Considering whether to add a Chapter 75 claim to your breach of contract dispute? If you don’t have substantial aggravating circumstances, resist the urge and don’t assert the Chapter 75 claim. In a recent order, Judge McGuire made clear that asserting an unjustified Chapter 75 claim may get you sanctioned.

More snow leopard than unicorn, attorney fee sanctions in North Carolina are rarely seen. Everyone knows that UDTPA claims under Chapter 75 come with enhanced remedies (treble damages and attorney’s fees). It’s easy to miss, however, that attorney’s fees are available to both a prevailing plaintiff and a defendant forced to deal with a “frivolous” and “malicious” Chapter 75 claim. Likewise, there is an even broader fee shifting provision in G.S. § 6-21.5, which allows a Court to award fees incurred in defending pleadings that raise “nonjusticiable” issues.

The defendants in W&W Partners, Inc. v. Ferrell Land Co., LLC spotted these fee-shifting provisions.  After successfully moving to dismiss the Chapter 75 claim and fending off a motion to amend (to reassert the dismissed Chapter 75 claim), the defendants moved for fees.  Judge McGuire granted the motion.

W&W Partners involved a disagreement over the parties’ obligations under a land development contract. In simple terms, if the defendants purchased certain land, the plaintiffs would develop it in exchange for a fee. The more land the defendants bought, the more development fees the plaintiffs could earn.  A dispute arose, however, when the defendants refused to purchase a particular parcel. The plaintiffs claimed that defendants were required to purchase it (so plaintiffs could develop it and earn their fee), and the defendants claimed that land purchases under the contract were discretionary.

The dispute, therefore, appeared to be purely contractual: Did the contract require the defendants to purchase the parcel or not?

The plaintiffs’ multiple complaints (initial, first amended, and second amended) each included breach of contract claims. Each time, the plaintiffs also tacked on a UDTPA claim under Chapter 75—despite the defendants’ warnings not to assert a Chapter 75 claim since the dispute was purely contractual.

The defendants moved to dismiss the Chapter 75 claim, arguing that the dispute was contractual and the Chapter 75 claim was duplicative. Judge McGuire agreed: “The Parties’ competing interpretations of the [contract], which underlies Plaintiffs’ claim for breach of contract, is also the basis of the UDTPA claim.” And since “a mere breach of contract, even if intentional, is not an unfair and deceptive act under Chapter 75,” Judge McGuire dismissed the UDPTA claim with prejudice. [Order 5/22/2018] The plaintiffs did not seek reconsideration.

Months later, the plaintiffs, citing “new evidence,” sought leave to file a third amended complaint. Plaintiffs again sought to include the previously dismissed Chapter 75 claim. Since the prior dismissal of the Chapter 75 claim was with prejudice (and reconsideration was never sought), Judge McGuire denied the motion for leave to amend under res judicata principles. [Order 4/23/2019]

Thereafter, the defendants moved for attorney’s fees incurred in (i) defending the Chapter 75 claim and (ii) responding to plaintiffs’ motion for leave to amend to reassert it. In a pointed order, Judge McGuire granted the defendants’ motion for fees on both grounds.

As to the Chapter 75 claim, Judge McGuire concluded that the plaintiffs knew or should have known that the original Chapter 75 claim was frivolous and asserted the claim maliciously. As Judge McGuire explained, the Chapter 75 and the breach claims were both grounded in the same facts and the same conduct. Plaintiffs had not alleged fraudulent inducement, and the only supposedly deceptive conduct was the defendants’ differing interpretation of the contract. Judge McGuire also noted that the plaintiffs ignored defendants’ repeated pre-litigation warnings that the dispute was purely contractual.  With this backdrop, Judge McGuire awarded the defendants’ attorney’s fees for having to defend against the Chapter 75 claim.

As to the motion to amend, Judge McGuire concluded that the motion failed to raise a justiciable issue, which, as Judge McGuire noted, was the bare minimum standard for all pleadings. Attempting to assert the previously dismissed Chapter 75 claim (from which the plaintiffs had not sought reconsideration) was, according to Judge McGuire, “almost the very definition of asserting a nonjusticiable claim.”

W&W Partners thus serves as a cautionary tale to litigants who may think that adding a Chapter 75 claim makes their case stronger.  If all you have is a contract claim, tacking on a duplicative Chapter 75 claim could get you sanctioned.

Here at the blog, we love a well-crafted set of local rules as much as the next lawyer. (Yes, we hear you laughing; we’re the folks who recap decisions about business law instead of episodes of Watchmen  or The Marvelous Mrs. Maisel. We enjoy them a lot more than the next, more normal, lawyer.) Sometimes, though, it’s the informal guideposts to commercial litigation practice that serve you the best. One of the classics is the Mark Twain maxim of notice pleading:  “Get your facts first, and then you can distort them as much as you please.”

That second part is not in the Business Court’s rules, of course, but in Aym Technologies, LLC v. Gene Rodgers, et al.¸ 2019 NCBC 63, 2019 WL 5257950 (N.C. Super. Ct. October 16, 2019), the Court made clear the first part is pleading Job One. See Order and Opinion.   Aym contended that Rodgers had assisted the corporate defendants in beating Aym to acquisition targets it coveted, and did so in part by sharing a confidential plan (the Plan) designed to further a purchase and vertical integration strategy in North Carolina’s competitive Medicaid intellectual and development disability (IDD) industry. Id. ¶¶ 4, 8. Aym advanced a trade secret misappropriation claim centered on the Plan, and inched that claim past a motion to dismiss based on complaint allegations about the unattached Plan’s proprietary and confidential contents. Id. ¶ 32. But at summary judgment, with the Plan in the record, Judge Bledsoe applied the “Twain test” with resolute clarity:

The written Plan has now been made part of the record at summary judgment, and it cannot be disputed that the Plan does not comport with Aym’s characterization of that document in its Complaint.

Id. ¶ 33.


  • The Business Court reacts about as you would expect when a complaint is later shown to have taken liberties with a document that the plaintiff declined to attach to the pleading. 
  • “Reasonable efforts” to protect an alleged trade secret do not include its frequent dissemination without accompanying confidentiality restrictions. 
  • They especially don’t include its unfettered transmission by a plaintiff to a defendant accused of misappropriation.

Aym’s characterization was, at a minimum, a bit cavalier.  The complaint averred that the Plan identified specific acquisition targets and outlined Aym’s confidential vertical integration strategy for the IDD industry. Id. ¶¶ 8, 32. Aym alleged that Rodgers, its non-exclusive contractor, was enlisted to help it acquire North Carolina IDD providers and had its strategic plan as part of that work. The relationship went off the rails when defendants Scopia Capital Management LP and Community Based Care, LLC (CBC) acquired three IDD targets that Aym had pursued without success. Aym believed that this was only possible because Rodgers had disclosed its confidential plan to Scopia.  Id. ¶¶ 12-13.

