§ 1.3. 2021 CASES
§ 1.3.1. Arizona Commercial Court
Grein v. Walbar Acquisition Co., LLC (Declining to stay litigation in light of related litigation in foreign state). In this case, the plaintiff was terminated from his position as president of the defendants’ company for allegedly violating the terms of a Confidentiality Agreement. In addition, one of the defendants exercised its option to repurchase the company’s stock that had previously been awarded to the plaintiff pursuant to two separate agreements. The defendants filed suit against the plaintiff in Delaware for breaching the Confidentiality Agreement. Shortly after that case was filed, the plaintiff filed suit in Arizona seeking, among other things, to recover the stock he was allegedly entitled to despite his termination. The defendants sought to dismiss the Arizona case by arguing that the Confidentiality Agreement contained a forum selection clause that governed all disputes between the parties. In the alternative, the defendants sought to stay the Arizona case because of the previously filed pending litigation in Delaware. The defendants argued that such a stay would “result in lower costs, avoid piecemeal litigation and avoid inconsistent results” and would be appropriate because Delaware law governs and the matter involves the internal affairs of a Delaware entity.
The court declined to dismiss the action because the forum selection clause in the Confidentiality Agreement was not an exclusive clause. The court found that the clause did not require that all suits be brought in Delaware, but rather the plaintiff simply consented to jurisdiction in Delaware. The court granted the motion to stay in part. The court stayed issues relating to the Confidentiality Agreement because it was governed by Delaware law, the plaintiff consented to jurisdiction in Delaware, and the Delaware suit was filed first. However, the court found that there was no reason why the plaintiff should not be allowed to pursue the claims under the additional agreements in Arizona. The plaintiff was entitled to his choice of forum. Therefore, the motion to stay was denied in this respect. The court reasoned that there was no forum selection clause in the additional agreements, the plaintiff’s claims under these agreements did not concern “internal affairs” of a Delaware company because the plaintiff was no longer an employee, and the fact that the agreements were governed by Delaware law was not a valid reason to stay the plaintiff’s claims. Thus, the plaintiff could continue to litigate his claims under the additional agreements.
Maricopa County v. Fann (Examining the validity of legislative subpoenas). The plaintiffs, Maricopa County and the Maricopa County Board of Supervisors, filed suit asking the court to declare that two legislative subpoenas requiring the production of materials and documents related to the November 2020 presidential election were illegal and unenforceable. The defendants, the two senators who issued the subpoenas, counterclaimed asking the court to declare the subpoenas valid. The court began by noting it was “hesitant to enter the fray of political disputes between two other branches of government.” The court expressly stated that it was not enforcing the subpoenas and had concerns whether it would have jurisdiction to do so. Rather, the court’s ruling decided the narrow legal issues of “whether the Subpoenas are valid” and “whether the Subpoenas violate separation of powers.”
A.R.S. 41-1151 authorizes “the presiding officer of either house or the chairman of any committee” to issue a subpoena. First, the court found that the statutory requirements of A.R.S. 41-1151 were met because the senate president and a committee chair had the statutory power to issue the subpoenas. The court also found that the subpoenas were issued for the proper legislative purpose of assessing the integrity of the election process with the possibility of introducing possible reform proposals. Second, the court held that there was no violation of separation of powers because the entire electoral infrastructure is a legislative creation, and, therefore, the legislature has the power to investigate modifying or improving those delegated powers. Finally, the court held that the subpoenas requesting election materials and documents do not threaten the “right to a secret ballot” nor do they violate state statutes concerning confidentiality. In conclusion, the court found the subpoenas to be valid, but the ruling did nothing to enforce the subpoenas.
Vestar DRM-OPCO, LLC v. Mac Acquisition, LLC (Discussing the applicability of the frustration of purpose doctrine to business leases during the pandemic). In this case, the landlord (Vestar) leased a property to Brinker. In addition, Brinker signed a “Guaranty of Lease Agreement,” under which Brinker agreed to perform any obligation imposed upon the tenant under the lease. Brinker then assigned the lease to Mac Acquisition. The property was to be used as a Macaroni Grill restaurant. The three parties signed a consent to assignment agreement, which stated that Brinker was not released or discharged by the assignment. As a result of the pandemic, Mac Acquisition failed to pay rent every month beginning in April 2020, and Vestar filed suit against Mac Acquisition and Brinker to collect the amount owed. The court found Brinker liable as a result of the guaranty agreement that it signed.
Mac Acquisition argued that the pandemic excused its obligation to pay rent because the purpose of the lease was frustrated. Specifically, Mac Acquisition argued that the purpose of the lease was a sit-down restaurant in a retail center, and the pandemic made the business unsustainable. The court examined the force majeure clause in the lease, which extended the time for performance as a result of acts of God and government regulations or requirements that are not within the control of any party. The court acknowledge that the pandemic qualified under this clause. However, the clause specifically excludes its application to the payment of rent. As a result, the court held that the force majeure clause did not relieve Mac Acquisition of its obligation to pay rent. Next, the court found that the frustration of purpose doctrine was not applicable. Although the lease stated that the tenant intended to initially open a Macaroni Grill restaurant, it went on to state that the premises could be used for any other lawful retail purpose. There was no language that stated a sit-down restaurant was an essential purpose to the lease. The fact that operations became more challenging and less profitable did not justify applying the doctrine of frustration of purpose. In conclusion, Mac Acquisition was liable for the unpaid rent.
§ 1.3.2. Delaware Superior Court Complex Commercial Litigation Division
Unbound Partners Ltd. P’ship v. Invoy Holdings Inc. (Motions for partial dismissal under Delaware Superior Court Civil Rule 12(b) toll the period for answering the entire complaint). In Unbound Partners, the plaintiff brought a breach of promissory note action against the defendant pursuant to 10 Del. C. 3901, which requires defendants in note actions to answer by affidavit. The plaintiff’s complaint set forth two counts alleging that the defendant breached a promissory note by not making a single payment towards a $2 million loan. The first count asserted that the defendant owed $4 million plus interest under the “Double Principal Option” contained in the note. The second count alternatively pled that the defendant owed $2.3 million plus interest based on the interest rate set forth in the note. The defendant did not file an answer but moved to dismiss the first count under Rule 12(b)(6) arguing that it is an unenforceable penalty based on Delaware public policy. It did not move to dismiss or answer the second count. The plaintiff filed a motion for summary judgment and default judgment on the second count based on the defendant’s failure to answer the complaint and file an affidavit pursuant to 10 Del. C. 3901.
In upholding Delaware’s strong public policy for trials on the merits, and adopting the majority view of the federal courts, the court held that a pre-answer motion for partial dismissal tolls the period for answering the whole complaint. It further held that a motion for partial dismissal does not support a default on claims not asserted in such a motion. The court did note, however, that Delaware trial courts retain the discretion to order the filing of an answer to a complaint’s unchallenged claims based on the courts’ inherent power to control their dockets and for expediency’s sake. Undoubtedly, the Delaware courts have always been free under Delaware rules to make case-specific judgments to maintain orderly adjudication of claims.
Smart Sand, Inc. v. US Well Servs., LLC (Upholding a liquidated damages provision awarding more than $48.2 million). Pursuant to a Product Purchase Agreement (“PPA”), the plaintiff agreed to supply the defendant with frac sand for a monthly non-refundable reservation charge, which defendant was required to pay whether it actually purchased and took the frac sand each month or not. Under the PPA, the defendant agreed to purchase a total of two million tons of frac sand at fluctuating prices. If it failed to purchase frac sand for a given month, the PPA required the defendant to pay an amount equal to $40 multiplied by the difference in frac sand it was required to purchase under the PPA and the amount of frac sand that it had actually purchased. Before the end of the contract, the defendant stopped purchasing frac sand from the plaintiff and terminated the contract early. Accordingly, the plaintiff sent the defendant an invoice for a shortfall payment of more than $48.2 million for its failure to purchase more than 1.2 million tons of frac sand under the agreement.
The court rejected the defendant’s argument that such a “take-or-pay” provision was unconscionable. The court held that the liquidated damages provision was valid and enforceable under Delaware law because (1) the damages were uncertain at the time of contracting, and (2) the liquidated damages were reasonable. Specifically, the court found that the liquidated damages provision was enforceable because the quarterly pricing of frac sand was difficult to ascertain as it was based on the volatile pricing of oil. Moreover, it was the defendant that asked for the $40/ton no-take rate agreed to by the plaintiff. The court found this to be a reasonable rate based on the offer and acceptance between the parties at the time of contracting even though it resulted in a substantial payment. Therefore, the court upheld the liquidated damages provision. Although the defendant likely regretted the agreement it made on the pricing terms in the PPA, the court reinforced that both good and bad contracts governed by Delaware law will be enforced.
ARKRAY Am., Inc. v. Navigator Bus. Sols., Inc. (Examining Delaware’s divergent precedent on whether choice-of-law clauses apply only to contract-based claims). In ARKRAY America, the parties entered into a software and consulting services agreement and a license agreement. Both of the agreements contained similar choice-of-law provisions whereby one agreement was governed by Delaware law while the other agreement was governed by Utah law. The plaintiff terminated the agreements and filed suit after the defendant failed to meet various deadlines and failed to provide a successful software system. The suit involved both breach of contract and fraudulent misrepresentation claims, as well as alleged statutory violations of Minnesota law. The parties agreed that the choice-of-law provisions were valid and applied to the contract-based claims; however, the parties disagreed as to whether the provisions would also apply to the tort and statutory claims.
Finding that the precedent in Delaware is divergent on this issue, the court analyzed the language of the choice-of-law provisions. It applied a two-part test to determine: (1) whether there were any conflicts between the laws of the potentially applicable states; and (2) if so, which state has the most substantial relationship to the dispute. Ultimately, the court concluded that the two choice-of-law provisions at issue were narrow and by their terms applied only to the contract-based claims and not to the tort or statutory claims. In its analysis of the Minnesota statutory claims, the court further found that there was no conflict between the laws of Minnesota, Utah, and Delaware. Therefore, the court concluded that Delaware public policy would not be offended by applying Minnesota law to the statutory claims.
§ 1.3.3. Florida’s Complex Business Litigation Courts
MAS Family Trust v. KLP Holdings, Inc. (Default judgment entered on complaint seeking compensatory damages for alleged loss of company value due to breach of fiduciary duty was void due to failure to hold evidentiary hearing or trial to establish amount of damages). Following the buyer’s failure to make the second payment owed pursuant to an agreement for the sale of an entity, the seller brought claims against the buyer (breach of agreement), the buyer’s guarantor (breach of guaranty), and two officers/directors of the buyer (breach of fiduciary duty). The defendants failed to file responsive pleadings, and a final default judgment was entered as to each following a non-evidentiary hearing with seven days’ notice to the parties. The final judgment held the defendants jointly and severally liable for the damages due pursuant to the agreement (i.e., the amount of the second payment). Subsequently, an officer defendant moved for relief from the judgment, claiming it was void because the underlying claim against him sought unliquidated damages, and the court failed to set the unliquidated damages claim for trial or provide him with adequate notice. After considering the parties’ arguments, Judge Michael Hanzman of the 11th Judicial Circuit’s Complex Business Litigation Division granted the defendant’s motion for relief after finding the judgment void for failure to afford the defendant due process. Analyzing the issues, Judge Hanzman considered that the well-pled allegations of the complaint included claims for liquidated damages against the buyer and guarantor (i.e., seeking the second payment, the amount of which was set forth in the sale agreement), but claims for unliquidated damages against the officer (i.e., seeking compensatory damages for breach of fiduciary duty). Accordingly, the officer was entitled to 30 days’ notice, personal service of the trial setting, and an opportunity to be heard, which were not provided. Thus, the judgment was deemed void as to the objecting officer.
