Am. Air Filter Co. v. Price, 2017 NCBC 54.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF WAKE 16 CVS 13610
AMERICAN AIR FILTER COMPANY, INC. d/b/a AAF International, Plaintiff, OPINION AND ORDER ON v. DEFENDANTS’ MOTION TO DISMISS PLAINTIFF’S FIRST AMENDED SAMUEL C. PRICE, JR. and COMPLAINT CAMFIL USA, INC. d/b/a CAMFIL AMERICAS,
Defendants.
THIS MATTER comes before the Court on Defendants Samuel C. Price, Jr.’s
(“Price”) and Camfil USA, Inc.’s d/b/a Camfil Americas (“Camfil”) (collectively,
“Defendants”) Motion to Dismiss (“Motion to Dismiss”).
THE COURT, after considering the Motion to Dismiss, the briefs in support of
and in opposition to the Motion to Dismiss, the arguments of counsel at the hearing,
and other appropriate matters of record, concludes that the Motion to Dismiss should
be GRANTED, in part, and DENIED, in part, for the reasons set forth below.
Young Moore and Henderson P.A. by Christopher A. Page, Esq., Jonathan L. Crook, Esq., for Plaintiff American Air Filter Company, Inc. d/b/a AAF International.
Smith Moore Leatherwood, LLP by George J. Oliver, Esq., Jeffrey R. Whitley, Esq., for Defendants Samuel C. Price, Jr. and Camfil USA Inc. d/b/a Camfil Americas.
McGuire, Judge. FACTUAL AND PROCEDURAL BACKGROUND
1. The Court does not make findings of fact on motions to dismiss under
Rule 12(b)(6) of the North Carolina Rules of Civil Procedure (N.C. Stat. § 1A-1, Rule
12(b)(6) (hereinafter the “Rule(s)”), but only recites those facts included in the
Complaint that are relevant to the Court’s determination of the Motion. See e.g.,
Concrete Serv. Corp. v. Inv’rs Grp., Inc., 79 N.C. App. 678, 681, 340 S.E.2d 755, 758
(1986).
2. Plaintiff American Air Filter, Inc. (“AAF”) is a Delaware corporation
with its principal place of business in Louisville, Kentucky. It “maintains operations”
in Wake County, North Carolina. (VFAC ¶ 1.)1 AAF manufactures and services clean
air products and equipment for commercial buildings, data centers, healthcare
facilities, food and beverage, microelectronics, and schools and universities.
3. Camfil is a direct competitor of AAF. Camfil also does business in North
Carolina, including Wake County.
4. Price is a resident of Johnston County, North Carolina, and a former
employee of AAF. Price is currently employed with Camfil.
A. AAF’s confidential business information.
5. AAF’s “business is driven by relationships with its customers.” (VFAC ¶
8.) AAF has made significant investment in developing and enhancing customer
relationships and in obtaining and compiling a substantial body of what it alleges is
1References to the allegations contained in the Verified First Amended Complaint, filed by
AAF on December 5, 2016, are denoted “VFAC.” “confidential and proprietary information and trade secrets . . . critical to its ability
to serve existing and prospective” customers. (VFAC ¶¶ 11, 12.)
6. AAF maintains web-based tools called “Sales Playbook” and
“Salesforce.com” in which it compiles confidential and proprietary information used
in its sales efforts.
7. AAF also has a proprietary program called Total Cost of Ownership
Diagnostics (“TCOD”). (VFAC ¶ 17.) TCOD provides technical data about AAF
products and competitors’ products based on AAF’s internal and third-party testing
and performance studies. TCOD also calculates the costs of ownership of AAF’s
products as compared to competitors’ products.
8. AAF alleges that “[t]he specific trade secrets accessible through these
programs include,” inter alia: “secret and highly sensitive company-wide prices that
AAF corporate officers negotiated on behalf of AAF with its national accounts”;
“quoting tools that use proprietary algorithms to create custom quotes that
incorporate prices AAF negotiated with national accounts, AAF’s custom discounts,
and customer-specific needs”; “audit reports created by AAF sales professionals at the
physical location of customer facilities which include identification of customers’
current air filtration products, sizes, specifications, and customer-specific issues or
talking points developed by AAF sales professionals”; “information on the costs of
goods sold that could allow calculation of AAF profit margins”; “technical
specifications and data that resulted from extensive internal and third-party product testing and performance studies”; and “detailed drawings and product specifications
created by AAF for new customer construction projects.” (VFAC ¶ 18.)
9. All three databases are password-protected, requiring an employee to
log in with a username and password. As an additional security measure, information
in Sales Playbook cannot be downloaded or printed.
10. AAF immediately disables employee access to its databases upon the
employee’s notice of resignation or termination from AAF, or if the employee indicates
that he or she is going to work for a competitor. (VFAC ¶¶ 25—26.)
B. Price’s employment with AAF and the 2006 Agreement.
11. In December 1989, AAF hired Price as Branch Manager for territories
consisting entirely of counties in North Carolina. (VFAC ¶¶ 28, 30.) Price was
“responsible for leading and managing a sales team to achieve monthly, quarterly,
and annual revenue goals, as well as growing sales and profitability in [his] assigned
territory.” (VFAC ¶ 29.) Price remained Branch Manager until his resignation from
AAF on August 12, 2016. During his employment, Price had full access to, was trained
to use, and regularly relied on Sales Playbook, Salesforce.com, and TCOD to perform
his job duties.
