Addison Whitney, LLC v. Cashion, 2017 NCBC 50.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION MECKLENBURG COUNTY 17 CVS 1956
ADDISON WHITNEY, LLC,
Plaintiff,
v.
BRANNON CASHION; VINCENT ORDER AND OPINION BUDD; RANDALL SCOTT; ON DEFENDANTS’ PARTIAL ANDREW CUYKENDALL; AMY BAYNARD; and JENNIFER MOTION TO DISMISS RODDEN,
Defendants.
1. This case arises from the mass resignation of six officers and employees of
Plaintiff Addison Whitney, LLC. According to Addison Whitney, Defendants
conspired to resign for the purpose of starting a competing business, thereby
breaching their contractual and fiduciary duties to the company. Addison Whitney
further alleges that Defendants misappropriated the company’s trade secrets and
wrongfully obtained other confidential information and documents.
2. Defendants moved to dismiss three asserted claims pursuant to Rule
12(b)(6) of the North Carolina Rules of Civil Procedure. Defendants contend that
they did not owe a fiduciary duty to Addison Whitney, that certain contractual
obligations are unenforceable, and that they did not deprive Addison Whitney of the
use of electronic documents allegedly taken around the time of their resignations.
3. Having considered the motion to dismiss; the briefs supporting and
opposing the motion; and the parties’ arguments at the hearing on May 23, 2017, the
Court GRANTS in part and DENIES in part the motion to dismiss. Littler Mendelson, P.C., by Michael Scott McDonald, Stephen D. Dellinger, and Elise Hofer McKelvey, for Plaintiff.
Van Hoy, Reutlinger, Adams & Dunn, PLLC, by G. Bryan Adams, III, for Defendants.
Conrad, Judge. I. BACKGROUND
4. The Court does not make findings of fact on a Rule 12(b)(6) motion to
dismiss. The following factual summary is drawn from relevant allegations in the
amended complaint and attached exhibits.1
5. Addison Whitney, a North Carolina company, “specializes in verbal
branding, visual branding, brand strategy, and research and analysis.” (Am. Compl.
¶ 14.) The company often assists pharmaceutical companies in creating brand names
that the appropriate regulatory authority will approve. (Am. Compl. ¶¶ 15–17.)
6. Addison Whitney is a wholly owned subsidiary of inVentiv Health, Inc.
(“inVentiv”). (Am. Compl. ¶ 14.) inVentiv acquired Addison Whitney’s predecessor—
Addison Whitney, Inc.—on June 1, 2007 via an asset purchase. (Am. Compl. ¶ 28.)
At that time, inVentiv dissolved Addison Whitney, Inc. and created Addison Whitney,
LLC as the successor. (Am. Compl. ¶ 28.) Although primarily based in Charlotte,
1 The amended complaint incorporates by reference several affidavits. (See Am. Compl. ¶¶ 2– 3.) Among the federal courts of appeals, there appears to be a split regarding whether and when it is appropriate to consider affidavits as part of a complaint. Compare Smith v. Hogan, 794 F.3d 249, 254 (2d Cir. 2015), with N. Ind. Gun & Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 453 & n.4 (7th Cir. 1998). The Court is unaware of any North Carolina precedent on point. It is unnecessary to address this issue because Defendants have not objected to consideration of the affidavits, and the affidavits are not necessary to the decision. North Carolina, Addison Whitney has a global footprint with small offices overseas.
(See Am. Compl. ¶ 4; see also Am. Compl., Stockman Aff. ¶ 5.)
7. Defendants Brannon Cashion, Vincent Budd, Randall Scott, Andrew
Cuykendall, Amy Baynard, and Jennifer Rodden are former officers and employees
of Addison Whitney, all of whom resided in the company’s Charlotte office. (Am.
Compl. ¶¶ 28–33, 89.) Defendants tendered their resignations on the morning of
January 21, 2017, and they are now forming a business to compete with Addison
Whitney. (Am. Compl. ¶¶ 89–92.) At the time of their resignations, Cashion was
Addison Whitney’s Global President; Budd and Scott were Senior Vice Presidents;
Cuykendall and Baynard were Vice Presidents; and Rodden was a Senior Project
Manager. (Am. Comp. ¶¶ 28–33.)
8. Addison Whitney alleges that Defendants began formulating their plan to
leave the company and create a competing business as early as the summer of 2016.
