Effective November 5, 2020, the Business Court amended its procedure for litigants seeking designation to the Business Court for mandatory complex business cases.  See here.  Of significance, the Court changed Sections II(b)(i) and (ii), which address the specifications for providing a Notice of Designation (“NOD”) to the Court.

Section II(b)(i) requires the designating party to provide the Court with a file-stamped copy of the NOD to assist the Court in ascertaining the NOD’s timeliness pursuant to N.C. Gen. Stat. § 7A-45.4(d).  Section II(b)(ii) requires the designating party to try to send the NOD and all attachments in a single email by use of a zip file or a LiquidFiles file-sharing service.  Of practical note, LiquidFiles is now the only file-sharing site permissible for use by the Administrative Office of Courts.  Accordingly, court personnel will be blocked from accessing or opening files from other file-sharing sites.  Counsel and litigants, therefore, should be mindful of this change if they generally use other file-sharing sites.

The new Designation Procedure, as well as other special information and procedures for the Business Court, is available here.  Additionally, the Business Court provides the public with a Business Court FAQs section that addresses other commonly-asked designation questions.

Back at the start of the pandemic, this Blog took a brief look at how the anticipated flood of business interruption insurance claims might play out under North Carolina Law:  See here.

These cases are now winding their way through the North Carolina court system (but not the NCBC).  Fox commercial litigator Greg Holland has detailed one of the first dispositive opinions on this issue:

Over the last several months, business interruption claims have been a hotly contested issue across the country.  As the pandemic forced businesses to halt operations, many owners looked to their insurance policies seeking relief.  Many found, however, that policies excluded coverage and claims were denied.  The pandemic has been hard on many businesses.  The restaurant industry has been particularly hard hit.  See, e.g., https://www.businessinsider.com/85-of-independent-restaurants-could-permanently-close-in-2020-report-2020-6.  Likewise, insurance companies face a surge in business interruption claims and coverage litigation.

As with all such litigation, coverage depends on the terms of the specific policy in question.  Recently, a group of restaurants in NC filed a lawsuit against their insurance companies.  The restaurants sought a declaratory judgment that their lost business income and extra expenses caused by the response to the COVID-19 pandemic – including government mandated shut-downs and stay-at-home orders – were covered under their business interruption insurance policies. The recent decision in North State Deli LLC, et al. v. The Cincinnati Insurance Co., et al., Civil Action No. 20-CVS-02569, pending in Durham County Superior Court, may pave the way for some eventual relief.  A copy of the order is linked below.  The Court decided that the policy term “direct physical loss” included losses stemming from the insured’s inability to operate due to government imposed restrictions.

The policies in question did not include a virus exclusion, but the insurance company denied coverage.  The companies asserted that the purely economic losses were not covered, because the restaurants had not suffered an actual physical loss or alteration of their premises (such as when there is a fire or a flood).  Other jurisdictions have interpreted similar provisions that way.

The policies in question provided the insurance company would pay for business interruption coverage for lost business income and extra expenses “due to the necessary ‘suspension’ of your ‘operations’ … caused by direct ‘loss’ to property at a ‘premises’ caused by or resulting from any Covered Cause of Loss.”  A Covered Cause of Loss, according to the Court, was defined in the policies as a “direct loss unless the loss is excluded or limited therein.”  Further, the policies defined “loss” to mean “accidental physical loss or accidental physical damage.”  Thus, the Court concluded that the policies would afford coverage if a policy holder shows either direct accidental physical loss to property or direct accidental physical damage to the property.

Superior Court Judge Orlando Hudson (who many may recall as the presiding judge in the Netflix documentary, “The Staircase”) granted partial summary judgment to the restaurants.  First, because the terms “direct,” “physical loss” or “physical damage” were not specifically defined in the policies, the Court looked to the ordinary meaning of those terms to interpret the policies.  The Court determined that “the ordinary meaning of the phrase ‘direct physical loss’ includes the inability to utilize or possess something in the real, material, or bodily world, resulting from a given cause without the intervention of other conditions.”  The Court ruled that the loss of using or accessing their business property was precisely the loss caused by the government orders, and thus was a direct physical loss.

Second, the Court noted that the parties disputed the meaning of the phrase “direct physical loss,” rendering the policy ambiguous at best (and ambiguous terms are to be construed in favor of coverage).  Finally, the Court determined that in order to give meaning to all the terms of the policy, the insurance company’s argument that physical alteration or damage was required for coverage conflated the terms “physical loss” and “physical damage”.  If a “physical loss” also required actual alteration or damage to the premises, the term “physical damage” would be rendered meaningless.