In re: Scurtis v. Rodriguez Consol. Derivative Actions (Plaintiff’s time-barred derivative actions could neither be related back to previously-filed direct action arising from same set of facts nor could statute of limitations be equitably tolled). A limited partner in several real-estate-holding single purpose limited partnerships brought a direct action for breach of contract against the partnerships and his former partner, claiming that the defendants wrongfully sold certain properties without authority and without compensating him. While the limited partner pled no derivative claims on behalf of the partnerships, he sought, through his complaint, to be awarded damages that accrued to the partnerships. Nearly seven years later, the limited partner filed thirteen separate derivative actions on behalf of the partnerships, alleging breaches of fiduciary duties by his former partner and the partnerships’ chief operating officer. The defendants in the derivative actions moved for summary judgment on each claim, asserting that the claims were time-barred by the statute of limitations. The limited partner argued in response that: (1) the derivative actions related back to his original direct action; or (2) the statute of limitations should be equitably tolled because he’d acted in reliance on earlier denials of motions to dismiss his direct action in which the defendants had claimed that he had impermissibly combined direct and derivative actions in a single case. Pointing to the applicable Florida Rule of Civil Procedure, Judge Hanzman noted that nothing in the rule permitted claims in separate lawsuits to be related back to the time an earlier lawsuit was filed. Moreover, the statute of limitations could not be equitably tolled, the court held, because his predecessors had neither found that direct and derivative claims could be combined in the same case nor given the limited partner legal advice (which he would not have been entitled to rely on in any event). While the court noted that the limited partner had indeed sought to “recover for himself damages that belonged to some of the juridical entities he [later sought] to represent derivatively . . . [,] that [did] not transform his direct action into a derivative case,” and the predecessor courts had done nothing more than issue unelaborated orders denying the motions to dismiss. Accordingly, the court granted summary judgment in favor of the defendants on the derivative actions.
§ 1.3.4. State-wide Business Court in Georgia
Savannah Green I Owner, LLC v. ARCO Design/Build, LLC (Interpretation of order declaring a statewide judicial emergency and tolling certain deadlines). This action involves a contract for the design and construction of a large warehouse. Under that agreement, the defendant, ARCO Design/Build would submit monthly payment applications to the plaintiff, Savannah Green I Owner, LLC. ARCO was also required to execute lien waivers after receiving payment from Savannah Green. ARCO was deemed to have received payment under O.C.G.A. 44-14-366—regardless of whether it, in fact, received payment—60 days after submitting an application to Savannah Green, unless ARCO filed an affidavit of nonpayment or claim of lien within those 60 days. ARCO submitted an application for payment on April 22, 2020. Before then, in March 2020, the Chief Justice of the Supreme Court of Georgia tolled all statutory deadlines and filing requirements by a series of emergency orders declaring, then extending, a statewide judicial emergency in response to the COVID-19 pandemic. On July 10, 2020, the Chief Justice reimposed filing deadlines. Believing its obligations were tolled until this reimposition of deadlines, ARCO waited until September 14 to record its affidavits of nonpayment. A month later, it recorded a claim of lien for outstanding amounts owed against Savannah Green, and by counterclaim in the Business Court action, sought damages to foreclose on that lien and asserted a claim for breach of contract. Savannah Green moved for partial summary judgment arguing that ARCO failed to file an affidavit of nonpayment or claim of lien within 60 days of submitting its application for payment, and that this delay was not excused by the Supreme Court’s emergency orders. The court agreed and granted the motion.
The court first held that O.C.G.A. 1-3-1(d)(3)’s “computation of time” requirements, apply to Section 44-14-366. All deadlines falling on weekends or holidays are thus extended to the next business day. And as a result, the court found “[i]n a world without COVID-19” ARCO would have had until Monday, June 22 to file its claim of lien.
The court then held that this deadline was not tolled by the Supreme Court’s emergency order. Analyzing the plain text of the emergency order, its amendments, and the analogous statute that authorized the Chief Justice to enter them, the court held that the tolling of deadlines in the emergency order was not so expansive as to capture the statutory deadline in Section 44-14-366. The emergency order applies only to deadlines, time schedules, and filing requirements for “litigants” in “judicial proceedings” or legal proceedings related to civil or criminal cases. And while Section 44-14-366 imposes a statutory deadline, it is not a “legal” deadline imposed on litigants, nor is it a deadline in a “legal proceeding” or “judicial proceeding.” As a result, ARCO was required to file its affidavit of nonpayment by June 22, 2020. In failing to do so, its application for payment was “deemed paid” by operation of law.
Martin v. Hauser, Inc. (Enforceability of restrictive covenants and courts’ “blue pencil” authority). This action arose from an employment agreement with restrictive covenants. Martin sought a declaration that those covenants, including restrictions on client solicitation, employee recruitment, and supplier interference, were invalid and could not be enforced by his former employer, Defendant Hauser, Inc., an Ohio-based insurance and employee benefits brokerage firm. Martin was hired by Hauser as a team leader and signed the subject agreement shortly after starting at the company. He was later promoted to an executive vice president position. After controversy emerged regarding Hauser and its CEO, Martin began negotiating with, then resigned to join, one of Hauser’s competitors. Hauser asserted that Martin recruited two Hauser employees to join his competing company and solicited Hauser’s existing and potential clients in violation of the restrictive covenants.
The court granted in part and denied in part Martin’s request for a declaratory judgment and injunctive relief. First, the court held that the agreement was overbroad because it prohibited the solicitation of “former customers or clients,” and found its three-year non-solicitation provision presumptively unreasonable under the Georgia Restrictive Covenants Act (applicable to all restrictions longer than two years), which presumption Hauser’s evidence could not overcome. The court exercised its authority to modify, or “blue pencil,” the covenant. It found such modification appropriate to (1) protect Hauser’s legitimate business interests, since it invested heavily in Martin who had access to Hauser’s confidential information; and (2) effectuate the parties’ intent, as they clearly intended for there to be some post-employment constraint on Martin’s solicitation of customers. As a result, the court reduced the non-solicitation term to one year and added that this restriction would only apply to clients of Hauser when Martin resigned. Second, the court found unreasonable, declined to modify, and struck the two remaining restrictive covenants concerning non-recruitment of Hauser employees and non-interference with its suppliers. In addition to having three-year durations, the court noted those provisions lacked any geographic or other limitation to constrain their territorial reach. They failed to reasonably articulate the scope of prohibited activity, instead employing broad, ambiguous language that seemed “to apply to all Hauser employees, agents, representatives, and associates—wherever they are in the world and regardless of (i) what they do for the company, (ii) whether Plaintiff ever had any contact with them, and (iii) whether or not [they terminated their] association with Hauser to engage with a competing business.” In deciding to strike, rather than modify, these covenants, the court noted that they were “boilerplate restrictions” not updated for more than a decade, not tailored to specific employees, and not drafted to comply with the laws of the state where employed.
§ 1.3.5. Indiana Commercial Court
Aegean LLC v. The Ohio Security Ins. Co. (Denying defendant’s motion to dismiss or transfer venue). The court denied Taggart Insurance Center Inc.’s Motion to Dismiss or Transfer Venue because it found that (1) Marion County, the county where the suit was brought, was a preferred venue under Indiana Trial Rule 75, and (2) Taggart had irrevocably consented to venue in Marion County under Indiana Commercial Court Rule 4.
If a suit is initially brought in a county that meets the preferred venue requirements of Ind. R. Tr. P. 75(A)(1)-(9), a transfer of venue will not be granted. Trial Rule 75(A)(2) provides, in relevant part, that preferred venue lies in “the county where the land…is located…if the complaint includes a claim…relating to such land… .” Taggart argued that Marion County was not a preferred venue because the action did not have a nexus with Aegean’s Marion County location. Instead, Taggart argued that Clark County was the preferred venue as the county where either the principal office of a defendant organization is located or the office or agency of a defendant organization to which the claim relates or out of which the claim arose is located. Aegean argued that because this dispute involved a property insurance policy issued to Aegean, located in Marion County, Marion County was the preferred venue under Trial Rule 75(A)(2). The court found that, because the policy was issued to Aegean in Indianapolis, and Aegean is seeking recovery under this policy due to cancelled seminars at the Indianapolis location as well as locations around the country, the complaint included a claim relating to land. Marion County was a preferred venue as the county where the land at issue is located.
The court also addressed the Indiana Commercial Court Identifying Notice rule. Under Indiana Commercial Court Rule 4, if a party seeks to have an eligible case assigned to the Commercial Court Docket, the attorney representing that party shall file a Notice Identifying Commercial Court Docket Case (the “Identifying Notice”). If a party does not consent to assigning the case to the Commercial Court Docket, the attorney representing that party shall file a Notice of Refusal to Consent to Commercial Court Docket (the “Refusal Notice”). This notice must be filed not later than the latter to occur of the following: (1) thirty days after service of the Identifying Notice; or (2) the thirty days after the date the non-consenting party first appears in the case. If no Refusal Notice is timely filed by any party that has appeared in the case, the assignment of the case is deemed permanent. Aegean filed a Complaint and an Identifying Notice on February 4, 2021. Taggart filed an appearance in this case on March 3, 2021. Therefore, Taggart was required to file a Refusal Notice on or before April 2, 2021. It did not. Because no Refusal Notice was timely filed, the assignment of the case was deemed permanent, and Taggart was found to have irrevocably consented to venue in the Marion County Commercial Court. On October 5, 2021, the Indiana Court of Appeals affirmed the Commercial Court’s decision to deny the motion to dismiss.
Decker v. Star Fin. Group, Inc. (Granting defendant’s motion to compel arbitration and motion to dismiss). In Decker, the plaintiffs alleged that Star Financial Group (“Star”), in October 2019, improperly charged a fee with regard to bank transactions involving the plaintiffs’ checking account at Star. The transactions were subject to contractual documents including a document titled Terms and Conditions (the “Terms”). The Terms, in relevant part, stated that it, along with any other documents given by Star pertaining to the account, established rules which controlled the account. The Terms further stated that after notification of any changes to the Terms, continued use of the account after the effective date of such changes would constitute agreement to the new terms.
In June 2020, the plaintiffs and Star discussed the situation in an attempt to reach a resolution regarding an alleged improper fee. However, in August 2020, Star included an Addendum along with the plaintiffs’ bank statement, which waived the plaintiffs’ right to try claims covered by arbitration in court before a judge or jury. In March of 2021, the plaintiffs filed suit. Star moved to have the proceedings dismissed and the case ordered to arbitration in accordance with the Addendum. In response, the plaintiffs argued that the Addendum was (1) outside the scope of the original Terms and Conditions, (2) was not made in good faith, and (3) that they did not receive reasonable notice.
In issuing its opinion, the court summarized Indiana caselaw which favors arbitration agreements. In Indiana, when construing arbitration agreements, every doubt is to be resolved in favor of arbitration. A party seeking to compel arbitration must demonstrate: (1) there is an enforceable agreement to arbitrate the dispute; and (2) that the disputed matter is the type of claim that the parties agreed to arbitrate. In analyzing the Addendum, the court concluded that the Terms were clear and within their ordinary meaning, and that they contemplated such changes as were made in the Addendum. The court also noted that Indiana law has not imposed a general duty of good faith within the relationship between banks and their customers, except in instances where the alleged injury results from fraud. Last, the court found that Addendum language was in capital and bold font and was thus in accordance with the standards required by Indiana case law and provided reasonable notice. On October 6, 2021, the plaintiffs appealed the Commercial Court’s Order to the Indiana Court of Appeals. To date, the appeal remains pending.
Midwest Serv. and Supply, Inc. v. Auto-Owners Ins. Co. (Granting plaintiff’s motion for leave to file second amended complaint). In Midwest Service, the plaintiff moved for leave to file a Second Amended Complaint to correct an earlier damages allegation and to join the plaintiff’s wholly owned subsidiary as an additional plaintiff in the case. The defendant argued that the motion should be denied due to (1) plaintiff’s undue delay, bad faith and dilatory motive after the parties had already agreed upon a court-ordered deadline to add parties; (2) the futility of the proposed amendments; and (3) the undue prejudice that would result to the defendant. The plaintiff in response argued that the court had full discretion to grant its motion notwithstanding the earlier case-management order deadline, and that Indiana’s Trial Rules, Commercial Court Rules, the Commercial Court Handbook, and applicable caselaw all instruct the court to liberally allow pleading amendments.
The court noted that Indiana law is indeed clear that leave to amend should be granted unless the amendment will result in prejudice to the opposing party. The court found that defendant had failed to demonstrate why plaintiff should not be granted leave to amend, and noted that the Second Amended Complaint did not add any additional defendants, causes of action, or prayers for relief. Additionally, the court pointed out that the motion was filed less than one year after the case had been filed, and more than one year before the date of the jury trial. Thus, there was ample time for any additional discovery that may result.
