N.C.G.S. § 7A-45.4 provides for nine categories of cases that any party may designate as a “mandatory” complex business case. The most commonly used provisions are Subsection (a)(1), for cases involving a material issue related to the law governing corporations, partnerships, and limited liability companies, and Subsection (a)(2), for cases involving a material issue related to disputes involving securities, including disputes arising under the North Carolina Securities Act, N.C.G.S. § 78A.
When one of the parties believes that the designation is improper, and the case should not be in Business Court, it may file an opposition to the notice of designation. See N.C.G.S. § 7A-45.4(e), and Business Court Rule 2.2. When that happens, the opposition goes to the Chief Business Court Judge, who must decide whether the case should remain in the Business Court or be sent back to regular Superior Court.
On April 27, 2022, Chief Judge Louis A. Bledsoe, III issued three opinions in cases where one of the parties opposed mandatory Business Court designation. Those orders clarify how the above provisions are to be applied. In two of the cases, Judge Bledsoe held the designation was proper. In the third, he ruled the designation was not proper, so the case went back to regular State Superior Court.
Alessi v. Techcom
The first case was Alessi v. Techcom, Inc., 2022 NCBC Order 15. In that case, the Complaint alleged claims for declaratory judgment and breach of contract. The defendant designated the case as a mandatory business case under the two provisions noted above, N.C.G.S. § 7A-45.4(a)(1) and (2). In support of designation under those sections, the defendant argued that the allegations in the Complaint involved an alleged contractual right of the plaintiff to issue stock that was purportedly triggered due to initiation by the defendant of a reverse stock split, and that accordingly, the action raised issues pertaining to both corporations and securities transactions.
Judge Bledsoe found that the Complaint did not involve any issues involving the law governing corporations, much less a material one, and that designation under § 7A-45.4(a)(1) was improper. He agreed, however, that designation under § 7A-45.4(a)(2) was proper because the Complaint alleged that the plaintiff agreed to accept shares in the defendant company in lieu of monetary compensation as part of an employment agreement, that the plaintiff was entitled to a certain number of shares upon a 1000 to 1 reverse stock split, that the stock split occurred, and that the plaintiff was not provided with the shares. While the Business Court has held that a tangential relationship between the securities and the allegations of the Complaint, without more, does not satisfy subsection (a)(2), the plaintiff’s claims in Alessi required a determination of whether the defendant had initiated a 1000 to 1 stock split, placing those securities at the core of the action. Accordingly, the securities were not tangential to the plaintiff’s claims and therefore sufficed for designation under subsection (a)(2). The Court also noted that the plaintiff did not include a securities claim under § 78A, but that mandatory designation under subsection (a)(2) does not require such a claim to be included to obtain mandatory complex business case designation.
Mixaykhan v. Nguyen et al.
The second case, Mixaykhan v. Nguyen et al., 2022 NCBC Order 14, was a dispute involving the ownership and operation of a nail salon. The plaintiff alleged that she and one of the defendants, as former spouses, orally agreed to buy an office condominium and operate a nail salon in the condominium as partners. Plaintiff alleged that as part of the oral partnership agreement, she and one of the defendants would each own one-half the equity and assets of the partnership and share equally in any profits or losses. When the marriage ended, plaintiff alleged that the defendant no longer participated in the business and wrongfully ousted her from the business and real property, ultimately selling both to another defendant.
The plaintiff contended that mandatory business court designation was not proper under subsection (a)(1), despite the claim for relief under North Carolina partnership law, arguing that the issues that might be presented under the partnership claim were not novel or complex and that it was not necessary to bring the specialized resources of the Business Court to resolve them.
Judge Bledsoe noted that while a material issue related to the law governing partnerships (or corporations or LLCs) is required to support designation under subsection (a)(1), that section does not require that the issue involve a claim of any particular complexity, or any threshold minimum amount in controversy, or extend beyond the regular jurisdiction of any superior court judge. Because the complexity of the case has no bearing on whether it has been properly designated as a mandatory complex business case under subsection (a)(1), the plaintiff’s argument failed, and the case remained in the Business Court.
Tyus v. Chemours et al.
Finally, in Tyus v. Chemours Company FC, et al., 2022 NCBC Order 12, Judge Bledsoe held that mandatory Business Court designation was not proper. Tyus arose from the alleged release, discharge, spill and leaks of toxic chemicals in the Fayetteville, N.C. area, and the plaintiff sought damages as a result of her exposure to those chemicals from several defendants. The plaintiff alleged claims for trespass, negligence, violations of the North Carolina Uniform Avoidable Transactions Act (“NCUVTA”), unjust enrichment, civil conspiracy, negligent failure to warn and battery.
The defendants contended the designation was proper as a mandatory complex business case under subsection (a)(1) (material issues related to disputes involving the law governing corporations, partnerships and LLCs), because the Complaint alleged that the defendants engaged in various “corporate transactions, including a spinoff to form a new publicly traded company, a subsequent merger of two publicly traded companies, followed thereafter by a series of business segment and product line realignments and divestures, all done with the alleged intent of shielding assets.” Judge Bledsoe disagreed, because resolution of the potentially applicable claims required application only of the law regarding fraudulent conveyances (the NCUVTA), rather than the law governing corporations. Because claims arising under the NCUVTA, Chapter 39, are not included in the categories specified in subsection (a) of the mandatory designation statute, Judge Bledsoe concluded that the defendants’ reliance on the NCUVTA allegations, without more, was insufficient to support designation as a mandatory complex business case, and the case went back to regular State Superior Court.
These three decisions provide several takeaways:
- For designation under 7A-45.4(a)(1), the case must involve a material issue related to disputes involving the law governing corporations, partnerships and limited liability companies.
- A simple contract right, even if that right involves corporate stock, likely will not suffice.
- A claim for a voidable transfer under the NCUVTA will not suffice.
- The novelty or complexity of the claims is irrelevant, and there is no required amount in controversy, other than that required for regular Superior Court.
- The Business Court has held in earlier decisions that a claim for veil piercing, by itself, does not suffice.
- Claims involving application of contract law, such as breach of contract, will not suffice.
- For designation under § 7A-45.4(a)(2) (material issue related to disputes involving securities):
- It is not necessary for the Complaint to include a claim under the N.C. Securities Act, NCGS § 78A.