Fogartie v. Edrington, 2017 NCBC 104.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE COUNTY OF WAKE SUPERIOR COURT DIVISION 17 CVS 12698 JAMES E. FOGARTIE, JR. and STEVEN KAGAN, individually and derivatively on behalf of Carolina Vascular Surgery and Diagnostics, P.A.,
Plaintiffs, v.
R. DAVID EDRINGTON, ORDER ON PLAINTIFFS’ MOTION GEORGE T. CLARK III, FOR PRELIMINARY INJUNCTION CHRISTOPHER R. LONGO,
Defendants, and CAROLINA VASCULAR SURGERY AND DIAGNOSTICS, P.A. Nominal Defendant.
THIS MATTER comes before the Court upon Plaintiffs’ Motion for Preliminary
Injunction (the “Motion”). (ECF No. 5.)
THE COURT, having considered the Motion, the briefs in support of and in
opposition to the Motion, the arguments of counsel at the hearing, the record evidence
filed by the parties, and other appropriate matters of record, FINDS and
CONCLUDES, in its discretion, that the Motion should be DENIED for the reasons
set forth below. FACTUAL AND PROCEDURAL BACKGROUND
1. The Court finds facts solely for purposes of deciding the Motion, and
such findings are not binding in any subsequent proceedings. Daimlerchrysler Corp.
v. Kirkhart, 148 N.C. App. 572, 578, 561 S.E.2d 276, 282 (2002).
2. Plaintiffs James E. Fogartie, Jr. (“Fogartie”) and Steven Kagan
(“Kagan”) (Fogartie and Kagan are referred to collectively as “Plaintiffs”) and
Defendants R. David Edrington (“Edrington”), George T. Clark III (“Clark”), and
Christopher R. Longo (“Longo”) (Edrington, Clark, and Longo are referred to
collectively as “Defendants”) are vascular surgeons (collectively, Plaintiffs and
Defendants are referred to as “the five surgeons”). The five surgeons are the only
shareholders of Nominal Defendant Carolina Vascular Surgery and Diagnostics, P.A.
(“CVSD”), a North Carolina professional corporation formed in 2002. The five
surgeons each own 20% of CVSD’s common stock, and each are directors on CVSD’s
Board of Directors. (Verified Complaint, ECF No. 3 at ¶¶ 13–14.) The five surgeons
also are employed by CVSD. (ECF No. 3 at ¶ 12.)
3. CVSD is a vascular surgery practice located in Raleigh. (ECF No. 3 at
¶ 11.) In addition to the five surgeons, CVSD employs between 15 and 20 full-time
and part-time employees. (ECF No. 3 at ¶ 19.)
4. CVSD adopted corporate By-Laws (“By-Laws”) that provide for
governance by simple majority vote. (CVSD By-Laws, ECF No. 21.2.) The By-Laws
further provide that: “the business and affairs of [CVSD] shall be managed by the Board of Directors” (Id. at Art. III, § 1); “a majority of the Directors … shall constitute
a quorum for the transaction of business” (Id. at Art. III, § 4); and “the act of the
majority of the Directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors.” (Id. at Art. III, § 5.) The holders of the majority of
CVSD shares constitute a quorum for purposes of shareholder action, and
shareholder action requires a vote of the majority of the shares present in a quorum.
(Id. at Art. II, § 7.) Directors may only be removed by “a vote of shareholders holding
a majority of the share entitled to vote . . . .” (Id. At Art. III, § 4.)
5. On February 9, 2009, the five surgeons entered into the Shareholders’
Buy-Sell Agreement. (ECF No. 3, at Ex. R; the “Buy-Sell Agreement.”) Under the
Buy-Sell Agreement, if a Shareholder transfers their stock ownership for any reason,
“the Net Purchase Price for the shares of Common Stock owned by the Shareholder
shall be determined in the discretion of the … Board of Directors” using one or more
of more suggested methods for valuing the corporation. (ECF No. 3, at Ex. R § 1.11.1.)
6. CVSD’s revenue has declined in recent years due to a variety of factors.
As a result the five surgeons explored relationships with other medical providers in
pursuit of an alternate business model. (Kagan Aff., ECF No. 6.2 at ¶¶ 4–5; Edrington
Aff., ECF No. 15.2 at ¶¶ 3, 7–8, 10–14; Clark Aff., ECF No. 15.3 at ¶¶ 4, 6–7; Longo
Aff., ECF No. 15.4 at ¶¶ 4, 6–8.) On October 26, 2016, the five surgeons met with
Duke University Health System, Inc. (“Duke”) to discuss potential options for a
business relationship. (ECF No. 6.2 at ¶ 5.) 7. On or about July 6, 2017, Duke made offers of employment to each of
the five CVSD physicians. (Id.)