12. As a condition of employment, AAF required Price to sign employment
agreements which set out the respective rights and responsibilities of Price and AAF
in relation to Price’s employment with the company, the first of which was executed
on December 11, 1989. Thereafter, AAF periodically entered into new agreements with Price that “altered Price’s and AAF’s respective rights and responsibilities.”
(VFAC ¶ 42.)
13. On November 13, 2006, AAF and Price entered into a written “Sales
Representative Employment Agreement” (“the 2006 Agreement”). (VFAC ¶ 43, Ex. B;
hereinafter, “2006 Agreement.”) This was the final written employment agreement
between AAF and Price. In exchange for the 2006 Agreement, AAF provided Price
with a 3.5% salary increase and a materially different Sales Quota and Contribution
Margin Target (“Margin Target”).
14. The 2006 Agreement contained a covenant not to compete that read as
follows:
If the Employee terminates this Agreement or Company terminates this Agreement for cause, then in either event, for a period of one (1) year after such termination, Employee will not either on Employee’s own behalf or on behalf of any other person, firm, corporation or other entity, either directly or indirectly, (a) contact, for the purpose of diverting, any of Company’s customers or the Accounts; (b) solicit the trade of, or trade with any of Company’s customers of the Accounts/Territory; (c) engage in any Competitive Business with the Accounts/Territory; (d) seek to cause any person, firm or corporation with whom the Employee came in contact as a representative of Company to refrain from doing business in whole or in part with or through Company; or (e) solicit or induce any employee, current or future, of Company, to leave Company or to work for another individual.
(2006 Agreement § 6.1.)
15. The 2006 Agreement states that the “Accounts/Territory” from which
Price willd be restricted under the covenant is “set out on Exhibit B” to the Agreement, but no Exhibit B was included with or attached to the 2006 Agreement.
(2006 Agreement § 1.1.)
16. The 2006 Agreement commenced on November 13, 2006, and was for a
term of one year. (2006 Agreement § 5.1.) The 2006 Agreement states that it “shall
automatically renew for successive one (1) year terms unless terminated[.]” (Id.) AAF
alleges “Price received consideration for each renewing year of the 2006 Agreement
in the form of base salary, commission and or/bonus,” but does not allege that Price’s
salary or bonuses were increased in conjunction with the alleged renewals. (VFAC ¶
50.)
C. Price’s resignation from AAF and employment with Camfil.
17. On July 24, 2016, unbeknownst to AAF, Price accepted employment
with Camfil. (VFAC ¶¶ 53–54.)
18. On August 5, 2016, Price submitted his notice of resignation from AAF
effective at close of business on August 12, 2016. Price told AAF managers that he
was retiring from the air filtration industry and would not be joining a competitor.
(VFAC ¶ 52.) In reliance on Price’s representations, AAF permitted Price to continue
accessing its databases from August 5 until August 12, 2016. AAF alleges that had
Price told AAF that he was going to work for Camfil, AAF would have revoked Price’s
access to its databases and trade secrets immediately. (VFAC ¶¶ 56–58.)
19. Price commenced his employment with Camfil sometime shortly after
August 12, 2016. Price is employed as a Branch Manager for Camfil in North and South Carolina performing “substantially the same duties” as he had with AAF.
(VFAC ¶ 72.)
20. Price accessed Salesforce.com at least three times after accepting
employment with Camfil; attended a training seminar on the TCOD on or around
August 1, 2016 during which he accessed TCOD; and, acquired knowledge of the
algorithms and code used to create TCOD by receiving answers to detailed questions
he asked of AAF’s in-house developer of TCOD. (VFAC ¶¶ 60–63.)
21. In late August 2016 AAF learned that Price was working for Camfil.
AAF sent a letter to Camfil’s Executive Vice President, Armando Brunetti
(“Brunetti”) to inform Camfil of Price’s continuing obligations under the covenant not
to compete and to request that Camfil refrain from inducing Price to breach the
covenant. Brunetti confirmed that Camfil had hired Price and that Price had sent
four emails to customers he had previously serviced at AAF. AAF requested that Price
immediately cease employment with Camfil, refrain from contacting AAF customers
and disclosing confidential information.
22. AAF alleges that “several customers have contacted AAF to alert them
that Price was soliciting business from them on behalf of Camfil.” (VFAC ¶ 78.) The
VFAC does not allege that AAF has lost any customers as a result of Price’s or
Camfil’s conduct or that Camfil has used any specific AAF confidential information
or trade secrets. AAF does not allege any specific economic injury or damages, but
alleges only that “AAF has suffered and will continue to suffer substantial irreparable
injury and actual damages.” (VFAC ¶¶ 88, 95, 101, 115, 120, and 126.) 23. AAF initiated this action by filing a Complaint on November 4, 2016.
AAF amended its Complaint by filing the VFAC on December 5, 2016. In the VFAC,
AAF makes claims against Price for breach of contract (Count I) and breach of
fiduciary duty (Count II); a claim against Camfil for tortious interference with
contract (Count III); and claims against both Price and Camfil for misappropriation
of trade secrets in violation of the North Carolina Trade Secrets Protection Act, G.S.
§ 66-151, et seq. (“NCTPA”) (hereinafter, references to the North Carolina General
Statutes will be to “G.S.”) (Count IV), violation of the North Carolina Unfair and
Deceptive Trade Practices Act. G.S. § 75.1 et seq. (“UDTPA”) (Count V), and civil
conspiracy (Count VI).
24. On January 17, 2017, Defendants filed the Motion to Dismiss. The
Motion was fully briefed, the Court has heard oral arguments, and it is now ripe for
disposition.