Pier 48 Indy, LLC v. Dugan (Denying defendant’s motion to quash non-party subpoena duces tecum). In Pier 48 Indy, the plaintiff, a restaurant business LLC, sued one of its members, Kelli J. Dugan, over alleged breaches of contractual and fiduciary duties Dugan owed to Pier 48 Indy. Pier 48 Indy claimed that Dugan engaged in self-interested acts that served to enrich herself at the expense of Pier 48 Indy. Pier 48 Indy served a subpoena duces tecum on Dugan’s employer, Natera, Inc., a non-party. Dugan filed a Motion to Quash on July 26, 2021. Pier 48 Indy filed a Response in Opposition to the Motion to Quash on August 10, 2021.
Under Ind. Trial Rule 26(B)(1), parties “may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action[.]” A discovery request is valid “if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.” T.R. 26(B)(1). The Commercial Court Rules maintain the broad scope of discovery through Ind. Comm. Ct. Rule 6(A), which states, in part, “Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case[.]” Parties may also seek discovery from non-parties. However, the court may quash or modify a subpoena upon a showing that the subpoena is “unreasonable and oppressive” under Ind. Trial Rule 45(C)(1).
In her Motion to Quash, Dugan argued that the majority of the discovery sought from Natera could be obtained from Dugan directly, and the subpoena, therefore, was both cumulative and unduly burdensome. Pier 48 Indy countered that because their claims in this action involve Dugan’s alleged untrustworthiness, Pier 48 Indy should not have to rely on Dugan to provide fully complete discovery responses. Because Dugan asserted that she had already provided all responsive discovery documents in her custody and control and indicated that she would not produce emails housed on Natera servers without Natera’s authorization, the court found that Dugan’s argument that Pier 48 Indy could obtain the documents from a more convenient source no longer applied. The court further found that the discovery requests were sufficiently tailored to topics of information that could lead to the discovery of admissible evidence. The court therefore denied Dugan’s Motion to Quash Non-Party Subpoena duces tecum.
Gage v. SourceOne Group, LLC (Granting partial summary judgment in favor of Defendant/Counterclaim Plaintiff SourceOne Group, LLC and Defendant Joy DenHouter). The litigation in Gage stemmed from the dissolution of a business relationship between Plaintiffs Gage and Grabill Insurance Center (“GIC”), and Defendant SourceOne. In December 2011, SourceOne entered into an Independent Contractor Agreement with Gage, who, at the time, was president of GIC. SourceOne and GIC, in connection with this business relationship, entered into a Joint Marketing, Ownership and Aggregation Agreement on January 1, 2012. Under this Agreement, Gage was retained as an independent contractor by SourceOne to perform marketing, managing, and administering services. Gage brought this action after he advised Defendant DenHouter of his intent to terminate the relationship and accept an offer with a competitor in April 2017. Defendant/Counterclaim Plaintiff SourceOne Group, LLC and Defendant Joy DenHouter ultimately sought to dismiss portions of the Third Amended Complaint through a motion for summary judgment.
Indiana Trial Rule 56 mirrors Federal Rule of Civil Procedure 56, but Indiana’s summary judgment procedure is different than federal summary judgment practice. Indiana courts require the moving party to affirmatively negate an opponent’s claim, as compared to federal summary judgment practice which allows the moving party to merely show that the party carrying the burden of proof lacks evidence on a necessary element. The intention of this practice is to err on the side of letting marginal cases proceed to trial on the merits.
The court granted the defendants’ partial summary judgment motion as to the Indiana Sales Representative Act claim because the Act only applies to wholesalers, and the court found that SourceOne is not a “wholesaler.” The court also granted partial summary judgment on the breach of fiduciary duty by DenHouter. This claim was based on DenHouter owing a fiduciary duty to Gage because they were both signatories to the Joint Marketing Agreement. However, contractual relationships do not create a fiduciary duty, and therefore, the court granted summary judgment as to this claim. The court then granted summary judgment on the claim of unjust enrichment because such claims are typically inapplicable when a contract exists. Because plaintiffs did not allege any damages in the unjust enrichment claim that were not already alleged in their breach of contract claims, the court concluded that this claim did not have a basis in law. The court denied partial summary judgment in favor of defendants on the issue of whether Gage violated the Independent Contractor Agreement and whether the non-compete provisions should be tolled in any duration. The motion for partial summary judgment on the alleged violation of the Independent Contractor Agreement was denied.
§ 1.3.6. Iowa Business Specialty Court
Tammy Welbes v. DuTrac Cmty. Credit Union(Motion to dismiss breach of contract and breach of the implied covenant of good faith and fair dealing). In this pre-trial opinion, the court reviewed Defendant DuTrac Community Credit Union’s pre-answer motion to dismiss, which argued in favor of dismissal of Plaintiff Tammy Welbes’s claims for breach of contract and breach of the implied covenant of good faith and fair dealing (bad faith). The petition asserted that defendant has a standard practice of assessing overdraft charges where the transaction is subject to a “debit hold.” Plaintiff alleged that when a customer authorizes a transaction from their account, defendant permits the receiving merchant to request a “debit hold” on the funds transferred, which may be larger than the amount authorized by the customer. Transactions subject to these “debit holds” may incur overdraft fees even if the transaction does not make the account balance negative.
The court’s inquiry was limited to whether this practice violated the parties’ account agreement. The court granted defendant’s motion in relation to the bad faith claim because the agreement stated the defendant may charge such a fee, and it is not a breach to charge fees where the agreement authorized it. However, the court overruled the defendant’s motion with regards to the breach of contract claim because doing so would require evidence beyond the scope of a motion to dismiss. The court further ruled the breach of contract claim was not preempted by federal fee disclosure laws.
Robert Colosimo v. Anthony Colosimo and A&R Env’t, LLC (Enforceable agreement joint venture ownership interests). In this case, two brothers sought the court’s involvement in a matter where their business relationship in several joint endeavors went sour. The court found that after the brothers reached an agreement regarding their respective interests, Defendant Anthony Colosimo devoted time, effort, and equity to his business, Sparta Environmental (“Sparta”), with no involvement from Plaintiff Robert Colosimo.
The court analyzed two issues: (1) whether there was an enforceable agreement regarding how the brothers were to separate their respective interests in Sparta; and (2) alternatively, whether plaintiff was estopped from denying an alleged business promise that he would transfer his business interest in Sparta to his brother. The court found for defendant in both respects. The court concluded there was clear and convincing evidence that the brothers’ respective actions towards the growth and equity of Sparta evidenced an agreement to separate with defendant retaining interest in Sparta. Moreover, the court concluded it would be unjust to not enforce plaintiff’s promise to transfer his interest considering his lack of involvement in the company.
§ 1.3.7. Kentucky Business Court Docket
Ken Combs Running Store, Inc. v. Owners Ins. Co. (Dismissal of claims for insurance coverage of business disruption due to COVID-19). Plaintiff operates a retail specialty sports store in Louisville, Kentucky, which has a commercial insurance policy issued by defendant. Plaintiff alleged that the Governor’s executive order requiring closures due to COVID-19 caused plaintiff to not operate between March 25 and June 29, 2020. Plaintiff filed a business income loss claim with defendant, which defendant denied. Plaintiff brought an action against defendant for a declaratory judgment that defendant is obligated to provide coverage, breach of contract, and unjust enrichment. The court found that plaintiff’s insurance policy did not cover the claim under its unambiguous terms because it covered only “business income loss resulting from physical loss or damage that may be remedied by repair, rebuilding, or replacement of the property.” Therefore, the court granted defendant’s motion to dismiss the declaratory judgment and breach of contract claim with prejudice. The court granted defendant’s motion to dismiss the unjust enrichment claim without prejudice.
Wilkins v. Lastique Int’l Corp. (Shareholder demand for inspection of corporate records). Plaintiff, a shareholder and former long-time employee of defendant, brought an action for inspection of defendant’s corporate books and records. The court treated plaintiff’s “Motion for Summary Order of Inspection” under the applicable standard for motions for summary judgment. The court found that “there remains a genuine issue of material fact as to whether his demand is made in good faith and for the proper purpose of investigating corporate misconduct or for an improper purpose of obtaining leverage in the buyout negotiations.” The court further found that plaintiff failed to describe with “particularity the records sought or shown that they are directly connected with his purpose of valuing his shares.” Therefore, the court denied plaintiff’s Motion for Summary Order of Inspection.
§ 1.3.8 Maine Business and Consumer Docket
Black v. Cutko (Lease of designated public lands). In 1993, the people of Maine ratified Article IX, Section 23 of the Maine Constitution, to require that designated public lands cannot be “reduced” or their “uses substantially altered” unless two thirds of both houses of the Maine Legislature agree to any such change. The central question presented in this case was whether certain decisions made in 2014 and 2020 by the Bureau of Public Lands (the “BPL”)—the Executive Branch agency that holds title to the lands for the benefit of all Maine people—to lease portions of two parcels of public reserved land in the Upper Kennebec Region to Central Maine Power Company (“CMP”) to construct part of the New England Clean Energy Connect (“NECEC”) transmission corridor were proper.
Maine Sen. Russell Black, along with 18 other individuals and entities, filed a complaint against BPL and CMP, alleging that the execution of the 2014 and 2020 leases was ultra vires and asserting that the Maine Constitution required a two-thirds legislative vote before the NECEC could cut a 150-foot wide, one-mile long corridor across two parcels that are considered Public Reserved Land. Initially, BPL took the position that leases such as the ones at issue here are categorically exempt from the requirements of Article IX, Section 23, and thus the agency was not obligated to make a “reduction” or “substantial alteration” determination. The court rejected that contention in a March 2021 Order. In response, BPL argued that it actually did consider the substantial alteration issue and determined that the 2020 lease would not substantially alter the uses of the public trust lands.
In reviewing the administrative record, the court found no competent evidence supporting BPL’s assertion that it made the requisite public, pre-execution findings that the 2020 lease would not reduce or substantially alter the uses of the lands. Although BPL had conducted in 2014 what it termed a “resource-based analysis,” that is not the standard called for in Article IX, Section 23 and in 12 M.R.S.A. 598. Moreover, although BPL relied on a “management plan” finalized in 2019 to support the proper determination, the court concluded that “designing and implementing a management plan is not the same as making a public, pre-lease determination that the lease would not frustrate the essential purposes as articulated in the Maine Constitution and as defined by the Maine Legislature.” The court vacated the lease for NECEC to bisect the public lands, stating that “BPL exceeded its authority when it entered into the 2020 lease with CMP, and BPL’s decision to do so is reversed.” BPL and CMP have appealed the decision to the Maine Supreme Judicial Court.
§ 1.3.9. Massachusetts Business Litigation Session
UMNV 205-207 Newbury, LLC v. Caffé Nero Americas, Inc. (Frustration of purpose due to COVID-19). UMNV 205-207 Newbury, LLC (“UMNV”) filed a lawsuit against its former tenant, Caffé Nero Americas, Inc. (“Caffé Nero”), seeking to recover unpaid rent and other expenses. Caffé Nero operated a chain of cafés, including a location on Boston’s Newbury Street (“Newbury Street café”) in premises owned by UMNV. Between March and June 2020, Caffé Nero was forced to close its Newbury Street café temporarily to comply with an order from the Massachusetts Governor’s office barring all restaurants from offering on-premises dining during the COVID-19 pandemic. Upon closing its Newbury Street café, Caffé Nero wrote to UMNV to explain that it would not be able to pay rent while the café was closed. UMNV refused to waive or reduce any of the rent payments due under Caffé Nero’s 15-year lease and, instead, sent Caffé Nero a letter purporting to terminate the lease and ordering Caffé Nero to quit the premises. Caffé Nero remained but continued not to pay rent. In June 2020, the Governor allowed restaurants to resume first outdoor and then indoor dining. Caffé Nero reopened its Newbury Street location accordingly, but nevertheless closed the Newbury Street café and quit the premises in October 2020 after continuing not to pay rent and reaching no agreement with UMNV.