The Court found Aym’s trade secret misappropriation claim flawed in many respects under the North Carolina Trade Secret Protection Act, but particularly so because Aym over-promised and under-delivered on whether its Plan contained information that would merit protection under the Act. Upon inspection of the Plan, the Court found that it not only failed to identify any of the acquisition targets lost to Scopia, but “does not otherwise contain a list of proposed acquisition targets, or a formula for identifying them.” As well, the Court found that Aym’s Plan amounted to little more than an industry survey that recognized the value of roll up and integration strategies “not unique” to Aym. Id. ¶ 33-34. As confirmation, the Court noted discovery revealed that Aym’s CEO had even referred to the Plan as a “white paper” that was “high level rough.” Id. ¶ 33.

The Court also rejected Aym’s contention that its Plan deserved trade secret protection as a “compilation or manipulation” of public information that has a “particular value.” As the Court noted, “Aym admits that a strategy of rolling up IDD companies – the core concept of Aym’s Plan – is well known and not a trade secret.” Id. ¶¶ 35-36. Despite earlier allowing the misappropriation claim to survive Rule 12(b)(6) based on the Plan’s alleged contents, the Court also addressed a new argument—raised by Aym in its summary judgment briefing—that the Plan, when combined with Aym’s industry experience and enhanced analytical position, formed a greater whole that deserved trade secret protection. The Court wryly noted that Aym’s attempt to “salvage” its trade secret claim also fell well short of the statutory bar:

Even as reinvented, however, Aym’s claim must still be dismissed because Aym has failed to describe this newly conceived trade secret with the specificity our Supreme Court requires.

Id. ¶ 42.

Reasonable Efforts to Maintain Secrecy

While unnecessary to the outcome, the Court also reviewed Aym’s required efforts “that are reasonable under the circumstances to maintain [the plan’s] secrecy.”  N.C. Gen. Stat. § 66-152(3). Even had the Court determined the Plan presented a protectable trade secret, the facts showed that the Plan had been passed around like a cold at a preschool. An Aym principal provided the report to an investment banker assisting its acquisition strategy, but did so without any nondisclosure protections. That banker then actually provided the Plan to an entity Aym twice tried and failed to acquire, and discussed Aym’s strategies with another of Aym’s unsuccessful acquisition targets. Id. ¶¶ 12, 48.

Aym, itself, treated the Plan as something well shy of a document whose confidentiality was a priority. Aym’s litigation position was that Scopia and CBC were only able to acquire targets that Aym wanted for itself because defendant Rodgers had disclosed the plan to Scopia. Id. ¶ 13. Yet, Aym’s CEO emailed the plan to a Scopia partner with no confidentiality protections when trying to sell his company to Scopia, and observed in the covering note that he didn’t think the plan contained “anything of a proprietary nature that isn’t already common knowledge.” Id. ¶¶ 14, 49.


The Court made clear there was no trade secret to misappropriate, and that Aym did nearly the opposite of protecting that alleged secret. But, it nonetheless paused to also note Aym failed to show that Rodgers disclosed the Plan, that the other defendants got it from him, or that Rodgers disclosed Aym’s interest in particular acquisition targets or its vertical integration strategy. Id. ¶ 53. At root, the Court held the claim relied on little more than an “inferential leap” of misappropriation given this undisputed evidence, and discounted Aym’s theory as one of “inevitable disclosure” regularly rejected under North Carolina law. Id. ¶¶ 56-57.

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

N.C. Business Court Digs into Pleading Requirements in Tossing Three Misrepresentation-Based Claims

A “failed deal” or contract often gives rise to claims for breach of contract, fraud, and/or negligent misrepresentation. Each claim presents its own path to relief. And that path is replete with obstacles, beginning with pleading requirements unique to each claim. Even a “simple” breach claim can become complex, particularly when tangled with other misrepresentation-based claims. For instance—if a party promises not to make false statements in a contract, but then does, is that a breach of contract, fraud, or both? What if the misrepresentations are made during negotiations versus in the contract itself? And what role, if any, does the parol evidence rule play in this analysis? The Business Court grappled with these questions, among others, in Value Health Sols. Inc. v. Pharm. Research Assocs., Inc., 2019 NCBC 68 (N.C. Super. Ct. Sept. 6, 2019). See Order and Opinion.[1]


  • Whether fraud in the contract has occurred requires looking no further than the contract itself, at least where the contract is “clear and unambiguous.”
  • When pleading fraud, “reliance” should be pled like any other element—with particularity, which in this context means showing why the reliance was reasonable under the circumstances.
  • A duty of care arises where one party controls the information in question, but only where the other party has made diligent efforts to obtain it.


The defendants in Value Health (“PRA”) conducted clinical trials “all over the world” and comprised “one of the world’s leading global contract research organizations (CRO).” Id. ¶ 2. As a CRO heavyweight, PRA needed software capable of managing their large-scale clinical trials. And they thought they had found the solution in plaintiffs’ product—which fittingly was called the “Solution.” Id. ¶ 3.

Plaintiffs made a number of representations to PRA regarding the capabilities of the Solution and various product “enhancements” needed to integrate the Solution with PRA’s existing software system. Id. ¶¶ 4-6, 9.  Based on these representations, PRA agreed to purchase the Solution from plaintiffs pursuant to an asset purchase agreement (“APA”). Id. ¶ 7. The APA included a provision, perhaps best described as a “No Fraud” clause, in which plaintiffs essentially agreed they had not misrepresented or omitted material facts in the APA. Id. ¶ 24.

After performance of the APA went south, each party asserted that the other had breached and made material misrepresentations in connection with the APA. Plaintiffs filed suit, and PRA asserted counterclaims, including for breach of contract, fraud, and negligent misrepresentation based on plaintiffs’ alleged pre-contract misrepresentations. Id. ¶¶ 10, 17.

Judge McGuire addressed plaintiffs’ motion to dismiss PRA’s counterclaims in the Business Court’s 68th opinion of 2019.


  1. Breach of Contract – the “No Fraud” clause

First, what exactly did plaintiffs agree to do under the No Fraud clause? The No Fraud clause provided that:

No representation or warranty by [plaintiffs] in this Agreement and no statement contained in the Schedules to this Agreement or any certificate or other document furnished or to be furnished to [PRA] pursuant to this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.

Id. ¶ 24. Breaking down this painfully-worded provision, plaintiffs represented essentially two things in the No Fraud clause:

  • Plaintiffs did not make any false statements in the APA; and
  • Plaintiffs did not omit information from the APA that, as a result of the omission, made any statement in the APA misleading.

See id. ¶ 31. Put more simply, plaintiffs promised not to commit fraud in the APA. And this qualification—“in the APA”—made a difference in the Court’s analysis.

In particular, PRA alleged that plaintiffs breached the No Fraud clause by “failing to correct” certain pre-contract misrepresentations, including that (i) certain “milestones” relating to the Solution would be achieved within 18 months of closing the APA; and (ii) certain product enhancements to the Solution had already been implemented. Id. ¶ 25. PRA argued that plaintiffs’ failure to correct these misrepresentations were “omissions” that “made statements contained in the APA false.” Id. ¶ 25.