Presumably the insurance company will appeal.  As noted, courts in other jurisdictions have ruled differently, and given the pandemic and the widespread attention these types of claims are receiving, this issue will continue to be hotly litigated across the country.  When it comes to insurance coverage, words matter.   Stay tuned.

Order Granting Motion for Partial Summary Judgment

–Gregory G. Holland

Effective new rules - businessman with signOctober 1, 2020, House Bill 679 amended Rules 3 and Rule 5 of the North Carolina Rules of Civil Procedure.  See here.  Of significance, Rule 5 was amended to make electronic mail, and e-filing where available, permissible forms of service in most circumstances.  Notably, HB 679 did not alter the “three day mailing rule” found in North Carolina Rule of Civil Procedure 6(e).  That rule, which allows for three additional days to be added to the time to perform an act after service by mail, therefore would not apply to the newly permitted service by email or e-filing.   In reaction to these changes, some practitioners pointed out that this created a contradiction, at least in practice, between the amended Rules of Civil Procedure and the North Carolina Business Court Rules.  Under NCBC Rule 3.9(d), service by email or e-filing (which the Business Court has allowed for years) was still treated as “service by mail” for the purposes of Rule 6(e) of the rules of Civil Procedure.  Thus, after the amendment to Rule 5 that, unaccompanied by an amendment to Rule 6(e), did not apply the “three-day rule” to service by email or e-filing in non-NCBC state court cases, the situation existed where in Business Court cases email and e-filing was still expressly treated as service by mail and Rule 6(e) applied, but in non-Business Court cases, the three day rule from Rule 6(e) did not apply to those same methods of service.

Not surprisingly, the North Carolina Business Court and Chief Judge Bledsoe were on top of the issue, and presented the Supreme Court of North Carolina (which pursuant to N.C.G.S. Section 7A-34 has the authority to and responsibility for any change the NCBC rules) with proposed amendments to the Business Court Rules.  Those proposed amendments would bring email and e-filing service in the Business Court in line with email and e-filing service in other state court cases, and eliminate the application of the three day rule in Rule 6(e) to Business Court electronic service.

Yesterday, the Supreme Court issued an Order doing just that.  Effective immediately, Rule 3.9 of the North Carolina Business Court Rules now no longer considers electronic service to be “service by mail,” and thus Business Court practitioners no longer need to (or “get to” perhaps?) add three days to their time to do an act after service by email or e-filing.  A copy of the Supreme Court’s October 13, 2020 Order can be found here.

One potential practical question that this amendment raised is what happens to deadlines in Business Court cases that were set under the old rule after recent electronic service, when (now-former) Rule 3.9(d) gave the  responding party three extra days, but the deadline to respond has not yet run.  Does that responding party still get those three extra days now that the rule that provided for those three extra days has been eliminated?  Well, the Business Court and Judge Bledsoe was on top of that too, today issuing an administrative order about the amendment to the NCBC Rules that made clear that the amendment applies to “response deadlines that commence on or after” the October 13 amendment, but not those that commenced before.  Further, the Court ordered that “the amendment shall have no effect on any deadline set in a scheduling or case management order in a pending Business Court case.”  This administrative order was sent to all those with user accounts in pending Business Court cases and will likely be available on the Court’s website shortly.is available on the Court’s website here.

–Patrick Kane

In ALC Manufacturing, Inc., v. J. Streicher & Co., 2020 NCBC 55, the Business Court dispatched a case that started off with bad timing, and ended that way too.

Plaintiff claimed defendant BBP Bandenia, PLC breached a settlement agreement under which it, and other parties, owed plaintiff $850,000. Plaintiff brought suit over non-payment, and while Bandenia was served it neither filed a response nor appeared in a Mecklenburg Superior Court case designated to the Business Court. Id. at ¶¶ 3, 5. The Business Court entered a default judgment on June 4, 2019.

Timing Issue No. 1: Bandenia waited seven months and thirteen days to move to set aside the default.

The Court found the motion was not brought “within a reasonable time” under Rule 60(b), but also noted that it was not the appropriate procedural vehicle in any event.  Bandenia’s challenge that the underlying settlement lacked consideration should have been advanced as “a properly-noticed appeal, not a motion under Rule 60(b). Id. at ¶ 10. The Court entered a final judgment on May 20, 2020 and that was the starting point for . . .

Timing Issue No. 2: Bandenia did not timely file a Notice of Appeal in the superior court of the county of origin.