Deciding UMNV’s motion for partial summary judgment on the issue of Caffé Nero’s liability for breach of the lease, the court denied UMNV’s motion and instead granted summary judgment for Caffé Nero despite the fact that Caffé Nero had not cross-moved. As the court noted, the lease for the Newbury Street café provided that Caffé Nero could use the leased premises “solely” for “[t]he operation of a Caffé Nero themed café under Tenant’s Trade Name and for no other purpose.” As such, the court concluded, the fundamental purpose of the lease was frustrated when the Governor required restaurants in Massachusetts to suspend on-premises dining. Because frustration of purpose excused Caffé Nero’s obligation to pay rent, it was not in breach of the lease when UMNV sent its purported letter of termination and order to quit. The court noted that frustration of purpose might not have excused Caffé Nero’s duty to pay rent if the lease had permitted it to use the premises for a different purpose, not barred by the Governor’s order. The court rejected UMNV’s argument that the lease’s force majeure provision barred application of the frustration of purpose doctrine, concluding that this provision addressed the separate doctrine of impossibility of performance. The court also concluded that another provision, providing that Caffé Nero’s obligations under the lease constitute “separate and independent” covenants, did not prevent application of the frustration of purpose doctrine because other provisions of the lease still contemplated the doctrine could apply.
Athru Group Holdings, LLC v. SHYFT Analytics, Inc. (Breach of fiduciary duty). In late 2017, Athru Group Holdings, LLC (“Athru”) sold its one-fifth stake in SHYFT Analytics, Inc. (“SHYFT”), for 75 cents per share to eleven buyers including, Medidata Solutions, Inc. (“Medidata”). Six months later, Medidata acquired SHYFT outright, paying $2.95 per share to purchase all the SHYFT stock it did not own, including the stock that Athru had just recently sold to the ten other buyers. Athru filed suit, alleging that it would not have sold its interest in SHYFT if it had known that SHYFT was interested in being acquired or that Medidata intended to acquire it. In particular, Athru alleged claims for breach of fiduciary duty against a director and a CEO/director of SHYFT as well as claims of fraud and misrepresentation, breach of contract, and violation of c. 93A against various combinations of these two individuals, SHYFT, and Medidata.
The court dismissed Athru’s complaint in full. Because SHYFT was a Delaware corporation, the court applied Delaware law to analyze the breach of fiduciary duty claim. Applying Delaware law, the court concluded that SHYFT’s officers and directors did not have a duty to disclose to Athru SHYFT’s alleged interest in merging with Medidata. Even assuming there had been preliminary merger discussions between SHYFT and Medidata, SHYFT’s officers and directors had no duty to disclose such discussions to SHYFT’s shareholders, like Athru, until fundamental terms of a merger agreement were finalized. Turning to the fraud and misrepresentation claims, the court similarly concluded that the defendants, some of whom had purchased shares from Athru, did not owe Athru a duty to disclose any preliminary merger discussions. Athru argued that such a duty existed because Athru’s understanding that SHYFT would not be acquired was “basic to” the parties’ share purchase agreements. The court rejected this argument, noting that the agreement provided for Athru to receive additional compensation if its SHYFT stock was resold at a certain price. The court dismissed Athru’s c. 93A claim because it was “wholly derivative” of Athru’s unavailing fraud claim. And the court dismissed the remaining breach of contract claims because they needed to be submitted to an independent auditor under the alternative dispute resolution procedures set forth in the various stock purchase agreements.
Needham Bank v. Guaranteed Rate, Inc. (Misappropriation of trade secrets and breach of confidentiality agreements). Needham Bank (“Needham”) brought suit against a former employee, Edward Coppinger (“Coppinger”), and his new employer, Guaranteed Rate, Inc. (“GRI”). Beginning in 2014, Coppinger worked as a Vice-President of Residential Lending for Needham. In this role, he was responsible for originating and closing residential mortgages through his personal and professional contacts. At various times during his employment, Coppinger was required to sign agreements providing that he would not use Needham’s confidential information outside the scope of his employment. These agreements defined confidential information to include client lists. In January 2021, Coppinger left Needham to take a similar position at GRI, a competitor of Needham in the business of providing residential mortgages. Evidence showed that before leaving Needham, Coppinger had sent customer lists and information about closed loans from his work email to his personal email account. Coppinger edited one of these lists to delete names of customers he did not recognize, add additional customers, and add customers’ email addresses. GRI, in turn, took this list and uploaded its client database. When Coppinger received a letter from Needham informing him that he had allegedly breached the confidentiality agreements, GRI sequestered this client list.
Needham moved for a preliminary injunction, asserting misappropriation of trade secrets and breach of the confidentiality agreements, among other claims. Applying the familiar preliminary injunction standard, the court first assessed Needham’s likelihood of success on the merits. The court concluded that Needham had failed to allege a viable claim under the Massachusetts Uniform Trade Secrets Act (“MUTSA”) because it had not alleged a protected trade secret. The customer list—the only document that Coppinger had been shown to have accessed and used—was readily ascertainable by proper means from public records and thus failed to constitute a trade secret. Similarly, the court expressed skepticism as to the viability of Needham’s breach of contract claim to the extent it was based on the customer list. Under the MUTSA, nondisclosure obligations only protect economically valuable information if that information constitutes a trade secret. As the court had previously found, the customer list did not meet this standard. Nevertheless, the court concluded that Needham had a likelihood of succeeding on the merits to the extent it alleged breaches based on Coppinger’s disclosure of information beyond the customer list. This included documents that Coppinger had emailed to himself and shared with GRI detailing the loan and credit information of Needham’s customers. The court rejected Needham’s claims for breach of a non-solicitation provision because the provision was ambiguous and lacked a temporal or geographic limitation. And the court expressed doubt as to the success of Needham’s tortious interference with contractual relations claim based on the facts. On the remaining preliminary injunction factors, Needham fared better. The court found that Needham had shown a plausible risk of suffering irreparable harm in the form of damage to its customer relationships. The court also found that the balance of harms tipped in Needham’s favor. With that, the court granted Needham’s motion in part, ordering Coppinger to return the customer list and customer information and refrain from soliciting any customer on the list for six months. GRI was also ordered to continue sequestering the customer contacts it had received from Coppinger and uploaded into its database.
§ 1.3.10. Michigan Business Courts
Benteler Auto. Corp. v. TG Mfg., LLC (Requirements contract, statute of frauds). For years, defendant supplied automotive engine parts to plaintiff under a requirements contract. In anticipation of each shipment under the contract, plaintiff-buyer would send a scheduling agreement to the supplier stating the quantity of parts it required. In May 2019, the buyer emailed a scheduling agreement to defendant-seller dictating not only a quantity term, but also a new price and other new terms. One of the new terms obligated the seller to provide a six-week inventory when the buyer transitioned to a new supplier. Moreover, it stated that the seller’s acceptance “shall be conclusively presumed by Seller’s signature on this Order or by Seller’s shipment of the goods.” Without countersigning it, the seller continued to ship parts to the buyer.
In holding the terms of the May 2019 scheduling agreement enforceable, the court followed the Michigan Court of Appeals’ application of the UCC’s statute of frauds to requirements contracts. In that context, periodically-issued “material releases,” such as this scheduling agreement, satisfy the statute of frauds when coupled with automotive supply contracts – even when those contracts consist of boilerplate language and do not result from negotiations between the parties.
Brooks Williamson & Assoc., Inc. v. Braun (Breach of fiduciary duty in employment context). At issue was whether the defendants owed fiduciary duties to their employer, plaintiff, a wetland consulting company. Three of the five defendants were part-time, hourly employees without employment agreements, confidentiality agreements, or non-competition agreements. One of the plaintiffs, Williamson, the president and sole owner of the company, acknowledged that these individuals were not officers, directors, or shareholders of the company, despite his characterization of them as key employees. Yet, the plaintiffs argued these employees owed fiduciary duties to the company by virtue of the agency relationship that existed as a consequence of their employment. Additionally, the plaintiffs argued that Berninger, another defendant, functioned as the company’s de facto Chief Operating Officer.
In granting summary disposition (summary judgment) to the defendants, the court rejected these arguments and noted that in Michigan employees generally do not owe fiduciary duties to their employers. As to Berninger, the company’s alleged de facto COO, the court found no evidence that Williamson or the company had reasonably placed in him the “faith, confidence, and trust” necessary for a fiduciary relationship to arise. The court also found it significant that Berninger was not an actual officer or director of the company.
General Motors LLC v. FCA US LLC (Fraud, fraud by omission, unfair competition, civil conspiracy). In the aftermath of the Great Recession, European automaker Fiat acquired financially-distressed Chrysler to form FCA. According to General Motors (GM), FCA then initiated an alleged multimillion-dollar bribery scheme with key union officials at the UAW to weaken GM’s financial position, in anticipation of a future FCA-GM merger on terms favorable to FCA. In September 2020, GM filed suit against FCA, alleging fraud, fraud by omission, unfair competition, and civil conspiracy, among other claims, related to the collective bargaining agreement (CBA) GM had negotiated with the UAW in 2015.
The UAW is a union that supplies workers to certain automotive manufacturers, including GM and FCA. The labor negotiations process is structured so that the UAW’s contracts with each automaker all expire at the same time, on the same date. Typically, the UAW targets the best-performing automaker as the “lead” company and negotiates the first CBA with the lead. Then, the UAW uses a technique called pattern bargaining to pressure remaining automakers to pattern their CBAs after the lead’s. GM was the lead in 2011 and expected to be the lead again in 2015 “based on objective factors.” However, the UAW unexpectedly chose FCA as the lead, and FCA set an unfavorable pattern (from GM’s perspective) by granting the UAW large wage increases for Tier One workers and other concessions. Because the risk of a strike was too great, GM ultimately yielded to the UAW’s pressure for similar concessions at a cost to GM of over $1 billion above the tentative agreement GM had reached with the UAW earlier in the negotiations process.
Moreover, FCA’s collective bargaining agreement, and therefore GM’s also, permitted the automakers to take advantage of greater numbers of Tier Two workers, a cheaper source of labor. Leading up to the 2015 bargaining process, the UAW had insisted it would reinstate the former cap on Tier Two workers, limiting that group to 25% of the workforce. GM had structured its workforce in anticipation of this change. FCA, however, maintained a workforce comprising 42% Tier Two employees prior to the 2015 CBA. Thus, FCA benefitted from a lower wage-structure in its workforce prior to the 2015 CBA negotiations. Additionally, FCA was better positioned than GM to immediately benefit from the 2015 pattern CBA, because it already employed much greater numbers of Tier Two workers.
The court granted summary disposition (summary judgment) to FCA on GM’s fraud claims for failure to state a claim on which relief may be granted. GM failed to sufficiently allege facts showing that FCA’s alleged bribery scheme had proximately caused it harm, or that it had suffered a legally cognizable harm. The court rejected GM’s reliance on its tentative bargaining agreement to establish damages because it was speculative that the UAW would have continued to support the agreement absent the alleged bribery scheme. Instead, the court found that the economic force of pattern bargaining and threat of a strike forced GM’s hand. GM’s civil conspiracy claim relied on the fraud claims to supply a separate, actionable tort, and Michigan law requires any claim of unfair competition to be based on fraud. Consequently, these claims failed also.
Sea Land Air Travel Serv., Inc. v. Auto-Owners Ins. Co. (Insurance, COVID-19). Plaintiff Sea Land Air Travel Service, Inc. sued its insurer under a commercial property insurance policy, seeking to recover for the interruption to its business caused by a government-ordered shutdown related to COVID-19. On the complaint alone, the court granted summary disposition (summary judgment) to the insurer on Sea Land’s breach of contract claims, finding that Sea Land had failed to state a cause of action. The policy required that Sea Land’s suspension of operations result from a “direct physical loss or damage to the property” for it to recover loss of business income. The court held that neither the government’s shut-down order nor the potential presence of the virus constituted a direct physical loss. The term “physical loss” should be given its plain meaning, such as water damage, burned premises, or a broken window. Additionally, the true cause of the business interruption was the government’s shutdown order, not the virus, and that order did not prohibit remote work. However, the court declined to adopt the insurer’s reasoning that the virus is a contaminant under the policy and that the policy’s pollution exclusion therefore applied to bar Sea Land’s claims.
§ 1.3.11. New Hampshire Commercial Dispute Docket
Labbe v. Counter Design, Inc. (Wage claims relating to an alleged equity interest). The plaintiffs in this case were employees of the defendant, and alleged that the defendant had offered each of them a “two percent (2%) ownership share of the Defendant company as part of [their] continued employment with the Defendant.” Upon an alleged failure to comply with the offer, the plaintiffs brought suit, including claims that this percentage ownership share constituted “wages” within the meaning of New Hampshire’s wage statute.
