Knc Techs., LLC v. Tutton
This text of 2021 NCBC 25 (Knc Techs., LLC v. Tutton) is published on Counsel Stack Legal Research, covering North Carolina Business Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
KNC Techs., LLC v. Tutton, 2021 NCBC 25.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION DAVIDSON COUNTY 19 CVS 793
KNC TECHNOLOGIES, LLC, f/k/a KEN-NECT COMMUNICATIONS, L.L.C., ORDER AND OPINION ON Plaintiff, PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT, v. DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT, AND ERIC TUTTON and I-TECH DEFENDANTS’ MOTION TO SECURITY & NETWORK EXCLUDE SOLUTIONS, LLC,
Defendants.
THIS MATTER comes before the Court upon Plaintiff KNC Technologies LLC
(“KNC”), f/k/a Ken-Nect Communications, L.L.C.’s Motion for Partial Summary
Judgment (“KNC’s Motion for Partial Summary Judgment,” ECF No. 63), Defendants
Eric Tutton (“Tutton”) and I-Tech Security & Network Solutions, LLC’s (“I-Tech;”
collectively, Tutton and I-Tech are referred to as “Defendants”) Motion for Summary
Judgment (“Defendants’ Motion for Summary Judgment,” ECF No. 64; together with
KNC’s Motion for Partial Summary Judgment, the “Motions for Summary
Judgment”), and Defendants’ Motion to Exclude Expert Testimony of Erik Lioy
(“Motion to Exclude,” ECF No. 68; together with the Motions for Summary Judgment,
the “Motions”).
THE COURT, having considered the Motions, the evidentiary materials filed
by the parties, the briefs filed in support of and in opposition to the Motions, the
arguments of counsel at the hearing on the Motions, the applicable law, and other appropriate matters of record, CONCLUDES, that the Motions should be GRANTED,
in part, and DENIED, in part, as set forth below.
Van Sickle Law, PLLC by R. Matthew Van Sickle for Plaintiff KNC Technologies, LLC, f/k/a Ken-Nect Communications, L.L.C.
Fitzgerald Litigation by Stuart Punger for Defendants Eric Tutton and I-Tech Security & Network Solutions, LLC
McGuire, Judge.
1. The present dispute arises from KNC’s former employment of Tutton
and Tutton’s violation of a Non-Compete and Solicitation Agreement which he
entered with KNC (“Non-Compete Agreement,” ECF No. 3, at Ex. A, pp. 20–25).
Tutton’s violations of the Non-Compete Agreement were the subject of two prior
lawsuits: one against Tutton (Ken-Nect Communications, L.L.C. v. Eric Tutton, 13-
CVS-07572 (Forsyth County) 1 (hereinafter, “Tutton I”)) and the other against
Tutton’s then-employer, Nitor Solutions, Inc. (“Nitor”) (KNC Technologies, LLC v.
Nitor Solutions, Inc., Case No. 1:14-cv-00874 (M.D.N.C. 2014) (hereinafter, the “Nitor
Lawsuit”)). Both lawsuits were settled before trial. As part of the settlement of
Tutton I, KNC and Tutton executed a Confidential Waiver, Release, and Settlement
Agreement (“Settlement Agreement,” ECF No. 3, at pp. 26–30) and a Consent Order
for Permanent Injunction and Dismissal of Remaining Claims and Counterclaims
(“Consent Order,” ECF No. 3, at pp. 31–33). In this action, Tutton, along with a
company he formed, I-Tech, are alleged to have violated the terms of the Settlement
Agreement and Consent Order. Both parties now move for summary judgment.
1 KNC was formerly known as Ken-Nect Communications, L.L.C. I. FACTS
2. “Although findings of fact are not necessary on a motion for summary
judgment, it is helpful to the parties and the courts for the trial judge to articulate a
summary of the material facts which he considers are not at issue and which justify
entry of judgment.” Collier v. Collier, 204 N.C. App. 160, 161–62 (2010).
A. Background
3. KNC is in the business of installing low-voltage infrastructure,
primarily for communications and safety applications. KNC employed Tutton as a
field technician and then as a project manager from 2006 until October 2012, and
again from November 19, 2012 until November 14, 2013. 2 (ECF No. 3, at ¶ 7, Ex. C,
pp. 12–13.) As part of Tutton’s second stint of employment with KNC, Tutton signed
the Non-Compete Agreement. The Non-Compete Agreement prohibited Tutton from
working for KNC’s competitors for a period of three (3) years following Tutton’s
termination from KNC and prohibited him from disclosing KNC’s trade secrets and
confidential information. (Id. at Ex. A, at ¶¶ 6–7.)
