Franco v. Liposcience, Inc.

676 S.E.2d 500, 197 N.C. App. 59, 29 I.E.R. Cas. (BNA) 479, 2009 N.C. App. LEXIS 806

• Court: Court of Appeals of North Carolina
• Decided: May 19, 2009
• Docket: COA08-785
• Status: Published

Opinions

WYNN, Judge.

North Carolina embraces a strong presumption of at-will employment unless the employment relationship fits within one of three recognized exceptions — the pertinent exception here being an alleged contractual relationship.¹ In this appeal, Plaintiff Richard A. Franco, Jr. argues that the evidence established that he had a contract with Defendant Liposcience, Inc. that barred his termination as an at-will employee. Because the record shows there was insufficient consideration to form a binding contract, we affirm the trial court’s grant of directed verdict in favor of Liposcience on Franco, Jr.’s breach of contract claim.

In September 2002, Liposcience, a manufacturer and marketer of medical technology products, hired Franco, Jr. to serve as Vice President of Marketing. At that time, Franco, Jr.’s father — Richard A. Franco, Sr. — served as Chairman of Liposcience’s Board of Directors. However, Liposcience’s Board of Directors voted to remove Franco, Sr. as Chairman of the Board of Directors in October 2002. Thereafter, severance negotiations resulted in the drafting of three documents, each dated 13 December 2002.

First, a document titled “Severance and Release Agreement” was signed by Franco, Sr. and Dr. Charles A. Sanders, Liposcience’s incoming Chairman of the Board of Directors. Under the Severance and Release Agreement, the parties agreed that Franco, Sr. would resign as Chairman of the Board of Directors, but would remain a voting member of the Board of Directors and a shareholder.

Second, Dr. Sanders signed a letter as “Chairman of the Board of Directors of Liposcience, Inc.” that was addressed to Franco, Jr. and copied to Franco, Sr. (“Retaliation Letter”). The Retaliation Letter stated, in relevant part:

First of all, this letter will signify my commitment to you that there will be no retaliation against you by the Company in connection with your father’s resignation. For the purposes of this letter, the term “retaliation” shall mean to take adverse employment action against you based upon your relationship with Richard Franco, Sr., and not for any legitimate business reason.

In addition, from and after the date of this letter and for a period of two years thereafter, no employment action will be taken by Liposcience that will have any material adverse effect on the terms and conditions of your employment without my prior express written approval, of which you will receive a copy. Such employment actions include any material reduction in your compensation and benefits; any material diminution of your title, role and responsibilities with the Company; and any material disciplinary action, up to and including the termination of your employment. Nothing in this letter agreement shall diminish any other rights that you may have relative to your employment with the Company.

Third, a letter addressed to Franco, Jr. (signed by Executive Vice President Lucy Martindale and Vice President, General Counsel, and Secretary Timothy J. Williams), stated that any Chairman of the Board of Directors succeeding Dr. Sanders would be bound to the conditions in the Retaliation Letter.

During 2003, Liposcience made a series of internal restructuring moves to make the company more efficient and to reduce payroll expenses. By February 2003, Liposcience had hired Richard Brajer as Chief Executive Officer, and shortly thereafter, hired Richard Pinnola as Chief Operating Officer. By December 2003, Mr. Brajer and Mr. Pinnola discussed eliminating the Vice President of Marketing and other lower-level positions to create a Vice President of Sales position, as Liposcience shifted its focus from marketing to product sales. That decision was finalized and executed on 24 February 2004, resulting in Franco, Jr.’s termination.

However, under Franco, Jr.’s version of the events leading to his termination, a “quid-pro-quo” pattern of retaliatory adverse employment actions corresponded to each conflict Franco, Sr. had with Liposcience executives. Specifically, Franco, Jr. alleged that before he was terminated, the following series of events occurred: 1.) in March and April 2003, Franco, Sr. made several accountability requests of CEO Brajer; in response, Franco, Jr. received a critical voice message from CEO Brajer, and had his responsibilities and approved personal days reduced; 2) in June 2003, Franco, Sr. requested a full performance review of CEO Brajer; in response, Franco, Jr. received a critical performance review outside the normal review cycle; 3) in August 2003, Franco, Sr. criticized and requested a full performance review of CEO Brajer; in response, Franco, Jr.’s approved vacation time was reduced; 4) in September and October 2003, Franco, Sr. requested and was denied Liposcience sales information, was suspected of authoring an anonymous email criticizing shareholder communications, and ultimately resigned from the Board of Directors; in response, Franco, Jr.’s responsibilities were reduced further despite positive reviews.