The statutory definition is broadly worded, and includes the catchall phrase “whether the amount is determined on a time, task, piece, commission or other base of calculation.” Notwithstanding the statutory definition, however, the court concluded that a promise of a percentage equity interest was not something that could be readily calculated, and therefore did not fall within the definition of wages in the statute. Therefore, the court granted the defendant’s motion to dismiss.
Atlantic Anesthesia, P.A. v. Lehrer (Common interest doctrine and crime fraud exception). In this case, the court addressed an issue on which the New Hampshire Supreme Court had not yet ruled: whether the “common interest” provision within the attorney client privilege rule of evidence (“in a pending action and concerning a matter of common interest”) applied in the circumstances.
There was no pending action, but the defendants and a third party had communicated regarding the subject of the later litigation, and the defendants sought to protect discovery of their communications with that third party pursuant to the “common interest” rule.
The court ultimately determined that it need not resolve the issue of whether this doctrine can apply to communications before there is a “pending action,” because it further determined that the crime-fraud exception to the privilege applied in the context of an alleged breach of fiduciary duty. In doing so, the court concluded that the New Hampshire Supreme Court would find persuasive the reasoning of decisions from other jurisdictions finding sufficient parallels between fraud and the intentional breach of fiduciary duties to trigger the exception to the privilege rule.
Schleicher and Stebbins Hotels, LLC v. Starr Surplus Lines Ins. Co. (Jurisdiction of the BCDD). The jurisdiction of New Hampshire’s business court is established by state statute and court rule, and in addition to the types of cases it may consider, both also require consent of all parties to the jurisdiction of the court.
In this case, the defendants sought such a transfer, and the plaintiffs objected. The defendants then argued that the requirement of consent by all parties was not “jurisdictional,” and therefore subject to waiver by the court in the exercise of its general superintendence.
The court determined that the consent requirement in the statute and rule was akin to a subject matter jurisdiction requirement, and therefore the absence of complete consent precluded the court from accepting a transfer of the case to the business court.
§ 1.3.12. New Jersey’s Complex Business Litigation Program
Jenkinson’s South Inc. and Jenkinson’s Pavilion v. Westchester Surplus Lines Ins. Co. (Denial of insurance claims relating to COVID-19). This case concerns the fallout from business closures stemming from the COVID-19 pandemic. Specifically, this dispute arises from the denial of insurance claims submitted by plaintiffs in May 2020 under multiple “all risk” primary and excess policies, after the COVID-19 pandemic resulted in the temporary closure of Jenkinson’s boardwalk and amusement business in Point Pleasant Beach, New Jersey. Plaintiffs claimed a loss in excess of $10 million.
All policies held by the plaintiffs included language insuring “against all risks of direct physical loss or damage to Insured Property, except as excluded.” The multiple insurance policies contained various exclusions relating to, inter alia, loss of use, pollutants or contaminants, and loss due to virus or bacteria.
The court denied plaintiffs’ motion for summary judgment and granted the defendant insurance companies’ cross-motions for summary judgment. In doing so, the court found that the defendants met their burden in proving the closure of the plaintiffs’ boardwalk business was a direct result of the COVID-19 pandemic and that no direct physical loss was incurred to the plaintiffs’ property, thus falling outside the scope of the policies’ coverage.
In holding that there was no direct physical loss or damage to plaintiffs’ property to trigger coverage under the policies, the court found that plaintiffs proffered evidence that various employees at the premises had contracted COVID-19 at or around the time that plaintiffs closed their facilities was insufficient and that there was no evidence that the employees contracted COVID-19 because of exposure to the property itself. In addition, the court ruled that plaintiffs failed to make a showing that the concentration of COVID-19 rose to a level where the property was rendered temporarily unsafe or inhospitable, and distinguished the instant scenario from a prior case where the presence and concentration of ammonia in a packaging plant required immediate closure and remediation before the property became safe for human occupancy. The court further noted that Governor Murphy’s Executive Orders that required plaintiffs to close their doors to the public did not require the actual presence of COVID-19 at the property to bar public access.
Finally, the court ruled that the Loss of Use exclusion barred coverage under the policies because plaintiffs’ damages arose out of the inability to use the property for its intended profit-making function, and also that the presence of COVID-19 at the property falls within the pollutant or contaminant and/or Biological material exclusions contained in the various policies.
§ 1.3.13. New York Supreme Court Commercial Division
SL Globetrotter L.P. v. Suvretta Capital Mgmt., LLC (Interpretation of conditions precedent in a contract). In this case, Justice Peter Sherwood declined to dismiss plaintiffs’ breach of contract claims, which arose out of a dispute over investment, through a special purpose acquisition vehicle (“SPAC”), in a new public company. The opinion sheds light on the interpretation of conditions precedent in a contract, particularly when they deal with the consistency of relevant financial information.
In July 2018, SL Globetrotter, L.P. and Global Blue Group Holding AG (the “Company”) and Global Blue Group AG (“Global Blue”), a provider of tax-free shopping and currency processing services, engaged Far Point Acquisition Corporation (“FPAC”), a SPAC, in order to consummate a transaction. The transaction would allow the Company to become a public company that would be owned by existing FPAC and Global Blue shareholders as well as investors such as defendants Suvretta Capital Management, LLC and Toms Capital Investment Management LP who made investments through a mechanism known as “private investments in public equity” or “PIPE.” In December 2019 and January 2020, defendants received an Investor Presentation, which included information about the transaction and the investment opportunity. The Investor Presentation explicitly disclaimed any guarantees of future performance and “warned that any forward-looking statements involved numerous risks, uncertainties, or other assumptions that could create a difference in results from those expressed or implied by the Investor Presentation.” On January 16, 2020, defendants entered into agreements pursuant to which they committed to purchase five million shares of the Company for $10 per share, for an aggregate purchase price of $50 million. The parties planned that the Company would use the money it obtained from defendants and other investors to purchase a portion of Global Blue’s shares. In the agreements they executed, defendants acknowledged the possibility of an immediate loss in their investment’s value. On June 19, 2020, FPAC filed a preliminary proxy statement with the Securities and Exchange Commission that explained that the COVID-19 pandemic had a negative impact on Global Blue’s financial performance. Three days later, defendants sent plaintiffs a repudiation letter, which stated that defendants would not perform their obligations under the agreements, including providing the funds necessary to purchase the New Global Blue shares.
Thereafter, plaintiffs sued defendants for breach of contract, and defendants moved to dismiss. In support of their motion to dismiss, defendants asserted that the conditions precedent to their obligation to purchase shares were not satisfied. “A condition precedent is an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises[.]” A plaintiff cannot maintain a claim for breach of contract unless all conditions precedent to the defendant’s performance have been satisfied. In this case, defendants primarily argued that conditions precedent to their obligations were not satisfied because in the relevant agreements, Global Blue represented that the information in its proxy statement would not be materially inconsistent with the information included in the Investor Presentation. Defendants pointed to numerous differences between the proxy statement and the Investor Presentation which they argued were material, including (1) that Global Blue’s definitive proxy statement included no financial projections and stated that previous projections could no longer be relied upon, even though the Investor Presentation stated that Global Blue expected an annual revenue growth rate of 3-6%, and (2) that Global Blue’s definitive proxy statement revised financial information that was included in the Investor Presentation.
Justice Sherwood concluded that defendants’ argument failed based on the documentary evidence presented by the parties. Specifically, the court explained that the Investor Presentation included a disclaimer that the information in the presentation was based on the historical financial information included in Global Blue’s audited financial statements. The court also emphasized that the Investor Presentation stated that it contained “forward-looking statements” about future developments that Global Blue could not guarantee would occur, and which Global Blue had no obligation to update or revise. Furthermore, Justice Sherwood noted that defendants specifically acknowledged the risks incident to the transaction, including the possibility of total loss, when they agreed to purchase the shares. Thus, the court declined to dismiss plaintiffs’ breach of contract claims, concluding that “it would be improper to now allow defendants to disclaim their contractual obligations by arguing that the exclusion of forward-looking statements or the inclusion of corrected financial information in the [definitive proxy statement] are material inconsistencies in violation of” the relevant conditions precedent.
Certain Underwriters at Lloyd’s v. AT&T Corp. (Insurance policies’ anti-assignment clauses). In Certain Underwriters at Lloyd’s v. AT&T Corp., Justice Cohen of the New York County Commercial Division Court granted a motion for partial summary judgment and determined that Nokia, through its predecessor Lucent, had the right by assignment to seek coverage under certain insurance policies issued to AT&T that contained anti-assignment clauses. Although the general rule in New York is that such anti-assignment clauses are enforceable, this decision highlights how it can be more challenging to bar assignment in the special context of an insurance policy.
The court began its analysis by explaining that “under New York law, the enforceability of a no-transfer clause in an insurance contract is limited.” Specifically, as set forth in the leading First Department case of Arrowood Indemnity Co. v. Atlantic Mutual Insurance Co., “New York generally follows the majority rule that a no-transfer provision in an insurance contract is valid with respect to transfers that were made prior to, but not after, the insured-against loss.” As the First Department explained in Arrowood, “this principle is based on a judgment that while insurers have a legitimate interest in protecting themselves against additional liabilities that they did not contract to cover, once the insured-against loss has occurred, there is no issue of an insurer having to insure against additional risk.” Turning to the facts of the case, the court noted that any potential losses covered by the policies necessarily preceded the assignment because the underlying policies covered only “accidents” or “occurrences” during their respective policy periods, all of which had expired before the SDA was executed. The court thus found that Nokia need not establish that the claimed losses preceded the assignment to be successful on its motion—because all covered losses were by definition pre-assignment losses, and any post-assignment losses were not insurable under the policies.
Ronald Benderson 1995 Trust v. Erie County Med. Ctr. Co. (Yellowstone injunction request). In this case, Justice Walker of the Erie County Commercial Division granted plaintiff’s request for a Yellowstone injunction where the defendant landlord provided a faulty notice of default to the plaintiff tenant. This case arises out of a dispute between a commercial real estate tenant-plaintiff and a hospital landlord-defendant in the context of a commercial lease for retail space located in the lobby of the hospital. The initial term of the lease, which was for ten years, provided that the tenant would pay a “Partial Rent” amount until all rentable space was sublet and open for business. The Partial Rent was calculated by “multiplying the Full Rent due for each month by a fraction the numerator of which is the total combined square footage of each subtenant open for business in the [lobby] and the denominator of which is the total square footage of the [lobby].” Plaintiff began paying Partial Rent in accordance with the lease provisions on May 22, 2003. The lease provided plaintiff the option to renew for a second ten-year term, and specified that the full rent for the second ten-year term would increase by a certain amount. The renewal option, however, was silent as to the Partial Rent provision. Plaintiff exercised the renewal option on August 22, 2011, and served defendant with a notice clarifying the rent for the renewal period in accordance with the Partial Rent provision, i.e., the monthly rent for the renewal period multiplied by the Subtenant occupancy rate. Defendant accepted the prorated rent without objection until October 2020. Following a major economic loss during the COVID-19 pandemic and an appraisal which determined that defendant was losing money on its lease of the lobby space, defendant sent plaintiff a notice of a default under the lease. After a few months of trying to resolve their disputes, defendant directed plaintiff to “quit and surrender” the lobby space. Plaintiff then moved for a Yellowstone injunction.
In order to succeed on a Yellowstone injunction, a plaintiff must demonstrate that “(1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises.” New York courts typically do not require a showing of likelihood of success on the merits and irreparable harm in order to issue a Yellowstone injunction, although the court nonetheless proceeded with an analysis of the usual preliminary injunction factors in reaching its decision in this case.