(See Am. Compl. ¶¶ 58, 66.) During the third and fourth quarters of 2016, Addison
Whitney’s performance suffered, resulting in a revenue shortfall of several million
dollars. (Am. Compl. ¶ 62.) Addison Whitney attributes its poor performance to
Defendants, accusing them of lapses in client services and purposely reducing their
business development efforts on behalf of the company. (Am. Compl. ¶ 65.)
9. Addison Whitney also alleges that, in the weeks leading up to their
resignations, Defendants took steps to set up “an immediate pipeline” of business for
their new enterprise. (Am. Compl. ¶ 61.) Defendants had access to trade secrets and
other confidential information, including customer information and details on open business opportunities, as part of their employment. (See Am. Compl. ¶ 36.) Addison
Whitney believes Defendants accessed this information prior to resigning without a
business reason for doing so and then retained the information with the intent to gain
a competitive advantage. (See, e.g., Am. Compl. ¶¶ 58, 73, 80, 108–10, 127, 169–74.)
10. Defendants’ “departure from Addison Whitney has had a sudden and
dramatic negative impact on Addison Whitney’s financial condition.” (Am. Compl.,
Stockman Aff. ¶ 13.) The company’s “project-based business . . . requires constant
business development efforts to drive a steady stream of sales.” (Am. Comp. ¶ 34.)
The Charlotte office was responsible for most of the company’s revenues, and
Defendants represent nearly all of the company’s management as well as the bulk of
its business development expertise. (See Am. Compl. ¶ 1; see also Am. Compl., 2d
Kempf Aff. ¶¶ 3, 4.)
11. Addison Whitney filed this action on January 30, 2017. Its amended
complaint asserts seven causes of action: a claim for breach of fiduciary duty against
all Defendants except Rodden; and claims against all Defendants for
misappropriation of trade secrets, unfair or deceptive trade practices, breach of
contract, conversion, civil conspiracy, and computer trespass. As relevant here, the
claim for breach of contract concerns an Employee Confidentiality and Non-Compete
Agreement (“Confidentiality Agreement”), which was signed by all Defendants except
Baynard. (See Am. Compl. ¶ 42.) The Confidentiality Agreement contains a
confidentiality and non-disclosure provision as well as a provision that requires
employees not to “directly or indirectly hire, solicit or encourage or induce any employee” to leave Addison Whitney during the period of employment and for one
year following termination. (See Am. Compl. ¶¶ 42, 44 (citing Exhibits F–J attached
to Freeman-Greene Aff.).)
12. On February 9, 2017, Addison Whitney moved for a preliminary injunction.
Addison Whitney sought to enjoin Defendants from using, disclosing, or otherwise
misappropriating its confidential information and trade secrets; from soliciting or
encouraging employees to leave the company; and from competing against Addison
Whitney. The Court granted the motion with respect to misappropriation of trade
secrets and confidential information but denied it in all other respects. See generally
Addison Whitney, LLC v. Cashion, 2017 NCBC LEXIS 23 (N.C. Super. Ct. Mar. 15,
2017).
13. Defendants filed their motion to dismiss on April 3, 2017; Addison Whitney
responded on April 21, 2017; and Defendants filed a reply on May 4, 2017. The motion
has been fully briefed, and the Court held a hearing on May 23, 2017. The motion is
ripe for determination.
II. ANALYSIS
14. A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency of the
complaint.” Concrete Serv. Corp. v. Investors Grp., Inc., 79 N.C. App. 678, 681, 340
S.E.2d 755, 758 (1986). The motion should be granted only “(1) when the complaint
on its face reveals that no law supports plaintiff’s claim; (2) when the complaint on
its face reveals the absence of fact sufficient to make a good claim; [and] (3) when some fact disclosed in the complaint necessarily defeats plaintiff’s claim.” Jackson v.
Bumgardner, 318 N.C. 172, 175, 347 S.E.2d 743, 745 (1986).
