The Business Court tentatively waded back into its well-settled case law that tends to scold litigants who try to convert internal company disputes into unfair trade practice claims in Constr. Managers, Inc. v. Amory, 2019 NCBC 31, 2019 WL 2167311 (N.C. Super. Ct. May 17, 2019). In doing so, the Court denied much of the defendant’s motion to dismiss the Amended Complaint. See Order and Opinion.
- The Business Court still thinks that a Chapter 75 claim is not the right vehicle for addressing shareholder disputes, disagreements among company members and other issues of internal management or strife.
- The Court is likely to continue its vigilance policing Chapter 75 counts so that cases are not unnecessarily burdened by illusory claims that threaten great damages.
- Only limited factual allegations that allege events beyond the confines of a single market participant may be needed to meet the “in or affecting commerce” standard.
The defendant provided accounting and bookkeeping functions for an integrated set of plaintiffs that were in the business of building, leasing, and managing clinics for the U.S. Department of Veterans Affairs. Id. at ¶¶ 2-3, 13. Before leaving to join a construction consulting firm, the Amended Complaint alleges Amory downloaded a raft of confidential and trade secret information and emailed some to one of plaintiffs’ former employees. Id. at ¶¶ 15, 17-18.
Plaintiffs’ claim under N.C. Gen. Stat. § 75-1.1 led the court to confront an issue it has addressed repeatedly in the last several years: is the conduct alleged “in or affecting commerce,” as required by the statute, or is it an “intra-company feud about internal operations” for which there is other, more appropriate legal recourse. Brewster v. Powell Bail Bonding, Inc., 2018 NCBC 74, 2018 WL 3603023, at *6 (N.C. Super. Ct. July 26, 2018) (Judge Conrad). See Order and Opinion. Construction Managers, Brewster and a host of other Business Court opinions have examined the issue within the North Carolina Supreme Court’s guidance in White v. Thompson, 691 S.E.2d 676, 679-680 (N.C. 2010) that § 75-1.1 regulates “a business’s regular interactions with other market participants” and not the “internal conduct of individuals within a single market participant.”
Plaintiffs complained that Amory was using their trade secrets to compete against them, but failed to describe how he was competing, and failed to assert that Amory had disclosed trade secrets to his new employer. Construction Managers, at ¶ 80. Moreover, plaintiffs essentially conceded that their fears about improper competition were prospective. Amory, plaintiffs claimed, “could begin to unfairly compete” with them, and was “preparing to cause” them significant damages by using the illegally obtained information. Id. at ¶ 81. The Court even found that plaintiffs’ general allegations of competition didn’t allege specific facts that were sufficient, under White, to remove it from fact patterns “contained solely within a single business.” Id. at ¶ 82.
Yet, the Court “reluctantly conclude[d]” that as a matter of notice pleading, the Chapter 75 claim survived a motion to dismiss because it was “barely sufficient to provide Amory with sufficient notice of the nature of the claim to withstand Amory’s motion to dismiss.” Id. at ¶ 83. Thus, the Court held that it was sufficient under Chapter 75 for the plaintiffs to claim – generally – that Amory was unfairly competing against them, without alleging facts regarding any of “the events or transactions which produced the claim to enable the adverse party to understand the nature of it and the basis for it[.]” Spoor v. Barth, 811 S.E.2d 609, 612 (N.C. Ct. App. 2018).
Construction Managers is a tenuous fit in the Business Court’s “in or affecting commerce” jurisprudence. The Court has regularly dismissed Chapter 75 claims that purport to center on shareholder disputes, disagreements among company members and other issues of internal management or strife. Conflating these events into unfair trade practice claims is, the Court has held, “a regrettable trend in North Carolina business litigation.” Brewster, 2018 WL 3603023 at *6. Indeed, the Court has gone out of its way to intentionally put a fine a point on the point:
By now, the message should be clear: section 75-1.1 plays no role in resolving these internal corporate disputes. Yet time and time again, section 75-1.1 appears where it does not belong, with consequences that are significant and unhealthy. The routine addition of section 75-1.1 claims in these cases invites avoidable motion practice – driving up the cost of litigation, taxing the resources of the Court, and exposing the plaintiff to a potential award of attorney fees under section 75-16.1. It also impedes settlement discussions by introducing remedies (including treble damages) that would otherwise be unavailable, thereby distorting the parties’ incentives and their perceived risks.
Id. at *7. Construction Managers cites the letter of the Court’s Chapter 75 doctrine on the types of claims it feels are within the statute, but slightly disclaims its spirit. Here, the barest pleading nudge by the plaintiffs – unsupported by facts regarding defendant Amory’s purported competition against them – was enough to survive characterization as an “internal business matter” that would doom an unfair trade practice claim. It’s by no means a Chapter 75 doctrinal sea change for the Court, but it foretells a decision or two down the line that address attempts to salvage wounded claims with the “notice pleading” life raft extended in Construction Managers.
Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP. He maintains a commercial litigation practice that frequently involves business disputes before the North Carolina Business Court, and the state’s federal and state trial courts.