant’s stock over a sixty month period, but that it was required to make an immediate, lump sum payment.

Full Opinion

Plaintiff’s Trial Brief

Defendant’s Trial Brief

 

The principal issue here was insurance coverage for Bank of America’s settlement payments in connection with litigation against it relating to Worldcom. The Court rejected the insurer’s argument the Bank had not suffered a "loss" within the meaning of the policies because the public policy of North Carolina would not permit insurance coverage for claims made under Section 11 and 12 of the Securities Act of 1933.

The Court also rejected the argument that the "personal profit" exclusion applied. Similarly rejected was the insurer’s argument that the Bank’s claim was barred by its warranty statement that it was unaware of any facts that might give rise to a future claim. The Court held that a subjective test would apply to the statement based on the knowledge of the signer, not an objective test of what the Bank should have guessed what might happen under the circumstances.

The insurer also argued that the settlement paid by the Bank of $460 million was unreasonable. The Court dismissed this argument as well, noting that the Bank faced an exposure of more than $17 billion, that the Bank had paid an amount over and above its coverage, and that the insurer had presented no facts to support its argument of unreasonableness.

The Court denied the Bank’s motion for summary judgment as to the insurer’s claims for fraud, unfair trade practices, and rescission, nothing that there were issues of fact whether the bank’s broker had misled the insurer.

The Court granted the insurer’s motion for summary judgment on the Bank’s bad faith claim, after a thorough discussion of the elements of a bad faith claim and their application to the complex situation before it.

Full Opinion