As an initial matter, the court found that the plaintiff was entitled to the requested relief because the alleged notice of default was defective in a number of respects. For example, it was sent to the wrong party at the wrong address in violation of the notice clause in the lease. Furthermore, the court held that the notice violated then-Governor Andrew Cuomo’s Executive Order providing for a moratorium on commercial evictions during the COVID-19 pandemic. More importantly, the court found that the notice of default was “so impermissibly vague that it was insufficient to commence a ‘cure’ period, as a matter of law.” It claimed for the first time that the Full Rent Commencement date had occurred on an unspecified date in 2014 and that plaintiff “shall pay… [the Full Rent amount],” but also provided two different and logically inconsistent rental rates. The notice went on to say that the renewal option did not include a Partial Rent period. The notice provided thirty days to cure the default “to avoid termination of the Lease,” but did not explain how plaintiff could cure the alleged breach. “Notably, the notice letter was silent as to whether ‘cure’ meant paying increased rent moving forward, paying back-rent for years in the past, or which amount of rent would apply in either case.” Because of these ambiguities with respect to plaintiff’s ability to cure, the notice letter was insufficient to commence a cure period as a matter of law, and thus the “cure” period could not have expired because it was never commenced.
The court went on to address the plaintiff’s likelihood of success on the merits with respect to the remaining Yellowstone factors. Although the court recognized that the defendant had some meritorious public policy arguments with respect to the validity of the lease in question, and that the plaintiff had likely failed to pay the full amount of rent due under the lease, it ultimately granted the plaintiff’s request for injunctive relief, noting New York’s well-settled law that the loss of a leasehold constitutes irreparable harm and that the equities disfavor the forfeiture of valuable leasehold interests, particularly where, as here, the notice of default was a nullity.
Costello v. Molloy (Mandatory injunction for reinstatement as member in LLC). In Costello v. Molloy, Justice Gretchen Walsh of the Westchester County Commercial Division denied Plaintiff William Costello’s request for a mandatory injunction against Defendants Ronald Molloy and Curis Partners, LLC reinstating Costello as a member of the LLC. Although the court found that Costello demonstrated a likelihood of success on the merits of his claim that his LLC membership was wrongfully terminated, the court held he failed to clearly establish the type of extraordinary circumstances necessary to warrant the granting of mandatory injunctive relief reinstating his membership in Curis.
Despite finding that Costello had established a likelihood of success on his claim that Defendants breached the Operating Agreement, the court nonetheless denied Costello’s request for a mandatory injunction reinstating him as a Curis member. Specifically, the Court explained that a mandatory injunction is an “extraordinary and drastic remedy” that should only be granted when essential to maintain the status quo pending trial. Because the injunctive relief enjoining Defendants from taking any actions that would prejudice Costello’s purported rights or membership in the LLC—which the court extended under the requested preliminary injunction—was sufficient to protect Costello’s interests, such a drastic remedy was not necessary. The court also reasoned that absent extraordinary circumstances, a mandatory injunction should not issue where, as here, to do so would grant the movant the ultimate relief to which he would be entitled in a final judgment.
§ 1.3.14. North Carolina Business Court
Monarch Tax Credits, LLC v. N.C. Dept. of Revenue (Motion to dismiss for failure to state a claim and for lack of jurisdiction). The North Carolina Department of Revenue brought a motion to dismiss plaintiff’s petition for judicial review and complaint for declaratory relief for lack of jurisdiction under Rules 12(b)(1) and 12(b)(2) and for failure to state a claim upon which relief may be granted under Rule 12(b)(6). The court’s order addressed only Rules 12(b)(1) and 12(b)(2), and deferred ruling on the merits under Rule 12(b)(6). Plaintiff sought declaratory relief on whether defendant unconstitutionally administered tax law to deny tax credits to plaintiff’s investor customers. Plaintiff “formed structured investment partnerships to encourage investment by North Carolina taxpayers related to renewable energy, mill restoration and historic redevelopment” and to use “these partnerships to aggregate investments necessary to fund such projects, and to then allocate to investors the tax credits those projects yield.” The court found plaintiff did not have jurisdiction to challenge defendant’s enforcement of a September 10, 2018 publication as an administrative rule under N.C. Gen. Stat. 150B-4, but found plaintiff did have jurisdiction to “pursue a direct constitutional claim for the damage it has suffered unaffected by any invocation of sovereign immunity, otherwise known as a Corum claim.”
Ford v. Jurgens (Attorney-client privilege and work product doctrine). Plaintiffs moved to compel the production of certain draft operating agreements and related emails withheld by defendants on the basis of attorney-client privilege and/or the work product doctrine. The court considered and rejected plaintiffs’ arguments that the draft operating agreements were not privileged because: (1) they were not intended to be confidential; (2) any privilege had been waived because defendants “put advice they received from counsel ‘at issue’”; (3) due to the fiduciary exception; or (4) due to the crime-fraud exception. Therefore, the court denied the motion as to the draft operating agreements. As to the related emails, the court granted the motion in part and ordered the production of several transmittal emails that attached draft operating agreements because those emails did not furnish or request legal advice; therefore, they were not attorney-client privileged communications. The court denied the motion as to more substantive emails that were made in the course of giving or seeking legal advice for a proper purpose.
Buckley LLP v. Series 1 of Oxford Ins. Co. NC LLC (Attorney-client privilege and work product doctrine). Both parties moved to compel the production of certain email communications withheld by the opposing party on the basis of attorney-client privilege and/or the work product doctrine. Plaintiff, a law firm, brought the action against defendant, an insurance company, for refusing to provide coverage under an insurance policy for “certain losses associated with the departure of key revenue-generating partners.” Plaintiff hired an outside law firm to provide services relating to an investigation of alleged misconduct of one of plaintiff’s partners. Defendant contended that plaintiff improperly withheld communications between plaintiff and its outside counsel. The court reviewed in camera the challenged communications and determined that certain communications reflected outside counsel’s participation in the investigation “in accordance with plaintiff’s firm policies and were unrelated to the rendition of legal services.” Therefore, the court found such communications were not properly withheld as privileged. On the other hand, the court found that other communications reflecting a primary purpose of giving or receiving legal advice were privileged. The court further considered and rejected plaintiff’s contention that its communications with outside counsel were protected under the work product doctrine. The court reasoned the investigation would have been conducted whether or not litigation was anticipated and no evidence suggested litigation was anticipated.
Plaintiff contented that defendant improperly withheld communications including its internal in-house counsel because the in-house counsel primarily was engaged in her business role rather than in giving legal advice. The court reviewed in camera the challenged communications and determined that most reflected the in-house counsel’s business role in reviewing plaintiff’s claim in the ordinary course of defendant’s insurance business. Therefore, the court found such communications were not properly withheld as privileged.
Erwin v. Myers Park Country Club, Inc. (Shareholder inspection rights). Erwin, a member of Myers Park Country Club, sought to inspect the corporate records of the club related to certain renovations projects and assessments approved by the Board of Directors. The court first examined whether Erwin had an absolute right of inspection pursuant to N.C. Gen. Stat. 55-16-02(a). The court concluded that Erwin, as a qualified shareholder under the statute, had an absolute right to inspect the minutes of all Myers Park shareholders meetings addressing the renovation project, Myers Park revenue shortfalls, and proposals to address revenue shortfalls. However, because Myers Park had failed to keep the minutes of the shareholder meetings held during the relevant time period, the court allowed Erwin a right of inspection “of all final actions taken by shareholders without a meeting” during the relevant time period, as well as “all communications with shareholders generally” that addressed the project and revenue shortfalls.
Next, the court turned to the qualified right of inspection of records pursuant to N.C. Gen. Stat. 55-16-02(b), which requires that the demand be made “in good faith and for a proper purpose.” Myers Park argued that Erwin’s demand lacked a proper purpose and was merely an attempt to second-guess the Board’s decision to move forward with the project. The court rejected Myers Park’s attempt to use the Business Judgment Rule to shield its decision process from shareholder inspection, noting that Myers Park failed to overcome the presumption of reasonableness with respect to Erwin’s requests.
However, the court stopped short of granting Erwin’s request to see the minutes from all Board meetings, explaining that the statute only grants the right to inspect minutes that reflect the final action of the Board. Accordingly, the court narrowed the requests to those encompassing only final actions. Likewise, the court only granted Erwin access to the capital operating budgets and capital operating expenditures that were actually approved by the Board.
Lunsford v. JBL Communications, LLC (Discovery sanctions). This opinion deals with a litigant’s eighteen-month attempt to force the opposing party to produce documents. Soon after being served with the complaint in September of 2019, Defendant JBL served discovery requests on Lunsford, to which Lunsford failed to respond. After Lunsford added additional plaintiffs to the lawsuit, JBL again served discovery requests on the new parties as well. By June 2020, JBL sought relief with the Business Court, submitting a Rule 10.9 dispute and contending that plaintiffs’ responses were long overdue. The court ordered plaintiffs to provide a date certain by which they would produce responsive documents. Again, plaintiffs failed to comply. By the time JBL’s first motion for sanctions came on for hearing in August of 2020, plaintiffs had only produced a few documents in an unreadable format and could not give a production timeframe because they had not even begun looking for relevant documents with respect to several email account and at least one mobile device.
The court entered sanctions against plaintiffs, ordering them to pay JBL’s attorneys fees and produce documents consistent with the parties’ agreed-upon ESI protocols within 30 days. Plaintiffs still did not produce any documents within the court-ordered timeframe and instead, sought several extensions of time, and filed an ex parte motion asking the court to suspend the production deadline indefinitely. During a status conference to determine a new discovery schedule, plaintiff’s counsel admitted that he had spent virtually no time on document review and still had no production date in mind. On November 20, 2020, after JBL filed a second motion for sanctions, plaintiffs stated they had no immediate plans to produce documents, citing the large volume of documents and the high cost of their document review vendor. On February 3, 2021, plaintiffs’ attorney admitted at another status conference that although he had now obtained a new vendor, he had no basis for believing he could meet the production schedules he previously agreed to and that his prior assurances were simply “blind optimism.”
In ruling on JBL’s second motion for sanctions, the court rejected plaintiffs’ argument that their recent procurement of a vendor was a mitigating factor, noting that their efforts came only after JBL’s motion. The court also rejected counsel for plaintiffs’ contention that he was unaware of the complexities of electronic discovery involved in this case. Noting plaintiffs’ “casual disregard for court orders and rules alike,” the court entered a sanction prohibited plaintiffs from introducing evidence in support of their claims and defenses against JBL. Additionally, the court once again ordered plaintiffs to produce the documents and pay JBL’s attorneys fees caused by plaintiffs’ failure to obey the court’s prior orders. However, the court declined to strike plaintiffs’ pleadings and enter default judgment or to find them in civil contempt, though it did warn plaintiffs that going forward, “only the most severe sanctions remained.”
Quad Graphics, Inc. v. N. Carolina Dep’t of Revenue (Tax and constitutional law). In this tax appeal, petitioner Quad Graphics, Inc., a Wisconsin corporation that prints books and catalogs for direct mail, filed for judicial review of the ruling of the Office of Administrative Hearings, which had upheld an assessment of sales tax against it. Petitioner argued it was not a “retailer” under N.C. Gen. Stat. 105-164.3(35)(a) required to pay sales tax because it did not make any sales in North Carolina subject to tax as defined in the statute. Petitioner additionally argued that the state’s attempt to collect sales tax in this instance violated the Commerce Clause of the United States Constitution. Although petitioner had customers in North Carolina and hired a sales representative in North Carolina in 2009, the materials petitioner sold were all printed and delivered to post office locations outside the state, and its contracts specified that title to the materials transferred to the customers when the materials were deposited on the carrier’s shipping dock. Thus, petitioner argued that it did not make actual sales in North Carolina.
The court rejected petitioner’s interpretation of “retailer,” first noting that the Revenue Act imposed both a sales and use tax on retailers, lending support to the Department of Revenue’s ruling. The court also looked to other provisions in the statute, including N.C. Gen. Stat. 105-164.6, titled “Complementary use tax,” which specifically provided authority for the state to collect a use tax from retailers who sold personal property outside North Carolina for use in the state. Finally, the court looked to N.C. Gen. Stat. 105-164.8, which requires retailers to collect sales tax on personal property that enters the state, even when that property is delivered to a carrier F.O.B. outside the state.