15. In deciding a Rule 12(b)(6) motion, the Court must treat the well-pleaded
allegations of the complaint as true and view the facts and permissible inferences “in
the light most favorable to” the non-moving party. Ford v. Peaches Entm’t Corp., 83
N.C. App. 155, 156, 349 S.E.2d 82, 83 (1986); see also Sutton v. Duke, 277 N.C. 94, 98,
176 S.E.2d 161, 163 (1970). “[T]he court is not required to accept as true any
conclusions of law or unwarranted deductions of fact.” Oberlin Capital, L.P. v. Slavin,
147 N.C. App. 52, 56, 554 S.E.2d 840, 844 (2001). In addition, the Court “may
properly consider documents which are the subject of a plaintiff’s complaint and to
which the complaint specifically refers,” without converting a Rule 12(b)(6) motion
into a motion for summary judgment. Weaver v. St. Joseph of the Pines, Inc., 187 N.C.
App. 198, 204, 652 S.E.2d 701, 707 (2007) (quoting Oberlin Capital, 147 N.C. App. at
60, 554 S.E.2d at 847).
A. Breach of Contract
16. Cashion, Budd, Cuykendall, and Scott move for partial dismissal of the
claim for breach of contract. They assert that the Confidentiality Agreements are
unenforceable due to a lack of consideration. (See Defs.’ Mem. in Supp. of Partial
Mot. to Dismiss 7–8 [“Defs.’ Mem.”].) Addison Whitney responds that the
consideration for the Confidentiality Agreements “was these Defendants’ new
employment with Addison Whitney, LLC.” (Pl.’s Mem. in Opp. to Defs.’ Partial Mot.
to Dismiss 15 [“Pl.’s Mem.”].) 17. The Court has previously addressed this issue in the context of deciding
Addison Whitney’s motion for preliminary injunction. As the Court explained, “[a]
contract, or ‘any modification to an existing contract, must be supported by
consideration.’” Addison Whitney, 2017 NCBC LEXIS 23, at *24 (quoting RoundPoint
Mortg. Co. v. Florez, 2016 NCBC LEXIS 17, at *46 (N.C. Super. Ct. Feb. 18, 2016)).
For an employment agreement, such as a promise by the employee not to disclose the
employer’s confidential information, the employment relationship may serve as
consideration when the employee makes the promise as part of the initial
employment terms. On the other hand, if the employer and employee enter into the
agreement after the creation of the employment relationship, the promise of
continued at-will employment is inadequate consideration. See RoundPoint Mortg.,
2016 NCBC LEXIS 17, at *47–48; Better Bus. Forms & Prods. v. Craver, 2007 NCBC
LEXIS 34, at *19 (N.C. Super. Ct. Nov. 1, 2007).
18. Here, the amended complaint expressly alleges that Cashion, Budd,
Cuykendall, and Scott entered into the Confidentiality Agreements as “a condition of
and in consideration for their employment with Addison Whitney, LLC.” (Am. Compl.
¶ 42.) The Court must accept this allegation as true under the Rule 12(b)(6) standard,
and ordinarily, that would end the matter at this stage.
19. Defendants, however, contend that Addison Whitney’s timeline does not
add up. Cashion, Scott, Budd, and Cuykendall began a new employment relationship
with Addison Whitney in June 2007, following inVentiv’s acquisition of the company’s
predecessor through an asset purchase (see Am Compl. ¶¶ 28, 42). See, e.g., Am. Propane, LP v. Coffey, 2014 NCBC LEXIS 4, at *10 (N.C. Super. Ct. Feb. 11, 2014)
(holding that an asset purchase terminates existing employment relationships).
These Defendants then signed the Confidentiality Agreements roughly 90 days
later—Cashion on September 1; and Scott, Budd, and Cuykendall on September 17—
at a time when they were already employed. (See Am. Compl., Freeman-Greene Aff.
Exs. F–I.) This sequence, Defendants assert, renders the Confidentiality Agreements
unenforceable as a matter of law because they “were not signed at the inception of
employment.” (Defs.’ Mem. 7–8.)
20. The Court disagrees. The date the agreements were signed is relevant but,
standing alone, does not defeat Addison Whitney’s claim. As courts have noted, an
employer and employee may agree to terms at the outset of an employment
relationship and later reduce those terms to writing. In that circumstance, the
employment relationship may serve as consideration for the agreement despite the
absence of a contemporaneous signed writing. See Young v. Mastrom, Inc., 99 N.C.
App. 120, 123, 392 S.E.2d 446, 448 (1990); see also Battleground Veterinary Hosp.,
P.C. v. McGeough, 2007 NCBC LEXIS 33, at *15 (N.C. Super. Ct. Oct. 19, 2007) (“It
is immaterial that the written covenant is executed after the employee starts to work,
so long as the terms incorporated therein were agreed upon at the time of
employment.”).