DISCUSSION
A. Rule 12(b)(6) Standard.
25. In ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court’s
inquiry is “whether, as a matter of law, the allegations of the complaint, treated as
true are sufficient to state a claim upon which relief may be granted under some legal
theory, whether properly labeled or not.” Harris v. NCNB Nat’l Bank, 85 N.C. App.
669, 670, 355 S.E.2d 838, 840 (1987). Our appellate courts frequently reaffirm that
North Carolina is a notice pleading state. See, e.g., Feltman v. City of Wilson, 238
N.C. App. 246, 252, 767 S.E.2d 615, 620 (2014) (quoting Wake Cty. v. Hotels.com, L.P., 762 S.E.2d 477, 486 (N.C. Ct. App. 2014)) (“Under notice pleading, a statement of
claim is adequate if it gives sufficient notice of the claim asserted to enable the
adverse party to answer and prepare for trial, to allow for the application of the res
judicata, and to show the type of case brought.”)).
26. In deciding a motion under Rule 12(b)(6), the Court construes the
Complaint liberally and accepts all allegations as true. Laster v. Francis, 199 N.C.
App. 572, 577, 681 S.E.2d 858, 862 (2009). However, the Court is not required “to
accept as true allegations that are merely conclusory, unwarranted deductions of fact,
or unreasonable inferences.” 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). In addition, the Court
may consider documents which are the subject of the complaint and to which the
complaint specifically refers, including the contract that forms the subject matter of
the action. Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 60–61, 554 S.E.2d 840,
847 (2001).
27. Dismissal of a claim pursuant to Rule 12(b)(6) is proper “(1) when the
complaint on its face reveals that no law supports plaintiff’s claim; (2) when the
complaint reveals on its face the absence of fact sufficient to make a good claim; [or]
(3) when some fact disclosed in the complaint necessarily defeats the plaintiff’s
claim.” Oates v. JAG, Inc., 314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985). Otherwise,
“a complaint should not be dismissed for insufficiency unless it appears to a certainty
that plaintiff is entitled to no relief under any state of facts which could be proved in
support of the claim.” Sutton v. Duke, 277 N.C. 94, 103, 176 S.E.2d 161, 166 (1970). B. Choice of Law.
28. The parties dispute whether the law of North Carolina or Kentucky
governs the contract and tort claims raised in the VFAC. AAF has its principal place
of business and corporate headquarters in Louisville, Kentucky. On the other hand,
AAF brought this lawsuit in North Carolina, and Price worked for AAF, and currently
works for Camfil, in North Carolina. In addition, virtually all of the conduct
underlying the claims occurred in North Carolina. The Court will first consider the
choice of law questions.
i. Breach of Contract. 2
29. AAF claims Price breached the 2006 Agreement. The 2006 Agreement
contains a choice of law provision that states that “[t]he construction performance
(sic) and completion of this Agreement shall be governed by the laws of the State of
Kentucky.” (2006 Agreement § 7.2.) North Carolina courts generally recognize the
validity and enforceability of such provisions unless:
(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice,
2 Defendants contend that North Carolina law applies to the breach of contract claim, but do
not make any argument in support of their contention in their Brief in Support of the Motion to Dismiss. Instead, Defendants state in their brief that they “incorporate the argument that North Carolina law controls the contractual analysis, as briefed in response to Plaintiff’s Motion for Preliminary Injunction.” (Defs.’ Br. Supp. Mot. Dismiss 4, fn. 1.) The General Rules of Practice and Procedure for the North Carolina Business Court (“BCR”) do not expressly permit parties to incorporate previously-filed briefs and documents outside of the brief at issue, at least not to supplement the substantive text of the brief at issue. In fact, BCR 7.8 provides strict word limits on briefs submitted to this Court. Even if incorporation of previous briefs were allowable, it appears a party incorporating a previously-filed brief would have to certify under BCR 7.8 that the brief and the incorporated brief did not exceed the word limits. Defendants have not done so in this case. As a result, the Court declines to consider Defendants’ arguments and authorities regarding choice of law issues contained in other filings with the Court. or
(b) application of the law of the chosen state would be contrary to the fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which . . . would be the state of applicable law in the absence of an effective choice of law by the parties.
Cable Tel Servs., 154 N.C. App. 639, 642–43, 574 S.E.2d 31, 33–34 (quoting
Restatement (Second) of Conflict of Laws § 187 (1971)).
30. AAF maintains a principal place of business in Louisville, Kentucky.
Thus, Kentucky has a substantial relationship to this matter and there is a
reasonable basis to the parties’ choice. Mosteller Mansion, LLC v. Mactec Eng’g &
Consulting of Ga., Inc., No. COA07-664, 2008 N.C. App. LEXIS 1011, *9, (May 20,
2008) (finding that Georgia has a substantial relationship to the dispute where a
party to the contract maintained its principal place of business in Georgia).
31. In addition, the Court concludes that the application of Kentucky law
would not be contrary to the fundamental policies of North Carolina. “To render
foreign law . . . contrary to public policy, it must violate some prevalent conception of
good morals or fundamental principle of natural justice or involve injustice to the
people of the foreign state[,] [such as involving] prohibited marriages, wagers,
lotteries, racing, gaming, and the sale of liquor.” Mosteller, 2008 N.C. App. LEXIS
1011, at *9 (quoting Boudreau v. Baughman, 322 N.C. 331, 342, 368 S.E.2d 849, 857–
58 (1988) (citations omitted). 32. In their reply, Defendants argue that applying Kentucky law would
violate public policy because Price did not receive consideration and North Carolina
would not enforce a covenant not to compete that was not supported by consideration.