Instead, defendant e-filed with the Business Court a Notice of Appeal of the May 20 judgment to the North Carolina Court of Appeals. Id. at ¶ 12. This time around, the June 19 notice could have been calendar timely – if it had been filed in the correct trial court and noticed to the correct appellate court. North Carolina appellate courts have viewed these issues with a reasonably strict lens. See, e.g., Taylor v. City of Lenoir 536 S.E.2d 848, 850 (N.C. Ct. App. 2000) (“The time deadlines set out in our appellate rules are important and should be followed.”).

The Business Court first noted its jurisdiction to entertain plaintiff’s motion to dismiss Bandenia’s notice of appeal because no appeal had yet been docketed in an appellate court. See Carter v. Clements Walker PLLC, 2014 NCBC 12. As the Court explained, “[U]ntil an appeal is docketed, the trial court retains jurisdiction to decide a motion to dismiss a notice of appeal as improperly filed.” 2020 NCBC at ¶ 19.

In granting plaintiff’s motion to dismiss Bandenia’s notice of appeal, the Business Court explained the errant geography of Bandenia’s appeal succinctly, as a cautionary note to practitioners before the Court.  Id. at ¶¶ 21-25, 27-29.

First, Rule 3(a) of the North Carolina Rules of Appellate Procedure required the Notice of Appeal to be filed in the originating court – Mecklenburg County Superior Court:

Any party entitled by law to appeal from a judgment or order of a superior or district court rendered in a civil action or special proceeding may take appeal by filing notice of appeal with the clerk of superior court and serving copies thereof upon all other parties within the time prescribed by subsection (c) of this rule.

Perhaps because Rule 3(a) is not a model of clarity for cases arising from the Business Court, the Court’s rules offer clarification. North Carolina Business Court Rule 14.1 specifies that the Business Court is not the filing destination:

An appeal from an order or judgment of the Court is taken by filing a written notice of appeal with the Clerk of Superior Court in the county of venue.

Second, as required by N.C. Gen. Stat. § 7A-27(a)(2), a direct appeal of a Business Court judgment in a mandatory designation case lies with the North Carolina Supreme Court for all cases designated to the Business Court after October 1, 2014. 2020 NCBC at ¶ 27.

The Court previously has concluded that while an appellate court “may have discretion to excuse a notice of appeal’s noncompliance with Appellate Rule 3,” the Business Court believes it does not have such leeway. Id. at ¶ 29 (citing Zloop, Inc. v. Parker Poe Adams & Bernstein, LLP, 2018 NCBC 39). Thus, litigants who see an opponent take a wrong turn on either of these issues may wish to consider prompt motions to dismiss in the Business Court.

Our colleagues Beth Scherer and Matt Leerberg, over at the North Carolina Appellate Practice Blog, discuss both of these pitfalls in their excellent treatise – North Carolina Appellate Practice and Procedure, § 33.05 (Special Considerations When Noticing Appeal in the Business Court) North Carolina Appellate Practice and Procedure (2019).

Takeaways:

  • Appeals of Business Court judgments can only be filed in the county of venue.
  • Appeals from Business Court cases with mandatory designations after October 1, 2014 lie with the North Carolina Supreme Court.

Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP.

North Carolina Railroad Company Ruled Outside of Disclosure Law Even though State is Sole Owner and Selects all Board Members


Does an entity 100% owned by the State of North Carolina – with all of its directors appointed by the state, and which admittedly works for the benefit of the state’s citizens – produce public records that should be available for inspection? In Southern Environmental Law Center v. North Carolina Railroad Company, 2020 NCBC 61, the Business Court concluded that the Public Records Act does not reach documents created by the North Carolina Railroad Company (NCRR) that plaintiff SELC had sought.

The dispute arose from a highly charged public transit drama concerning the ultimately unsuccessful Durham-Orange Light Rail transit project that would have connected parts of Durham and Chapel Hill over its 17.7 mile line. The Light Rail line would have located alongside NCRR lines in downtown Durham, but NCRR’s refusal to enter a cooperative agreement to further the project proved to be one of several unconquerable obstacles.  Id. at ¶¶ 4, 6-7.  SELC, which had advocated for the project, sought NCRR records related to these public transit issues.

The General Assembly incorporated the NCRR in 1849 to build a railroad from Wayne County to Charlotte, and the State was its majority shareholder. In 1997, the legislature approved a buy-out of remaining private shares “to help promote trade, industry, and transportation within the State of North Carolina and to advance the economic interests of the State.” Today, NCRR controls but does not operate 317 track miles; it leases its right-of-way to a private operator, Norfolk Southern.  Id. at ¶¶ 12-15, 18.

The SELC decision has important stakes for government accountability advocates given NCRR’s involvement with transit and development issues.  On the other hand, private developmental interests that might work with NCRR on so-called “megasites” – economic development projects located near NCRR’s right of ways – may have a countervailing interest in the privacy of their work.