21. To prevail on its claim, Addison Whitney will need to demonstrate that the
Confidentiality Agreements memorialize an agreement made at the time of the new
employment relationship, but it does not need to prove its case at this stage. Nor is the Court bound by its conclusion, in deciding the motion for preliminary injunction,
that Addison Whitney had not shown a likelihood of success on the point. For
purposes of Rule 12(b)(6) and crediting the allegations of the amended complaint, the
Court concludes that Addison Whitney has alleged sufficient facts to show that the
Confidentiality Agreements are supported by valid consideration.
22. Finally, Defendant Rodden separately argues that a non-compete clause in
her Confidentiality Agreement is unenforceable. (Defs.’ Mem. 8.) The Court does not
need to address this argument because Addison Whitney has represented that the
“First Amended Complaint contains no claim against Defendant Rodden for
breaching her non-competition covenant.” (Pl.’s Mem. 16.)
23. For these reasons, the Court denies the partial motion to dismiss the claim
for breach of contract.
B. Breach of Fiduciary Duty
24. Addison Whitney asserts a claim for breach of fiduciary duty against
Cashion, Budd, Scott, Cuykendall, and Baynard. These Defendants argue that the
complaint does not sufficiently allege the existence of a fiduciary relationship and
move to dismiss the claim on that ground.
25. “For a breach of fiduciary duty to exist, there must first be a fiduciary
relationship between the parties.” Dalton v. Camp, 353 N.C. 647, 651, 548 S.E.2d
704, 707 (2001). North Carolina courts have identified two types of fiduciary
relationships. The first type “arise[s] from ‘legal relations’”—e.g., attorney and client,
partners, principal and agent, and similar relationships. S.N.R. Mgmt. Corp. v. Danube Partners 141, LLC, 189 N.C. App. 601, 613, 659 S.E.2d 442, 451 (2008)
(quoting Rhone-Poulenc Agro S.A. v. Monsanto Co., 73 F. Supp. 2d 540, 546 (M.D.N.C.
1999)). The second includes relationships “that exist ‘as a fact, in which there is
confidence reposed on one side, and the resulting superiority and influence on the
other.’” Id.
26. The premise of Defendants’ argument is that they were merely employees
of Addison Whitney. (See Defs.’ Mem. 3.) If that were true, the law would place
Defendants on a strong footing. Employer-employee relationships are typically not
the kind of legal relations that give rise to fiduciary duties. See Dalton, 353 N.C. at
652, 548 S.E.2d at 708. And the standard for showing a de facto fiduciary
relationship—through superiority and influence by the employee over its employer—
“is a demanding one.” Lockerman v. S. River Elec. Membership Corp., 794 S.E.2d 346,
352 (N.C. Ct. App. 2016); see also Broussard v. Meineke Discount Muffler Shops., Inc.,
155 F.3d 331, 348 (4th Cir. 1998) (“Only when one party figuratively holds all the
cards – all the financial power or technical information, for example – have North
Carolina courts found that the ‘special circumstance’ of a fiduciary relationship has
arisen.”).
27. As Addison Whitney correctly observes, however, the amended complaint
alleges that these five Defendants were officers, not employees. (See Pl.’s Mem. 1, 2,
5–7.) Cashion was Addison Whitney’s Global President, and he “is listed in Addison
Whitney’s organizational records as an officer.” (Am. Compl. ¶ 28; see also Am.
Compl., Moore Aff. ¶¶ 3, 7, Ex. B.) At the time of their resignations, Budd and Scott were Senior Vice Presidents, and Cuykendall and Baynard were Vice Presidents.
(Am. Compl. ¶¶ 29–32, 138–42.)
28. These allegations sufficiently plead the existence of a fiduciary
relationship “by virtue of” each Defendant’s position at the company. (Am. Compl.
¶¶ 138–42.) The North Carolina Limited Liability Company Act expressly requires
managers and “company officials who are not managers” to discharge their duties
“(i) in good faith, (ii) with the care an ordinary prudent person in a like position would
exercise under similar circumstances, and (iii) subject to the operating agreement, in
a manner the manager [or company official] believes to be in the best interests of the
LLC.” N.C. Gen. Stat. §§ 57D-3-21(b), 57D-3-23.2 “Company official” is defined as
“[a]ny person exercising any management authority over the limited liability
company whether the person is a manager or referred to as a manager, director, or
officer or given any other title.” N.C. Gen. Stat. § 57D-1-03(5).