After his termination, Franco, Jr. brought this action asserting claims for breach of contract, wrongful discharge in violation of North Carolina public policy, unfair and deceptive trade practices, and punitive damages. In response, Liposcience answered denying liability and moved for summary judgment which Superior Court Judge Howard E. Manning granted on the wrongful discharge claim but denied on the breach of contract claim.

Following Franco, Jr.’s voluntary • dismissal of his unfair and deceptive trade practices and punitive damages claims, a jury trial commenced on the breach of contract claim before Superior Court Judge Allen Baddour. However, at the close of all the evidence during the trial, Judge Baddour directed a verdict for Liposcience concluding that “[p]laintiff did not present any evidence at trial of consideration supplied by him to support the alleged contract at issue.” Thereafter, Franco, Jr. learned that Judge Baddour’s father and Dr. Sanders were once commonly affiliated with the University of North Carolina, and therefore filed motions for new trial and recusal. Judge Baddour denied those motions.

On appeal, Franco, Jr. argues the trial court erred by (I) granting a directed verdict for Liposcience on his breach of contract claim; and (II) denying his motion to recuse Judge Baddour.

I.

Franco, Jr. acknowledges that Liposcience originally hired him as an at-will employee. In this appeal, however, he contends that the promises in the Retaliation Letter formed a contract precluding Liposcience’s right to terminate his employment in retaliation for Franco, Sr.’s actions. Because there was no consideration to form a contract, we diságree.

North Carolina embraces a strong presumption of at-will employment unless the employment relationship fits within an exception, one being a contract specifying a definite period of employment. See Kurtzman v. Applied Analytical Indus., Inc., 347 N.C. 329, 331-32, 493 S.E.2d 420, 422 (1997). Moreover, we have held that an “employment-at-will contract may be supplemented by additional agreements which are enforceable.” Martin v. Vance, 133 N.C. App. 116, 121, 514 S.E.2d 306, 309 (1999) (citing Walker v. Westinghouse Elec. Corp., 77 N.C. App. 253, 261, 335 S.E.2d 79, 84 (1985)). Like any other contract, however, such additional agreements must be supported by consideration. See id.; Watson Electrical Constr. Co. v. Summit Cos., LLC, 160 N.C. App. 647, 655, 587 S.E.2d 87, 94 (2003) (“Consideration is the glue that binds parties together, and a mere promise, without more, is unenforceable.”) (citation and quotation marks omitted).

The Retaliation Letter’s two distinct promises — that Liposcience would not retaliate against Franco, Jr. for Franco, Sr.’s actions and that the Chairman of the Board of Directors would provide express written approval of any material adverse employment action — constitute additional obligations on the part of Liposcience. Indeed, when Franco, Jr. received the Retaliation Letter, he was already employed. The Retaliation Letter did not increase or diminish his pay, duties, rights, or anything else that could be deemed consideration flowing from Franco, Jr. to Liposcience. As the trial court noted, mere continued employment by the employee is insufficient. See Howard v. Oakwood Homes Corp., 134 N.C. App. 116, 121-22, 516 S.E.2d 879, 882-83 (“the prospect of continued employment is insufficient to support a covenant not to compete where the employee receives no change in compensation, commission, duties, nature of employment or other consideration in exchange for signing the agreement”), disc. review denied, 350 N.C. 832, 539 S.E.2d 288 (1999).

Nonetheless, Franco, Jr. contends that consideration to support the Retaliation Letter was supplied by Franco, Sr. He argues that because Franco, Sr. negotiated for the Retaliation Letter in connection with the Severance Agreement, Franco, Jr. is entitled to enforce the Retaliation Letter as a third-party beneficiary.

Neither party disputes the validity of the Severance Agreement, and there is evidence showing that Franco, Sr. negotiated for the Retaliation Letter for Franco, Jr.’s benefit. However, the Retaliation Letter is not referenced in the Severance Agreement, which contains a merger clause. Therefore, the promises in the Retaliation Letter were not incorporated and made binding in the Severance Agreement. Accordingly, Franco, Jr. cannot enforce the promises in the Retaliation Letter as a third-party beneficiary and we reject this assignment of error.