To resolve those conflicting viewpoints, the Business Court had to determine whether NCRR was the type of entity whose activities are “so intertwined with the State that it is, in effect, an agency of North Carolina government for purposes of the Public Records Act.” 2020 NCBC at ¶ 35.  See News & Observer Pub. Co. v. Wake Cty. Hosp. Sys., Inc., 284 S.E.2d 542, 549 (N.C. Ct. App. 1981). As the Business Court observed, the Court of Appeals has held that “the nature of the relationship between a corporate entity and the government is the dispositive factor in determining whether the corporate entity is governed by the Public Records Law.” The Court notes this inquiry as directed to discerning the “`supervisory responsibility and control’ the government has over the entity.” Id. at ¶ 37.

The News & Observer court examined nine (!) factors to “ascertain[] the degree of supervisory responsibility and control the government” has over a private entity.  Id. at ¶ 38. SELC argued that many of those factors likewise applied here, including:

the State selects all of the NCRR’s directors; the State approves all substantive amendments to NCRR’s Articles of Incorporation; the NCRR must transfer its assets to the State on dissolution; any revenue generated by the NCRR is taxpayer money; the NCRR’s books and records are subject to audit by the State; and the Governor exercises considerable control over the NCRR, through his Board appointments and through communications from his office to both Directors and staff of the NCRR.

Id. at ¶ 42.

The Business Court declined to give those factors dispositive weight however, drawing inspiration from a later Court of Appeals decision, Chatfield v. Wilmington Hous. Fin. & Dev., Inc., 603 S.E.2d 837 (N.C. Ct. App. 2004). The Chatfield court recited the nine News & Observer factors, but instead suggested that “each new arrangement . . . be examined anew and in its own context.” Id. at 840; 2020 NCBC at ¶ 41. Here, the Business Court decided the facts of neither case were a suitable template for resolving “the unique situation . . . [of] a private corporation whose sole shareholder is the State of North Carolina[.]” Id. at ¶ 45. Instead, the Court focused on a legislative intent analysis, and determined that the General Assembly – through positive action and deliberate inaction – showed that it did not intend for the Public Records Act to apply to NCRR.

The Court noted, for example, that until amendment in 2013, N.C. Gen. Stat. § 124-6 allowed NCRR’s board of directors access to “coverage under the State’s liability insurance policy” with the caveat that the benefit “shall not be construed as defining the North Carolina Railroad Company as a public body[.]” 2020 NCBC at ¶ 47. The Court was also influenced by legislative choices that include:

  • A State-owned railroad’s condemnation powers are characterized as those of a “private condemnor” like a utilities provider (N.C. Gen. Stat. § 40A-3(a)(4)); and
  • The General Assembly provided enhanced reporting obligations for NCRR to a joint legislative commission and a joint legislative committee that would have been unnecessary if the information was “already [ ] subject to public disclosure pursuant to [the Public Records Act].” See N.C. Gen. Stat. § 124-17.

The Court’s focus on this legislative backdrop dealt a significant blow to “government in sunshine” advocates. For example, they may have thought the General Assembly’s enhanced reporting obligations in § 124-17 were a victory for oversight of an entity that acts in a largely public capacity, only to find it later used as evidence that NCRR was not subject to public records laws in the first place. Indeed, SELC and other public interest organizations may view the statutory requirement that NCRR, upon request, must “provide all additional information and data within its possession or ascertainable from its records” to the Governor or any legislative committee as evidence of the government’s “supervisory responsibility and control” over NCRR. Id. at § 124-17(b).

In any event, the Business Court deemed it important not to overstate the significance of the State’s identity as the sole shareholder of NCRR:

Indeed, the Court is concerned that equating majority, or sole, ownership with degree of supervisory control would, in effect, collapse the NCRR’s corporate personhood.

2020 NCBC at ¶ 59.

There is, of course, some tension between this concern and the News & Observer factors, many of which could be said to follow naturally from that sole ownership. But, as the Court noted, “[r]egardless of who owns the NCRR, the fact remains that it operates as an independent corporate entity.” Id. at ¶ 60.

Takeaways:

  • The Court’s ruling suggests a perceptible shift away from the “intertwinement” analysis that has guided judicial evaluation of whether a private entity should be covered by the Public Records Act.
  • The Court wrestled with possibly conflicting messages from two Court of Appeals decisions. The North Carolina Supreme Court may get an opportunity to sort all of that out on appeal, and provide a workable standard for when entities like NCRR – which has extensive government ties and notable influence over public transportation development across the state – are subject to public records oversight.

 Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP.

 

 

 

 

 

8th Annual Business Court CLE is October 23, 2020.