29. Defendants try to sidestep the statute by arguing that they were only
nominally officers—mere managers with no control over affairs of “operational
significance.” (Defs.’ Mem. 5.) But the Court is not in a position at the pleading stage
to evaluate whether Defendants held “only a title and not an actual office,” much less
render such a conclusion as a matter of law. Morris v. Scenera Research LLC, 2012
NCBC LEXIS 1, at *31 (N.C. Super. Ct. Jan. 4, 2012); see also Computer Design &
Integration, LLC v. Brown, 2016 NCBC LEXIS 96, at *11–12 (N.C. Super. Ct. Dec. 6,
2016) (denying motion to dismiss where president, as a company official, owed a
2 Chapter 57D applies to Addison Whitney even though it was created in 2007. See N.C. Gen. Stat. § 57D-1-02(c). fiduciary duty under section 57D-3-21); Sunbelt Rentals, Inc. v. Head & Engquist
Equip., L.L.C., 2002 NCBC LEXIS 2, at *17 (N.C. Super. Ct. July 10, 2002) (denying
summary judgment and noting that, “[b]y virtue of their titles alone,” the defendants
likely “held jobs of significant responsibility”).
30. Taken as true, the amended complaint provides ample support for Addison
Whitney’s view that these five Defendants “set Addison Whitney’s strategic course
and controlled its business development.” (Pl.’s Mem. 4.) Cashion, for example, had
responsibility “for overseeing the overall operational, business development, and
project delivery functions of Addison Whitney.” (Am. Compl. ¶ 28.) The others
performed lesser duties consistent with each individual’s place in the hierarchy. (See
Am. Compl. ¶¶ 29–32.) Collectively, these individuals comprised the entirety of
Addison Whitney’s senior management (save one Vice President who did not resign),
and their departures left the company in a difficult position. (See Am Compl. ¶ 1.)
31. The Court is unaware of any case dismissing a breach of fiduciary duty
claim against individuals with similar titles and authority at the 12(b)(6) stage. In
every case cited by Defendants, the employee held a non-officer position. See Dalton,
353 N.C. at 652, 548 S.E.2d at 708 (“production manager for a division of employer
Dalton’s publishing business”); Austin Maint. & Constr., Inc. v. Crowder Constr. Co.,
224 N.C. App. 401, 409, 742 S.E.2d 535, 541 (2012) (“foreman” of construction crew);
Artistic S. Inc. v. Lund, 2015 NCBC LEXIS 113, at *5 (N.C. Super. Ct. Dec. 9, 2015)
(“outside sales representative”); DSM Dyneema, LLC v. Thagard, 2015 NCBC LEXIS
50, at *21 (N.C. Super. Ct. May 12, 2015) (“Application Manager – Life Protection”); Allegis Grp., Inc. v. Zachary Piper, LLC, 2013 NCBC LEXIS 12, at *7 (N.C. Super.
Ct. Feb. 25, 2013) (“National Account Manager” and “Director of Strategic Sales for
Government Services”).
32. The Court has considered Defendants’ remaining arguments and finds
them unpersuasive. Defendants contend, for example, that the Court should
disregard exhibits identifying Cashion as an officer and manager of the company
because they are “inherently unreliable” and “fraught with mistakes.” (Defs.’ Reply
9.) Having reviewed the amended complaint and incorporated materials, the Court
concludes that any discrepancies go to the weight and credibility of the evidence,
which may not be resolved at the Rule 12 stage.
33. Viewing the complaint in the light most favorable to Addison Whitney as
the non-moving party, the allegations suffice to state a claim for breach of fiduciary
duty. The Court denies the motion to dismiss the claim.
C. Conversion
34. Addison Whitney asserts Defendants wrongfully copied or deleted
numerous electronic documents and other electronically stored information prior to
resigning. (See Pl.’s Mem. 17.) Defendants argue that Addison Whitney “does not
allege that any of the Defendants actually deprived Plaintiff of the use of the property
at issue.” (Defs.’ Mem. 10.)
