In another case distinct from last week’s shipwreck blog post, salvage company Intersal, Inc. (“Intersal”) seeks to overturn a decision in favor of the North Carolina Department of Natural and Cultural Resources (the “NCDNCR”), the Secretary for the NCDNCR, the State of North Carolina, and the now-dissolved non-profit company Friends of Queen Anne’s Revenge (“FQAR”). Unlike the previous blog post, which addressed alleged copyright infringement, the litigants to the instant dispute are debating the enforceability of two contracts between the parties, whether the NCDNCR breached those contracts, and whether FQAR induced NCDNCR’s alleged breach.
In 1994, the NCDNCR granted two permits to Intersal to search for and recover two shipwrecks believed to be near the North Carolina Coast: the Spanish El Salvador and the flagship of infamous pirate Blackbeard, the Queen Anne’s Revenge. The permits entitled Intersal to three-quarters of any treasure recovered from the wreckage. Two years later, Intersal discovered the Queen Anne’s Revenge.
The First Contract
Believing the media rights to documentation of the recovery of the wreckage to be a greater bounty, Intersal and the NCDNCR executed its first agreement in 1998 (the “1998 Contract”). Pursuant to the 1998 Contract, Intersal waived its rights to any physical treasure found among the wreckage in exchange for exclusive rights to make and market commercial media and the right to collaborate with the NCDNCR regarding noncommercial media. The 1998 Contract also provided a right to renew the permit for the El Salvador for the contract term – fifteen (15) years.
Intersal claims the Defendants, excluding FQAR, breached the 1998 Contract, and FQAR tortuously interfered with this contract by contracting with a separate media company to produce content for websites outside the scope of the contract.
The 2013 Settlement Agreement
After an initial dispute over the alleged breaches discussed above, the parties executed a settlement agreement in 2013 (the “2013 Agreement”). The 2013 Agreement supersedes the 1998 Contract. Additionally, it releases and discharges the State of North Carolina, the NCDNCR, and all agents, officers, and employees from any claims relating to Intersal’s rights under the 1998 Contract.
The parties also renegotiated the media rights, granting Intersal the exclusive right to produce documentary film content for licensing and sale, and encouraging the parties to collaborate in making other commercial media content. The 2013 Agreement requires all non-commercial media to bear a watermark and time code stamp, and a hyperlink to the NCDNCR website, indicating the source of the media. Finally, display of non-commercial media was limited to the NCDNCR’s website. The 2013 Agreement also provided the NCNDCR would honor the El Salvador permit through the current term, ending in 2013, and would continue to issue the permit beyond that term so long as the permit requirements were fulfilled by Intersal.
The Administrative Proceeding
Again, Intersal alleged multiple breaches of contract by the NCDNCR. It claimed the NCNDCR displayed numerous photo images and minutes of video footage on websites outside the scope of the 2013 Agreement, and did so without displaying the required watermark and time code stamp. Intersal further alleged the NCDNCR failed to notify Intersal of opportunities to collaborate in creating other commercial media content and allowed FQAR to contract with a separate media company to film and publish footage of the wreckage and recovery, again without the required watermark and time code stamp. These allegations were addressed before the North Carolina Office of Administrative Hearings (the “OAH”), where Intersal’s claims were dismissed.
Separately, Intersal sought a renewal of its El Salvadore permit in 2015. After Spain claimed the El Salvador was the property of Spain, the NCDNCR denied the renewal of the permit based on failures by Intersal to comply with permit requirements. This dispute was also heard by the OAH, and Intersal’s claims were again dismissed.
The North Carolina Business Court Decision
Seeking review pursuant to the North Carolina Administrative Procedures Act, Intersal filed the instant lawsuit with the Superior Court Division, which assigned the case to North Carolina Business Court (the “Business Court”). Intersal sought to recover for breach of contract of the 1998 Contract and the 2013 Agreement, for FQAR’s alleged tortious interference with the contracts, and other declaratory relief. The Defendants filed Motions to Dismiss, regarding multiple bases.
Regarding the breach of contract claims, the NCDNCR moved to dismiss for failure to state a claim upon which relief can be granted and for lack of subject matter jurisdiction. The Business Court agreed. It found that the Defendants could not be liable for breach of the 1998 Contract because it was extinguished by the 2013 Agreement through novation – the substitution of a new contract for an old contract which destroys the old contract. Additionally, the Business Court agreed that it did not have subject matter jurisdiction – a court’s power to hear a particular kind of dispute – because Intersal had not yet exhausted the administrative procedures and did not allege the inadequacy of administrative remedies. The Business Court ruled judicial review of an administrative determination is permissible only if the administrative procedure has fully run its course or if the administrative process could not provide an adequate remedy. Importantly, a Plaintiff must allege the second criterion in its Complaint. Intersal possessed the ability to pursue the dispute before the administrative courts, and did not allege in its Complaint that administrative relief would be inadequate to compensate for the alleged harm. Therefore, the Business Court concluded it could not hear Intersal’s case regarding the alleged breach of the 2013 Agreement. The Business Court also concluded that Intersal could not allege a breach of contract claim for the NCDNCR’s failure to renew the El Salvadore permit, as this allegation was addressed and decided by the administrative court.
Regarding the claim of tortious interference by FQAR, the Business Court again concluded Intersal’s claim failed. Tortious interference with a contract requires: (1) that a valid contract existed between the plaintiff and another party which conferred rights upon the plaintiff against the other party; (2) that the defendant knew of the contract; (3) that the defendant intentionally induced the other party not to perform its obligations pursuant to the contract; (4) that the defendant lacked justification for its conduct; and (5) the interference damaged the plaintiff. North Carolina law requires purposeful conduct by the defendant, intended to influence the other party not to enter into the contract with the plaintiff. In the instant dispute, the Business Court found Intersal’s only theory of tortious interference was that employees of the NCDNCR served as directors for the FQAR. The Business Court determined that the theory failed to show any purposeful conduct intended to influence the NCDNCR.
Regarding the declaratory relief sought by Intersal, the Business Court again determined it could not hear the claims until Intersal exhausted all administrative procedures or alleged that administrative remedies would be inadequate.
The North Carolina Supreme Court
In a recent session, the North Carolina Supreme Court heard arguments from the parties to determine if further review of the issues is required and, if so, whether an administrative process or the Business Court is the proper venue. Such review might provide additional guidance as to the permitted overlap between the judiciary and the administrative processes created to address disputes levied against the State of North Carolina and its agencies and officers.
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