8. The five surgeons also held meetings with WakeMed Physicians
Practice/WakeMed Health and Hospitals (“WakeMed”). (Nathan Aff., ECF No. 6.3 at
¶¶ 2–4; ECF No. 15.2 at ¶¶ 11–12.) The five surgeons met with WakeMed on July 20,
2017, and advised WakeMed that they were interested in receiving proposals for a
business relationship with WakeMed. (ECF No. 15.2 at ¶¶ 12–13; ECF No. 15.3 at ¶
18; ECF No. 15.4 at ¶¶ 11–14.)
9. On July 25, 2017, prior to receiving a proposal from WakeMed,
Defendants notified Plaintiffs that they had accepted Duke’s offers of employment.
(ECF No. 15.2 at ¶ 17; ECF No. 15.3 at ¶ 25; ECF No. 15.4 at ¶ 17.) Plaintiffs did not
accept the offers of employment from Duke. Instead, Plaintiffs “intend to continue
practicing at CVSD . . . and they have told Defendants of those intentions.” (ECF No.
3 at ¶ 23.)
10. Plaintiffs allege that Defendants intend to open their new Duke-
affiliated office less than one-half mile from CVSD’s office in April of 2018, and that
Defendants’ practice will directly compete with CVSD for patients. (ECF No. 3 at
¶¶ 21–22.)
11. After Defendants accepted employment with Duke, WakeMed ceased
discussions with Plaintiffs regarding the potential business relationship. (ECF No.
6.3 at ¶ 5; ECF No. 3 at ¶ 67.) WakeMed will not resume negotiations with CVSD
until “it has assurance that the people involved in any negotiations have authority to speak and act for CVSD,” and “until assured that the terms of any proposed
arrangement will be held confidentially by such members and acted upon in the best
interest of any WakeMed and CVSD arrangement.” (ECF No. 6.3 at ¶¶ 6–7.)
12. In the weeks following Defendants’ commitment to enter into
employment with Duke, the atmosphere at CVSD became tense. (ECF No. 15.2 at
¶ 25.) In August 2017, Edrington sent emails to Clark and Longo stating, inter alia:
I’ve been reading our buy sell agreement. Thankfully it is explicit.
...
It is therefore imperative to drive up the price of the stock to make it somewhat painful. I don’t expect to be paid until the very last day of the contract requirement but it might still be painful to come up with say $300,000 to pay out, especially when at the same time [Fogartie] will be approaching his exit and he will most certainly want the same deal we got! Can’t wait to see how [Kagan] deals with that!
and,
I have now looked at both the Buy Sell and Bylaws and I see no wiggle room.
The three of us can meet as a quorum with or without [Plaintiffs]. At that meeting we can set the stock price to include three months (sic) salary, goodwill and a proportion of the corporation assets. We can elect to have these amounts given to us in cash on the day we surrender our stock.
(ECF No. 3 at ¶¶ 59–60; Ex. S.)
13. The evidence, however, shows that despite Edrington’s statements to
Clark and Longo in the emails, he attempted to bring about an agreement between Defendants and Plaintiffs regarding an appropriate method for implementing the
Buy-Sell Agreement, including proposing that Plaintiffs and Defendants each retain
attorneys to work out details of a buyout of Defendants’ interests in CVSD. (ECF No.
15.2 at ¶¶ 29–36, Exs. B and C.) The parties subsequently retained attorneys and
had preliminary discussions regarding resolution of their disagreements. (Id. at
¶¶ 35–36, Ex. C.) Apparently, these discussions ceased.
14. Currently, Defendants Edrington, Clark, and Longo are still employed
with CVSD, and remain shareholders and directors of CVSD. (ECF No. 3 at ¶ 24.)
Plaintiffs allege that, as three of the five directors and a majority of the shareholders,
Defendants “collectively control CVSD.” (Id. at ¶ 52.) Plaintiffs further contend that
Defendants’ “loyalties now lie with Duke,” but “Defendants have refused to relinquish
their collective control of CVSD.” (Id. at ¶ 53.) Plaintiffs allege that Defendants “each
began working on Duke’s behalf in direct competition with CVSD while still serving
as directors of CVSD,” (Id. at ¶ 27) by taking the following actions:
a. In August 2017, Longo communicated with Duke to facilitate entry
into a training agreement that would allow the Defendants to train
Duke fellows after Defendants entered employment with Duke. (Id.
at ¶ 28.)
b. Clark provided Duke with a list of equipment used in CVSD’s
angiography suite. (Id. at ¶ 30.) c. On September 14, 2017, Defendants interviewed a candidate for a
position in Duke’s division of vascular surgery, Dr. Joe Salfity1, even
though CVSD was also recruiting Dr. Salfity. Edrington told Duke
that CVSD was recruiting Dr. Salfity and would likely offer him a
contract. In an email to Dr. Salfity after the interview, Edrington did
not encourage Dr. Salfity to join CVSD, but instead encouraged Dr.