However, the court agreed with petitioner that the attempted collection of sales tax violated the Commerce Clause. In doing so, the court looked to whether North Carolina had a sufficient “transactional nexus” with the sales in question. Petitioner argued that the controlling case was McLeod v. J.E. Dilworth Co., 322 U.S. 327 (1944), where the United States Supreme Court precluded Arkansas from assessing sales tax on goods shipped from Tennessee to Arkansas residents via a common carrier. The court rejected the State’s argument that Dilworth had been overruled by the later Supreme Court opinions Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), and South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), noting that neither overruled Dilworth’s principle that “to meet the transactional nexus requirement under the Commerce Clause, a state sales tax must only be imposed on sales where the transfer of title or possession occurs within the taxing state.” The court found that North Carolina lacked a sufficient nexus to the transactions at issue because it was undisputed that the transactions occurred out of state. Therefore, it reversed and granted summary judgment in favor of petitioner.
Columbus Life Ins. Co. v. Wells Fargo Bank, N.A. (Motion to dismiss 12(b)(6) and 12(b)(2)). This case highlights a tension that exists in North Carolina’s (and many other states’) insurance laws. North Carolina has long held that an insurance policy taken out by one who lacks an insurable interest is void against public policy as an illegal wager on human life. However, N.C. Gen. Stat. 58-58-22(2) requires all insurance contracts to contain a clause barring the insurer from contesting the validity of any policy more than two years after it has been in force for any reason except the failure to pay premiums. In this case, Columbus Life claimed that a $1 million policy taken out in 2005 on a doctor who had never paid premiums and had immediately assigned a collateral interest on the policy was part of a “stranger-originated life insurance,” or “SOLI” scheme. After several subsequent assignments, Wells Fargo came to hold the policy as a securities intermediary for Luxembourg-based LSH, Co. In the action, Columbus Life sought a declaratory judgment that the policy was void ab initio. Wells Fargo and LSH moved to dismiss for failure to state a claim and lack of personal jurisdiction respectively.
Wells Fargo argued that the more recent statute N.C. Gen. Stat. 58-58-22(2) represented a legislative change in North Carolina’s public policy, barring even SOLI claims after two years. Wells Fargo additionally argued that allowing SOLI claims to be an exception to the strict wording of the statute would wrongfully incentivize insurance companies to accept premiums on suspected SOLI claims as long as possible before seeking to declare the policies void. Despite recognizing a split in authority, the court joined the Supreme Courts of New Jersey and Delaware, reasoning that if the insurance policy never legally came into effect, neither did its two-year incontestability provision. Thus, Columbus’s claims against Wells Fargo were not barred by the statute.
However, the court did dismiss the claims against LSH, concluding that North Carolina’s long-arm statute did not reach it. Even if by becoming a beneficial owner LHS could be said to have entered a “contract of insurance” for purposes of the statute, the action did not “arise” out of any contract entered into by LSH, but rather with the origination of the policy in 2005. Thus, LHS, as a subsequent purchaser, did not establish minimum contacts with North Carolina.
§ 1.3.15. Philadelphia Commerce Case Management Program
Chest-Pac Assocs., L.P. v. Del Frisco’s of Philadelphia, Inc. (Lease termination during COVID-19 would result in unacceptable forfeiture under substantial performance doctrine). In Chest-Pac Associates, the Commerce Court addressed a commercial landlord-tenant dispute involving late rent payments, resulting from the Governor’s executive orders imposing business limitations because of the COVID-19 pandemic. Over a period of months, the restaurant tenant did not make its rent payments, but did actively communicate with the landlord in attempting to reach a negotiated accommodation to save its business by making alternative rent arrangements. The landlord sent a number of default notices (though no notice that it would seek possession), and offered some counter-proposals. After not paying rent from March 2020 on, the tenant paid all past due sums in November 2020, and was current with its rent thereafter. The landlord still brought suit, seeking possession of the premises.
Commerce Court Supervising Judge Gary Glazer granted the tenant summary judgment under the substantial performance doctrine. Pennsylvania law disfavors forfeitures and courts “should not enforce forfeiture ‘when the contract has been carried out or its literal fulfillment has been prevented by oversight or uncontrollable circumstances.’” Rather, “[c]ourts seek to avoid forfeitures particularly where there has been considerable part performance.” “[T[he doctrine of substantial performance was created by the courts to use as an instrument of justice intended to avoid forfeiture because of technical, inadvertent or unimportant omissions.” It “is intended for the protection and relief of those who have faithfully and honestly endeavored to perform their contracts in all material and substantial particulars.” Judge Glazer found the substantial performance doctrine a well-suited tool for this case, in light of the tenant’s efforts and payments, and its technically curing any defaults. Further, “[w]hile the … COVID-19 executive orders do not relieve or excuse [the] obligation to pay rent under the Lease, one cannot turn a blind eye to the unfortunate economic impact that such orders had on [the tenant’s] ability to timely pay its rent, especially since prior to March 2020, [it] was current with its rental obligations.”
Brown v. Cottrell (Piercing the corporate veil). In Brown, the plaintiff real estate developer contracted with defendant management company (the “LLC”) to perform project management services on various real estate projects. The LLC’s principal, also named a defendant, represented that he and the LLC had extensive management experience. In fact, the principal gave a false name, prevented plaintiff from discovering his criminal history, and misrepresented the fact that he and his company had little actual experience as project managers. Plaintiff never would have hired defendants had it known the truth.
Judge Glazer, in a non-jury trial, found facts supporting piercing the corporate veil to hold the principal liable. These facts included the LLC did not maintain adequate insurance, the principal and the LLC did not have separate identities, the LLC was grossly undercapitalized and lacked sufficient bank funds to protect creditors, the LLC did not maintain corporate formalities, and personal and business bank account funds were comingled. Both defendants were found liable under breach of contract and fraudulent inducement theories, though the court did limit damages.
Spector Gadon Rosen Vinci, P.C. v. Valley Forge Ins. Co. (Law firm COVID-19 insurance coverage suit). In Spector Gadon, Commerce Court Judge Nina Wright Padilla (now Supervising Judge) addressed insurance coverage for a law firm’s business interruption losses due to the Governor’s executive orders limiting business operations during the COVID-19 pandemic. The court had to analyze the policy language “direct physical loss of or damage to property” to determine the merits of the law firm’s coverage claim. Judge Padilla determined that loss of use alone did not constitute “direct physical loss of or damage to property”, following other case law reaching that same conclusion, which focused on the physical nature of the loss required to meet this policy language.
Judge Padilla also rejected coverage under the policy’s Civil Authority provision as, again, there was no physical loss. Further, there was no evidence the virus was present at the property or within five miles thereof. Moreover, the government shutdown order was issued to control a health crisis, not because of any physical loss at the premises or within five miles thereof. Finally, the policy also had a broad virus exclusion that barred coverage even for losses indirectly caused by viruses.
Lehigh Valley Baseball, L.P. v. Philadelphia Indemnity Ins. Co. (Baseball team COVID-19 insurance coverage suit). In Lehigh Valley Baseball, a minor league baseball team sought coverage for business income losses due to executive orders shutting down its business, issued by the Governors of Pennsylvania and New Jersey to address the COVID-19 pandemic. Like Judge Padilla in Spector Gadon, Commerce Court Judge Glazer found a physical loss was required to invoke coverage, and there was none in this matter. Moreover, even if the court deemed the presence of COVID-19 to constitute a physical loss, the policy had a virus exclusion that precluded coverage for losses from a virus like COVID-19. Judge Glazer rejected the argument that the virus exclusion was void because it was obtained improperly from the Pennsylvania and New Jersey insurance authorities in 2006, on the theory the carrier failed to disclose the virus exclusion reduced existing coverage. Judge Glazer found the plaintiff did not plead any facts supporting the notion that a pre-2006 standard commercial insurance policy would have covered the kind of COVID-19 losses at issue.
Pine View Condo. Ass’n v. The Views at Pine Valley II. L.P. (Puffery not fraud). In Pine Valley Condominium Association, a condominium association brought suit against the declarant, developers and various individuals based on construction defects and financial deficiencies. Among other claims, the association alleged fraudulent inducement. The court dismissed this claim on the basis the alleged misrepresentations amounted to puffery, and not a knowing or reckless material misrepresentation upon which the purchasers reasonably relied to their financial detriment. Puffery is defined as an “‘exaggeration or overstatement addressed in broad, vague and commendatory language.’” It is “‘offered and understood as an expression of the seller’s opinion only, which is to be discounted as such by the buyer, and on which no reasonable [person] would rely.’” A seller’s general self-praise of its own product, without any actual detailed promises or guaranties regarding the particular characteristics of what is being sold, is a commonly recognized practice upon which a reasonable person should not rely.
Commerce Court Judge Remy I. Djerassi found the following language to be puffery: (1) the condominium brings modern luxury to life by building upscale residences honoring the surrounding neighborhood’s character; (2) the project will provide distinctive and unique features not to be found elsewhere; (3) the declarant’s personnel and contractors have extensive experience in developing residential communities; and (4) a health care system connected to the condominium is a long-standing and trusted provider, with a mission to provide care, comfort and healing to enrich the lives of older adults through innovative initiatives. Judge Djerassi concluded, “[t]hese representations are indefinite and elusive in meaning and constitute puffery which may not form the basis of a fraud claim.”
§ 1.3.16. Rhode Island Superior Court Business Calendar
CharterCARE Community Bd. v. Lee (Motion to dismiss claim under Uniform Fraudulent Transfer Action). Receivers brought action under the Uniform Fraudulent Transfer Action (“UFTA”) against administrative agent/collateral agent to recover funds that were loaned to company to pay dividends to shareholders. Defendant/administrative agent/collateral agent sought to have action dismissed for failure to state a claim. The court denied the motion to dismiss on the grounds that: (1) defendant was a transferee for purposes of the UFTA; (2) as a collateral agent, defendant is a person for whose benefit the transfers were made; and (3) the transfer was made without the company receiving reasonably equivalent value. In addition, the court found that intent to defraud was not relevant and the plaintiffs did not need to limit their actions to the debtors/company and/or the ultimate recipients of the dividends.
Howland v. Howland (Conveyance of a note in estate dispute). This case tells the sad saga of a woman who meticulously planned the disposition of her assets with input from leading professionals and her children. Since her death in 2009, her children have battled and prevented her estate from closing. The plaintiff children contended that a certain 2003 Note (the “2003 Note”) was indirectly conveyed by the decedent to the 2003 Trust of which they are beneficiaries; that the 2003 Note is in default; and the defendant child, as Trustee, must pay it in full. Defendant asserted that the 2003 Note poured over to the 1997 Trust of which he is beneficiary.
The court recognized that the Uniform Commercial Code provides two routes for conveyance of a note to another person: (1) by indorsing it to another person, R.I.G.L. 6A-3-201; or (2) by delivery to another person for the purpose of giving the recipient the right to enforce it, 3-203(a) and that such a transfer “vests in the transferee any right of the transferor to enforce the instrument.” 3-203(b). The solitary difference between these two methods of conveying the value of a promissory note is one of presumption. See UCC Editor’s Notes, 3-203, ¶ 2. The court stated “Because the transferee is not a holder, there is no presumption under 3-308 that the transferee, by producing the instrument, is entitled to payment. The instrument, by its terms, is not payable to the transferee and the transferee must therefore, account for possession of the unindorsed instrument by proving the transaction through which it was acquired. Proof of a transfer to the transferee by a holder is proof that the transferee has acquired the rights of a holder. The transferee is then entitled to the presumption under 3-308.” Thus, a subsequent possessor of the note without indorsement, who received the note through an intentional transfer for the purpose of giving the recipient the right to enforce the note is the owner of the note.
The court concluded as a matter of law that the plaintiffs established by more than a preponderance of the evidence that (1) the 2003 Note was transferred to the HH FLP Trust; (2) the HH FLP Trust was terminated in 2008; and (3) the 2003 Trust owns all the assets formerly owned by the HH FLP Trust. As such, the 2003 WBP Note was an asset of the 2003 Trust of which the plaintiffs are beneficiaries.
Barletta/Aetna 1-195 Washington Bridge North Phase 2 JV v. State (Public contract bid protest). This action arose out of the bidding process that occurred during the second phase of a construction project (the “Project”) owned by the Rhode Island Department of Transportation (RIDOT). The Department of Administration (the “DOA”, and collectively with RIDOT herein called the “State”) is the state agency in charge of advertising requests for proposals and creating the “Procurement Regulations” which govern the solicitation process for contracts with the State pursuant to G.L. 1956 §37-2-1 et seq. Aetna Bridge Company is a Rhode Island corporation. Barletta Heavy Division, Inc. is a Massachusetts corporation. Aetna and Barletta formed a joint venture (the “JV”) for the purposes of submitting a bid to RIDOT in connection with phase two of the Project. Cardi Corporation had been hired to perform certain work during the first phase of the Project and submitted a bid for the second phase of the Project as well. Following the issuance of the Phase 2 RFP, the three bidders, including the JV, submitted questions to the State in an attempt to clarify the quantity and description of the work completed during Phase 1 of the Project.