4. On November 14, 2013, Tutton resigned his employment with KNC and
began working for Nitor, a competitor of KNC. Prior to his resignation, Tutton helped
Nitor download “files containing KNC’s customer and supplier information, pricing
schemes, project plans and designs, estimates, and bids.” (Aff. of Eric Tutton, Id. at
Ex. 1, ¶¶ 7–26.) After joining Nitor, Tutton contacted KNC’s customers and helped
Nitor successfully solicit business from those customers. (Id. at ¶¶ 31–40.) KNC
2 Tutton quit working for KNC for a brief period in October 2012. (ECF No. 3, at Ex. 1, ¶ 6.) subsequently sued Tutton for breach of the Non-Compete Agreement in Forsyth
County Superior Court (Tutton I), claiming, inter alia, that Tutton provided KNC’s
confidential business information to Nitor.
5. In September 2014, KNC and Tutton settled Tutton I by executing the
Settlement Agreement and the Consent Order, both of which Tutton entered
voluntarily and with representation of counsel. (Id. at Exs. 2–3.) The Settlement
Agreement provided, inter alia, the following: “Tutton shall pay [KNC] the sum total
of Five Thousand and No/100 Dollars ($5,000)”; “the Parties shall file a stipulation of
dismissal without prejudice of all claims and counterclaims asserted in the Lawsuit”;
and
Tutton consents and agrees to the entry of a Permanent Injunction against him for a period of (10) years through and including August 31, 2024 (the “Restricted Period”) in accordance with the terms of the proposed Consent Order for Permanent Injunction attached as Exhibit A. Pursuant to the terms of the Permanent Injunction and during the Restricted Period, Tutton shall not directly or indirectly (i) solicit, contact, and/or make sales to [KNC] customers, (ii) solicit, contact, and/or make sales to the suppliers enumerated on Exhibit A, (iii) disparage, defame, slander, and/or malign [KNC], and (iv) retain or use any of its trade secrets or confidential and proprietary information. The parties shall work cooperatively and in good faith to obtain entry of the proposed Consent Order for Permanent Injunction attached as Exhibit A.
(Id. at Ex. 2, ¶¶ 1–2, 4.)
6. The Settlement Agreement contains the following liquidated damages
provision:
[i]f at any time it is determined that Tutton has breached the terms of the Permanent Injunction to be entered by the Court pursuant to this Agreement, Tutton acknowledges and agrees that [KNC] shall be entitled to a payment of liquidated damages in the amount of Twenty-Five Thousand and No/100 Dollars ($25,000.00) per violation.
(Id. at ¶ 6; hereinafter, the “Liquidated Damages Provision.”) Further, the
Settlement Agreement states: “[t]he Parties agree that this Agreement shall not be
subject to any claims of mistake of fact and that it expresses a full and complete
settlement.” (Id. at ¶ 9.)
7. The parties filed the Consent Order in Forsyth County Superior Court,
and on September 17, 2014, the Honorable Susan Bray entered the Consent Order.
The Consent Order contained the following prohibitions on Tutton’s activities:
a. [Tutton] is prohibited and enjoined from indirectly or directly soliciting[,] contacting, and/or making sales to any customers of [KNC].
b. The term “Customers” as used herein shall mean any party for whom [KNC] had provided services as of November 14, 2013.
(Id. at Ex.
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KNC Techs., LLC v. Tutton, 2021 NCBC 25.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION DAVIDSON COUNTY 19 CVS 793
KNC TECHNOLOGIES, LLC, f/k/a KEN-NECT COMMUNICATIONS, L.L.C., ORDER AND OPINION ON Plaintiff, PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT, v. DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT, AND ERIC TUTTON and I-TECH DEFENDANTS’ MOTION TO SECURITY & NETWORK EXCLUDE SOLUTIONS, LLC,
Defendants.
THIS MATTER comes before the Court upon Plaintiff KNC Technologies LLC
(“KNC”), f/k/a Ken-Nect Communications, L.L.C.’s Motion for Partial Summary
Judgment (“KNC’s Motion for Partial Summary Judgment,” ECF No. 63), Defendants
Eric Tutton (“Tutton”) and I-Tech Security & Network Solutions, LLC’s (“I-Tech;”
collectively, Tutton and I-Tech are referred to as “Defendants”) Motion for Summary
Judgment (“Defendants’ Motion for Summary Judgment,” ECF No. 64; together with
KNC’s Motion for Partial Summary Judgment, the “Motions for Summary
Judgment”), and Defendants’ Motion to Exclude Expert Testimony of Erik Lioy
(“Motion to Exclude,” ECF No. 68; together with the Motions for Summary Judgment,
the “Motions”).