Register here. In the past, this event has been held in a packed Mecklenburg County Bar Center. This year it will be virtual. No free snacks, no breakout discussions, but same great information. Thanks again to litigators, leaders, and all-around good people, Bailey King at Bradley Arant and Katie Burchette of Johnston Allison & Hord, for organizing this event for the benefit of us all.

Court also Addresses Res Judicata Effect of Prior DeclaratoryJudgment Rulings

The North Carolina Supreme Court recently affirmed a December 2018 Business Court ruling in Orlando Residence, Ltd. v. Alliance Hospitality Mgmt., LLC that clarified Rule 13 crossclaim principles, created new doctrine on issue and claim preclusion, and provided issue-spotting fodder for civil procedure professors whose fact patterns need an update. The Supreme Court’s August 14, 2020 ruling by Justice Davis joined a dispute among the parties that had lingered in various forms for more than 30 years, including Orlando’s efforts to collect a debt from one of the defendants and the defendants’ inability to agree among themselves upon corporate ownership percentages.

The vitality of crossclaims after a plaintiff’s claims fall

The Business Court had dismissed a bulky set of 18 crossclaims that defendant Kenneth Nelson filed against other defendants with whom he had been in dispute over management, ownership interest, and financial matters connected to defendant Alliance Hospitality Management. After dismissing plaintiff Orlando’s claims, the Business Court had determined that Nelson’s crossclaims “were not proper because the right to assert them depends on Orlando’s Complaint surviving, which it has not.” (2018 NCBC 132, ¶ 44).  That ruling was premised on a reading of the Rule 13(g) requirement that a crossclaim arise “out of the transaction or occurrence that is the subject matter” of the complaint or a counterclaim.

The Supreme Court disagreed, and adopted a 35-year-old Court of Appeals decision that found it would “elevate form over substance” to dismiss properly filed crossclaims over which jurisdiction exists unless they were dependent (indemnity, contribution) on plaintiff’s dismissed claims. Orlando Residence at 11. See Jennette Fruit & Produce Co. v. Seafare Corp., S.E.2d 305 (N.C. App. 1985).

Affirming correct results reached for the wrong reason

           The Supreme Court still went on to affirm the Business Court under the guidepost that trial court judgments should be affirmed even when the right result is not paired with the correct rationale. Orlando Residence at 13-14. The Court relied on a 30-year-old case of its own for this point:  Eways v. Governor’s Island, 391 S.E.2d 182, 183 (1990) (“[w]here a trial court has reached the correct result, the judgment will not be disturbed on appeal even where a different reason is assigned to the decision.”) The point already was well settled at the Court of Appeals, which has repeatedly applied the principle.  See e.g., Asheville Lakeview Properties, LLC v. Lake View Park Comm., Inc., 803 S.E.2d 632, 636 (N.C. Ct. App. 2017).

Applying claim preclusion to prior declaratory judgment rulings

The substantive path to affirmance in Orlando Residence was considerably more complicated. The Court found the three crossclaims that were related to the lawsuit’s subject matter were barred by res judicata because those issues could have been adjudicated in a previous action brought by Nelson involving the same parties. Orlando Residence at 17-18. In the earlier action, Nelson had sought a declaration that he owned 10 of Alliance’s 61 membership units, but the jury only found that he owned 10 units – not 10 of 61. Thus, there was no determination of the ownership percentage that Nelson held in Alliance. The Supreme Court faulted Nelson’s counsel for a jury instruction that didn’t force an answer on the critical percentage ownership issue, and for not raising the issue in an earlier appeal of that judgment. Id. Thus, when Nelson surfaced the ownership share issues in his crossclaims in Orlando Residence, the Court found Nelson could have had the issues answered in the earlier litigation.

As the Supreme Court noted in a one-paragraph, action-packed footnote, a declaratory judgment ruling is typically “limited to issues ‘actually litigated by the parties and determined by a declaratory judgment,’” – understood as issues preclusion (collateral estoppel). Id. at 19. However, Orlando Residence decided that North Carolina will adhere to how federal courts have generally viewed the issue:  that a prior declaratory judgment ruling will have a claims preclusion (res judicata) effect where the earlier declaratory judgment request was paired with additional requests for relief (injunctive, damages). Id. With that doctrinal shift, Nelson’s three crossclaims that were related to the suit’s subject matter were barred.