The court held: “Here, the Petition of the JV is sufficient to survive the pleading stage. “Specifically, the Petition alleged that (1) the State Respondents’ ‘failure to provide all [bidders] with the same material and competitively useful information constitutes a significant violation” of the State Purchases Act, the Procurement Regulations, and the Phase 2 RFP’; (2) ‘the JV was significantly disadvantaged over Cardi by the procurement process itself’; (3) Respondents ‘failed to equalize the competition and, therefore, compromised the integrity of the competitive procurement process’; (4) Respondents ‘failed to provide all prospective bidders . . . with comprehensive information relative to the Phase 2 RFP,’ which resulted in the solicitation processes being ‘neither comprehensive nor fair’; and (5) Respondents failed ‘to provide a comprehensive and fair solicitation relative to the Phase 2 RFP, the [Respondents’] actions relative to the Phase 2 RFP constitutes palpable abuse of discretion.’” The Petition also alleges that the information describing the work in the Phase 2 RFP and in the Respondents’ responses to the JV’s questions was “false.” The court concluded, assuming “all allegations [in the Petition] are true,” Petitioners have sufficiently pled that there was a significant violation by failing to equalize the competition because Petitioners were disadvantaged by the Respondents’ actions during the solicitation process.
Cambio v. Commerce Park Realty, LLC (Receivership income taxes and tax returns). Receiver brought an action for confirmation that a receivership estate was not responsible for income taxes and for approval for how he intends to prepare the tax returns. The members of the receivership entities objected to the Receiver’s proposal to file a Form 1065 return making certain assumptions including that the properties the Receiver has sold had a zero basis for tax gain purpose with the members being allowed to note any issues or disputes with the filing in a separate statement to accompany the filings. The court confirmed that the Receiver was not responsible for payment of the income taxes. With respect to the preparation of the returns, the court ordered that the members be allowed to provide documentation to the Receiver’s accountant to prepare and file accurate returns.
§ 1.3.17. Tennessee Business Court
Greg Carl v. Tennessee Football, Inc. (Motion to dismiss). This case involves a breach of contract dispute. Plaintiffs are holders of permanent seat licenses (“PSL”) for the Tennessee Titans and brought suit against Defendants Tennessee Football Inc. and Cumberland Stadium Inc. (“defendants”). Plaintiffs alleged that defendants increased the price of tickets for individuals that defendants considered to be ticket resellers and restricted the ability of ticket resellers to transfers their tickets or permanent seat licenses. Plaintiffs brought claims of declaratory judgment, breach of contract and breach of the duty of good faith and fair dealing, violation of the Tennessee Consumer Protection Act (“TCPA”), negligent misrepresentation, and promissory estoppel. In response, defendants filed a 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted on all claims except the declaratory judgment claim. defendants asserted that plaintiffs did not meet the heightened pleading requirements for TCPA claims which require pleading with particularity. Defendants also alleged that plaintiffs’ TCPA claim is inadequate because the TCPA claim did not allege that defendants’ conduct caused injury to any plaintiff. Additionally, defendants argued that plaintiffs’ negligent misrepresentation claim should be dismissed.
The court denied defendants’ motion to dismiss as to the plaintiffs’ breach of contract and breach of the duty of good faith and fair dealing claims. Additionally, the court denied defendants’ motion to dismiss as to the TCPA claim. The court held that the allegations in Plaintiffs’ Amended Complaint were sufficient to satisfy TCPA’s enhanced pleadings requirement as the plaintiffs specifically addressed statements by defendants’ employee, inaccurate statements on defendants’ website, and other representations made by defendants to demonstrate that defendants’ position was deceptive and unfair. However, the court held that the plaintiffs failed to allege their claim for negligent misrepresentation sufficiently based on a failure to disclose and granted defendants’ motion to dismiss that claim. Nevertheless, the court held that plaintiffs had adequately pled negligent misrepresentation based on an affirmative misrepresentation. The court also held that plaintiffs’ promissory estoppel claim sought to change the terms of existing, valid contracts and that precedent demonstrated that promissory estoppel was not available as a claim for such purposes. Consequently, the court granted defendants’ motion to dismiss plaintiffs’ promissory estoppel claim. Litigation in this matter will continue.
Christopher Harrod, M.D., LLC v. East Louisiana Surgical Servs., LLC (Corporate records request). In this case, Plaintiff Harrod, LLC (“plaintiff”) brought suit against Defendants East Louisiana Surgical Services (“ELSS”), Delta Surgical Services (“DSS”), and Tom Gallaher (collectively, the “defendants”) for failure to provide plaintiff with appropriate access to ELSS’ books and records despite plaintiff’s numerous requests. Plaintiff is one of two members of ELSS and holds 60% of the company’s membership interests. DSS is the ELSS managing member. Plaintiff alleges breach of contract, breach of fiduciary duty, tortious interference with contract, and aiding and abetting breach of fiduciary duty.
Plaintiff filed a motion for judgment on the pleadings requesting an order mandating that defendants provide plaintiff with unaltered copies of defendants’ books of account and records. The court granted plaintiff’s motion. Interpreting Louisiana law, the court held that pursuant to LSA-R.S. 1319(B) and the terms of the Operating Agreement, plaintiff, as a member of ELSS, was entitled to any of ELSS’s records, including information regarding the business and financial state of the business. The court also ordered defendants to provide other records regarding the business upon plaintiff’s reasonable request. Notably, the court recognized the challenge of protecting confidential information of other unrelated entities whose information was embedded in defendants’ accounting software. The court ordered defendants to file a notice with a sworn statement from a representative with technical knowledge of the accounting system explaining how the system operated, the information contained in the system, the method by which information could be extracted for individual entities, the feasibility of doing so, and what format the information could be produced in. The court then held that it would supplement its order to include instructions as to providing the accounting software records.
Girl Scouts of Middle Tennessee, Inc. v. Girl Scouts of the United States of America (Declaratory judgment and Tennessee Nonprofit Fair Asset Protection Act). Plaintiff Girl Scouts of Middle Tennessee (“GSMT”) brought suit against Defendant Girl Scouts of the United States of America (“GSUSA”) to protect GSMT’s contractual right to offer Girl Scouting in Middle Tennessee. GSMT alleges that GSUSA is requiring GSMT to enter into commercially unreasonable agreements surrounding GSUSA’s technology platform and onboarding process. Specifically, GSUSA has indicated that GSMT is in a “viability review” to address GSMT’s decision not to enter into the technology agreements with GSUSA. GSMT brought claims of declaratory judgment and violations of the Tennessee Nonprofit Fair Asset Protection Act. GSMT alleges that it is a legal entity separate and distinct from GSUSA. Additionally, GSMT asserted that it is responsible for its own governance, finances, operations, and expenses. GSMT also alleged that GSUSA’s governing documents vest the National Council with the sole authority to establish requirements for GSMT to enter into the technology agreements at issue. GSUSA has filed a notice of removal to the United States District Court for the Middle District of Tennessee.
§ 1.3.18. West Virginia Business Court Division
MarkWest Liberty Midstream & Resources L.L.C. v. J.F. Allen Co. (Breach of contract bench trial). This case was referred to the Business Court Division on April 10, 2018, and involves a dispute related to the construction of a hybrid retaining wall at a natural gas processing plant owned by plaintiff. MarkWest contracted with Defendant J.F. Allen Company, a heavy highway contractor and earthmover, to construct a large retaining wall, and J.F. Allen then subcontracted with two other defendants to perform various functions associated with building the wall.
MarkWest sued J.F. Allen and other defendants, alleging that they breached their contract with it by failing to design and build the retaining wall to have a useful life expectancy of 75–100 years, to complete the wall on time, and to meet other requirements in the contract. MarkWest also brought claims for negligence, gross negligence, fraud, negligent misrepresentation, and specific performance. J.F. Allen brought counterclaims for breach of contract, quantum merit and unjust enrichment, enforcement of mechanic’s lien, and declaratory judgment, claiming that MarkWest failed to pay J.F. Allen for its work on the retaining wall and breached the contract in other ways.
The case went to a seventeen-day, in-person bench trial. The judge denied a motion for a fully remote trial but permitted several accommodations to which the parties agreed. These included social distancing in the courtroom, allowing some witnesses to testify remotely, and enforcing mask-wearing and other safety protocols. The case resolved in early 2021.
Directional One Services Inc. USA v. Antero Resources Corp. (Breach of contract jury trial). This case was referred to the Business Court Division on February 19, 2019, and involves a dispute between Directional One Services Inc. USA, a directional drilling contractor, and Antero Resources Corporation, an oil and gas well owner. Antero hired Directional One to perform directional drilling services, and the parties entered into a contract. The dispute giving rise to this case concerned costs associated with equipment that became lodged in the well bore and could not be retrieved. Both parties brought claims concerning alleged breaches of the contract between them.
This case went to trial by jury on August 26, 2020, before the same judge who conducted the in-person bench trial in the MarkWest case above. To ensure the safety of jurors and others, the judge held jury selection offsite to allow for social distancing. This procedure worked so well that other judges in his judicial circuit adopted it. The judge also required mask-wearing and had counsel remain at the dais for argument.
The jury found in favor of the plaintiff, and the judge entered judgment awarding the plaintiff approximately $1.48 million on November 4, 2020.
City of Charleston v. West Virginia Paving, Inc. (Antitrust). This case, consolidated with an action brought by the West Virginia Attorney General and Secretary of Transportation, was an antitrust suit against 11 asphalt and paving companies. The case settled for $101.3 million in October 2020 on the eve of trial. Following the settlement, the judge entered agreed orders of dismissal between the plaintiffs and defendants on December 16, 2020.
In addition to requiring the defendants to pay $101.3 million in both cash and project credits to the state highway fund, the settlement enjoined them from entering into any contract to restrain trade or from monopolizing or attempting to monopolize asphalt manufacturing or Paving Services in West Virginia. It also required the defendants to make certain structural changes in their businesses, to give advance notice of prospective mergers to the West Virginia Attorney General, or to refrain from entering into certain mergers altogether. The case was disposed of on March 24, 2021, following the entry of an agreed order of dismissal of a crossclaim involving three of the defendants.
§ 1.3.19. Wisconsin Commercial Docket Pilot Project
L’Eft Bank Wine Co., LTD. v. Bogle Vineyards, Inc. (Forms battle over an arbitration provision and injunction granted under Wisconsin Fair Dealership Law). A double feature dealing with two issues that come up often in business disputes, especially in Wisconsin, this case arose when Bogle, a wine producer, attempted to terminate L’Eft Bank, Bogle’s Wisconsin wine distributor. L’Eft Bank immediately sought to preserve its dealership, filing suit for violations of the Wisconsin Fair Dealership Law (“WFDL”) and requesting a TRO and temporary injunctive relief. After expedited discovery, Bogle moved to stay the case and compel the parties to arbitrate the dispute, arguing that an arbitration provision in the terms and conditions Bogle sent to L’Eft Bank required the parties to arbitrate. L’Eft Bank argued that Bogle waived any right to arbitrate by engaging in discovery on the injunction and, in any event, L’Eft Bank had already rejected the arbitration provision during prior negotiations with Bogle. The court rejected the waiver argument but held that under Wisconsin’s version of the UCC, the arbitration provision materially altered the parties’ agreement and could not be added to the agreement by way of terms and conditions attached to an invoice. The court found that there was no clear acceptance of the terms, including the arbitration provision, and that binding L’Eft Bank to the terms would result in unreasonable surprise and undue hardship which the UCC prohibits.
Later, following a three-day evidentiary hearing, the court granted L’Eft Bank’s motion for a temporary injunction to preclude termination of its exclusive Bogle dealership. The court held that L’Eft Bank had established a likelihood of success on the merits of its claim that it had a dealership protected under the WFDL under the test established in in Ziegler Co. v. Rexnord, Inc. for determining whether a community of interest exists.