Salfity to “try to work out a position with WakeMed.” (Id. at ¶¶ 31–
33; Ex. G.)
d. In September 2017, Edrington facilitated communication between a
part-time CVSD employee, Catherine Morgan (“Morgan”), and Duke,
for the purpose of discussing “future employment opportunities” with
Duke. (ECF No. 3 at ¶¶ 34–37.) Edrington also communicated with
Duke emphasizing Morgan’s value as an employee, and suggested
that Duke rely on her knowledge “regarding the steps necessary to
open the new vascular practice.” (Id. at ¶¶ 36, 38–40.) Upon learning
of Edrington’s attempt to recruit Morgan to Duke, CVSD offered
Morgan full-time employment on October 9, 2017, but Morgan
tendered a letter of resignation the following day. (Id. at ¶ 50.)
Morgan subsequently reconsidered, and she remains employed with
CVSD at this time. (ECF No. 15.2 at ¶ 66; ECF No. 6.2 at ¶ 15.)
1 (ECF No. 3, at Ex. D.) e. Defendants participated in a meeting with Duke to discuss Duke’s
proposed equipment list for the new office, the proposed layout of the
new office, a list of procedures to be performed at the new office, and
a “staffing plan.” (Id. at ¶ 41.)
f. On September 26, 2017, Clark sent an email to Duke listing first
names and job titles of current CVSD employees to demonstrate the
“types of employees that will be needed to establish Defendants’ new
office with Duke.” (Id. at ¶ 42.)
g. Edrington utilized Morgan’s knowledge to obtain an application form
and vendor quote for equipment necessary to open Duke’s new office.
(Id. at ¶ 44.)
15. Plaintiffs discovered Defendants’ conduct in late September 2017, and
“requested that Defendants resign from CVSD, but Defendants refused.” (ECF No. 3
at ¶¶ 45–46.) On September 28, 2017, Plaintiffs’ counsel sent Defendants a letter
demanding that Defendants cease engaging in “competitive activities” on behalf of
Duke, including:
(a) interviewing or otherwise meeting with Duke’s candidates for its vascular surgery practice . . . (b) soliciting Catherine Morgan and other CVSD employee’s [sic] on Duke’s behalf, (c) encouraging CVSD’s employees to seek other employment, (d) providing information to Duke regarding CVSD’s employees, equipment, or operations, (e) communicating with Duke regarding its administrative, operational or logistical needs for your vascular surgery practice, and (f) disparaging CVSD’s doctors or its ongoing viability as a medical practice. (Id. at Ex. N.) The letter suggested that, in the alternative, Defendants should resign
their positions as directors of CVSD. (Id.)
16. On October 6, 2017, counsel for Defendants responded to the letter.
(ECF No. 3, at Ex. P.) Defendants denied that their conduct was in breach of their
duties to CVSD or otherwise unlawful in any way. Nevertheless, “in the interest of
keeping the peace during the time the doctors will continue to work together,”
Defendants agreed to the following restrictions on their conduct:
(1) [Defendants] will not meet with or interview candidates for Duke’s vascular surgery practice[.] . . . (2) They will not solicit Catherine Morgan or any other CVSD employee on Duke’s behalf. In addition, if Doctors Kagan and Fogartie request them to do so, they will agree not to offer employment to Ms. Morgan until 180 days after their last day at CVSD. (3) They will not encourage CVSD’s employees to seek other employment. (4) They will not provide information to Duke regarding CVSD’s employees, equipment, or operations. (5) They will not disparage CVSD’s doctors or its ongoing viability as a surgical practice.
(Id.)
17. To date, the parties have not reached any agreement regarding
Defendants’ ongoing exercise of their powers as directors of CVSD.
