The Fourth Circuit today, in the case of In re Bees, reversed the trial court’s imposition of sanctions based on an attorney’s oral statements during a motion hearing. The Court held that Rule 11 does not extend to oral statements except in very limited circumstances.
The court said:
"Rule 11 . . .
Whether the departure of three partners from a law firm LLC was a withdrawal or a dissolution of the LLC was the issue in Mitchell, Brewer, Richardson, Adams, Burge & Boughman, PLLC v. Brewer, 2009 NCBC 10 (N.C. Super. Ct. March 26, 2009), decided today by the North Carolina Business Court.
The characterization
If the filings of the parties and the rulings of the Business Court weren’t available electronically on the Business Court’s website, I wouldn’t be able to write this blog. That’s one reason I found so interesting the short Order by Judge Diaz today in the case of Clemenzi v. Freer.
The Order addressed Plaintiffs’
The Business Court provided a thorough discussion today on whether a subsidiary and its parent can conspire with one another, in BHB Enterprises, Inc. v. Waste Management of Carolinas, Inc.
Judge Diaz rejected Defendants’ argument that a parent can never be liable for the actions of its subsidiary under a conspiracy theory. But he dismissed the claim anyway, in the absence of any assertion that the subsidiary had been rendered unable to pay its debts by the action of the parent.
The Court also rejected Plaintiff’s attempt to bring an unfair and deceptive practices claim based on what was essentially a breach of contract, notwithstanding what the Court called "artful pleading."
Plaintiff runs a restaurant in Charlotte called Vinnie’s Sardine and Raw Bar. It had contracted with Waste Management of Carolinas, Inc. ("WMC"), a subsidiary of Waste Management, Inc., for waste collection and disposal services.
WMC had unilaterally increased its monthly charges to Vinnie’s, relying on contract provisions that permitted such increases under certain circumstances. Vinnie’s contested WMC’s right to raise the charges and sought to represent a class of WMC customers. Among other claims, Plaintiff asserted one for civil conspiracy, alleging that WMC and its parent were in cahoots on the unauthorized price increases.
WMC responded that that it was not possible for a parent to conspire with a wholly owned subsidiary. Judge Diaz disagreed. He stated that "the Court’s research discloses only six (6) cases addressing the doctrine of intracorporate immunity in the context of a claim for civil conspiracy under North Carolina law," and summarized all six of them. He observed that none of these cases dealt with the point "whether a parent and its wholly owned subsidiary are capable of committing a civil conspiracy under the doctrine."
Judge Diaz looked to Delaware law. Relying on Allied Capital Corp. v. GC-Sun Holdings, LP, 910 A.2d 1020 (Del. Ch. 2006), he concluded that such a claim could be made, although he reiterated the concern raised by the Allied case in permitting such claims:
"if plaintiffs were allowed to sue parent entities whenever the decision to cause a subsidiary to act in a certain manner originated with the parent, it ‘would increase litigation costs and deter the use of subsidiaries, even when there is a legitimate purpose for doing so and there is no wrong to others in being forced to look only to the subsidiary for relief.’"
The Court dismissed the claim made by Vinnie’s, stating that there was no allegation that WMC would be unable to satisfy a judgment if Plaintiff were to prevail, concluding that the civil conspiracy claim was barred by the intracorporate immunity doctrine.Continue Reading Business Court Rejects Bright Line Rule That A Subsidiary Cannot Conspire With Its Parent
It’s black letter law in North Carolina that a liquidated damages provision is enforceable, so long as it is not a "penalty." The need to make that distinction typically comes up when the Defendant believes the liquidated amount is excessive when compared to the actual damages incurred by the Plaintiff.
In Azalea Garden Board & Care, Inc. v. Vanhoy, 2000 NCBC 8 (N.C. Super. Ct. March 17, 2009), the Business Court confronted the exact opposite of the usual penalty argument. The Plaintiff asserted that a provision in the contract severely limiting its recovery was a penalty because it would only allow damages it described as being "woefully inadequate."
The provision at issue, contained in a $3.6 million contract to buy a nursing facility, said that "Buyer agrees that if he should fail or refuse to complete this transaction after timely acceptance by the seller, then any funds or deposit with the Broker will be forfeited and shall be split 50% to the broker and 50% to the seller." That provision yielded damages to the Plaintiff of only $12,500.
The Court determined this was a liquidated damages provision as a matter of law, and that it did not constitute a penalty. The Court held "Plaintiff’s argument that the liquidated damages provision is unreasonable because it is too small in light of the damages actually suffered is not persuasive." Op. Par. 30. The Opinion referenced cases from other jurisdictions reaching the same result in a situation the Court described as "rare."
The other issue resolved in the Opinion was whether Tuttle could be liable for a breach of the agreement to purchase the nursing facility even though he had not signed it. Tuttle asserted the Statute of Frauds. The Plaintiff responded that the Tuttle was part of a joint venture, that the contract had been signed by an authorized agent of the joint venture, and that it was therefore binding on Tuttle. Continue Reading A Liquidated Damages Provision Providing Inadequate Damages Isn’t A “Penalty”
Whether the parties had agreed on the material terms necessary to create a binding contract was the issue resolved by the Business Court in two opinions issued simultaneously on Friday, March 13th. The claims in one case survived a motion to dismiss, the claims in the other were cut down on summary judgment.
In the first case, JDH Capital, LLC v. Flowers, 2009 NCBC 4 (N.C. Super. Ct. Feb. 13, 2009), the Court ruled that a Letter of Intent executed by the parties was a "non-binding agreement to agree," and dismissed the case. In the second case, Crockett Capital Corp. v. Inland American Winston Hotels, Inc., 2009 NCBC 5 (N.C. Super. Ct. Feb. 13, 2009), the Court ruled that the plaintiff could proceed in its case even though the Master Agreement at issue contemplated the need to negotiate the terms of future agreements.
These cases are must reads if you are litigating a contract formation issue in the Business Court. They are equally important to look at if you are drafting Letters of Intent or other agreements involving commercial real estate ventures, which were the business deals involved in both Flowers and Crockett. (There are reportedly non-litigation lawyers who read this blog precisely to see how their deal documents might play out in Court).Continue Reading Letters Of Intent And Agreements To Agree: Two Rulings From The North Carolina Business Court
The Business Court ruled today in Crowder Construction Co. v. City of Charlotte, a construction law case, that North Carolina does not recognize the "cardinal change doctrine." It also dismissed a claim that a project consultant had tortiously interfered with the contract between the general contractor and the City by rejecting the general contractor’s
Most of the cases in the North Carolina Court of Appeals are decided without oral argument. In 2008, for example, the Court calendared oral argument in 175 cases, but ruled that it would decide 824 others without oral argument. These numbers, based on the Court’s calendars for 2008, mean that only about 17.5% of
The excitement from the Business Court today is a ruling on, of all things, the Rule Against Perpetuities. The Opinion is in Brown Brothers Harriman Trust Co. v. Benson.
The subject of perpetuities is addressed in the North Carolina Constitution. It says that "perpetuities and monopolies are contrary to the genius of a free state
You’ve certainly been caught in the gap between a trial court proceeding that isn’t completely over, and an interlocutory appeal. One side wants to proceed ahead in the trial court, but the other wants a reversal in the appellate court. Can the trial court proceed?
The Business Court entered an Order today in the case