The North Carolina Business Court (“Business Court”) is a specialized forum designed to adjudicate cases involving complex and significant issues of corporate governance and commercial law. If a dispute involves one of the subject matters enumerated in North Carolina General Statute § 74-45.4, then the case shall be designated and assigned to the Business Court. Cases may also qualify for discretionary assignments to the Business Court under Rule 2.1 of the General Rules of Practice for Superior and District Courts if it does not qualify for mandatory designation but involves certain other factors. Mandatory designations are governed by…
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North Carolina Business Court Enforces Arbitration Agreement Prohibiting Discovery, Live Testimony, and a Full Hearing
In a January 2016 (unpublished) order, the North Carolina Business Court (NCBC) enforced a contract provision compelling arbitration and prohibiting any discovery prior to the arbitration.[1] In Taggart v. Physicians Pharmacy Alliance, Inc., James Taggart sold his business, Physicians Pharmacy Alliance, Inc. (“PPA”), in a stock purchase agreement. The agreement contains a provision mandating arbitration as to “any claim, controversy, or other matter in question based upon, arising out of, or otherwise in respect of this Agreement.” The agreement further specifies: “[i]t is the desire and intent of the Parties that such arbitration be held without any discovery,…
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North Carolina Business Court: Employment Agreements Automatically Terminate Upon the Sale of a Company
A recent decision by the North Carolina Business Court held that an employment agreement automatically terminates upon the asset sale of one company to another, despite continued employment with the purchasing company.[1] In 2001, Andrew Lund executed an employment agreement with his then-employer, Southern Staircases of North Carolina, Inc. The agreement contained several post-employment restrictions regarding disclosing confidential information and soliciting current and future customers. The agreement also contained a duty of loyalty provision to “devote his entire working time, attention, and energies to the business of the Company and . . . [to] not be engaged in any other business…
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North Carolina Business Court Reaffirms Breadth of Arbitrators’ Authority in Recent Decision
A recent decision by the North Carolina Business Court (NCBC) re-affirmed long standing precedent that an arbitration award is customarily final and binding, even if it includes an error of fact or law.[1] In the most recent case, Killian/Simonini, LLC argued the arbitrator exceeded his authority by impermissibly including consequential and punitive damages in his award, which were not provided for in the arbitration clause of their operating agreement. Killian/Simonini further argued the North Carolina Limited Liability Act controls and limits the remedy for failure to make capital contribution payments to a LLC to the actual amount of the payments.[2] Therefore, they contended the…
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North Carolina Business Court Weights in on Attorneys’ Fees in Class Action Settlements
Recent decisions by the North Carolina Court of Appeals and North Carolina Business Court (NCBC) shed light on a previously unsettled question of law: when can a North Carolina trial court award attorney’s fees as part of a class-action settlement in the absence of additional statutory authority? Long-standing precedent is that a court can award attorneys’ fees to a prevailing party when statutorily authorized to do so.[1] This practice is known as the “American Rule.” The intended purpose of the American Rule is to encourage the conservation of judicial resources by promoting settlement and discouraging unnecessarily prolonged litigation.[2] Regarding…
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North Carolina Business Court Awards Rule 11 Sanctions for Second Time this Fall
The North Carolina Business Court recently entered Rule 11 sanctions against attorneys who relied on inaccurate information from their clients in preparing and filing lawsuits. The decision comes just two months after the NCBC awarded Rule 11 sanctions in a case with similar facts (which we summarized Here). In the most recent decision, the client, John Mauney, represented to his attorneys that he was a manager and member of NC Bioremediation, LLC, and therefore had authority to file a lawsuit on the company’s behalf.[1] In fact, Mauney was not, nor had he ever been, a member or manager…
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North Carolina Business Court Weighs in on Enforceability of Non-Compete and Confidentiality Agreements Post-Merger
It is well-settled law that adequate consideration is required to create binding restrictive covenants such as non-compete agreements. Generally, such agreements are entered at the start of an employment relationship, and the new employment itself constitutes consideration. In North Carolina, continued employment following a merger of two companies does not satisfy the consideration requirement. In a recent decision, the North Carolina Business Court (“NCBC”) confronted the very issue.[1] In January 2012, AmeriGas Propane, Inc., a propane company that services over two million residential and commercial customers nationwide, merged with Shaw L.P. Gas. Ermon Coffey, an employee of Shaw, and…
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North Carolina Business Court Suggests a Willingness to Impose a Fiduciary Duty on Minority Shareholders
The North Carolina Business Court recently issued an opinion in which it suggested a willingness to adopt a position that “controlling” minority shareholders owe a fiduciary duty to their fellow minority shareholders.[1] The case arose out of a transaction between Reynolds American, Inc. (“Reynolds American”) and Lorillard, Inc. (“Lorillard”), funded in part by shares purchased by Reynolds American’s largest shareholder, British American Tobacco, p.l.c. (“British American”). Reynolds American was formed in 2004 when R.J. Reynolds Tobacco Company acquired British American’s United States subsidiary. British American obtained a forty-two percent (42%) stake in the newly formed Reynolds American. At that…
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NCBC: Fifty-Mile Customer Based Geographic Restriction Makes Non-Compete Agreement Unreasonable
In August, the North Carolina Business Court (“NCBC”) determined a non-compete agreement was unreasonable because of its overly broad geographic restriction, and denied Plaintiff’s motion for preliminary injunction to prohibit a former employee from competing with it.[1] In North Carolina, non-compete agreements are generally disfavored and strictly construed against the drafting party. A non-compete agreement must be (1) in writing; (2) made a part of the employment contract; (3) supported by consideration; (4) reasonable both as to time and territory; and (5) no broader than necessary to protect the employer’s interest.[2] In determining the reasonableness of such agreements, the…
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Rule 11 Sanctions Imposed for Improper Breach of Fiduciary Duties Claims Against Rank-and-File Employees
In September 2011, Southeast Air Charter, Inc. (“Southeast Air”) brought suit against three (3) employees (“Defendants”) alleging, among other things, breach of fiduciary duty and constructive fraud. The North Carolina Business Court (“NCBC”) determined all defendants were rank-and-file employees of Southeast Air and therefore could not be subject to the breach of fiduciary duty and constructive fraud claims. As such, Plaintiff and Plaintiff’s attorneys were subject to Rule 11 sanctions for bringing these claims without any factual basis. In determining the appropriate amount of sanctions and the allocation of attorneys’ fees incurred by Defendants, Judge James Gale, Chief Special Superior Court Judge of the NCBC,…