18. On September 28, 2017, Plaintiffs’ counsel also sent a request to CVSD,
pursuant to N.C. Gen. Stat. § 55-7-42 (hereinafter, references to the North Carolina
General Statutes will be to “G.S.”), to take action on behalf of CVSD against
Defendants regarding their alleged breaches of duties. (Id. at ¶ 48, Ex. O.) 19. Plaintiffs filed the Verified Complaint on October 18, 2017. The Verified
Complaint alleges individual claims and derivative claims on behalf of CVSD against
Defendants. Plaintiffs make individual and derivative claims for removal of directors
pursuant to G.S. § 55-8-09 and for breach of fiduciary duty, derivative claims for
constructive fraud and unfair and deceptive trade practices, and an individual claim
for declaratory judgment. The Verified Complaint seeks, among other relief, a
preliminary injunction:
(a) prohibiting Defendants from working for Duke, providing Duke any information relating to CVSD, or otherwise assisting Duke in any manner while they are directors of CVSD; (b) prohibiting Defendants from soliciting or recruiting any CVSD employees or former employees while Defendants are directors of CVSD; (c) prohibiting Defendants from taking any action in contravention of their fiduciary duties to CVSD and Plaintiffs; (d) prohibiting Defendants from taking any action in their capacities as members of CVSD’s board of directors; and (e) prohibiting Defendants from participating in, attempting to hinder, or receiving information concerning CVSD’s strategic and operational decision-making regarding its future, including without limitation the hiring and management of employees, the management of CVSD’s finances and the negotiation and execution of contracts.
(ECF No. 3 at p. 24.)
20. On October 24, 2017, Plaintiffs filed their Motion for Preliminary
Injunction, and a Brief in Support of their Motion for Preliminary Injunction. (ECF
No. 6.) On November 3, 2017, Defendants filed their Brief in Response to Plaintiffs’
Motion for Preliminary Injunction. (ECF No. 15.) Also on November 3, 2017, CVSD
filed a Brief in Response to Plaintiffs’ Motion for Preliminary Injunction. (ECF No. 14.) On November 6, 2017, Plaintiffs filed their Reply Brief in Support of their Motion
for Preliminary Injunction. (ECF No. 16.)
21. On November 7, 2017, the Court held a hearing on the Motion. The
Motion is now ripe for disposition.
ANALYSIS
A. Standard of Review
22. A preliminary injunction may be issued during litigation when “it
appears by affidavit that a party thereto is doing or threatens or is about to do . . .
some act . . . in violation of the rights of another party to the litigation respecting the
subject of the action, and tending to render judgment ineffectual.” G.S. § 1-485(2). A
preliminary injunction is “an extraordinary remedy and will not be lightly granted.”
Travenol Labs., Inc. v. Turner, 30 N.C. App. 686, 692, 228 S.E.2d 478, 483 (1976). The
movant bears the burden of establishing the right to a preliminary injunction. Pruitt
v. Williams, 288 N.C. 368, 372, 218 S.E.2d 348, 351 (1975). To obtain a preliminary
injunction a movant must show “a likelihood of success on the merits of [the] case and
. . . [that the movant] is likely to sustain irreparable loss unless the injunction is
issued, or if, in the opinion of the Court, issuance is necessary for the protection of
[the movant’s] rights during the course of litigation.” Analog Devices, Inc. v.
Michalski, 157 N.C. App. 462, 466, 579 S.E.2d 449, 452 (2003); accord Looney v.
Wilson, 97 N.C. App. 304, 307–08, 388 S.E.2d 142, 144–45 (1990). Likelihood of success means “a reasonable likelihood.” A.E.P. Indus., Inc. v. McClure, 308 N.C. 393,
404, 302 S.E.2d 754, 761 (1983).
23. Additionally, the Court must balance the equities, and a preliminary
injunction “should not be granted where there is a serious question as to the right of
the defendant to engage in the activity and to forbid the defendant to do so, pending
the final determination of the matter, would cause the defendant greater damage
than the plaintiff would sustain from the continuance of the activity while the
litigation is pending.” Bd. Of Provincial Elders v. Jones, 273 N.C. 174, 182, 159 S.E.2d
545, 551–52 (1968); accord Cty. Of Johnston v. City of Wilson, 136 N.C. App. 775, 780,
525 S.E.2d 826, 829 (2000) (noting that a court should weigh “the advantages and
disadvantages to the parties” in deciding whether to issue a preliminary injunction).
24. The issuance of an injunction is “a matter of discretion to be exercised
by the hearing judge after a careful balance of the equities.” State ex. Rel. Edmisten
v. Fayetteville St. Christian Sch., 299 N.C. 351, 357, 261 S.E.2d 908, 913 (1980).
B. Likelihood of Success on the Merits
25. In support of the Motion, Plaintiffs have argued only the merits of their
claims for breach of fiduciary duty and for removal of Defendants as directors under
G.S. § 55-8-09. Accordingly, the Court will address only those claims in determining
the likelihood of success on the merits.
i. Breach of Fiduciary Duty
26. Under North Carolina law, corporate directors owe fiduciary duties to
the corporation, and must discharge their duties “(1) [i]n good faith; (2) [w]ith the care an ordinarily prudent person in a like position would exercise under similar
circumstances; and (3) [i]n a manner [the director] reasonably believes to be in the
best interest of the corporation.” G.S. § 55-8-30(a); accord Seraph Garrison, LLC v.