But plaintiffs did not make any promises in the APA to do these things. There was “no express language in the APA that any of the Product Enhancements were already implemented”; nor did the APA “contain any promise . . . that the Milestones would be achieved within eighteen months of the Closing.” As such, “Plaintiffs’ failure to correct any [such] representation . . . [was] not an omission of ‘a material fact necessary to make the statements contained [in the APA] . . . not misleading.’” Id. ¶¶ 32-33.

The parol evidence rule also factored into the analysis. The Court determined that the No Fraud clause was “clear and unambiguous,” meaning that (although not explicitly articulated by the Court) extrinsic evidence was not relevant in interpreting the No Fraud clause. Id. ¶¶ 30-31.  Elaborating further (and again, not explicitly articulated by the Court), this effectively meant that in considering whether the plaintiffs had breached the APA by “failing to correct” alleged pre-contract misrepresentations, there were no pre-contract misrepresentations to consider; the parties had a final written agreement (the APA), which, in turn, rendered any pre-contract negotiations, understandings, or agreements irrelevant. In short, PRA could not prove a breach of the APA by pointing to these (irrelevant) pre-contract representations.[2]

Accordingly, PRA’s contract claim failed to allege any breach of the APA, and was dismissed for failure to state a claim.

  1. Fraud

PRA’s fraud claim appeared more promising. Unlike with the contract claim, PRA could rely on plaintiffs’ pre-contract representations to support their fraud claim. (Recall that parol evidence can be used to prove fraud. Franco v. Liposcience, Inc., 197 N.C. App. 59, 71, 676 S.E.2d 500, 507, aff’d, 363 N.C. 741, 686 S.E.2d 152 (2009).)

But there was one problem: PRA did not sufficiently plead the element of “reliance.”

In particular, a fraud claim requires showing not only reliance on the alleged misrepresentations, but also that the reliance was reasonable. And “[r]eliance is not reasonable where the plaintiff could have discovered the truth of the matter through reasonable diligence but failed to investigate. Value Health, 2019 NCBC at ¶ 51 (citation omitted).

In other words, reliance requires pleading facts to show that the “true facts” could not have been discovered through reasonable diligence. Id. And the facts pled should show the steps taken to discover the true facts and/or why the true facts were not discoverable through reasonable investigation. This effectively “heightened” pleading standard for the reliance element is consistent with the heightened pleading standard for fraud generally.

The Court concluded that PRA’s “reliance” allegations fell short. The allegations did not show that PRA had undertaken reasonable efforts to discover the true facts regarding plaintiffs’ alleged misrepresentations. Nor were facts pled to suggest that PRA could not have discovered the truth through reasonable investigation. Id. ¶¶ 49-52. Indeed, with respect to reliance, PRA alleged only that PRA had “relied upon [plaintiffs’] representations in entering into the APA” and that “[h]ad [plaintiffs] not made these representations and omissions, PRA would not have entered into the APA.” ECF No. 5 ¶¶ 53-54.

Because these allegations failed to adequately plead reliance, the fraud claim was dismissed for failure to state a claim.

  1. Negligent Misrepresentation

PRA’s negligent misrepresentation claim fared no better. While such a claim can be useful where fraudulent intent is difficult to prove (or lacking), intent was not the issue here. The issue, again, was that PRA failed to sufficiently allege reliance on the alleged misrepresentations, and, like fraud, negligence misrepresentation requires a showing of reliance. Value Health, 2019 NCBC at ¶ 51 (citations omitted).

But even aside from reliance, this claim failed for a separate reason: PRA failed to allege that plaintiffs owed them a duty of care.   Id. ¶ 46.

Like any negligence claim, negligent misrepresentation requires showing a duty of care owed to the claimant. Id. ¶ 37 (citation omitted). As relevant to PRA’s negligence claim, a duty of care arises in commercial transactions where the seller is “the only party who had or controlled the information at issue” during the parties’ negotiations, “and the buyer had no ability to perform any independent investigation.” Id. ¶ 47 (citation omitted).

Here, PRA did not allege that plaintiffs were the only party that “had or controlled” information relating to the Solution. Nor did PRA allege that they were unable to investigate and discover any information they needed relating to the Solution. Instead, PRA alleged that they were “a large, sophisticated CRO who negotiated the APA with Plaintiffs for a period of more than a year, frequently providing Plaintiffs with input as to the functionality required from the Solution and engaging in regular interactions with Plaintiff during the development of the software.” Id. ¶ 48. Essentially, PRA’s allegations showed that they were in a position to access, or at least attempt to access, the information needed to verify plaintiffs’ representations, but nonetheless failed to “undert[ake] any due diligence efforts related to the purchase of the Solution.” Id. ¶ 49.

Accordingly, because PRA did not adequately allege a duty of care, or reliance, this claim was also dismissed.


In the end, PRA’s misrepresentation-based claims were dismissed for several reasons—none of which was that no misrepresentations had been made. The “merits” were never reached because the pleadings, according to the Court, did not allow it. Value Health thus underscores the importance of adhering closely to the case law and what courts require when pleading these oft-asserted claims.


[1] In addition to the three misrepresentation-based claims described here, the Court addressed (and allowed to proceed) two additional claims unrelated to the misrepresentations.

[2] Although the Court applied Delaware law to interpret the APA (pursuant to the parties’ choice of law provision), the result and application of the parol evidence rule would likely be the same under North Carolina law. Compare Carlson v. Hallinan, 925 A.2d 506, 522 (Del. Ch. 2006) (“The parol evidence rule bars the admission of ‘preliminary negotiations, conversations and verbal agreements’ when the parties’ written contract represents ‘the entire contract between the parties.’”) (citation omitted), with Jones v. Jones, ___ N.C. App. ___, ___, 824 S.E.2d 185, 199 (2019) (“Where the parties have put their agreement in writing, it is presumed that the writing embodies their entire agreement,” and “parol testimony of prior or contemporaneous negotiations or conversations inconsistent with the writing . . . is incompetent.”) (citations omitted).


Matt Krueger-Andes is a litigation associate in Fox Rothschild’s Charlotte office.  He regularly represents clients in the Business Court and advises on Business Court and other business litigation-related matters.  He is also a former law clerk to the Honorable Louis A. Bledsoe, III, Chief Judge of the North Carolina Business Court. 


The Business Court addressed the appropriate bounds for expert testimony proposed to establish damages, and perhaps to provide editorial guideposts for the jury, in W. Avalon Potts v. KEL, LLC, et al, 2019 NCBC 60, 2019 WL 4744646 (N.C. Super. Ct. September 27, 2019). See Order and Opinion. We discussed the case in an earlier post, here, but it involves a fractious leadership transition in a nearly 30-year old company, that led to an un-transition and a fight about what happened to the company and its resources, during the period it was under new management.  Judge Conrad summarized the brass tacks of plaintiff’s lament of what the company’s former accountant wrought when he briefly controlled Steel Tube, Inc.:

Put bluntly, Potts alleges that Rives spent most of that time plundering the company’s assets.

2019 NCBC 60, at ¶ 3.


  • The Business Court excluded accounting expert testimony that drifted too far from the wheelhouse of an accountant, finding opinions that strayed from damages linked to failures or omissions in accounting practice insufficiently supported.
  • The Court addressed new claims first introduced in expert reports, and cautioned that “parties should introduce new issues through the amendment process, not through briefing, discovery responses, or expert reports.”