THE COURT, having considered the Motions, the evidentiary materials filed
by the parties, the briefs filed in support of and in opposition to the Motions, the
arguments of counsel at the hearing on the Motions, the applicable law, and other appropriate matters of record, CONCLUDES, that the Motions should be GRANTED,
in part, and DENIED, in part, as set forth below.
Van Sickle Law, PLLC by R. Matthew Van Sickle for Plaintiff KNC Technologies, LLC, f/k/a Ken-Nect Communications, L.L.C.
Fitzgerald Litigation by Stuart Punger for Defendants Eric Tutton and I-Tech Security & Network Solutions, LLC
McGuire, Judge.
1. The present dispute arises from KNC’s former employment of Tutton
and Tutton’s violation of a Non-Compete and Solicitation Agreement which he
entered with KNC (“Non-Compete Agreement,” ECF No. 3, at Ex. A, pp. 20–25).
Tutton’s violations of the Non-Compete Agreement were the subject of two prior
lawsuits: one against Tutton (Ken-Nect Communications, L.L.C. v. Eric Tutton, 13-
CVS-07572 (Forsyth County) 1 (hereinafter, “Tutton I”)) and the other against
Tutton’s then-employer, Nitor Solutions, Inc. (“Nitor”) (KNC Technologies, LLC v.
Nitor Solutions, Inc., Case No. 1:14-cv-00874 (M.D.N.C. 2014) (hereinafter, the “Nitor
Lawsuit”)). Both lawsuits were settled before trial. As part of the settlement of
Tutton I, KNC and Tutton executed a Confidential Waiver, Release, and Settlement
Agreement (“Settlement Agreement,” ECF No. 3, at pp. 26–30) and a Consent Order
for Permanent Injunction and Dismissal of Remaining Claims and Counterclaims
(“Consent Order,” ECF No. 3, at pp. 31–33). In this action, Tutton, along with a
company he formed, I-Tech, are alleged to have violated the terms of the Settlement
Agreement and Consent Order. Both parties now move for summary judgment.
1 KNC was formerly known as Ken-Nect Communications, L.L.C. I. FACTS
2. “Although findings of fact are not necessary on a motion for summary
judgment, it is helpful to the parties and the courts for the trial judge to articulate a
summary of the material facts which he considers are not at issue and which justify
entry of judgment.” Collier v. Collier, 204 N.C. App. 160, 161–62 (2010).
A. Background
3. KNC is in the business of installing low-voltage infrastructure,
primarily for communications and safety applications. KNC employed Tutton as a
field technician and then as a project manager from 2006 until October 2012, and
again from November 19, 2012 until November 14, 2013. 2 (ECF No. 3, at ¶ 7, Ex. C,
pp. 12–13.) As part of Tutton’s second stint of employment with KNC, Tutton signed
the Non-Compete Agreement. The Non-Compete Agreement prohibited Tutton from
working for KNC’s competitors for a period of three (3) years following Tutton’s
termination from KNC and prohibited him from disclosing KNC’s trade secrets and
confidential information. (Id. at Ex. A, at ¶¶ 6–7.)
4. On November 14, 2013, Tutton resigned his employment with KNC and
began working for Nitor, a competitor of KNC. Prior to his resignation, Tutton helped
Nitor download “files containing KNC’s customer and supplier information, pricing
schemes, project plans and designs, estimates, and bids.” (Aff. of Eric Tutton, Id. at
Ex. 1, ¶¶ 7–26.) After joining Nitor, Tutton contacted KNC’s customers and helped
Nitor successfully solicit business from those customers. (Id. at ¶¶ 31–40.) KNC
2 Tutton quit working for KNC for a brief period in October 2012. (ECF No. 3, at Ex. 1, ¶ 6.) subsequently sued Tutton for breach of the Non-Compete Agreement in Forsyth
County Superior Court (Tutton I), claiming, inter alia, that Tutton provided KNC’s
confidential business information to Nitor.
