Watching The Court

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After a defendant succeeded on a Motion for a More Definite Statement, a plaintiff added more detail to the claims that had been dismissed.  The defendant responded to the beefed up allegations with a Motion to Strike.

Is that a proper use of a Motion to Strike?  Yes, said Judge McGuire last week in an…

The Defendants in last week’s decision in DeCristoforo v. Givens, 2015 NCBC 53 were hellbent on getting out from under a settlement they had agreed to at mediation.  They offered a host of challenges to the validity of their agreement, but Judge Gale rejected all of their arguments.

The Parties And The Mediated Settlement

Plaintiff Vivian DeCristoforo was a member of Lindy’s Homemade, LLC  and was its former president and CEO.  She and her husband, also an officer of the LLC, sued the LLC, individually and derivatively.  They made claims for a breach of their employment agreements, Wage and Hour violations, tortious interference with their contracts, and violations of fiduciary duty by the individual defendants (who were officers and directors of the LLC).

The parties engaged in mediation in September 2014.  The Plaintiffs said that all parties had settled the case then, although the Defendants challenged that.  The enforceability of the settlement was the issue before the Business Court.

The settlement was reflected by the Mediation Report form cover sheet signed by all of the parties attending the mediation, and two of the attorneys, stating "that a full and final agreement of all issues was reached."  The terms of the settlement were described on an attached "Exhibit A."  Some of the attending parties put their initials on Exhibit A, but one of the individual defendants (Kaye) left the mediation before Exhibit A was finalized and he did not put his initials on it.

That One Of The Defendants Had Left The Mediation Before The Settlement Was Finalized Was Not A Barrier To Its Enforcement

His departure did not affect the enforceability of this settlement.  Judge Gale said:

[t}he Court is not persuaded by Defendants’ contention that the settlement can be avoided because Kaye left the mediation before initialing the final Exhibit A.  Kaye left, knowing that the reduction or the terms to paper on Exhibit A was in progress.  His counsel was still present.  There is no indication that he instructed that his signature, reflecting a ‘full and final agreement of all issues,’ must be withheld until he further assented to Exhibit A.  Under these circumstances, Kaye and Lindy’s should be bound to the settlement.

Op. ¶48.

We have all had our clients leave a mediation before all the final details of a settlement have been hammered out.  Planes to catch, traffic to avoid.  Maybe sheer boredom.  Still, it is probably not a good idea to have them leave before all t’s and i’s have been crossed and dotted.

The Individuals’ Signatures — Which Had No Mention Of Their Authority To Bind The Entities — Were Sufficient To Bind The LLC And Its Corporate Member

The next question that Judge Gale grappled with was whether the settlement agreement had all of the signatures necessary to bind the parties.  The LLC and its corporate member (Pittco) argued that the signatures of the attendees at the mediation were not sufficient to bind them.  The individuals signing the Mediation Report form did not distinguish whether they were signing in their personal capacities or as representatives of the LLC or its corporate member.

That is contrary to the "nearly universal practice" when transactional documents are involved, which is that "the corporate officer signs twice, once as an officer and again as an individual."  Op. ¶50 (quoting Keels v. Turner, 45 N.C. App. 213, 218, 262 S.E.2d 845, 847 (1980).

Is that the "universal practice" in mediations?  Judge Gale said it was not, writing that:

[o]ften, the time pressures of preparing documents at the end of a long and contentious mediation session require drafting a binding document that does not allow for the same formalities as a transaction completed after multiple document exchanges.  That does not mean, however, that a settlement that the attendees represent to be a full and final resolution of all issues should be easily avoided because of the form of signatures.

Op. ¶50.

So, the Judge concluded that the signatures of the individuals, bearing no reference to their corporate authority, bound both the individual and the corporations they were representing at the mediation. Op. ¶50.

The entities which were Defendants in the DeCristoforo case (the LLC and its corporate member) were hard pressed to argue that the individuals did not have the necessary authority to bind them at the mediation.  Two of the individuals were the members of the LLC’s "Special Matters Committee," which had been granted generally the "plenary power" to resolve DeCristoforo’s claims and specifically to "execute. . . for and on behalf of [Lindy’s] any and all notices, certificates, agreements . . . and other documents or instruments."  One of the Special Matters Committee members also sat on the LLC’s Board of Directors, and was Pittco’s designee to the LLC Board.

The Lack Of An Agreed Upon Release Did Not Invalidate The Settlement

The Defendants’ efforts to evade their settlement did not end here.  They said that the agreement became unenforceable when they were unable to agree on the terms of release following the mediation.  Exhibit A said that there would be "a further statement of. . . complete mutual release." 