At trial, Plaintiff proposes to seek $2 million in damages from Rives related to alleged failures in tax planning and services, self-dealing behavior that favored his own interests and that of his family, as well as a variety of other damages associated with his brief leadership stint at Steel Tube. To support those damages, Plaintiff designated a certified public accountant, Gregory Reagan, who provided a detailed report on applicable accounting standards and his views on a variety of transactions and behaviors by Rives and his accounting firm. Id. at ¶ 6. The Court’s decision analyzed defendant’s efforts to exclude a significant portion of the 25 opinions contained in Reagan’s report.

In a Daubert-patterned “gatekeeping” analysis under North Carolina Rule of Evidence 702, the Court parsed the proposed accountant-on-accountant opinions through which the expert intended to define, and perhaps editorialize about, Rives’ alleged misdeeds. Defendants did not oppose the expert’s ability to testify about the relevant professional standards that apply to accountants – which occupied 15 pages of Reagan’s report – but balked when it came to applying those standards to Rives and his firm. Id. at ¶¶ 13, 15.

Grounded Opinions, not Editorials, pass Daubert Muster

The Court carefully analyzed the wide range of opinions plaintiff proposed that Reagan would offer, but adopted a familiar analytical construct that essentially sought to confine the expert’s testimony to the wheelhouse in which an accountant can reliably function. Thus, Reagan was on solid ground in opining about whether Rives “botched or falsified” Steel Tube’s tax forms; whether the conduct occasioned tax penalties; and the fees paid to prepare, and revise, inaccurate forms. Id. at ¶¶ 22-23, 26. At the opposite end of the spectrum, the Court narrowed Reagan’s testimony when it ventured toward legal conclusions and editorial judgment. There, the expert was barred from offering legal conclusions about what constituted gross negligence; characterizing Rives’ conduct as “dishonest [and] deceptive” or “shocking [and] disturbing;” and linking the alleged damages to Rives’ conduct as an officer and director of Steel Tube (which are judged by “statutory standards for corporate fiduciaries.”)  Id. at ¶¶ 16-17, 23.

The Court did afford the accounting expert some latitude in the area of Rives’ alleged self-dealing. For example, Reagan proposed to testify about the excessive nature of payments made to a former Steel Tube owner, and apparently unauthorized distributions to pay income taxes. The Court allowed the expert testimony as related to possible conflict-of-interest transactions because it was based on Reagan’s analysis of payments to Rives’ predecessor and Steel Tube’s general financial condition.  Id. at ¶ 30. Similarly, the Court green-lit Reagan’s proposed opinions about whether Rives directed Steel Tube to pay allegedly inflated transportation charges to a company owned by Rives’ brothers. It was sufficient grounding, the Court held, that the expert’s analysis compared and considered payments to the Rives-related entity in relation to Steel Tube data from when it handled its own shipping. Id. at ¶ 36.

No Eleventh-Hour Expert Opinions

The Court was less accommodating to expert testimony regarding approximately $400,000 in damages based on “brand new theories of liability” and transactions that appear to have been first disclosed in the expert’s report. The Business Court, in general, has a lenient view of notice pleading but even that has its limits when the Court’s own sleuthing of the pleadings bears no fruit. “After scouring the amended complaint,” Judge Conrad noted, “the Court finds no allegations that give fair notice to the Rives Defendants that these transactions are at issue.” Id. at ¶ 45. Noting that “the operative complaint” has to be the source of claim notice to defendants, the Court cited a string of North Carolina and federal decisions that “routinely caution that parties should introduce new issues through the amendment process, not through briefing, discovery responses, or expert reports.”  Id. at ¶ 46.

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

Business Court Holds North Carolina Arbitration and Choice-of-Law Provisions Insufficient to Exercise Personal Jurisdiction over England-Based Company

In Curvature, Inc. v. Cantel Computer Servs. Ltd., 2019 NCBC 47 (N.C. Super. Ct. Aug. 13, 2019), the Business Court considered whether it could exercise personal jurisdiction over the England-based defendant based on a contract that was neither executed in nor performed in North Carolina. The wrinkle was that the contract contained provisions requiring the dispute to be arbitrated in North Carolina and governed by North Carolina law. Another wrinkle was that the plaintiff had initially sought to arbitrate its claims, only to be turned away by the arbitrator. Judge Conrad held that the arbitration and choice-of-law provisions were not enough to exercise personal jurisdiction over the defendant in North Carolina, and accordingly granted the defendant’s motion to dismiss.


  • An agreement to arbitrate in North Carolina does not operate as a consent to personal jurisdiction in North Carolina.
  • An agreement to be bound by North Carolina law does not operate as a consent to personal jurisdiction in North Carolina.


Whether the parties in Curvature, Inc. actually entered into a valid and enforceable contract was a matter up for debate. Id. ¶ 7. What was not up for debate, however, was that if there existed a valid contract between Curvature, a North Carolina-based company and Cantel, an England-based company, then that contract included (1) an arbitration provision providing that any dispute arising under the contract “shall be submitted exclusively to binding arbitration” in North Carolina; and (2) a choice-of-law provision providing that the contract was to be governed by North Carolina law. Id. ¶ 10.

It was probably no surprise, then, that when a dispute arose between the parties, Curvature sought to arbitrate its claims against Cantel in North Carolina pursuant to the arbitration provision. But that didn’t work. Indeed, “Cantel opposed the arbitration and persuaded the arbitrator to close the proceeding without rendering a decision on the merits.” Id. ¶ 11. (The arbitrator concluded, it appears, that it lacked authority to determine the threshold question of arbitrability, i.e., whether the claims could be arbitrated in the first place. Id. ¶ 1.)

Curvature then filed an action in North Carolina state court, asserting claims against Cantel for, among other things, misappropriation of trade secrets. Id. ¶¶ 1, 11. Cantel designated the matter as a mandatory complex business case based on the trade secrets claim, and the case was assigned to the Business Court. (ECF Nos. 2, 5.)

Once in the Business Court, Cantel moved to dismiss Curvature’s complaint on the grounds that Cantel was not subject to personal jurisdiction in North Carolina. Curvature, Inc., 2019 NCBC at ¶ 2. Cantel argued that the parties’ alleged contract was not enforceable, and that, even if it was, an agreement to arbitrate in North Carolina did not operate as a consent to personal jurisdiction in North Carolina. Id. ¶ 13.

Curvature, of course, disagreed. It argued that the parties had a valid contract and that, by agreeing to the North Carolina arbitration and choice-of-law provisions, Cantel had “consented to a North Carolina forum and waived its jurisdictional objections.” Id.


Personal jurisdiction usually is a question of the defendant’s contacts with the forum state. Absent the requisite “minimum contacts,” the defendant cannot be “haled” into court in that state. It’s a question of notice and fairness, and it would be unfair to require a defendant to defend suit in a place where he could not reasonably have expected it. See Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

But there are other routes to personal jurisdiction—for instance, where the defendant consents to jurisdiction in the forum state. In that situation, “there is no need to consider separately whether a defendant also has minimum contacts with the forum State.” Curvature, Inc., 2019 NCBC at ¶ 15.