5. In September 2014, KNC and Tutton settled Tutton I by executing the
Settlement Agreement and the Consent Order, both of which Tutton entered
voluntarily and with representation of counsel. (Id. at Exs. 2–3.) The Settlement
Agreement provided, inter alia, the following: “Tutton shall pay [KNC] the sum total
of Five Thousand and No/100 Dollars ($5,000)”; “the Parties shall file a stipulation of
dismissal without prejudice of all claims and counterclaims asserted in the Lawsuit”;
and
Tutton consents and agrees to the entry of a Permanent Injunction against him for a period of (10) years through and including August 31, 2024 (the “Restricted Period”) in accordance with the terms of the proposed Consent Order for Permanent Injunction attached as Exhibit A. Pursuant to the terms of the Permanent Injunction and during the Restricted Period, Tutton shall not directly or indirectly (i) solicit, contact, and/or make sales to [KNC] customers, (ii) solicit, contact, and/or make sales to the suppliers enumerated on Exhibit A, (iii) disparage, defame, slander, and/or malign [KNC], and (iv) retain or use any of its trade secrets or confidential and proprietary information. The parties shall work cooperatively and in good faith to obtain entry of the proposed Consent Order for Permanent Injunction attached as Exhibit A.
(Id. at Ex. 2, ¶¶ 1–2, 4.)
6. The Settlement Agreement contains the following liquidated damages
provision:
[i]f at any time it is determined that Tutton has breached the terms of the Permanent Injunction to be entered by the Court pursuant to this Agreement, Tutton acknowledges and agrees that [KNC] shall be entitled to a payment of liquidated damages in the amount of Twenty-Five Thousand and No/100 Dollars ($25,000.00) per violation.
(Id. at ¶ 6; hereinafter, the “Liquidated Damages Provision.”) Further, the
Settlement Agreement states: “[t]he Parties agree that this Agreement shall not be
subject to any claims of mistake of fact and that it expresses a full and complete
settlement.” (Id. at ¶ 9.)
7. The parties filed the Consent Order in Forsyth County Superior Court,
and on September 17, 2014, the Honorable Susan Bray entered the Consent Order.
The Consent Order contained the following prohibitions on Tutton’s activities:
a. [Tutton] is prohibited and enjoined from indirectly or directly soliciting[,] contacting, and/or making sales to any customers of [KNC].
b. The term “Customers” as used herein shall mean any party for whom [KNC] had provided services as of November 14, 2013.
(Id. at Ex. 3, ¶¶ 1–2; hereinafter, the “Customers Restriction.”)
c. [Tutton] is prohibited and enjoined from indirectly or directly soliciting, contacting, and/or making sales to any Suppliers of [KNC].
d. The term “Suppliers” as used herein shall mean Accu- Tech Corporation, ADI, Anixter, Inc., Communications Supply Corporation, Graybar Electric Company, Blackboard, Black Box, Norfolk Wire, and ScanSource and their operations in North Carolina, Virginia, South Carolina, Tennessee, and Georgia.
(Id. at Ex. 3, ¶¶ 3–4 (hereinafter, the “Suppliers Restriction.”) The Consent Order
states that it will “dissolve automatically on August 31, 2024,” and that “[Tutton] waives any and all rights to seek modification to or relief from its terms until its
natural expiration.” (Id. at ¶ 9.)
B. Post-execution of Settlement Agreement and Consent Order
8. After the Settlement Agreement and Consent Order were executed and
entered by the Forsyth County Superior Court in September 2014, Tutton worked for
Performance Cabling Technologies (“Performance”) 3 until he eventually left to help
form I-Tech in April 2015. I-Tech is a member-managed limited liability company
comprised of three members: Tutton, as President, holding a 49% membership
interest; Michelle Tutton (Tutton’s wife), as Assistant Vice President, holding a 41%
membership interest; and Regina Bagby (Tutton’s mother), as Vice President, holding
a 10% membership interest. (ECF No. 66.2 [SEALED], redacted at ECF No. 74.2, at
p. 10; ECF No. 15.2.) Performance and I-Tech perform many of the same services as
KNC.
9. KNC alleges that Tutton, either while he was employed with
Performance or as member-manager of I-Tech, “solicit[ed], contact[ed], and/or ma[de]
sales to” several of KNC’s customers in violation of the Consent Order. The evidence
establishes that after entry of the Settlement Agreement and Consent Order, Tutton
performed work directly for the following KNC customers: Guilford County Schools
(“GCS”), the City of Winston-Salem, and Inmar. Tutton also performed work for the
following KNC customers indirectly as a subcontractor for Johnson Control
3 Tutton left Nitor and began working for Performance in March 2014, prior to the Consent
Order being entered by Judge Bray in September 2014. (ECF No. 66.2 [SEALED], redacted at ECF No. 74.2, pp. 2–3.) International PLC (“JCI”): Arbor Acres; the City of Greensboro; Teleflex; Thomas
Bus; Wake Forest Baptist Hospital (“WFBH”); Michael Cotrone (“Cotrone”); and the
Veterans Administration (“VA”).