Rule 18(a) allows tag-along crossclaims when the claims to which they attach survive challenges to the pleadings

The Supreme Court found that Nelson’s remaining 15 crossclaims could not, then, survive without the three crossclaims that were related to the subject of the underlying action. This was so, the Court held, because the Rule 18(a) allowance to join other claims against a party depends on having a “qualifying claim” that is properly pled. Here, the three crossclaims related to the subject of the suit had to survive in order for the 15 non-related claims to tag along, and when they didn’t the Court held that the “implicit” notion of Rule 18(a) controlled: “the predicate crossclaim asserted by the crossclaimant in accordance with Rule 13(g) must survive the pleading stage.” Id. at 20-21.

Dismissal of crossclaims with prejudice

Defendant Nelson also claimed the Business Court had erred in dismissing his crossclaims with prejudice. The Supreme Court found that was not an abuse of discretion, though didn’t address that the Business Court’s determination was based on a theory dismissing the crossclaims which the Supreme Court rejected. Instead, the Court seemed more influenced by the length of time the parties had spent litigating related issues, and a 2009 district court order from Wisconsin that required a “show cause” from Nelson if he wanted to file any future actions against Orlando. The Supreme Court’s approval of a discretionary trial court decision that brought “some measure of finality between the parties” does not seem unusual (Id. at 22), but it is a curious coda to an opinion that adopted a few new legal variants to deliver that closure.

Takeaways:

  • Crossclaims can survive dismissal of a plaintiff’s claims where they are not dependent on them.
  • Claim preclusion (res judicata) arises from a prior declaratory judgment ruling when other forms of relief were requested along with it.
  • Under Rule 18(a), tag-along crossclaims can only survive if the claims to which they are attached survive motions pleading.

Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP.

Sometimes the Cards Must be Played
Out Even When the Table has Cooled

If the cards have been kind, often the better instinct is to cut and run before your luck changes. That was the plan in Aym Technologies, LLC v. Gene Rodgers, et al., (N.C. Super. Ct. March 19, 2020). The defendants got all of the plaintiff’s claims thrown out at summary judgment in an opinion we discussed here, and sought to stay their own remaining counterclaims in deference to a parallel New York action involving many of the same parties. After considering the issues at play in the two actions, the Business Court denied the motion, finding that the cases did not have the requisite “substantial or functional identity” to justify a stay. Chief Judge Bledsoe also denied the plaintiff’s motion to retroactively certify two previously decided orders for appeal under Rule 54. See Order and Opinion.

Scopia Capital Management LP and Community Based Care, LLC had earlier bested Aym’s contention that misappropriated trade secrets had allowed them to beat Aym to acquisition targets in North Carolina’s competitive Medicaid intellectual and development disability (IDD) industry. That left only the defendants’ counterclaims against Aym for fraudulent misrepresentation and unfair or deceptive trade practices in play. The defendants’ pitch for a stay in North Carolina was that the New York action also was keyed to the parties’ competition in the IDD industry. Id. ¶ 6.

Takeaways:

  • Staying a North Carolina case in deference to a foreign action won’t meet the exacting standard without substantial and meaningful overlap.
  • Ask a trial court to include Rule 54 certification in its judgment because a retroactive fix is a long shot wager.

Judge Bledsoe’s analysis of whether it would “work substantial injustice” for the remaining North Carolina claims to continue in the Business Court focused on the nature of the claims pending in each state. In New York, the claims focused on Aym’s alleged misuse of information obtained under a non-disclosure agreement to aid its own business endeavors. But the Court found notable space between those claims and the trade secret claims that animated the North Carolina action over the parties’ competing efforts to acquire IDD targets. Moreover, while both actions raised Chapter 75 unfair trade practice issues, the Court found them to be disparately motivated and relying on differing factual bases. Id. ¶¶ 8-9.

The Court acknowledged that a finding of “substantial or functional identity” between the two cases could sufficiently support a stay of the North Carolina action, but differed markedly with the assertion that the cases were “identical in most respects.” The Court noted that the New York case primarily had a breach of contract focus, and that the dueling Chapter 75 claims “did not involve a common nucleus of operative facts or rely on the same evidence.” Id. ¶¶ 10-14. In essence, the Court declined the invitation to rule that cases which generally look similar are necessarily functionally identical:

“While the New York and North Carolina Actions are founded upon the same general sequence of events, neither the Actions generally, nor the Chapter 75 Claims specifically, meaningfully overlap either chronologically or topically.”

Id. ¶ 12.

Retroactive certification of prior orders not permitted

As the defendants sought to flee the jurisdiction, the plaintiff asked the Court to certify its own, partial exit from the trial court to seek interlocutory appeal of its losses at motion to dismiss and summary judgment. Judge Bledsoe found the chronology to be fatal. In January 2020, Aym was asking the Court to certify orders from February 2018 and October 2019 without any assertion of new evidence, an intervening event, or a need to make a correction to prevent manifest injustice. Id. ¶¶ 21, 23. The Business Court stated that such a retroactive certification was simply beyond its authority under Rule 54:

“As an initial matter, North Carolina’s appellate courts do not permit trial courts to afford Plaintiff the relief it seeks – retroactive certification of previously entered orders absent material amendments triggered by appropriate motion.”