(Defs.’ Reply Supp. Mot. Dismiss 1.) In support of this contention, Defendants cite
Cox v. Dine-A-Mate, Inc., 129 N.C. App. 773, 501 S.E.2d 353 (1998). In Cox, the Court
of Appeals considered the application of a New York choice of law provision contained
in a non-compete agreement entered into by a North Carolina employee. The Court
applied the “A.E.P. test” which provides that “a covenant not to compete violates
public policy ‘where the sole purpose is to prevent competition rather than protect a
legitimate interest of the employer.’” Cox, 129 N.C. App. at 778, 501 S.E.2d at 356
(quoting A.E.P Indus. v. McClure, 308 N.C. 393, 403, 302 S.E.2d 754, 761 (1983)). The
court reasoned that the agreement at issue was executed to prevent competition,
rather than to protect the defendant’s business interests, because the defendant did
not provide consideration to the plaintiff other than continued employment, and
because the non-compete covenant lacked a reasonable restriction as to territory. Id.
at 778, 501 S.E.2d at 356. The court concluded:
We recognize, however, that the outcome of the consideration test might well be different if examined under New York law . . . . What concerns this Court is that, in a case such as this one, application of New York law would be a violation of North Carolina public policy in that the contract before us falls squarely into the category of an attempt to prevent competition rather than to protect a legitimate interest of the employer. Id. 33. Finally, the Court in Cox held that the non-compete covenant was not
intended to serve a legitimate business purpose because the alleged confidential
information the defendant’s sought to protect through the covenant were not trade
secrets. Id. at 780, 501 S.E.2d at 357.
34. No such fundamental policy concerns exist in this case. Although
Kentucky law regarding the enforceability of non-compete covenants differs from
North Carolina law in some regards, Kentucky law requires that an enforceable non-
compete covenant be supported by consideration other than continued employment,
see Creech v. Brown, 433 S.W.3d. 345, 353–54, 2014 Ky. LEXIS 233, *20–25 (Ky. Sup.
Ct. 2014), and that it have a geographic restriction, see Hammons v. Big Sandy
Claims Serv., Inc., 567 S.W.2d 313, 315, 1978 Ky. App. LEXIS 543, *3–4 (1978). In
other words, Kentucky law would not permit enforcement of a covenant without
consideration.
35. In addition, the allegations before the Court, including the terms of the
2006 Agreement, do not support the conclusion that the sole purpose of the 2006
Agreement was to prevent competition. As discussed below, AAF has alleged that
Price had access to and opportunity to misappropriate AAF’s trade secrets. Protecting
against the acquisition and use of AAF’s trade secrets by competitors is a legitimate
business interest.
36. Because Kentucky has a substantial relationship to the parties and the
transaction, and application of Kentucky law does not violate North Carolina public policy, the Court concludes that Kentucky law applies to AAF’s claim for breach of
contract.
ii. Breach of fiduciary duty, tortious interference, and civil conspiracy.
37. AAF has also makes tort claims for breach of fiduciary duty, tortious
interference with contract, and civil conspiracy. In North Carolina, “[f]or actions
sounding in tort, the state where the injury occurred is considered the situs of the
claim,” or the lex loci delicti. Harco Nat’l Ins. Co. v. Grant Thronton LLP, 206 N.C.
App. 687, 692, 698 S.E.2d 719, 722–23 (2010) (quoting Boudreau v. Baughman, 322
N.C. 331, 335, 368 S.E.2d 849, 853–54 (1988)).
38. AAF alleges that Price breached a fiduciary duty to AAF by lying to AAF
about his resignation and plans to work for Camfil, by soliciting his former AAF
customers once he joined Camfil, and by using AAF’s confidential information and
trade secrets inappropriately. (VFAC ¶ 92.) All of this alleged conduct apparently
occurred in North Carolina, where Price was employed. At the time Price resigned,
his customers were located in North Carolina and South Carolina, and with Camfil,
Price is responsible for a territory consisting of North Carolina and South Carolina.
(VFAC ¶¶ 30, 72.) Any injury to AAF’s customer relationships would have been to
those customers he solicited in its sales markets in North Carolina and South
Carolina.3 Harco, 206 N.C. App. at 698, 698 S.E.2d at 726 (concluding that the
plaintiff had its principal place of business in Illinois, but suffered injury in North
Carolina when Department of Insurance seized the plaintiff’s funds held in a North
3 Neither party argues that South Carolina law should be applied to any of the claims in
this action. Carolina trust account); Lloyd v. Carnation Co., 61 N.C. App. 381, 387–88, 301 S.E.2d
414, 418 (1983) (applying Virginia law to tort claims where acts were done entirely
within Virginia, although defendant, a North Carolina business, was alleged to have
wrongfully forced plaintiff out of marketing territory in Virginia, North Carolina, and
South Carolina); Synovus Bank v. Parks, 2013 NCBC LEXIS 36, *15–17 (N.C. Super.
Ct. July 30, 2013) (holding that North Carolina was the place of injury, rather than
the complainant’s state of residence, where the loss in value of property at issue was
located in North Carolina). Accordingly, North Carolina law should be applied to
AAF’s claim for breach of fiduciary duty.
39. AAF’s third cause of action alleges that Camfil tortuously interfered
with the 2006 Agreement by inducing Price to violate his obligations under the
agreement. (VFAC ¶¶ 96–101.) Tortious interference requires actual pecuniary harm.