10. KNC also alleges that Tutton contacted KNC’s suppliers Accu-Tek, ADI,
Norfolk Wire, Communication Supply Corp. (“CSC”), and Graybar in violation of the
terms of the Consent Order. (ECF No. 73, at pp. 5–9.)
11. While many of Tutton’s contacts with the aforementioned customers and
suppliers are undisputed (compare ECF No. 72, at pp. 12–16 with ECF No. 73, at pp.
6–11), the details of each contact as well as their implication with respect to the
Settlement Agreement and Consent Order are heavily contested. Nevertheless, the
evidence in the record establishes the following undisputed material facts:
i. GCS
12. KNC invoiced GCS on multiple occasions for services as early as 2005,
and Tutton worked on GCS jobs while employed with KNC. (ECF No. 66.11
[SEALED], at pp. 87–117; ECF No. 67.15 [SEALED], redacted at ECF No. 75.2, at
pp. 27–30.) I-Tech provided services for GCS on numerous occasions from 2015
through 2019. (See ECF No. 67.7 [SEALED], at pp. 1–5). With respect to Tutton’s
contact with GCS while at Performance, GCS was already a customer of Performance
when Tutton became employed by Performance in 2014. (See ECF No. 87.3, at pp. 1–
5.) However, according to Performance president Gordon E. Drumwright
(“Drumwright”), while Performance was working a job for GCS, Tutton individually
contacted GCS to negotiate subcontractor work for what would become I-Tech, and Tutton resigned to pursue that work with I-Tech shortly thereafter in 2015. (ECF
No. 67.5, at p. 16.)
ii. City of Winston-Salem
13. KNC invoiced the City of Winston-Salem for services on multiple
occasions from 2009 through 2013, and Tutton worked on City of Winston-Salem jobs
while employed with KNC. (ECF No. 66.11 [SEALED], pp. 28–29; ECF No. 67.5, at
pp. 8, 15.) According to Drumwright, Tutton made contact with the City of Winston
while at Performance by attending “bid meetings when he was chasing a bid at the
City of Winston.” (ECF No. 67.5, at p. 15.) There is no evidence that I-Tech performed
services for the City of Winston-Salem.
iii. Inmar
14. KNC invoiced Inmar for services on two occasions in 2009 and 2010.
(ECF No. 66.11 [SEALED], at p. 128.) Since that time until at least 2018, KNC has
not provided work directly for Inmar. (ECF No. 66.7 [SEALED], redacted at ECF No.
74.4, at p. 21; ECF No. 66.11 [SEALED], at p. 128.) KNC believes it may have
provided services indirectly for Inmar as a subcontractor but could not verify the
accuracy of this statement. (ECF No. 66.7 [SEALED], redacted at ECF No. 74.4, at
p. 21.) Inmar’s subpoena response indicated that it could not locate “any statements
of work, work orders, purchase orders, procurement records regarding accounts
receivable, or records regarding accounts payable” involving KNC from November 9,
2012 through December 31, 2017. (ECF No. 66.8 [SEALED], redacted at ECF No.
79.1, at p. 39.) Tutton did not know KNC performed work for Inmar. (ECF No. 66.2 [SEALED], redacted at ECF No. 74.2, at p. 11.) There is no evidence that Tutton
performed services directly for Inmar while at KNC. I-Tech performed numerous
services directly for Inmar from 2015 through 2019. (ECF No. 67.7 [SEALED], at pp.
9–13; ECF No. 66.2 [SEALED], redacted at ECF No. 74.2, at p. 21.)
iv. Cotrone
15. KNC provided services to Cotrone in 2010 and 2012. (ECF No. 66.11
[SEALED], at pp. 64–65.) Cotrone contacted Tutton in 2017, when Cotrone was
employed by Intelligent Visibility, Inc. (“Intelligent Visibility”), to discuss the
potential of Tutton working with Cotrone on a project at Carteret General Hospital
(“CGH”). (ECF No. 14.4, at ¶¶ 1, 5.) KNC provided services for Intelligent Visibility
in 2017 and 2018, and for CGH on multiple occasions since 2006. (ECF No. 66.11
[SEALED], at pp. 25, 407, 441.) Cotrone, “a longtime customer of KNC technologies,
including from November 14, 2013 to the present,” knew that “[CGH] was also a
customer of KNC.” (Id. at ¶¶ 4, 6.) Upon learning of the Consent Order, Cotrone
“decided to not have any further communication with Mr. Tutton.” (Id. at ¶ 7.)