In Curvature, Inc., it was obvious that the defendant (Cantel) lacked “minimum contacts” with North Carolina: Cantel was based in England, and the alleged contract was negotiated and performed entirely outside of North Carolina. Id. ¶¶ 8-9.

In fact, Cantel’s connection to North Carolina was limited (it appears based on the Court’s opinion) to two provisions in the parties’ contract: (i) a provision requiring that any dispute between the parties be arbitrated in Charlotte, North Carolina; and (ii) a provision requiring that any dispute between the parties be governed by North Carolina law. But were these two provisions sufficient to confer personal jurisdiction in North Carolina? Or stated differently, did Cantel consent to personal jurisdiction in North Carolina by agreeing to these two provisions?

The Court’s analysis was straightforward: the parties could be bound only to what they agreed—and nothing more. Thus, even assuming a contract existed, “any consent to arbitrate disputes arising under that agreement in North Carolina is not also consent to adjudicate those disputes in the State’s courts.” Id. ¶ 14. In other words, an agreement to arbitrate in North Carolina is not an agreement to litigate in North Carolina. And this holding was consistent, the Court noted, with North Carolina precedent, id. ¶ 18 (citing Taurus Textiles, Inc. v. John M. Fulmer Co., 91 N.C. App. 553, 558 (1988) (holding that North Carolina arbitration provision did “not provide a sufficient basis for asserting personal jurisdiction over defendant since plaintiff filed suit rather than pursuing arbitration”), as well as the “overwhelming weight of authority in other jurisdictions.” Id. (collecting cases).

The Court took a similar view of the choice-of-law provision. Curvature argued that under G.S. § 1G-4, a party to a business contract “consents to the personal jurisdiction of the courts of [North Carolina] if the contract includes a “provision where the parties agree to litigate a dispute arising from the business contract in [North Carolina].” Id. ¶ 22. But again, the parties here had not agreed to litigate their dispute in North Carolina; they had agreed only that their dispute should be governed by North Carolina law. And the parties to a contract “are bound only to the extent of their mutual assent.” Id. ¶ 20.

Finally, the Court rejected Curvature’s contention that this case was different because Curvature had sought to arbitrate before litigation. Id. ¶ 21. The cases cited by Curvature were “inapposite,” according to the Court, because they each involved (estoppel-like) situations where a party first opposed arbitration, and then, when sued, sought to send the matter back to arbitration. Id. That was not the situation here, where Cantel had asserted that the “claims [were] neither arbitrable nor subject to the jurisdiction of this Court. These positions [were] not inconsistent, and Cantel’s opposition to arbitration [did] not work a waiver of its opposition to personal jurisdiction.” Id.

Accordingly, the Court held the parties to the terms of the bargain they struck—which did not include litigating their dispute in North Carolina—and granted the motion to dismiss.


Matt Krueger-Andes is a litigation associate in Fox Rothschild’s Charlotte office.  He regularly represents clients in the Business Court and advises on Business Court and other business litigation-related matters.  He is also a former law clerk to the Honorable Louis A. Bledsoe, III, Chief Judge of the North Carolina Business Court. 


N.C. Business Court Considers When a  Private Company Can Be Deemed a State “Agency” for Purposes of the Public Records Act


In Southern Environmental Law Center v. Saylor et al., 2019 NCBC 59 (N.C. Super. Ct. Sept. 11, 2019), the Business Court considered whether the defendant North Carolina Railroad Company (the “Railroad”) was a State “agency” for purposes of the Public Records Act, N.C. G.S. § 132-1 et seq. If so, then the Railroad was required to comply with the plaintiff Southern Environmental Law Center’s (“SELC”) request for its “public records.” The Railroad asserted that as a private corporation, it was not subject to the Act, and moved for judgment on the pleadings. The SELC countered that the Railroad was a State “agency”—and therefore was subject to the Act—because, among other reasons, it was wholly owned by the State of North Carolina. Judge Robinson held that the matter was “incapable of resolution on the pleadings,” and denied the Railroad’s motion in favor of a more developed factual record.


  • A private corporation may be required to produce its “public records” where it is deemed to be an “agency” of the State.
  • Whether a private corporation is an “agency” of the State depends largely on the degree of control exercised by the State over the corporation.
  • The determination whether a private corporation is an “agency” of the State is fact-intensive and not easily resolved based on the pleadings alone.

Many in North Carolina are familiar with the Durham-Orange Light Rail Transit Project, which would have connected Chapel Hill and Durham via a 17.7 mile light rail line. Id. ¶ 6. The SELC was “significantly involved” in advocating for that project, which was discontinued in the spring of 2019. Id.

In May 2019, the SELC requested records from the Railroad relating to the Light Rail Project. Id. ¶ 16. The Railroad, which owned tracks near the contemplated rail line and apparently was not a supporter of the project, declined the SELC’s request for records on the basis that it was not subject to the Public Records Act. Id. ¶¶ 8, 16.

The SELC thereafter brought suit against the Railroad, seeking an order “compelling the Railroad and its agents to permit inspection of certain documents pursuant to the [Public Records] Act.” Id. ¶ 3. In particular, the SELC brought its claim under N.C.G.S. §§ 132-1 – 132-10, which provides, among other things, that “[e]very custodian of public records shall permit any record in the custodian’s custody to be inspected and examined at reasonable times and under reasonable supervision[.]” Id. ¶ 22 (quoting N.C.G.S. § 132-6) (emphasis added).

The matter was designated to the Business Court, where it was “given priority” pursuant to N.C.G.S. § 132-9(a) (providing expedited proceedings with respect to “[a]ny person who is denied access to public records”). Id. ¶¶ 4, 25-26.

Once in the Business Court, the Railroad sought to stop the SELC’s claim in its tracks. The Railroad attached “numerous documents” to its answer (more on this later) and moved for judgment on the pleadings. The Railroad contended that as a private corporation, it was not subject to the Public Records Act as a matter of law. The SELC opposed the motion on the grounds that the Railroad was, in fact, subject to the Public Records Act as an “agency” of the State of North Carolina. See N.C.G.S. § 132-1(a) (defining “public records” to include “all documents . . . made or received . . . by any agency of North Carolina government or its subdivisions) (emphasis added).  The SELC pointed out that the Railroad was wholly-owned by the State, had eminent domain powers, and was comprised of board members who were appointed by government officials.

The Business Court framed the central, “intriguing question” as follows: “may ‘private’ corporations, otherwise generally exempt from the disclosure requirements of the [Public Records Act], nonetheless be subject to the Act’s requirements where those corporations are wholly-owned by the State of North Carolina?” Id. ¶ 2.

Spoiler alert: the answer is “yes,” but only if the private corporation is deemed a State “agency” for purposes of the Public Records Act.