Pinewood Homes, Inc. v. Harris, 184 N.C. App. 597, 604–05, 646 S.E.2d 826, 832
(2007) (providing the elements of tortious interference with contract). Again, any
economic damages stemming from Camfil’s alleged interference with the 2006
Agreement arose from injuries to AAF’s customer relationships in North Carolina
and South Carolina caused by Price allegedly breaching the agreement. Under the
lex loci delicti test, North Carolina law should be applied to the claim for tortious
interference with contract.
40. AAF’s claim against Price and Camfil for civil conspiracy requires AAF
to establish “the agreement of two or more parties to carry out the conduct and injury
resulting from the agreement.” Toomer v. Garrett, 155 N.C. App. 462, 483, 574 S.E.2d 76, 92 (2002). Any agreement between Price and Camfil to carry out a wrongful act
against AAF was contrived to damage AAF’s sales in North Carolina. Again, the only
alleged injuries suffered by AAF are to its business in North Carolina, and possibly
South Carolina. The Court will apply North Carolina law to the claim for civil
conspiracy.
C. AAF has not stated a claim for breach of contract because the VFAC does not allege that the renewals of the 2006 Agreement were supported by consideration.
41. AAF alleged that Price breached the 2006 Agreement by, inter alia,
accepting employment with Camfil, soliciting AAF’s customers, and disclosing AAF’s
confidential business information. (VFAC ¶ 87.) Defendants argue that the non-
compete provision in the 2006 Agreement is unenforceable because it is not supported
by consideration, is overly broad in restricting Price’s activities, lacks a geographic
scope, and its restrictions on solicitation of AAF’s customers are vague and too broad
in scope. (Defs.’ Br. Supp. Mot. Dismiss 4–12.) The Court concludes that at the time
of Price’s resignation, the 2006 Agreement was not supported by consideration and,
because the 2006 Agreement did not contain a geographic or territorial restriction, it
cannot be enforced.
42. Under Kentucky law, a non-compete covenant entered into by an
employee after his initial hiring must be supported by consideration beyond his
continued employment. Charles T. Creech, Inc. v. Brown, 433 S.W.3d 345, 353–54,
2014 Ky. LEXIS 233, *20–25 (Ky. Sup. Ct. 2014); Cmty. Ties of Am., Inc. v. NDT Care
Servs., LLC, No. 3:12-cv-00429-CRS, 2015 U.S. Dist. LEXIS 14990, *53 (W.D. Ky. Feb. 6, 2015) (citing Cent. Adjustment Bureau, Inc. v. Ingram Assocs., Inc., 622 S.W.2d
681, 685, 198 Ky. App. LEXIS 296, *10–11 (Ky. Ct. App. 1981)) (“As early as 1981,
Kentucky law has required that an employment agreements [sic] signed by
employees after the date of his or her initial employment must be supported
by more than just continued employment to be enforceable.”). In order to constitute
consideration, the employment relationship between the parties must change
following the signing of a restrictive covenant. Creech, 433 S.W.3d at 354, 2014 Ky.
LEXIS 233 at *24–25. Such changes could include changing the employee’s status
from at-will to “for cause” termination, providing the employee a promotion or
increased compensation, or providing the employee with specialized training. Id.;
Cmty. Ties of Am., 2015 U.S. Dist. LEXIS 14990, at *54.
43. In the VFAC, AAF alleges that the 2006 Agreement “was supported by
the additional consideration of increased salary of 3.5%, which totaled $1,001.00[,]
[in addition to containing] a materially different [Margin Target] compared to
[Price’s] 2005 Employment Agreement.” (VFAC ¶ 46.) These allegations clearly are
sufficient to establish that the 2006 Agreement was supported by consideration for
the one year term of the agreement from November 13, 2006, through November 12,
2007.
44. The VFAC, however, does not sufficiently allege that Price was provided
consideration for the yearly renewals of the 2006 Agreement from 2007 through the
end of Price’s employment. Instead, AAF alleges only that “Price received
consideration for each renewing year of the 2006 Agreement in the form of base salary, commission and/or bonus.” (VFAC ¶ 50.) AAF, however, does not allege that
it provided Price with any specific consideration for each yearly renewal. For
example, AAF does not allege that it increased Price’s base salary, commission, or
bonuses. AAF does not allege that Price received promotions or any change in job
duties in conjunction with yearly renewals. In fact, AAF expressly alleges that Price
was employed as a Branch Manager “continuously” from his hire in 1989 “until his
resignation on August 12, 2016.” (VFAC ¶ 28.)4
45. While AAF alleges that it provided Price with certain training during
his employment, it does not allege when such training took place, nor that the
training was provided as consideration for Price’s promises in the 2006 Agreement or
any renewals of the agreement. (VFAC ¶¶ 30, 31, and 34.) The only training that AAF
alleges took place after Price executed the 2006 Agreement was a training seminar
on the TCOD that Price attended on August 1, 2016. (VFAC ¶ 61.) Again, AAF does
not allege that Price received this training in exchange for any non-compete or
confidentiality obligations. The allegation that Price received training almost 10
years after the execution of the 2006 Agreement is not sufficient to support a claim
that Price received consideration for each of the alleged renewals of that Agreement.