Tutton never disclosed the existence of the Consent Order to Cotrone during their
conversation regarding the CGH project. (Id.)
v. VA
16. KNC invoiced the VA’s Salisbury and Winston-Salem, North Carolina
locations three times, all in 2008 and 2009. (ECF No. 66.11 [SEALED], at p. 226;
ECF No. 66.7 [SEALED], redacted at ECF No. 74.4, at p. 13.) I-Tech performed services for the VA solely at the Durham, NC location in 2019 and 2020. 4 (ECF No.
67.7 [SEALED], at pp. 6–8; ECF No. 66.2 [SEALED], redacted at ECF No. 74.2, at p.
5.)
vi. Sub-contractor work for JCI
17. It is undisputed that Defendants performed work for certain KNC
customers only as a subcontractor for JCI. JCI was never a KNC customer. (See ECF
No. 66.11 [SEALED].) Rather, JCI installs proprietary systems, and subcontracts
some of its labor to I-Tech. (ECF No. 66.2 [SEALED], redacted at ECF No. 74.2, pp.
16–17.) Defendants performed services as a subcontractor of JCI for the following
KNC customers: (a) Arbor Acres, (b) the City of Greensboro, (c) Teleflex, (d) Thomas
Bus, and (e) WFBH.
a. Arbor Acres
18. KNC invoiced Arbor Acres for services five times during the period
January 2003 through November 2013, all in 2012. (ECF No. 66.11 [SEALED], at p.
5). Tutton did not know KNC ever performed work at Arbor Acres. (ECF No. 66.2
[SEALED], redacted at ECF No. 74.2, at p. 17.) There is no evidence that Tutton
performed work directly for Arbor Acres while at KNC. I-Tech performed services for
Arbor Acres as a subcontractor of JCI in 2018. (ECF No. 67.7 [SEALED], at pp. 14–
17; ECF No. 66.2 [SEALED], redacted at ECF No. 74.2, at pp. 15–16.)
b. City of Greensboro
4 KNC submitted one unsuccessful bid to the Durham VA location. (ECF No. 66.7 [SEALED], redacted at ECF No. 74.4, at p. 13.) 19. KNC invoiced the City of Greensboro for services on seven occasions, all
in 2013. (ECF No. 66.11 [SEALED], at p. 120.) There is no evidence that Tutton
worked directly for the City of Greensboro while at KNC. I-Tech performed services
as a subcontractor of JCI for the City of Greensboro in 2018. (ECF No. 67.7
[SEALED], at pp. 18–20; ECF No. 14.6, at p. 2.)
c. Teleflex
20. KNC invoiced Teleflex for services four times, all in 2007 and 2008.
(ECF No. 66.11 [SEALED], at pp. 213–14; ECF No. 66.7 [SEALED], redacted at ECF
No. 74.4, at p. 21.) Since that time, the record only shows one purchase order between
KNC and a subsidiary of Teleflex. (ECF No. 66.8 [SEALED], redacted at ECF No.
79.1, at p. 43.) Tutton did not know KNC ever performed work for Teleflex. (ECF
No. 66.2 [SEALED], redacted at ECF No. 74.2, at p. 23.) There is no evidence that
Tutton performed work directly for Teleflex while at KNC. I-Tech performed services
for Teleflex as a subcontractor of JCI. (ECF No. ECF No. 67.7 [SEALED], at pp. 23–
26; ECF No. 66.2 [SEALED], redacted at ECF No. 74.2, at p. 16.)
d. Thomas Bus
21. KNC invoiced Thomas Bus solely for services performed for Thomas Bus
in 2008. (ECF No. 66.11 [SEALED], at p. 215; ECF No. 66.7 [SEALED], redacted at
ECF No. 74.4, at p. 22.) KNC has not done any work directly for Thomas Bus since
2008. (ECF No. 66.7 [SEALED], redacted at ECF No. 74.4, at p. 22.) KNC believes
it has done work for Thomas Bus indirectly through some outside company that it
cannot identify. (Id. at p. 21.) In response to a subpoena, Thomas Bus was not able to find any documents regarding work performed by KNC between November 9, 2012
and the present. (ECF No. 66.8 [SEALED], redacted at ECF No. 79.1, at pp. 45–46.)