The Defendants added terms to the post-mediation release which called for the release of federal claims which were not a part of the Business Court lawsuit and also included terms requiring the Plaintiffs to return corporate documents in their possession, also not mentioned in the terms resulting from the mediated settlement.

Judge Gale found that the language of the Mediation Report was sufficient to release all of the pending claims in the lawsuit and that the voluntary dismissal with prejudice called for by Exhibit A would have the same effect as a release.  Op. ¶57.

Continue Reading Business Court Refuses To Unwind Mediated Settlement Agreement

If you were unsure whether customer information held by your client — like customer contact information, sales reports, prices and terms books, sales memos, sales training manuals, commission reports, and vendor information — can be considered a "trade secret", the Business Court’s opinion this week in Southern Fastening Systems, Inc. v. Grabber Construction Products, Inc., 2015 NC 40 should resolve your uncertainty.

The Parties And The Claimed Trade Secrets

Defendant Farrell had been a sales representative for the Plaintiff Southern.  He left Southern to work for Defendant Grabber, a competitor in the business of selling construction supplies.

Farrell had not signed a non-competition agreement, but he had signed a Non-Disclosure Agreement during his employment with Southern.  The NDA said that Farrell would "not directly or indirectly disclose or use for any reason whatsoever any Confidential Information obtained by" him due to his employment.  Op. 6.

"Confidential Information" was defined under the NDA to include:

customer lists containing customer names and addresses; customer sales records and reports containing product preferences and usual prices charged; price lists containing product sales prices and their cost; sales invoices, packing lists, routing books, customer files, personnel files, computer records, financial records and marketing plans containing tactics and strategies.

Op. 7.  The NDA contained an acknowledgment that Southern’s "Confidential Information constitutes Trade Secrets."  Op. 8.

Southern filed suit against Grabber and Farrell alleging a substantial loss of business after Farrell began working for Grabber.  The Defendants moved to dismiss, asserting that Southern had not adequately identified the alleged trade secrets, that the information in question was "readily available . . . from customers and potential customers," and that Southern had not identified any steps that it took to keep its claimed trade secrets a secret.  Op. 22.

Judge Bledsoe disagreed.  On the point of whether the trade secrets were adequately identified, he cited six court decisions, four from the North Carolina Court of Appeals, recognizing that this type of description of customer information is sufficient to plead a trade secret.  Op. 23.  He also cited and called "persuasive" an unpublished decision from Judge McGuire of the Business Court finding a similar description by the same Plaintiff to be adequate.  (I missed that case — Southern Fastening Systems, Inc. v. Duo-Fast Carolina, Inc. (February 9, 2015) — and I really try hard not to miss much of interest in the Business Court.  Sorry about that.)

The Court rejected the other defenses given the Plaintiff’s allegations in its Complaint that its trade secrets involved "non-public information" that it did not disseminate to its employees unless they first executed an NDA.

The Validity Of The NDA

This decision represents the first time I can remember seeing a Defendant argue that the validity of an NDA should be determined based upon the standard applied to a covenant not to compete.  The Defendant argued that the practical effect of the NDA was to keep Farrell from working for the Plaintiff’s competitor so it therefore needed to be supported by consideration and be reasonable as to time and to territory.

Judge Bledsoe ruled that the NDA only restricted Farrell from disclosing Southern’s Confidential Information and required him to return that information upon the termination of his employment.  He said that the NDA "permits Farrell to work for any person or entity provided he does not disclose [the Plaintiff’s] Confidential Information."  Op. 33.  The NDA was therefore not a restrictive covenant subject to the requirements of G.S. §75-4.

Even after deciding that this NDA did not need to be evaluated under covenant not to compete principles,  the Court went on to consider the issues of consideration and time and territory.

On the point of consideration the Court did not need to resolve the question whether continued employment by Farrell was sufficient consideration for the NDA since Farrell had been provided with Confidential Information in exchange for signing the NDA.

The question whether the lack of limitation as to time and territory rendered the NDA invalid had already been resolved by the NC Court of Appeals in Chemimetals Processing v. McEneny, 124 N.C. App. 194, 476 S.E.2d 374 (1996).  There, the COA held that such an agreement can be valid "even when the agreement is unlimited as to time and area upon a showing that it protects a legitimate business interest" of the employer.  Id. at 197, 476 S.E.2d at 377.  Judge Bledsoe ruled that protecting customer relationships and goodwill was a legitimate business interest of the Plaintiff.Continue Reading An Interesting Trade Secrets Case From The Business Court