In addressing this question, the Business Court looked to the North Carolina Court of Appeals’ decision in News & Observer Publishing Co. v. Wake County Hospital System, Inc., 55 N.C. App. 1, 284 S.E.2d 542 (1981). There, the appellate court concluded that the Wake County Hospital System was an “agency” of the State based on the degree of control that Wake County exercised over the hospital. Id. ¶ 31. In reaching its decision, the News & Observer court noted the following:

  • Upon dissolution, the hospital’s assets were to be transferred to Wake County;
  • All vacancies on the board of directors were subject to approval by county commissions;
  • The hospital occupied premises owned by the county virtually rent-free;
  • County commissioners reviewed and approved the hospital’s annual budget;
  • The county audited the hospital’s books and records;
  • The hospital reported its charges and rates to the county;
  • The hospital was financed by county bond orders;
  • Revenue collected pursuant to the bond orders was to be considered revenue of the county;
  • The hospital would not change its corporate existence or amend its articles of incorporation without the county’s written consent; and
  • The hospital was performing an important “public and governmental” function.

Id. ¶ 32 (citing News & Observer, 55 N.C. App. at 11, 284 S.E.2d at 548-49).

Noting that the above “factors” were “not intended to be an exclusive list,” id. ¶ 33, the Business Court observed that the “ultimate question” in its analysis was “the degree of ‘supervisory responsibilities and control’” exercised by the State over the corporate entity. Id. ¶ 34 (quoting Chatfield v. Wilmington Hous. Fin. & Dev., Inc., 166 N.C. App. 703, 708-09, 603 S.E.2d 837, 840 (2004)).

In other words, where the State’s exercise of control over the private company is such that the company is, in essence, acting as an arm or “agency” of the State, the company will be treated as a “public” company for purposes of the Public Records Act.

The Business Court proceeded to determine that the following allegations were “potentially supportive” of a finding that the Railroad was an “agency” of the State:

  • The Railroad’s assets upon dissolution will be transferred to the State;
  • The Governor of North Carolina and General Assembly appoint all members of the Railroad’s Board of Directors;
  • The Railroad is required to provide annual reports to the legislature which go above and beyond what is required for other corporate entities;
  • The Railroad has eminent domain power; and
  • According to the Railroad’s stated mission, the Railroad performed the important “public and governmental” function of managing a railroad corridor for the benefit of North Carolina citizens.

Id. ¶ 35. In addition, the Railroad was exempt from paying Federal and State income taxes and its charter provided that it shall “have a corporate existence as a body politic in perpetuity.” Id. ¶¶ 9, 15.

The Railroad, for its part, put forth a number of reasons why it should not be deemed a State “agency” under the Public Records Act. For example, the Railroad offered a report published by the General Assembly in 2012 explicitly stating that the Railroad was “not part of state government” and that certain state laws, including the State’s public records law, “do not apply” to the Railroad. Id. ¶¶ 14, 42. With respect to the State’s status as the Railroad’s sole shareholder, the Railroad cited a more-than-century-old case holding that “the State of North Carolina ‘laid down her sovereignty’ when the State became a shareholder of a private corporation” and, further, that “the state’s sovereignty did not extend to a corporation which it controlled . . . .” Id. ¶ 39 (quoting Southern Railway Co. v. North Carolina Railroad Co., 81 F. 595, 599-600 (N.C. 1897)). The Railroad also argued that the “body politic” language in its charter was essentially meaningless because all corporations created at that time (in the 1840s) were created by an act of the legislature. Id. ¶ 45.

Potentially detrimental to the Railroad’s motion, however, was the Court’s decision not to consider the “numerous documents” attached to the Railroad’s answer. Id. ¶ 21 n.1. Although, as the Court noted, it was free to consider documents attached to an answer “that are the subject of a plaintiff’s complaint and to which the complaint specifically refers,” it can only do so where the plaintiff has made admissions with respect to those documents. Id. And because the SELC had made no admissions with respect to the documents attached to the Railroad’s answer, those documents could not properly be considered by the Court in ruling on the Railroad’s Rule 12(c) motion. (The Court did, however, consider a report prepared by the General Assembly that was attached to Railroad’s answer—which “pronounced therein that the [Railroad] is not part of state government”—because the SELC had cited that document in its complaint. Id. ¶ 42.)

In the end, the Business Court concluded that the State “agency” determination required a “fact-intensive” inquiry that was “ill-suited for resolution on the pleadings pursuant to Rule 12(c).” Id. ¶ 35. Based on the pleadings alone, questions remained. And under the Rule 12(c) standard, the SELC’s complaint was not “so fatally deficient in substance as to present no material issue of fact . . . .” Id. ¶ 20 (quoting George Shinn Sports, Inc. v. Bahakel Sports, Inc., 99 N.C. App. 481, 486, 393 S.E.2d 580, 583 (1990)); id. ¶ 46 (concluding that “SELC’s position taken in the Complaint is not factually deficient and that this matter is incapable of resolution on the pleadings”).

Accordingly, the Business Court denied the Railroad’s motion for judgment on the pleadings, allowing the case to proceed in favor of a more developed factual record.


Matt Krueger-Andes is a litigation associate in Fox Rothschild’s Charlotte office.  He regularly represents clients in the Business Court and advises on Business Court and other business litigation-related matters.  He is also a former law clerk to the Honorable Louis A. Bledsoe, III, Chief Judge of the North Carolina Business Court. 


Following up on my post from earlier this week, the Mecklenburg County Business Court CLE concluded on Friday with the panel of Judges, Chief Judge Bledsoe, Judge McGuire, and Judge Conrad, sharing some practice pointers and personal preferences.  What follows is my summary and interpretation of what they said.  As with my recitation of the statistics provided, I have worked hard to be an accurate reporter, but this is not a verbatim recitation (hence why you should attend this CLE-this summary is not a substitute from hearing from the Judges in person!).

Judge McGuire had some advice for those on the Plaintiff’s side of the “v” with respect to drafting complaints: less is more.  “Shotgun” complaints with 12-14 claims that are sure to have a significant number dismissed on 12(b) motions weakens a party’s overall case and could potentially undermine your standing with the court.  Focus on your three to four genuinely good claims.

Judge McGuire also warned lawyers to be conscious of their movements and facial expressions while their opponents are arguing during a hearing.  Grimacing and gesticulating in reaction to the other side’s arguments makes it appear that you are getting beaten and that you know it.  And people are watching you.

When it comes to trade secret cases, Judge McGuire suggested that Plaintiffs can, and should, describe a trade secret in a Complaint with much more specificity than they usually do.  He referenced the recent summary judgment opinion in DSM Dyneema, LLC v. Thagard, 2019 NCBC 43, as instructive with respect to how trade secrets can be defined.

Judge Conrad advocated for more communication between parties.  He said that the Judges want parties to talk to each other and resolve as much as possible before bringing disputes to the Court.  And this doesn’t just relate to discovery disputes, it can mean discussion about viability of actual claims.  To that end, he would like to see more consultation on motions to dismiss.  Rather than a request for amendment at the time of the hearing on the motion, he suggested that parties can discuss these issues in advance and the Plaintiff can amend or narrow claims in some way so as to alleviate the need for motion practice.  Defendants might consider allowing the Plaintiff to amend, and then file a targeted motion to dismiss, resulting in a more efficient process for the parties and the Court.  Moreover, talking means actually talking.  Don’t just communicate by email, pick up the phone.  And perhaps even get together in person with counsel for the other side, something that was commonplace in the past, but has all but disappeared in modern day practice.