Tutton did not know KNC ever worked for Thomas Bus. (ECF No. 66.2 [SEALED],
redacted at ECF No. 74.2, at p. 23.) There is no evidence that Tutton worked directly
with Thomas Bus while at KNC. I-Tech performed services as a subcontractor of JCI
for Thomas Bus. (ECF No. 67.7 [SEALED], at pp. 29–37; ECF No. 66.2 [SEALED],
redacted at 74.2, at p. 16.)
e. WFBH
22. KNC invoiced WFBH one time on January 28, 2013. (ECF No. 66.11
[SEALED], at p. 228.) Tutton was unaware that KNC did work at WFBH. (ECF No.
66.2 [SEALED], redacted at ECF No. 74.2, at p. 17.) There is no evidence that Tutton
worked directly with WFBH while at KNC. I-Tech performed services as a
subcontractor of JCI for WFBH in 2018. (ECF No. 66.3 [SEALED], redacted at ECF
No. 81.1, at pp. 23; ECF No. 67.7 [SEALED], at pp. 38–42.)
vii. Accu-Tek, ADI, Norfolk Wire, CSC, and Graybar
23. With respect to suppliers, it is undisputed that Defendants contacted
and purchased supplies from Accu-Tek, ADI, Norfolk Wire, CSC, and Graybar. (ECF
No. 73, at p. 9; ECF No. 72, at p. 16.) All of these entities are listed as “suppliers” of
KNC in the Consent Order. (See ECF No. 3, at Ex. 3, ¶4.)
II. PROCEDURAL HISTORY
24. On April 9, 2019, KNC filed the Complaint in this matter, alleging:
breach of the Settlement Agreement and Consent Order against Tutton (“First Claim”) and against I-Tech (“Second Claim”) 5; tortious interference against I-Tech
(“Third Claim”); misappropriation of trade secrets against Tutton and I-Tech (“Fifth
Claim”); unfair trade practices in violation of the North Carolina Unfair and
Deceptive Trade Practices Act against Tutton and I-Tech (“UDTPA”) (“Sixth Claim”);
and unjust enrichment against Tutton and I-Tech (“Seventh Claim”). (ECF No. 3, at
¶¶ 20–37, 44–58.) The Complaint also requests that the Court disregard I-Tech’s
corporate form and hold it “jointly and severally responsible for Tutton’s conduct”
(“Fourth Claim”) and “impose a constructive trust and direct Defendants to disgorge
all profits gained from the violation of the terms of the Settlement Agreement and
Consent Order” (“Eighth Claim”). (Id. at ¶¶ 38–43, 59–64.) Shortly after filing the
Complaint, on April 17, 2019, KNC filed a Motion for Temporary Restraining Order
and Preliminary Injunction which, inter alia, requested the Court enforce the terms
of Settlement Agreement and Consent Order to preserve the status quo during the
pendency of this litigation. (ECF No. 8.)
25. On May 9, 2019, this matter was designated a mandatory complex
business case, and assigned to the undersigned. (Desig. Ord., ECF No. 1; Assign.
Ord., ECF No. 2.)
5 KNC and Defendants treat the Settlement Agreement and Consent Order as one integrated
agreement for purposes of their breach of contract claims, and the Settlement Agreement makes express reference to the permanent injunction to be entered by the Court in the Consent Order. Simpson v. Beaufort Cty. Lumber Co., 193 N.C. 454, 455 (1927) (“A valid contract . . . may consist of one or many pieces of paper, provided the several pieces are so connected physically or by internal reference that there can be no uncertainty as to the meaning and effect when taken together.”) 26. On the same day, Defendants filed an Answer, Motion to Dismiss, and
Affirmative Defenses (“Motion to Dismiss,” ECF No. 5.) The Motion to Dismiss
sought dismissal of KNC’s claims for breach of the Settlement Agreement and
Consent Order on grounds that, inter alia, the ten-year restrictive period was
unreasonable and unenforceable as a matter of law. The Motion to Dismiss was
briefed and a hearing was held.