Id. ¶ 22. Aym, the Court noted, could have made a timely request to certify those rulings under Rule 54(b) by asking the Court to include that relief in its judgment. The Court noted that the alternate path for interlocutory appeal – impairment of a “substantial right” – would not have been available even if plaintiff had pled it. That’s because plaintiff’s only argument would have been that of the delay posed if defendants’ stay request had been granted. Mere delay, the Court said, could not constitute injury to a “substantial right.”

Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP.

If you have employees that work from home (WFH), you may be subject to PJ in their location.

During the last few months, the NC Supreme and Business Courts have answered some tricky PJ questions:  Are pre-conflict contacts relevant?  (Yes and Yes); Is a single contract with a NC resident always enough to justify PJ?  (No, contacts not contracts matter).  Is PJ defense waivable? (Yes, and this case tested the limits of waiver.)

Compared to these PJ questions, the one in Quidore v. Alliance Plastics, LLC seemed easy — and timely — as Chief Judge Bledsoe also considered the PJ implications of allowing an employee to work from home.

 

The precise question in Quidore v. Alliance Plastics, LLC was whether a Rock Hill, SC company is subject to PJ in NC for breach of an employment contract and severance promises with a NC employee who often worked from home in NC.

The answer, according to  Judge Bledsoe, was an easy yes.  The employment contract was negotiated in NC, the promises of severance and other benefits were made in NC, and the employee regularly worked from home (in NC) with the employer’s consent.  With heavy reliance on the recent Supreme Court Case Beem USA Limited-Liability Ltd. P’ship v. Grax Consulting, LLC, — N.C. — , 838 S.E.2d 158 (2020), discussed here (contacts throughout the period of performance are relevant – not just during breach), Judge Bledsoe explained that the SC employer should have anticipated being haled into NC Court on employment matters with this employee.  PJ in NC was proper.

 

One Takeaway: Businesses from other states that allow employees to work from home in NC need to keep their eyes on the PJ ball, as least for employment-related claims from those employees.

More:

Alliance was SC corporation with its main office in Rock Hill, SC – a few short miles across the border from Charlotte.  Alliance recruited Mr. Quidore, and convinced him to leave his job and home in California, move to the Charlotte area, and become Alliance’s COO.  As part of this recruitment, Mr. Quidore made multiple trips to the Charlotte region – each time, flying into Charlotte’s airport, staying in Charlotte, and meeting with Alliance’s CEO (also a NC resident) in Charlotte.  At these meetings, the alleged terms of employment were negotiated and, according to Mr. Quidore, promises were made.  After accepting the position, Quidore moved his family to Charlotte (not Rock Hill).  Thereafter, Quidore regularly worked for Alliance from NC – including daily emails and calls taken from his NC home; meetings with Alliance’s CEO (also a NC resident) at various Charlotte Starbucks locations; and regular and routine attendance at other NC meetings, lunches, and  business functions.  Alliance knew about and approved Quidore’s work activities in NC.

After about a year, the relationship soured, and Quidore was fired.  When Quidore did not get the severance benefits he was promised, he sued Alliance – in NC – for breach of their employment agreement and for lying about his benefits.

Alliance challenged PJ.  As a SC entity with operations and offices in SC, Alliance argued that it lacked requisite contacts with NC.  Alliance also denied and disputed Quidore’s allegations of wrongdoing including where that supposed wrongdoing occurred.

Judge Bledsoe was not convinced by Alliance’s arguments.  Weighing competing affidavits, Judge Bledsoe concluded that Alliance’s contacts with North Carolina were sufficient to justify PJ.  Quidore performed “regular and continuous” work for Alliance in NC, including meetings, entertaining, and routine, daily after-hours emails and calls from his NC home.  Alliance approved all of this NC work.  And, the actual breach of the employment agreement occurred at a NC Starbucks, where Alliance’s owner met with Quidore, terminated his employment, and supposedly told him that Alliance would not honor the alleged severance promises.  These contacts, and the lack of hardship in having to defend a suit a few short miles from Rock Hill, made answering this PJ question, well, Easy, Easy Like …

This decision raises some interesting questions for employers:

What if the employer’s only NC contact is the employee  ‘working from home’?  The theme of recent cases, including this one, suggests the answer may be yes.  With Beem leading the way, these cases explain that the totality of the employer’s contacts with NC is relevant.  As WFH proliferates, so too will the employers’ PJ contacts with their employees in these NC locations.  Clever practitioners surely will highlight and expound on a foreign employer’s ‘regular and continuous’ contacts with employees as they work remotely.

