Plaintiff sued a large number of defendants, arguing that they had caused advertising messages (in the form of pop-up ads) to be sent to him over his computer. The Court held, construing the allegations in the light most favorable to the plaintiff, that he had stated a claim for trespass to chattels under North Carolina common law.

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Plaintiffs left their law firm, a PLLC, to start a new firm. They sought their share of the value of contingent fee cases being handled by the old firm. The old firm first contended that the plaintiffs had no standing, since they had withdrawn from the old firm before filing their action., and the North Carolina LLC statute requires that a person be a member at the time of filing an action. The Court held that it was unable to determine, at the motion to dismiss stage, whether plaintiffs had in fact withdrawn.

Defendants further argued that they had immunity from liability pursuant to the terms of the limited liability company’s operating agreement. The Court held that the terms of the statute did not extend to "acts or omissions that the manager knew at the time of the acts or omissions were clearly in conflict with the interests of the limited liability company," or "any transaction from which the manager derived an improper personal benefit."

On the merits, defendants contended the the contingent fee cases had no value at the time that plaintiffs left the law firm. The Court disagreed, holding that ethical rules did not control the determination and that plaintiffs could potentially recover fees for cases on which they had not worked.

The Court noted that the managers of an LLC had an obligation, upon dissolution of the LLC, to obtain "[a]s promptly as reasonably possible. . . the fair market value for the [LLC’s] assets" and to distribute those assets to the members.

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The Court considered the dismissal of a North Carolina class action following the Illinois settlement of a nationwide class action. Court approval was required, even though the class had never been certified, but the plaintiff had attempted to dismiss its case following the settlement without leave of Court.

The Business Court had tentatively agreed to the dismissal, subject to the filing of an accounting of the settlement and its benefits to North Carolina residents. Plaintiff and class counsel sought to avoid providing the information by taking the unusual step of applying for a Writ of Mandamus from the North Carolina Court of Appeals, but were ultimately required to do so.

The accounting revealed that the distribution was paltry, totalling $66 in cash and coupons to the North Carolina claimants. The entire nationwide class had received $2,402 in cash and coupons. A settlement obtained by the Attorney General for New Jersey, however, had resulted in the payment of $125,440 to 12,544 claimants. Notwithstanding the minimal benefit for the class members, the Illinois Court had awarded fees of $1.1 million.

The Court held that "the shocking incongruity between class benefit and the fees afforded counsel and the representative leave the appearance of collusion and cannot help but tarnish the public perception of the legal profession." The class notice here, the Court found, was both poorly distributed and uninformative, did not provide sufficient time for class members to opt out, and made no mention of the million dollar fee for the lawyers. The Court held that "it is hard to imagine a more inadequate notice plan and claims process."

The Court engaged in a thorough discussion of class notice requirements, and pointed out a number of ways in which the notice was deficient and how it could have been improved. Class counsel, the Court held, has responsibility for ensuring that the notice plan is effective. The Court also expressed its distaste for settlements where class members obtain coupons, especially of small dollar amounts, instead of cash.

Another deficiency referenced by the Court was the lack of monitoring of the claims process. The Court stated that it is its practice "to monitor the claims process and to have legal notices published at the end of the case so the public can see what the class received, what expenses were incurred, and what fees were awarded to class counsel and the class representative."

The Court found that class counsel had not adequately represented the class. It also chastized the defendant, saying that "corporations . . . which settle consumer class actions must do so in a fair manner and should not employ notice and claims processes which deprive consumers of knowledge of the settlement terms or the ability to take advantage of the settlement."

The Court ruled that the Illinois dismissal was not entitled to full faith and credit. It dismissed plaintiff’s claim with prejudice, but dismissed the class action allegations without prejudice, finding that the Illinois Court had been misled about the number of potential claimants, that the notice plan did not comport with due process, and absent class members had been inadequately represented. The Court made several references throughout its opinion to the Class Action Guidelines published by the National Association of Consumer Advocates.

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The Court, again, considered the issue of indirect purchaser standing. It reiterated the factors it looks to in determining whether there is such standing, as articulated in its opinion in Crouch v. Crompton Corp.

Crouch had involved one product, tires, but this case involved ethylene propylene diene monomer, which the Court observed might be used in hundreds of products. The recovery to individual consumers would therefore be miniscule, and the Court observed that "[t]he funds from these settlements are destined to end up in the hands of the lawyers, a handful of named plaintiffs, and a small number of charities selected by the approving court pursuant to the cy pres doctrine."

The Court considered 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 necessary in Crouch).

After a full analysis, the Court found that the plaintiffs lacked standing. Other defendants in the case had settled class action claims against them in other states before the Court’s ruling. Plaintiffs moved for the dismissal of these defendants. The Court reviewed the terms of those settlements and ultimately determined, reluctantly, that it would approve the settlements.

The case makes clear the frustration of the Court about multi-state class actions being settled in other states where the benefits of the settlement do not flow in an appropriate way to the injured residents of this State.

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Brief in Support of Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

A multi-state class action was settled in New Mexico. As a result, funds were to made available to North Carolina for a cy pres distribution to "public and/or non-profit entities that use MSG and Nucleotides and/or products that use MSG or Nucleotides." There was no specification, however, of what entities should receive the funds, or how those entities should be selected.

The Court referenced its opinion in Teague v. Bayer AG, issued the same day, and made it clear that it expected further information. The Court later approved the settlement in a subsequent unpublished opinion and dismissed the case, ordering that a specified amount would go to specified North Carolina Food Banks.