46. The Court is not required to accept AAF’s legal conclusion5 that Price
received “consideration” for the renewals of the 2016 Agreement when there are not
facts pleaded in support. Bunch v. Britton, No. COA16-181, 2017 N.C. App. LEXIS
4 AAF also alleges that Price’s job responsibilities did not change at any time after December
31, 2011. (VFAC ¶ 44.) 5 Under Kentucky law, whether consideration has been provided is a question of law. Grass
v. Akins, 368 S.W.3d 150, 153, 2012 Ky. App. LEXIS 79, *7 (Ky. Ct. App. May 25, 2012). 435, *21 (June 6, 2017) (“Although well-pleaded factual allegations of the complaint
are treated as true for purposes of a 12(b)(6) motion, conclusions of law or
unwarranted deductions of facts are not admitted.”). The absence of such factual
support is particularly problematic where AAF relies on an agreement that allegedly
renewed for successive one-year terms during the last 10 years of Price’s employment.
Any failure to provide consideration for a given year’s renewal would break the
“chain” and render the 2006 Agreement unenforceable as to subsequent years. AAF’s
allegations in the VFAC do not support the notion that AAF provided consideration,
or that Price’s employment relationship with AAF changed, in exchange for his
agreement to renew the non-compete covenant each year after 2006. Defendants’
motion to dismiss the claim for breach of contract should be GRANTED, and the claim
should be dismissed WITHOUT PREJUDICE.
D. AAF has not alleged facts that support a claim that Price owed AAF a fiduciary duty because Price did not have dominance and influence over AAF.
47. AAF alleges that Price, as Branch Manager, owed it a fiduciary duty of
loyalty which obligated him “to act exclusively in AAF’s best interests,” and that Price
breached this duty by, inter alia, lying to AAF about his intentions following his
resignation, and using AAF’s confidential information and trade secrets after his
resignation from AAF. (VFAC ¶¶ 90—95.)
48. To sufficiently plead a claim for breach of fiduciary duty, the plaintiff
must allege that (1) a fiduciary relationship existed (2) the defendant breached that
duty, and (3) the breach proximately caused plaintiff’s injury. BDM Inv v. Lenhill,
Inc., 2014 NCBC LEXIS 6, *23 (N.C. Super. Ct. Mar. 20, 2014) 49. “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, 651–52,
548 S.E.2d 704, 707 (2001). A fiduciary relationship may arise when “there has been
a special confidence reposed in one who in equity and good conscience is bound to act
in good faith and with due regard to the interests of the one reposing confidence[.]”
Id. (quoting Abbitt v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906 (1931)) (internal
quotations omitted). Such a relationship “extends to any possible case in which a
fiduciary relationship exists in fact, and in which there is confidence reposed in one
side, and resulting domination and influence on the other.” Id. at 652, 548 S.E.2d at
707–08 (quoting Abbitt, 201 N.C. at 598, 160 S.E. at 906). “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.” Lockerman v. South River Elec. Membership
Corp., 794 S.E.2d 346, 352, 2016 N.C. App. LEXIS 1234, *11 (2016) (quoting S.N.R.
Mgmt. Corp. v. Danube Partners 141, LLC, 189 N.C. App. 601, 613, 659 S.E.2d 442,
451 (2008)).
50. North Carolina’s courts have consistently held that an employer-
employee relationship is not a fiduciary one, even where the employee has significant
management authority, absent some allegation that the employee exercised
dominance and control over his employer. See Austin Maint. Constr., Inc. v. Crowder
Constr. Co., 224 N.C. App. 401, 410, 742 S.E.2d 535, 542 (2012) (finding no breach of
fiduciary duty because “any confidence that AAF reposed in [employee] consisted of nothing more than relying on him to competently perform his assigned duties”);
Dalton v. Camp, 353 N.C. at 652, 548 S.E.2d at 708 (quoting King v. Atl. Coast Line
R.R. Co., 157 N.C. 44, 62–63, 72 S.E. 801, 808 (1911)) (“Under the general rule, ‘the
relation of employer and employee is not one of those regarded as confidential.’”);
Reichhold Chems., Inc. v. Goel, 146 N.C. App. 137, 155, 555 S.E.2d 281, 292 (2001)
(finding no fiduciary duty for company vice president because “[a] managerial
position alone does not demonstrate the requisite domination and influence on the
other”); Artistic S. Inc. v. Lund, 2015 NCBC LEXIS 113, *41–43 (N.C. Super. Ct. Dec.
9, 2015) (dismissing fiduciary duty claim against salesperson, noting that allegations
of soliciting clients and collecting money did not support finding that employee “held
all the cards”); Allegis Grp., Inc. v. Zachary Piper LLC, 2013 NCBC LEXIS 12, *32
(N.C. Super. Ct. Feb. 25, 2013) (holding that “basic management responsibilities” do
not support fiduciary relationship); Battleground Veterinary Hosp., P.C. v. McGeough,
2007 NCBC LEXIS 33, *16 (N.C. Super. Ct. Oct. 19, 2007) (“Even when an employee
is entrusted with substantial managerial authority, a fiduciary relationship will not
exist absent evidence that such authority led to the employer being subjugated to the
‘improper influences or domination of [its] employee.’”) (citation omitted).