Garrison, 787 S.E.2d 398, 2016 N.C. App. LEXIS 384, at *8 (N.C. Ct. App. Apr. 19,
2016) (“[A]n officer [must] always discharge the responsibilities of the office with
undivided loyalty to the corporation.” (internal quotation marks omitted)). “[T]he
analysis of an officer’s fiduciary conduct must be judged in light of the background in
which it occurs and the circumstances under which [the officer] serves the
corporation.” RCJJ, LLC v. RCWIL Enters., LLC, 2016 NCBC 44, at *32 (N.C. Super.
Ct. June 20, 2016) (quoting Seraph Garrison, LLC, 2016 N.C. App. LEXIS 384, at
*10) (internal quotation marks omitted).
27. There is case law in North Carolina that has held that “merely making
plans to compete with an employer before leaving the company, without more, does
not necessarily constitute a breach of fiduciary duty.” RoundPoint Mortg. Co. v.
Florez, 2016 NCBC LEXIS 18, at *84 (N.C. Super. Ct. Feb. 18, 2016) (citing Fletcher,
Barnhardt & White, Inc. v. Matthews, 100 N.C. App. 436, 441–42, 397 S.E.2d 81, 84
(1990)); Sunbelt Rentals, Inc. v. Head & Engquist Equip., L.L.C., 2002 NCBC LEXIS
2, at *25–26 (N.C. Super. Ct. July 10, 2002). In those cases, the courts have held that
the crucial question is whether the individual took improper actions in furtherance
of a plan to compete, or was only engaged in the planning to compete in the future.
RoundPoint Mortg. Co., 2016 NCBC LEXIS 18, at *84; Sunbelt Rentals, Inc., 2002
NCBC LEXIS 2, at *25. While these decisions have recognized that preparation activities that resulted in breach of a covenant not to compete, or misappropriation
of the plaintiff’s trade secrets, could constitute activities breaching a fiduciary duty,
id.; Fletcher, Barnhardt & White, Inc., 100 N.C. App. at 441–42, 397 S.E.2d at 84,
they do not clearly delineate where the line between lawful and unlawful planning
and preparation activities lies.2
28. Both Plaintiffs and Defendants contend that the holdings in these cases
support their respective positions. Plaintiffs claim that “Defendants’ conduct has
transcended mere preparations; they have taken concrete actions for Duke’s benefit
at the present expense of CVSD.” (ECF No. 6 at p. 12.) Plaintiffs argue that
Defendants “are currently competing with CVSD in their recruiting and operational
work for Duke” and have “us[ed] CVSD’s proprietary information to assist Duke in
establishing a new vascular surgery office to compete with CVSD.” (Id. at pp. 12–13.)
Defendants, on the other hand, argue that “[o]nly when the director ‘actually
compet[es]’ with the corporation is he in violation of his fiduciary duty.” (ECF No. 15
at p. 6, citing Dalton v. Camp, 138 N.C. App. 201, 207, 531 S.E.2d 258, 263 (2000),
rev’d on other grounds, 353 N.C. 647, 548 S.E.2d 704 (2001).)
2 In Roundpoint Mortg. Co., Inc., the Court cited with approval Maryland Metals, Inc. v.
Metzner, 382 A.2d 564, 568-70 (Md. Ct. App. 1978), summarizing that case as holding that “the right of an employee to make arrangements to compete is defeated by misconduct such as misappropriation of trade secrets, misuse of confidential information, solicitation of an employer’s customers prior to cessation of employment, conspiracy to bring about mass resignation of an employer’s key employees, and usurpation of [the] employer’s business opportunity.” 29. As a preliminary matter, the Court notes that the Defendants did not
have agreements not to compete with CVSD, and, at the hearing, Plaintiffs’ counsel
conceded that the information that Defendants provided to Duke regarding CVSD’s
operation, equipment, and employees are not “trade secrets” within the meaning of
the North Carolina Trade Secrets Protection Act, G.S. §§ 66-154 et seq. Accordingly,
these two recognized types of activities that might constitute breaches of fiduciary
duty are not present in this action.
30. In addition, the Court concludes that Defendants’ activities here did not
constitute actual competition with CVSD. There is no evidence that Defendants have
steered current CVSD patients to seek care from Duke, or that they have performed
medical services for Duke. Nor is there evidence that Defendants have usurped, for
Duke, any corporate opportunities rightfully belonging to CVSD.