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The Court grappled in this case with what it referred to as "the mysteries of the economic loss doctrine." The Court identified six "guideposts" regarding the scope of doctrine in North Carolina: (1) a tort action will generally not lie against a party to a contract who simply fails to perform the terms of the contract when the resulting injury resulting from the breach is damage to the subject matter of the contract, (2) the UCC bars negligence claims seeking recovery for damages to the product itself if the sale of goods is involved, (3) the UCC bar does not apply to claims of negligent misrepresentation, (4) where fraud and deceit are involved in the breach, punitive damages can be sought, (5) the doctrine does not bar claims of fraud, and (6) courts "must remain vigilant against a party’s unsupported attempt to engraft tort liability on what is at bottom a breach of tort action."

The Court deferred dismissal of the claims, because it was not clear that the plaintiff had a contractual remedy. That was so even though plaintiff had made a claim for breach of express warranty, because a party is entitled under the Rules of Civil Procedure to state all of its claims, regardless of their consistency.

The Court also held that plaintiff could proceed on its claims of negligent misrepresentation and unfair and deceptive practices. (Judge Diaz referenced an earlier opinion, Hospira Incorporated v. Alphagary Corp., written before he joined the Business Court, in which he had thoroughly discussed the economic loss doctrine.  Thanks to Brad Kutrow of Helms Mullis & Wicker for providing a copy of this opinion).

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The Court considered a rarity here, a Motion to Dismiss an appeal. Trial courts have jurisdiction to consider such motions until the Record on Appeal is filed.

The Court granted the Motion to Dismiss because plaintiff had failed to take various actions required by the Rules of Appellate Procedure, including ordering a transcript, contacting opposing counsel about settling the Record on Appeal, or serving a proposed Record on Appeal.

The appeal would have been an interlocutory one, from the denial of class certification, and the Court held that the dismissal was without prejudice to the filing of an appeal upon the entry of final judgment.

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The Court considered in this case the scope of an arbitrator’s authority with regard to disputes involving a North Carolina LLC. It first determined that the interpretation of the arbitration clause before it was subject to the Federal Arbitration Act, because the contract was a "transaction involving commerce."

It held that whether a dispute is subject to arbitration is a question of law for the Court, and that doubts should be resolved in favor of arbitration. Here, the parties to the agreement had agreed to a broad clause, which mandated arbitration on "any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach of enforcement thereof."

The Court held that a non-signatory to the arbitration agreement was entitled to rely upon it to invoke arbitration, because the claims made by the plaintiff were "intertwined" with the agreement, as every claim made in the complaint flowed from the agreement containing the arbitration clause.

The Court further held that all of the claims made were subject to arbitration, including claims for injunctive relief, for the appointment of a receiver, for the dissolution of the LLC, and for punitive damages. It stated that "[b]y specifically adopting the AAA commercial rules as the default mechanism for arbitration, the parties here bargained to have an arbitrator determine the merits of any request for injunctive relief, including requests for injunctions and the appointment of a receiver."

The Court found that there was no basis for it to retain jurisdiction in order to enter preliminary injunctive relief. The Court noted, among other things, that the AAA Rules provide streamlined procedures for obtaining interim equitable relief.

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Defendant, via a counterclaim, sought damages as a result of a concluded merger involving a Delaware LLC. The Court held that the decision whether to merge belonged to the Management Committee of the LLC, and that it would review that decision pursuant to the Business Judgment Rule.

Defendant contended that company insiders "stood on both sides of the deal," and they were therefore conflicted in their ability to properly approve this merger. The Court rejected this contention. It held that "the mere presence of managers on both sides of a merger does not mean the transaction must fail due to a conflict of interest." The Court observed that the 95% of the company’s shareholders had approved the merger, and that Delaware courts "have made clear that such a ‘fully informed vote of stockholders approving a merger will extinguish a claim for breach of fiduciary duty.’"

The remainder of the Court’s opinion dealt with defendant’s Motion to Compel, which sought information regarding the details of plaintiff’s contracts with its teachers with whom it did business. The Court discussed the broad scope of relevancy, and the distinction between relevance for discovery purposes and relevancy at trial, and denied the Motion. It found that the information sought was not relevant, and that it involved confidential business information and information potentially subject to attorney-client privilege.

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This was round two in this derivative action, in which the Court had previously held that the involvency of the general partners of a North Carolina partnership and a Delaware partnership did not excuse the need for a plaintiff to make a demand before filing a derivative action. The former derivative plaintiff then took steps to become the "liquidator" of the partnerships, and undertook a renewed pursuit of the lawsuit.

The defendants challenged whether the self-styled liquidator had been properly elected, and also challenged his position that he had no responsibility for the winding up of the affairs of the partnerships other than prosecuting the claims in litigation.

The Court rejected the challenge to the validity of the liquidator’s election. To the extent that it was founded on insufficient notice of the meeting at which the election had occurred, no limited partner had objected to the notice, and those objections were therefore waived under both North Carolina and Delaware law. Nor was there any deficiency in the voting due to a limited partners’ purchase of additional shares prior to the meeting at which the election had been held.

The Court held, however, that the liquidator could not "pick and choose" his responsibilities, but that he instead had responsibility for the full and complete winding up of the partnerships’ affairs. Given the liquidator’s unwillingness to undertake these responsibilities, the Court exercised its inherent power to appoint a receiver for the partnerships. The powers of the receiver was plenary with regard to the North Carolina partnership, but limited to the assets of the Delaware partnership physically within the State of North Carolina.

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