Judge Conrad also recommended that practitioners be aware of the ongoing e-courts initiatives,  the effort spearheaded by former Chief Justice Martin to bring the North Carolina State Court System into the Electronic Age, as that will have an effect on the Business Court.

You likely have heard this before and perhaps even had it contained in a Case Management Order with Judge Conrad, but know that he and his chambers find tables of authorities to be incredibly helpful.

Chief Judge Bledsoe wants lawyers to remember to pay attention to choice of law issues.  He noted that many times counsel reflexively assume that North Carolina law applies, but that is often not the case.  Think through the different tests and brief the correct law.  Briefing where the parties argue under the wrong jurisdiction’s law is not helpful to the Court, yet it happens when the issue is not at the forefront of the lawyers’ minds.

Speaking of being helpful to the Court, Chief Judge Bledsoe had some advice for younger lawyers (which applies equally to experienced lawyers): when you engage the Court and ask for something, put yourself in the Court’s shoes and think about what the Court would need to know in order to decide the issue.  (Author’s note: this advice dovetails nicely with the new NCBC Rule 6.5, which affirmatively encourages participation of junior attorneys at oral argument.)

Similarly, Chief Judge Bledsoe commented that in many instances when injunctive relief is sought, the party seeking the relief is hyper-focused on satisfying the standard for an injunction and doesn’t think through what it wants the Court to actually do.  Help the Court by suggesting what the injunction should actually look like.

Chief Judge Bledsoe also shared some personal preferences, one being paper copies.  If your filing for Judge Bledsoe is in excess of 100 pages or has more than 10 attachments, supply his chambers with a hard copy of that submission.  Also, when you have a question that you think a law clerk might be able to answer, don’t call on the phone.  Rather, send an email copying all counsel of record.  This avoids the clerk being put in a position of trying to determine if the communication is improperly ex parte.

And finally, although Judge Robinson  unfortunately was unable to make it down to Charlotte for the panel, his brethren on the bench noted that if he were there, his advice would be, “Read the Rules.  Then Re-read the Rules.”

Thanks to the Mecklenburg County Bar for putting on such a great CLE.  Hope to see you all there next year!

–Patrick Kane

Before you judge a man, walk a mile in his shoes. After that who cares? He’s a mile away and you’ve got his shoes!

-Billy Connolly, Scottish comedian, shoe sage.

The N.C. Business Court might not be your first stop for tips on picking quality footwear, but in the spiritual homestead of Air Jordans, solid shoe advice lurks where you least expect it. So it was in Epic Chophouse, LLC v. Morasso, 2019 NCBC 54, 2019 WL 4166626 (N.C. Super. Ct. Sept. 3, 2019), where Judge Conrad laced up his judicial kicks to note there’s no harm in a member strolling in her LLC’s shoes if they’re just gathering dust in the closet.  See Order and Opinion.


  • The Business Court will scrutinize individual claims by LLC members to ensure they do not actually accrue to the entity.
  • Derivative claims where an LLC member walks in the entity’s shoes likely only survive in the Business Court when the company cannot, or will not, wear them itself.

Epic Chophouse, LLC (“Epic”), which operates a restaurant, and two of its members sued a third member, Defendant Morasso, for booting his job as Epic’s general manager to favor other food enterprises he owned or managed. The complaint alleged that Morasso used Epic as leverage to help Defendants Webb Custom Kitchen, LLC and Chillfire Grill, LLC secure volume discounts on food supplies and better terms with financial vendors. Id. at ¶¶ 1, 6. Epic’s frustrations with Morasso’s alleged inattention to his job mushroomed to the point that it ultimately hired another person to do his job and ejected him as an LLC member. Id. at ¶¶ 7-8.

The Court found sufficient evidence for somebody to have potential claims arising from Morasso’s alleged conduct, but could not shake a solid suspicion that Epic, and two of its members – individually and derivatively – were all trying to walk a good mile in the same pair of sneakers. “In short,” the Court observed, “this is a direct action by the company, an individual member action, and a derivative action all in one. Something is amiss.” Id. at ¶ 16.

Epic could pursue claims in its own stead; and aggrieved, remaining LLC members could pursue claims “peculiar to them,” even if Epic “also has a cause of action arising from the same wrong.” (citing Barger v. McCoy Hillard & Parks, 346 N.C. 650, 659, 488 S.E.2d 215, 219 (1997)). 2019 NCBC 54, at ¶¶ 12, 15. Yet, the Court found, the plaintiff members added a poorly matching belt and suspenders to the sartorial story by, essentially, raising the same claims as the company in their individual capacities, “[a]nd for good measure,” purporting to raise them again in a derivative action on behalf of Epic. Id. at ¶ 16.

This duplication of claims, the Court found, ran afoul of two well-settled concepts that help delineate who can bring what, on behalf of whom. An individual member cannot typically allege claims in her own name that accrue to the company unless equity dictates she must do so because the entity won’t. And, such “derivative actions are typically appropriate only when a corporation is unwilling or unable to litigate its claims for itself.” (citing Anderson v. Seascape at Holden Plantation, LLC, 241 N.C. App. 191, 204, 773 S.E.2d 78, 87 (2015)). 2019 NCBC 54, at ¶¶ 13, 17.

The plaintiff members’ claims were not helped by their election to file no brief in opposition to a Rule 12(c) motion. However, Judge Conrad’s treatment of the motion as “uncontested” under Business Court rules hurt much less than the conclusion that “[t]here is no question that the asserted [derivative] claims are claims accruing to Epic,” and that Epic was “willingly litigating all asserted claims for itself.” Id. at ¶¶ 17-18. The bulk of the plaintiffs’ individual capacity claims suffered the same fate, and were dismissed as the “types of harms [that] are plainly injuries to the company shared by all members proportionately.” Id. at ¶ 19.

The Court’s end-game message to LLCs, LLC members, and their counsel when seeking to match plaintiffs and claims?

In simple terms, the member is allowed to step into the shoes of the LLC but only if the LLC isn’t already wearing them.

Id. at ¶ 17, n.3.

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.

This past Friday, the Mecklenburg County Bar held its 7th Annual North Carolina Business Court CLE.   If you regularly practice in the Business Court, this is a “must attend.”  There were a number of helpful, relevant, and informative presentations, but the highlight of the CLE was the day’s last session, when attendees heard directly from the Business Court Bench itself, with Chief Judge Bledsoe, Judge McGuire, and Judge Conrad sharing insights and practice pointers.  The session began with Chief Judge Bledsoe providing a compilation of statistics about the Business Court and its cases.  For those of you not in attendance, but nevertheless interested, here’s what I jotted down:

Disclaimer–Any errors in these stats are likely my transcription errors.