31. The Court also concludes that, despite Plaintiffs’ characterizations, the
information that Defendants provided to Duke about CVSD’s current practice and
employees was not confidential “proprietary” information. The evidence establishes
that CVSD made no attempts to maintain the confidentiality of the names or job titles
of its staff, the types or brands of the equipment it used, or the layout of its office and
treatment facilities. In fact, much of that information, including a list of procedures
to be performed in the office, a list of equipment in the angiography suite, a
photograph depicting the layout of the angiography suite, and a list of employee
names and job titles, is available on CVSD’s public website. (Clark Aff. II, ECF No.
17, at Exs. A and B.) To the extent that some of the information provided to Duke by Defendants was not available to the public on the website, the information was
neither proprietary nor confidential.
32. The question then becomes whether Defendants’ other activities in
providing information and assistance to Duke to set up their office and practice with
Duke crossed the line into unlawful preparation to compete. The interview of Dr.
Salfity and the alleged recruitment of Catherine Morgan are closer to the line
between mere preparation to compete and actual competition.
33. Plaintiffs contend that Defendants breached their fiduciary duties of
loyalty by interviewing Dr. Salfity on Duke’s behalf while CVSD was also recruiting
him, by informing Duke that CVSD was recruiting Dr. Salfity, and by allegedly
encouraging Dr. Salfity to refrain from joining CVSD.3 (ECF No. 6 at pp. 11–12.)
Defendants submitted affidavits in response stating that Duke asked them to “meet
with” Dr. Salfity as a professional courtesy because Dr. Salfity’s wife had recently
accepted a three-year position as a cardiothoracic fellow at Duke. (ECF No. 15.2 at
¶¶ 71–76.) Duke was not interested in hiring Dr. Salfity for a position in Raleigh and,
in fact, Duke did not offer Dr. Salfity a position. (Id. at ¶¶ 71 and 80.) Edrington,
however, knew that Dr. Salfity was being interviewed by Fogartie and Kagan on
behalf of CVSD, and communicated that information to Duke. (ECF No. 3, at Ex. F.)
3 Plaintiffs characterized Edrington’s email to Dr. Salfity as “discourag[ing] [Dr. Salfity] from
joining CVSD.” (ECF No. 3 at ¶ 33.) The actual text of the email does not reference CVSD or discourage Dr. Salfity in any way. (ECF No. 3, at Ex. G.) Instead, the email encourages Dr. Salfity to accept a position with WakeMed if one is offered. (Id.) As such, the best characterization of Edrington’s email is that he did not actively encourage Dr. Salfity to join CVSD. Edrington encouraged Dr. Salfity to take a position with WakeMed, should it be
offered, as it “would be the next best opportunity” to a position with Duke. (ECF No.
3, at Ex. G.)
34. In light of the circumstances surrounding Defendants’ interview of Dr.
Salfity, the Court concludes that Plaintiffs have failed at this time to establish a
likelihood of success on its claim that the conduct breached Defendants’ fiduciary
duties to CVSD. See RCJJ, LLC, 2016 NCBC LEXIS 46, at *22–24 (“[T]he analysis of
an officer’s fiduciary conduct must be judged in light of the background in which it
occurs and the circumstances under which he serves the corporation.”). The
unrebutted evidence is that the meeting between Defendants and Dr. Salfity was
more of a general discussion of potential opportunities in the vascular surgery field
in the triangle area, and not an “interview.” It also is unrebutted that Duke had no
interest in hiring Dr. Salfity in Raleigh.
35. The emails from Edrington to Duke and Dr. Salfity following the
interview are a different matter. Edrington had “an affirmative obligation . . . to
advance the best interests of the corporation,” RCJJ, LLC, 2016 NCBC LEXIS 46, at
*24. Informing Duke, a competitor of CVSD, about CVSD’s recruitment efforts and
encouraging Dr. Salfity to accept a position with WakeMed while aware that CVSD
also had interest in employing him (and a pressing need for new vascular surgeons)
does not demonstrate the “utmost devotion” to CVSD. Id.
36. Even if the Court assumes, however, that Edrington breached his
fiduciary duty, “[c]laims for breach of fiduciary duty…require proof of an injury or harm proximately caused by the breach of duty.” BDM Investments v. Lenhil, Inc.,
2014 NCBC LEXIS 6, at *29–30 (N.C. Super. Ct. Mar. 20, 2014) (citing Jay Grp., Ltd.
v. Glasgow, 139 N.C. App. 595, 600–01, 534 S.E.2d 233, 237 (2000)); Progress Point
One-B Condo. Ass’n, Inc. v. Progress Point One Prop. Owners Ass’n, 2015 NCBC
LEXIS 22, at *10 (N.C. Super. Ct. Mar. 2, 2015); see also, Green v. Freeman, 367 N.C.