51. Here, AAF has not alleged that Price held a position of dominance and
influence, or “figuratively held all the cards,” in his relationship with AAF. To the
contrary, the VFAC alleges a garden-variety employment relationship between a
management-level employee with sales responsibilities and his employer. The
allegations suggest that Price had authority to manage sales employees within certain territories in North Carolina and perhaps other states, and to sell AAF’s
products to customers under parameters established by AAF. (VFAC ¶¶ 29; see
generally 2006 Agreement.) Far from having domination or control over AAF, the
2006 Agreement, which AAF alleges set the terms of Price’s employment, gave AAF
almost unfettered authority to terminate Price at-will, change his territory and
customers, and change his compensation. Dalton, 353 N.C. at 652, 548 S.E.2d at 708
(“[A]bsent a finding that the employer in . . . was somehow subjugated to the improper
influences or domination of his employee -- an unlikely scenario as a general
proposition and one not evidenced by these facts in particular -- we cannot conclude
that a fiduciary relationship existed between the two.”); see also DSM Dyneema, LLC
v. Thagard, 2015 NCBC LEXIS 50, *21–22 (N.C. Super. Ct. May 12, 2015) (holding
that the plaintiff had failed to allege “the extraordinary or special type of employer-
employee relationship that gives rise to a fiduciary duty” because the facts pleaded
“failed to allege that Thagard enjoyed the sort of domination or influence over DSM
that our courts have found necessary to create a fiduciary duty”).
52. The facts alleged in the VFAC do not support the legal conclusion that
Price owed AAF a fiduciary duty. Defendants’ motion to dismiss AAF’s claim for
breach of fiduciary duty should be GRANTED.
E. AAF failed to allege that the 2006 Agreement was valid and enforceable. Accordingly, AAF’s claim for tortious interference with contract must fail.
53. AAF claims that Camfil tortiously interfered with AAF’s employment
contract with Price, particularly with the non-compete and confidentiality covenants
in the agreement. (VFAC ¶¶ 96—101.) To survive a motion to dismiss, AAF must allege the five elements of tortious interference with a contract: “(1) a valid contract
between the plaintiff and a third person, conferring upon the plaintiff some
contractual right against the third person; (2) the defendant knows of the contract;
(3) the defendant intentionally induces the third person not to perform the contract;
(4) the defendant acts without justification; and (5) the defendant’s conduct causes
actual pecuniary harm to the plaintiffs.” Pinewood Homes, 184 N.C. App. 597, 604–
05, 646 S.E.2d 826, 832 (2007).
54. The Court has concluded that the 2006 Agreement was not valid and
enforceable at the time of Price’s separation from AAF. Accordingly, AAF’s claim for
tortious interference with contract must fail, and Defendants’ motion to dismiss this
claim should be GRANTED.
F. AAF has sufficiently alleged a claim for misappropriation of trade secrets.
55. AAF claims that Price and Camfil misappropriated its trade secrets in
violation of the NCTSPA. (VFAC ¶¶ 103–116.)
56. “To plead misappropriation of trade secrets, ‘a plaintiff must identify a
trade secret with sufficient particularity so as to enable a defendant to delineate that
which he is accused of misappropriating and a court to determine whether
misappropriation has or is threatened to occur.’” VisionAIR, Inc. v. James, 167 N.C.
App. 504, 510–11, 606 S.E.2d 359, 364 (2004) (citation omitted). “The threshold
question in any misappropriation of trade secrets case is whether the information
obtained constitutes a trade secret[.]”Combs & Assocs. v. Kennedy, 147 N.C. App. 362,
369, 555 S.E.2d 634, 639 (2001). The NCTSPA defines a “trade secret” as: [B]usiness or technical information, including but not limited to a formula, pattern, program, device, compilation of information, method, technique, or process that: (a) Derives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
G.S. § 66-152(3)
57. The burden of proof is on the owner of the trade secrets to establish the
prima facie case of misappropriation by introducing “substantial evidence” that the
defendant: “(1) knows or should have known of the trade secret; and (2) has had
specific opportunity to acquire it for disclosure or use or has acquired, disclosed, or
used it without the express or implied consent or authority of the owner.” G.S. § 66-
155 (1999)).
58. Defendants argue that AAF has not alleged its trade secrets with
sufficient specificity to survive dismissal. (Defs.’ Br. Supp. Mot. Dismiss 17–19.) The
Court disagrees. AAF alleges that the TCOD is a proprietary program developed by
AAF that contains data regarding AAF’s and its competitors’ products compiled, in
part, through AAF’s own internal testing and performance studies. The program
calculates the costs of ownership of AAF’s products as compared to its competitors’
products based on the customer’s operating parameters. (VFAC ¶ 17.) AAF also
alleged that the trade secrets at issue in this matter included, inter alia, information
about prices AAF negotiated with its national accounts, tools that use proprietary
algorithms to create custom quotes, reports created by AAF at its customers’ facilities which include identification of customers’ current air filtration products, sizes,
specifications, and other customer-specific issues, AAF’s costs of goods sold from
which AAF’s profit margins can be determined, and detailed drawings and product
specifications created by AAF for customers. (VFAC ¶ 18.) This description of the
information at issue satisfies AAF’s obligations to identify its trade secrets with
sufficient specificity at this stage of the litigation.
59. Defendants also contend that AAF has not alleged that Defendants
misappropriated its trade secrets. (Defs.’ Br. Supp. Mot. Dismiss 19–20.) Again, the
Court disagrees and concludes AAF has sufficiently alleged misappropriation.
60. First, AAF has alleged that Price knew of and had access to AAF’s data
bases containing its trade secrets (e.g., VFAC ¶ 35.) Accordingly, the first prong under
G.S. § 66-155 is satisfied.