35. Conversion is a tort with deep roots in the common law. It “is defined as
‘an unauthorized assumption and exercise of the right of ownership over goods or
personal chattels belonging to another, to the alteration of their condition or the exclusion of an owner’s rights.’” Spinks v. Taylor, 303 N.C. 256, 264–65, 278 S.E.2d
501, 506 (1981) (quoting Peed v. Burleson, Inc., 244 N.C. 437, 439, 94 S.E.2d 351, 353
(1956)). “The essence of conversion is not the acquisition of property by the
wrongdoer, but a wrongful deprivation of it to the owner.” Bartlett Milling Co. v.
Walnut Grove Auction & Realty Co., 192 N.C. App. 74, 86, 665 S.E.2d 478, 488 (2008).
36. These principles were not designed with the bits and bytes of the
Information Age in mind. As another Member of this Court noted, it is unclear
whether electronic documents are “goods” or “personal property” (which may be
subject to a conversion claim) or instead are “intangible interests such as business
opportunities and expectancy interests” (which are not subject to a conversion claim).
HCW Ret. & Fin. Servs., LLC v. HCW Emp. Benefit Servs., LLC, 2015 NCBC LEXIS
73, at *59–60 (N.C. Super. Ct. July 14, 2015) (quoting Norman v. Nash Johnson &
Sons’ Farms, Inc., 140 N.C. App. 390, 414, 537 S.E.2d 248, 264 (2000) (emphasis
omitted)).
37. The better view, and the weight of authority, treats electronic documents
as personal property subject to a claim for conversion. It would make little sense to
foreclose recovery for the wrongful deprivation of electronic information “when taking
the same information printed into hard copy form would be sufficient.” HCW, 2015
NCBC LEXIS 73, at *61. This is consistent with appellate precedent permitting an
action for conversion of “proprietary information, including customer lists, contact
lists, records and historical data.” Se. Shelter Corp. v. BTU, Inc., 154 N.C. App. 321,
331, 572 S.E.2d 200, 207 (2002). It is also consistent with case law in other jurisdictions, which reveals a growing recognition “that the tort of conversion must
keep pace with the contemporary realities of widespread computer use.” Thyroff v.
Nationwide Mut. Ins. Co., 8 N.Y. 3d 283, 292 (N.Y. 2007) (applying New York law).
38. The more difficult question is what action constitutes a conversion of
computerized information. Electronic documents are easy to copy at the stroke of a
key or click of a button, and storage media are abundant, varied, and relatively
inexpensive. Businesses and individuals routinely store copies of files remotely on
servers or in the cloud—instant redundancy that greatly minimizes the risk of losing
valuable information due to either misfortune or malfeasance. In other words, a thief
may steal a copy, but the information itself is hard to destroy.
39. By the same token, conversion of electronically stored information is hard
to prove. A growing body of case law from this Court has held that “making a copy of
electronically-stored information which does not deprive the plaintiff of possession or
use of information, does not support a claim for conversion.” RCJJ, LLC v. RCWIL
Enters., LLC, 2016 NCBC LEXIS 46, at *53 (N.C. Super. Ct. June 20, 2016); see also
RoundPoint Mortg, 2016 NCBC LEXIS 17, at *55 (dismissing conversion claim where
plaintiff did “not allege that Defendants copied and then deleted the information so
as to deprive [plaintiff] from its continued use of the information”); Horner Int’l Co.
v. McKoy, 2014 NCBC LEXIS 68, at *8 (N.C. Super. Ct. Dec. 18, 2014) (dismissing
conversion claim where plaintiff did “not allege it was deprived of the information or
excluded from use of the information allegedly converted by Defendant”). 40. Addison Whitney does not cite or discuss these cases. Instead, it relies on
a federal court decision for the proposition that copying electronic documents is a
conversion when it deprives the owner “of the sole and exclusive dominion and control
over its trade secrets and confidential information,” even when the owner maintains
possession of the information. (Pl.’s Mem. 19 (citing Bridgetree, Inc. v. Red F. Mktg.,
LLC, No. 3:10-cv-00228-FDW-DSC, 2013 U.S. Dist. LEXIS 15372, at *47–51
(W.D.N.C. Feb. 5, 2013) (applying North Carolina law)).) The court in Bridgetree
noted that it was “unaware of any North Carolina case that holds that taking a copy
of an electronic file cannot constitute conversion.” 2013 U.S. Dist. LEXIS 15372, at
*49–50.