136, 141, 749 S.E.2d 262, 268 (2013) (“The first issue before us is whether there was
sufficient evidence, as a matter of law, that [defendant] breached a fiduciary duty
owed to plaintiffs, proximately causing injury to them.”). Plaintiffs have not alleged
that CVSD made an offer of employment to Dr. Salfity, much less that he rejected an
offer of employment. Without any allegation that Edrington’s emails with Duke and
Dr. Salfity proximately caused harm to CVSD, there is not a likelihood of success on
the claim for breach of fiduciary duty based on the email.
37. Defendants’ alleged recruitment of Morgan is also close to the line
between permissible action and a breach of fiduciary duty. Edrington told Duke that
Morgan was a “key employee” upon whom CVSD relied “to set up [CVSD’s] practice
model.” (ECF No. 3, at Ex. H.) Additionally, Edrington commented that Morgan
“would be hard to replace.” (Id.) Edrington encouraged Duke to recruit Morgan for
Duke’s Raleigh office. (Id.) He also encouraged Duke to rely on Morgan’s knowledge
of CVSD’s business practice to develop Duke’s new office layout and facilitate the
purchase of necessary equipment. (ECF No. 3, at Exs. I, M.)
38. Defendants contend that it was Morgan who approached Edrington and
Longo to express her desire for full-time employment and her dissatisfaction with CVSD, and Plaintiffs in particular. (ECF No. 15.2 at ¶¶ 53–62.) Edrington claims
that he sent the emails to Duke with the intention of “helping a deserving person get
a job.” (Id. at ¶¶ 64–65.) Edrington “believed [Morgan] would leave CVSD as soon as
she found a suitable full-time position.” (ECF No. 15.2 at ¶ 66.) Morgan tendered her
resignation to CVSD in October 2017, but reconsidered and remains employed with
CVSD at this time.
39. It is questionable whether Edrington’s attempt to get Duke to hire
Morgan away from CVSD demonstrates the “utmost devotion” to CVSD required by
his fiduciary duties. See, RCJJ, LLC, 2016 NCBC LEXIS 46, at *24. Again, however,
Plaintiffs have not provided “proof of an injury or harm proximately caused by the
breach of duty.” BDM Investments, 2014 NCBC LEXIS 6, at *29–30. Plaintiffs have
provided evidence that CVSD is interviewing candidates for Morgan’s position,
believing that Morgan’s continued employment with CVSD is precarious, (ECF No.
6.2 at ¶ 15), but Morgan remains employed by CVSD. In addition, Defendants have
agreed to “not solicit Catherine Morgan or any other CVSD employee on Duke’s behalf
. . . [and] agree[d] not to offer employment to Ms. Morgan until 180 days after their
last day at CVSD.” (ECF No. 3, at Ex. P.) Plaintiffs have not established a likelihood
of success on their breach of fiduciary duty claims arising from Defendants’ recruiting
of Morgan.
40. In summary, the evidence at this stage of the proceeding does not
establish that Defendants’ activities amounted to improper preparations to compete,
and Plaintiffs have not shown they are likely to succeed on their claims that Defendants breached fiduciary duties. Plaintiffs’ request for a preliminary injunction
based on Defendants’ alleged breaches of fiduciary duties should be DENIED.
ii. Removal of Directors
41. Plaintiffs seek removal of Defendants as directors of CVSD under G.S.
§ 55-8-09, which provides:
The superior court of the county where a corporation’s principal office . . . is located may remove a director of the corporation from office in a proceeding commenced either by the corporation or by its shareholders holding at least ten percent (10%) of the outstanding shares of any class if the court finds that: (1) the director engaged in fraudulent or dishonest conduct, or gross abuse of authority or discretion, with respect to the corporation; and (2) removal is in the best interest of the corporation.
42. Plaintiffs argue that removal is proper because the same actions alleged
to be breaches of Defendants’ fiduciary duties also constitute dishonest conduct and
gross abuse of authority and discretion.4 (ECF No. 6 at p. 15.) For the same reasons
that the Court concluded that Plaintiff has not established a likelihood of success on
their breach of fiduciary duty claims, the Court concludes that Plaintiffs have not
shown that they are likely to succeed on their claims that Defendants acted
dishonestly or grossly abused their authority as directors. Accordingly, the Court will
not exercise its authority under G.S. § 55-8-09 at this stage of the litigation based on
that conduct.