61. AAF has also pleaded that Price had opportunity to, and did, acquire
AAF’s trade secrets. AAF alleges that because Price deceived AAF about the fact he
was going to work for Camfil, AAF did not terminate Price’s access to its trade secrets,
but instead continued his access until August 12, 2016. AAF would have terminated
Price’s access immediately had it known his true intentions. (VFAC ¶¶ 56–58.) AAF
alleges that between accepting employment with Camfil and his final day of
employment with AAF, Price accessed AAF’s password-protected systems at least
three times, and otherwise obtained trade secret information from AAF’s employees.
(VFAC ¶¶ 60–63.) 62. Finally, AAF alleges, albeit on information and belief, that Camfil hired
Price for the purposes of gaining access to AAF’s trade secrets and that Price has and
continues to disclose AAF’s trade secrets to Camfil. (VFAC ¶¶ 74, 84.)
63. The Court concludes that AAF has alleged that Price accessed its trade
secrets under circumstances where he did not have AAF’s consent, acquired AAF’s
trade secrets, and disclosed those trade secrets to Camfil. AAF’s claim for
misappropriation of trade secrets should not be dismissed, and Defendants’ motion to
dismiss the claim for misappropriation of trade secrets should be DENIED.
G. AAF has alleged a claim for unfair and deceptive trade practices.
64. AAF alleges that Price and Camfil’s actions as alleged constitute unfair
and deceptive trade practices in violation of the UDTPA. (VFAC ¶¶ 118–121.) The
UDTPA declares unlawful “[u]nfair methods of competition in or affecting commerce,
and unfair or deceptive acts or practices in or affecting commerce.” G.S. § 75-1.1. To
state a valid UDTP claim, a plaintiff must allege: “(1) an unfair or deceptive act or
practice, or unfair method of competition, (2) in or effecting commerce, and (3) which
proximately caused actual injury to the AAF or his business.” Combs & Assocs. v.
Kennedy, 147 N.C. App. 362, 373–74, 555 S.E.2d 634, 642 (2001). North Carolina
courts “have long recognized that claims for misappropriation of trade secrets … may
form the basis of a UDTP claim[.]” South Fastening Sys. v. Grabber Constr. Prods.,
2015 NCBC LEXIS 42, *28 (N.C. Super. Ct. Apr. 28, 2015) (citing Drouillard v. Keister
Williams Newspaper Servs., Inc., 108 N.C. App. 169, 172-73, 423 S.E.2d 324, 326-27
(1992)). 65. AAF's misappropriation of trade secrets claim should survive
Defendants’ Motion to Dismiss. In addition, AAF alleges that Defendants engaged in
other deceptive conduct surrounding Price’s resignation from employment and
continued access to AAF’s trade secrets. Accordingly, AAF’s UDTPA claim simiarly
should survive dismissal. Veer Right Mgmt. Group, Inc. v. Czarnowski Display Serv.,
2015 NCBC LEXIS 13, *17–18 (N.C. Super. Ct. Feb. 4, 2015) (“Plaintiff’s claim for
unfair and deceptive trade practices must await further adjudication of the other
claims upon which it is based.”). Defendants’ motion to dismiss AAF's claim for unfair
and deceptive trade practices in violation of G.S. § 75-1.1 should be DENIED.
H. Civil Conspiracy.
66. “There is no independent cause of action for civil conspiracy. Only when
there is an underlying claim for unlawful conduct can a plaintiff state a claim for civil
conspiracy by also alleging the agreement of two or more parties to carry out the
conduct and injury resulting from the agreement.” Toomer v. Garrett, 155 N.C. App.
at 483, 574 S.E.2d at 92. “A civil conspiracy is essentially an action for damages, and
no action lies unless one or more conspirators actually cause damage.” Krawiec v.
Manly, 2016 NCBC LEXIS 7, *33 (N.C. Super. Ct. Jan. 22, 2016).
67. AAF alleges that “Price and Camfil . . . conspired and agreed to . . .
misappropriate AAF’s trade secrets, to illegally use AAF’s trade secrets, [and] to
commit unfair and deceptive trade practices . . . .” (VFAC ¶ 123.)
68. Since AAF’s claims for misappropriation and unfair trade practices
survive dismissal, these claims can serve as the requisite underlying torts for a civil conspiracy claim. Krawiec, 2016 NCBC LEXIS 7, at *33–34. Accordingly, Defendants’
motion to dismiss AAF’s claim for civil conspiracy should be DENIED.
THEREFORE, IT IS ORDERED that Defendants’ Motion to Dismiss Plaintiff’s
First Amended Complaint is GRANTED, in part, and DENIED, in part, as follows:
69. Defendants’ Motion to Dismiss Plaintiff’s claim for breach of contract is
GRANTED, and is dismissed WITHOUT PREJUDICE.
70. Defendants’ Motion to Dismiss Plaintiff’s claim for breach of fiduciary
duty against Price is GRANTED, and is dismissed WITH PREJUDICE.
71. Defendants’ Motion to Dismiss Plaintiff’s claim for tortious interference
with contract against Camfil is GRANTED, and is dismissed WITHOUT
PREJUDICE.
72. Defendants’ Motion to Dismiss Plaintiff’s claim for misappropriation of
trade secrets in violation of the North Carolina Trade Secrets Protection Act is
DENIED.
73. Defendants’ Motion to Dismiss Plaintiff’s claim for violation of the North
Carolina Unfair and Deceptive Trade Practices Act is DENIED.
74. Defendants’ Motion to Dismiss Plaintiff’s claim for civil conspiracy is
75. Except as expressly granted above, Defendants’ Motion to Dismiss is
DENIED. This the 26th day of June, 2017.
/s/ Gregory P. McGuire Gregory P. McGuire Special Superior Court Judge for Complex Business Cases