We note that our dissenting colleague implores us to hold that forbearance by Franco, Sr. created sufficient consideration to transform the letter sent by Liposcience to Franco, Jr. into an employment contract. First, our research reveals no case in North Carolina has ever held such regarding employment contracts. Second, all of the cases relied upon by the dissent to support holding that the forbearance of a third party may be sufficient to create consideration for another party, are debtor-type cases. Inv. Props. of Asheville, Inc. v. Norburn, 281 N.C. 191, 188 S.E.2d 342 (1972) (“In a guaranty contract, a consideration moving directly to the guarantor is not essential. The promise is enforceable if a benefit to the principal debtor is shown or if detriment or inconvenience to the promisee is disclosed.”); Myers v. Allsbrook, 229 N.C. 786, 51 S.E.2d 629 (1949) (defendant’s oral promise to pay his brother’s debt to plaintiff not enforceable under Statute of Frauds); Branch Banking & Trust Co. v. Kenyon Inv. Corp., 76 N.C. App. 1, 332 S.E.2d 186, appeal withdrawn, 316 N.C. 192, 341 S.E.2d 587 (1986) (the defendant, holder of a second deed of trust on a parcel of land, assumed principal debtor’s obligation relating to first deed of trust). Though in general, employment contracts are guided by the general principles of contract, we decline to extend the principles from the debtor cases cited by the dissent to defeat the application of the at-will employment doctrine here.

The dissent further notes that “a failure to allow Plaintiff to enforce the Retaliation Letter would have the effect of substantially undermining a significant component of the bargain that Franco Sr. made with Defendant in the Severance Agreement.” Post at 18. Our holding does not affect the rights of Franco Sr. as he is not a party to this action nor does it appear he has sought to enforce his rights in another action.

II.

Franco, Jr. next argues that the trial court erred by denying his combined motions for a new trial and to recuse Judge Baddour. We disagree.

First, we address the denial of Franco, Jr.’s motion for a new trial pursuant to N.C. Gen. Stat. § 1A-1, Rule 59(a)(8) (2007), on the ground that the court committed various errors of law. We review denial of a Rule 59(a)(8) motion de novo. Kinsey v. Spann, 139 N.C. App. 370, 373, 533 S.E.2d 487, 490 (2000). However, the argument in Franco, Jr.’s brief before this Court consists of the following: “[T]he trial court reversibly erred in directing a verdict for Defendant. The trial court therefore also erred in denying Franco, Jr.’s motion for a new trial....” Because we have already concluded that the trial court did not err by granting the directed verdict, and Franco, Jr. advances no further argument, we summarily reject this assignment of error.

Second, we consider Franco, Jr.’s argument that his motion for new trial should have been granted because he objectively demonstrated grounds for Judge Baddour’s disqualification. A party requesting a judge’s recusal “must ‘demonstrate objectively that grounds for disqualification actually exist.’ ” In re LaRue, 113 N.C. App. 807, 809, 440 S.E.2d 301, 303 (1994) (quoting State v. Kennedy, 110 N.C. App. 302, 305, 429 S.E.2d 449, 451 (1993)). “The requesting party has the burden of showing through substantial evidence that the judge has such a personal bias, prejudice or interest that he would be unable to rule impartially.” See State v. Fie, 320 N.C. 626, 627, 359 S.E.2d 774, 775 (1987) (citations omitted).

Franco, Jr. argues that Judge Baddour’s father’s affiliation with Liposcience CEO Dr. Sanders created grounds for Judge Baddour’s disqualification. Specifically, Franco, Jr. produced evidence that Dr. Sanders served on the University of North Carolina’s Board of Trustees when the Board approved the hiring of Judge Baddour’s father as the University’s Athletic Director. Dr. Sanders’ tenure on the Board of Trustees ended in 2001. At the time of trial, Dr. Sanders was a member of UNC’s School of Public Health Advisory Council, which allegedly worked closely with the Athletic Department to promote health and nutrition in local schools.

However, Dr. Sanders offered an affidavit which established that he had very little personal communication with Judge Baddour’s father, and that even his professional connection to the judge’s father was limited to Board of Trustees’ meetings and related functions. Accordingly, given the remote and arm’s length affiliation Dr. Sanders had with Judge Baddour’s father, Franco, Jr. did not carry his burden to demonstrate objectively that grounds for Judge Baddour’s recusal existed.

Affirmed.

Judge Robert C. HUNTER concurs. Judge ERVIN dissents by separate opinion.

1 . Kurtzman v. Applied Analytical Indus., Inc., 347 N.C. 329, 331-32, 493 S.E.2d 420, 422 (1997).