4 At the hearing, Plaintiffs conceded that Defendants have not engaged in fraudulent conduct. 43. Plaintiffs also argue that Defendants should be removed as directors
because they have stated that they intend to use their majority control of CVSD’s
Board of Directors to “drive up” the Net Purchase Price of their shares under the Buy-
Sell Agreement when Defendants leave the corporation. (Id. at pp. 15–16.) The
parties have not, however, actually set the Net Purchase Price for Defendants’ shares
in CVSD at this time, and it appears that the valuation process won’t take place until
sometime in the spring of 2018 at the earliest. Defendants have not yet engaged in
any improper conduct related to the valuation of shares in CVSD.
44. In conclusion, Plaintiffs have not sufficiently provided evidence
establishing a likelihood of success on the merits for the claims of breach of fiduciary
duty or removal of directors under G.S. § 55-8-09 to justify imposition of a preliminary
injunction at this time. Plaintiffs’ request for a preliminary injunction seeking
removal of Defendants as directors pursuant to G.S. § 55-8-09 should be DENIED.
C. Irreparable Harm
45. Having determined that Plaintiffs have failed to establish a likelihood
of success on the merits, the Court need not reach the question of whether Plaintiffs
will suffer irreparable harm.
D. Balancing of Equities
46. Finally, the Court must consider the balance of equities. When
balancing the equities, the Court should not grant a preliminary injunction “where
there is a serious question as to the right of the defendant to engage in the activity
and to forbid the defendant to do so, pending the final determination of the matter, would cause the defendant greater damage than the plaintiff would sustain from the
continuance of the activity while the litigation is pending.” Bd. of Provincial Elders
v. Jones, 273 N.C. 174, 182, 159 S.E.2d 545, 551–52 (1968).
47. Plaintiffs contend that, “absent intervention from the Court” to remove
Defendants as directors, “CVSD’s fate is certain death.” (ECF No. 6 at p. 22.)
Plaintiffs argue that Defendants must be removed in order to allow Plaintiffs to act
as the Board of the Directors on behalf of CVSD. (Id. at pp. 20–22.) Plaintiffs point
out that WakeMed is unwilling to negotiate with them over a potential relationship
while Defendants remain in control of CVSD. This problem, however, is the result of
WakeMed’s apparent confidentiality and other business concerns, and not any breach
of Defendants’ duties to CVSD.
48. Plaintiffs also contend that Plaintiffs must take control of the Board of
Directors in order to permit CVSD to hire new vascular surgeons and to permit CVSD
to hire a replacement for Morgan, should she leave, (Id. at pp. 20–21), but Plaintiffs
have not provided evidence that Defendants have blocked or impeded CVSD’s
attempts to hire new physicians or staff. To the contrary, Defendants have introduced
evidence that they have at least expressed the willingness to work cooperatively with
Plaintiffs towards a resolution of the current dispute that would permit Plaintiffs to
pursue their interests in continuing to practice as CVSD. (ECF No. 15.2 at ¶¶ 37–52;
Exs. D–F.) While the devil would certainly lie in the details of any such resolution, it
appears from the evidence that Plaintiffs have not been as willing as Defendants to
explore a potential for resolution. 49. Defendants, on the other hand, argue that placing Plaintiffs in control
as the sole directors of CVSD would expose them to the same potential issues Plaintiff
claim they now face regarding determination of the Net Purchase Price of their
shares. (ECF No. at pp. 20–22.) Defendants contend that they too are entitled to a
say in CVSD’s affairs during their final months with the practice, and entitled to
exercise their rights as shareholders and directors. (Id.)
50. The record evidence makes it clear that five surgeons all have
contributed to the success of, and have a substantial interest in, CVSD, both
professionally and financially. In this case the five surgeons agreed that CVSD would
act through majority vote of the directors. Defendants constitute the majority of the
Board of Directors. Plaintiffs are understandably unhappy with this arrangement
now that Defendants have decided to practice with Duke. Nevertheless, since
Plaintiffs have not established that Defendants have caused or will cause injury to
CVSD through conduct in breach of their duties to the corporation, the extraordinary
remedy of an injunction is not warranted.
CONCLUSION
51. In conclusion, because Plaintiffs have failed to establish a likelihood of
success on the merits, and because the equities in this particular case weigh against
imposition of an injunction, Plaintiffs’ Motion for Preliminary Injunction is DENIED.
THEREFORE, IT IS ORDERED that Plaintiffs’ Motion for Preliminary
Injunction is DENIED. This, the 17th day of November, 2017.
/s/ Gregory P. McGuire Gregory P. McGuire Special Superior Court Judge for Complex Business Cases