Number of Cases Filed in the NCBC by Year:

2013 — 134

2014 — 119

2015 — 141

2016 — 148

2017 — 203 (136 when Charlotte School of Law cases are removed)

2018 — 173 (145 when Charlotte School of Law cases are removed)

2019 (so far) — 91 (on pace for 112 for the year)


2019 NCBC filings by County:

Mecklenburg – 24

Wake – 16

Guilford – 8

No other county has had more than four NCBC cases filed in 2019


NCGS sec. 7A-45.4(a) Basis for Notice of Designation in 2019 NCBC Filings:

Law of Corporations (7A-45.4(a)(1)) — 55

Trade Secrets (7A-45.4(a)(8)) —19

Securities (7A-45.4(a)(2)) — 11

Breach of Contract where amount in controversy is greater than $1,000,000 (7A-45.4(a)(9)) — 10

Intellectual Property (7A-45.4(a)(5)) — 8

Trademarks (7A-45.4(a)(4)) — 6

Antitrust (7A-45.4(a)(3)) — 3

*These add up to 102, presumably meaning that some of the 91 cases filed thus far in 2019 had numerous statutory bases for designation to the NCBC.


Opinions Published by the NCBC by Year:

2013 — 73

2015 — 112

2016 —106

2017 —113

2018 —137

2019 (so far) — 70 (on pace for 85)

*It was noted that while the number of opinions published this year appears to be in decline from prior years, those opinions that have been published in 2019 have been extremely comprehensive, with many of these opinions over 100 pages in length and a substantial number between 50-100 pages in length.


Historic Results of Appellate Review of NCBC Cases (from 1/1/14 to Present):

Affirmed — 55

Modified/Affirmed —1

Dismissed — 8

Affirmed/Reversed — 6

Reversed — 2


Stay tuned later in the week when I will post a recap of the “practice pointers” and “personal preferences” that Judges Bledsoe, McGuire, and Conrad shared with the group…

–Patrick Kane

The Business Court sorted through the drama of an affiliated outsider who wanted to buy a company, settled for half and became an insider, and then allegedly used that perch to benefit himself and his family in W. Avalon Potts v. KEL, LLC, et al, 2019 NCBC 29, 2019 WL 2058599 (N.C. Super. Ct. May 9, 2019). See Order and Opinion. The story has a common backdrop: a nearly 30-year old company (founded by two partners) that wrestles with ownership changes and their impact on the entity’s fortunes. The twist: an original owner goes to the mat to reclaim control and alleges claims that allow the Court to revisit several legal principles that animate disputes over frayed business relationships.


  • The Business Court, like the North Carolina Supreme Court, declines to hold that a minority shareholder exercising “actual control” could have a fiduciary duty to other shareholders.
  • The Court confirms that the business judgment rule, designed to curb “judicial second guessing,” does not apply “when the officer or director has an interest in the disputed transaction.”
  • Adopting a Third Circuit holding, the Court finds that when “independent third parties are alleged to have joined,” a conspiracy can exist in face of claims that an agent and principal cannot conspire as a matter of law.

Steel Tube, Inc. is a manufacturer of carbon steel and galvanized steel tubing. Plaintiff Potts and Walter Lazenby founded it, divided the stock evenly, and, over time, used the services of Leon Rives, an accountant. Rives offered to buy the company in 2014. Potts resisted the transaction, but Rives bought Lazenby’s shares – in which Lazenby retained a security interest. ¶¶ 5, 6.

With no notice to Potts, Lazenby and Rives promptly executed a management agreement under which Rives and one of his entities would manage Steel Tube. ¶ 7. That shaky start was predictive of what would follow: a series of disputes over Rives’ role in the company that included numerous allegations of self-dealing to benefit Rives and his family. Potts filed a lawsuit seeking dissolution, but recast it a year later in an amended complaint that alleged fiduciary duty breaches, fraud and other individual and derivative counts. Potts changed course after acquiring Lazenby’s security interest in the stock on which Rives ultimately defaulted, and he regained control of Steel Tube. ¶¶ 13-14.

Fiduciary Duty

At summary judgment, the Court considered the fiduciary duty claims within the lens of its general rule that shareholders “do not owe a fiduciary duty to one another.” Id. at ¶ 24. It rejected one exception to that rule – that majority shareholders have a duty to protect minority interests – because Rives and Potts had equal ownership shares. Id. Judge Conrad took a cautious course with regard to a second purported exception: that a minority shareholder exercising “actual control” could have a fiduciary duty to other shareholders. That doctrine had been adopted by the Court of Appeals at the time of the summary judgment hearing, but by the time of the Potts decision the Supreme Court had reversed and found it unnecessary to decide the ultimate issue because the particular plaintiffs had not sufficiently alleged “actual control.” Corwin v. British Am. Tobacco PLC, 251 N.C. App. 45, 51, 796 S.E.2d 324, 330 (2016), rev’d 371 N.C. 605, 821 S.E.2d 729 (2018); see also Blog Post Smoke ’em if You Got ’em (June 2, 2019). So, too, Judge Conrad found it unnecessary to decide what the Supreme Court would not, as the record reflected insufficient evidence of Rives’ “actual control.” The Court added:

Potts points to evidence that Rives was able to misappropriate Steel Tube’s resources without his knowledge, but that is not evidence of control. Rather, if true, it shows the opposite, confirming the Rives was forced to circumvent the board to accomplish his goals.

2019 NCBC 29, at ¶ 26.

Derivative Claims

The Court allowed a variety of derivative claims regarding Rives’ duties to Steel Tube to survive to trial. These included allegations of (i) improper payments to Lazenby, (ii) monthly and lump sum cash withdrawals by Rives, (iii) transferring $120,000 to a company Rives helped form in which his wife was a member, and (iv) entering a services deal with defendant KEL, owned by Rives’ brothers. ¶¶ 8-10. The Court rejected the contention that payments to Rives were contracts fixing compensation for officers allowed under Fulton v. Talbert, 255 N.C. 183, 184, 120 S.E.2d 410, 411 (1961). It found factual disputes about the payments, and that the payments could be challenged under the Court’s recent holding that “`[c]onflict-of-interest transactions between a corporation and its officers or directors have long been subject to special rules,’ including that the transaction must be fair to the corporation.” (citing Ehmann v. Medflow, Inc., 2017 NCBC 86, 2017 WL 4321107 (N.C. Super Ct. Sept. 26, 2017).

Business Judgment Rule

Rives seemed to contend that his transfer of $120,000 to Elite Tube, the company he helped found, was shielded by the business judgment rule. The Court rejected applying the rule, which limits “judicial second guessing,” by noting that those “protections do not apply when the officer or director has an interest in the disputed transaction.” The Court noted sufficient allegations of self-dealing and efforts to conceal the transaction to preclude use of the rule. 2019 NCBC 29, at ¶ 37.

Civil Conspiracy

Rives also contended a civil conspiracy claim that relied on the relationship between himself and one of his companies, Rives & Associates, was barred under the doctrine of intracorporate immunity, because an agent and principal cannot conspire as a matter of law. Id. at ¶ 42. But, showing that family ties take as they give, the Court ruled that inclusion of KEL (owned by Rives’ brothers) preserved a conspiracy claim where “independent third parties are alleged to have joined the conspiracy.” Id. (citing Robison v. Canterbury Vill., Inc., 848 F.2d 424, 431 (3d Cir. 1988)).

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.