41. This Court adheres to the reasoning of RCJJ, Roundpoint, and Horner, all
of which were decided after Bridgetree. North Carolina courts have repeatedly held
that the essence of a conversion claim is deprivation to the owner. E.g., Bartlett
Milling Co., 192 N.C. App. at 86, 665 S.E.2d at 488; Lake Mary L.P. v. Johnston, 145
N.C. App. 525, 532, 551 S.E.2d 546, 552 (2001); Marina Food Assoc., Inc. v. Marina
Rest., Inc., 100 N.C. App. 82, 93, 394 S.E.2d 824, 831 (1990). In the absence of further
guidance from the North Carolina Supreme Court or Court of Appeals, the Court
declines to construe the law of conversion more broadly.
42. Moreover, although the Court has not discovered any North Carolina
precedent on the point, it appears that the acquisition of paper photocopies does not
ordinarily give rise to a conversion claim where the owner retained the original. See,
e.g., FMC Corp. v. Capital Cities/ABC, Inc., 915 F.2d 300, 303–04 (7th Cir. 1990) (applying California law). The Court sees no reason that businesses operating in a
paperless environment should be placed in a more favorable legal position than
businesses that store documents the old fashioned way.
43. Applying these principles to the allegations of the amended complaint, the
Court grants Defendants’ motion in part but denies it in certain respects. The bulk
of Addison Whitney’s allegations concern Defendants’ copying of electronic files—
various templates and guidelines, a database allegedly subject to trade secret
protection, and other unspecified documents. (See Am. Compl. ¶¶ 167–76.) Addison
Whitney has not alleged that Defendants deprived it of possession or access to this
information. Rather, Addison Whitney concedes that many of its allegations “relate
to documents it still has in its possession.” (Pl.’s Mem. 17.) Such allegations are
insufficient to state a claim for conversion.
44. On the other hand, Addison Whitney also contends that Budd and Rodden
deleted numerous documents from company-issued laptops and associated servers.
(Pl.’s Mem. 17; Am. Compl. ¶¶ 184(c), 184(gg).) Although these allegations appear
outside the section of the amended complaint stating the claim for conversion,
Defendants have not raised any notice concerns. The Court therefore considers the
allegations as part of the conversion claim and concludes that deletion of documents
may pose a deprivation to the owner sufficient to give rise to a conversion claim. See,
e.g., Thyroff, 8 N.Y. 3d at 292 (“Similarly, electronic documents and records stored on
a computer can also be converted by simply pressing the delete button.”). 45. Defendants assert that Addison Whitney may be able to recover the
information from back-up tapes or, for at least some documents, by examining the
computer’s “recycle bin.” (See Defs.’ Reply 11–12.) These are reasonable questions,
but they should be raised in discovery or on summary judgment or both. It is unclear
on the face of the complaint whether and to what extent Addison Whitney may restore
its deleted data.
46. Finally, the Court notes that Addison Whitney also alleges that
Defendants removed physical property on the day of their resignations. (See Am.
Compl. ¶ 88.) The amended complaint does not identify this property in any
meaningful way, and the Court concludes that such speculative, conclusory
allegations are insufficient to state a claim for relief. See, e.g., Good Hope Hosp., Inc.
v. N.C. Dep’t of Health & Human Servs., 174 N.C. App. 266, 274, 620 S.E.2d 873, 880
(2005).
47. Because the claims against Cashion, Scott, Cuykendall, and Baynard
depend exclusively on allegations of copying, the Court grants the motion to dismiss
the claim for conversion against them. The Court denies the motion with respect to
Budd and Rodden in light of the allegations that they deleted documents.
III. CONCLUSION
48. For all these reasons, the Court GRANTS in part and DENIES in part
Defendants’ Rule 12(b)(6) motion as follows:
a. The Court denies the motion for partial dismissal of the claim for
breach of contract. b. The Court denies the motion to dismiss the claim for breach of
fiduciary duty.
c. The Court grants the motion to dismiss the claim for conversion as to
Cashion, Scott, Cuykendall, and Baynard. The Court denies the motion as to
Budd and Rodden.
This the 9th day of June, 2017.
/s/ Adam M. Conrad Adam M. Conrad Special Superior Court Judge for Complex Business Cases