So, how can a foreign employer avoid this result?  A good Employee Handbook policy on the limits of teleworking would help.  A written agreement with the employee that specifically addresses venue and jurisdiction would be even better.  Employers should also watch for policies that overly entangle an employer in the employee’s home location; for example, has the employer retained (exercised?) the right to inspect the home office for safety?  Has an IT department employee visited the employee’s home office to set it up?  How many other employees are allowed to work in North Carolina?

Bottom line: The case before Judge Bledsoe is a good reminder that as employees increasingly scatter to their residences, employers who are not careful might well be exposing themselves to PJ where those employees live.

 

Q: Are pre-conflict NC contacts relevant?
A: Yes.
Q: What if they relate to a separate contract between the parties?
A: Yes. Still relevant.

In Button v. Level Four Orthotics & Prosthetics, Inc., 2020 NCBC 18 (Mar. 13, 2020), Judge Robinson considered whether the court could exercise personal jurisdiction over Florida defendants based in part on their course of dealing with the NC plaintiff, including “pre-conflict” NC contacts and consent to NC jurisdiction provisions in other contracts between the parties. Adopting a broad view of what contacts are relevant, the Court held the Florida defendants were subject to PJ.

Background and Relevant NC Contacts

Mr. Button was resident of New Jersey. He was hired as CEO for a North Carolina corporation with its principal place of business in Winston-Salem, and he split work time between New Jersey and North Carolina.

Mr. Button’s NC employer was owned by two Florida entities. Mr. Button entered into an employment contract with his NC employer, as well as a series of contracts conferring stock purchase and other rights with the Florida entities. Notably, these agreements each had North Carolina choice of law, venue, and/or consent to NC jurisdiction provisions.

Executives from the Florida entities, themselves Florida residents, negotiated Mr. Button’s various employment agreements and oversaw Mr. Button’s work and performance. But these Florida executives rarely if ever traveled to NC, and their other NC contacts were limited and involved pre-conflict activities like hiring Mr. Button and managing operations of the NC entity. The Florida executives also claimed that most of their interactions with Mr. Button occurred while Mr. Button was working from New Jersey, not North Carolina.

After a little over a year, the relationship soured. Mr. Button claimed that the Florida entities and executives reneged on promises in his employment agreement. The Florida executives apparently disagreed, and they abruptly fired him.

Mr. Button Sued. Defendants Moved to Dismiss.

Mr. Button leveled a slew of claims against his NC employer, the Florida entities, and two Florida executives. The claims sounded in both contract (e.g., employment agreement) and tort (e.g., tortious interference). The defendants responded with a salvo of targeted Rule 12 motions, including motions to dismiss and lack of personal jurisdiction. Judge Robinson ruled on all of these motions. This post focuses only on PJ.

Contacts Pre-dating the Conflict and from Other Contracts Are Still Relevant

The Florida defendants argued their contacts with NC were mundane, did not give rise to the dispute, and did not justify PJ. Judge Robinson disagreed. He explained that the defendants’ view of relatedness was too narrow. Instead, citing the Supreme Court’s recent decision in Beem USA Limited-Liability Ltd. P’ship v. Grax Consulting, LLC, — N.C. –, 838 S.E.2d 158 (2020) (my recent post on Beem), Judge Robinson explained that these defendants’ course of dealing with Mr. Button, managing operations of their NC subsidiary, and even the consent to jurisdiction in other contracts, were all relevant and established PJ.

The Florida defendants had ongoing and direct participation in management of Mr. Button’s employer – a NC entity, including conduct Mr. Button claims to be in breach of his employment agreement. During negotiations, operations, and through termination, the Florida executives never differentiated which entity they were representing. More importantly, their course of conduct showed that they contemplated continuing obligations with both Mr. Button and their NC subsidiary. In addition, even though Judge Robinson dismissed Mr. Button’s claims for breach of the other various stock purchase agreements with the Florida entities without prejudice (finding no case or controversy), he held that the consents to NC jurisdiction in those other agreements were still relevant. It showed that these defendants contemplated that they could be hailed into Court in NC on matters related to their relationship with Mr. Button. Ultimately, Judge Robinson concluded that these acts and contacts were all related to the litigation, and they justified personal jurisdiction.

This ruling reminds NC litigants not to take an overly narrow view of relevant contacts. If you have a contact related to both the plaintiff and NC, it’s probably relevant.