27. On October 9, 2019, the Court issued its Order and Opinion on
Defendants’ Motion to Dismiss, which dismissed all KNC’s claims except KNC’s First,
Second, Third, and Sixth Claims. KNC Techs., LLC v. Tutton, 2019 NCBC LEXIS 72,
*40 (N.C. Super. Ct. Oct 9, 2019) (“Dismissal Order”). In the Dismissal Order, the
Court denied Defendants’ Motion to Dismiss KNC’s claims for breach of the
Settlement Agreement and Consent Order, holding that
the ten-year duration of the covenant in the Consent Order is reasonable and enforceable. Tutton admittedly violated the Non-compete Agreement after his resignation from KNC. KNC brought a lawsuit against Tutton and the lawsuit was settled prior to trial, in part, because Tutton agreed to a set of narrowly-tailored restrictions on his ability to solicit KNC’s customers and vendors for approximately ten years. Tutton is not prohibited from competing with KNC. Rather, he is restricted only from soliciting, contacting, or making sales to KNC’s customers and to eight of KNC’s vendors and suppliers . . . . The restrictions in the Consent Order do nothing more than protect KNC’s business interests, which Tutton has already demonstrated a propensity to ignore. Therefore, the Court finds that the non-compete contained in the Consent Order is valid, reasonable, and enforceable.
(Id. at *17–18.) 28. On October 10, 2019, the Court issued its Order on Plaintiff’s Motion for
Temporary Restraining Order and Preliminary Injunction, which “enjoined and
prohibited [Tutton], directly or indirectly, alone or in concert with others, during the
pendency of this lawsuit or until further order of this Court” from “soliciting,
contacting, and/or making sales to” KNC’s customers and suppliers. 6 (ECF No. 30.)
29. On August 31, 2020, KNC filed the Motion for Partial Summary
Judgment, along with a brief in support (“Plaintiff’s Brief in Support of SJ,” ECF No.
73), and exhibits (ECF No. 67.1 [SEALED], redacted at ECF No. 75.1; ECF Nos. 67.2–
6; ECF No. 67.7 [SEALED]; ECF No. 67.8; ECF No. 67.9 [SEALED]; ECF No. 67.10;
ECF Nos. 67.11–12 [SEALED], redacted at ECF Nos. 81.4–5; ECF No. 67.13; ECF
No. 67.14 [SEALED]; ECF No. 67.15 [SEALED], redacted at ECF No. 75.2).
Defendants filed a Brief in Opposition to Plaintiff’s Motion for Partial Summary
Judgment (“Defendants’ Brief in Opposition to SJ,” ECF No. 91), and exhibits (ECF
No. 87.1 [SEALED], redacted at ECF No. 88.1; ECF Nos. 87.2–6). KNC filed a Reply
Brief in Support of its Motion for Partial Summary Judgment. (ECF No. 93.)
30. Also on August 31, 2020, Defendants filed their Motion for Summary
Judgment on all claims (ECF No. 64), along with a brief in support (Defendants’ Brief
in Support of SJ, ECF No. 72) and exhibits (ECF Nos. 66.1–4 [SEALED], redacted at
ECF Nos. 74.1–3, 81.1; ECF Nos. 66.5–6; ECF No. 66.7 [SEALED], redacted at ECF
No. 74.4; ECF No. 66.8 [SEALED], redacted at ECF No. 79.1; ECF Nos. 66.9–10; ECF
6 Tutton was permitted to complete “any current contracts, projects, or other work he is already performing for KNC’s customers as of the issuance of the temporary restraining order and preliminary injunction.” (ECF No. 30, at p. 13.) No. 66.11 [SEALED]; ECF No. 66.12 [SEALED], redacted at ECF No. 81.2; ECF No.
66.13 [SEALED], redacted at ECF No. 79.2; ECF No. 66.14; ECF No. 66.15
[SEALED], redacted at ECF No. 74.5; ECF No. 66.16; ECF No. 66.17 [SEALED],
redacted at ECF No. 74.6; ECF No. 66.18–20). Plaintiff filed a Brief in Opposition to
Defendants’ Motion for Summary Judgment (“Plaintiff’s Brief in Opposition to SJ,”
ECF No. 90) and exhibits (ECF Nos 84.1–84.5). Defendants filed their Reply Brief in
Support of Defendants’ Motion for Summary Judgment. (ECF No. 92.)
31. Finally, also on August 31, 2020, Defendants filed their Motion to
Exclude (ECF No. 68), along with a brief in support (Bf. in Supp. of Mot. to Excl Exp.
Test. of Erik Lioy, ECF No. 69) and exhibits (ECF No. 70.1–2). KNC filed a Brief in
Opposition to Defendants’ Motion to Exclude Expert Testimony of Erik Lioy (ECF No.
77) and exhibits (ECF No. 78.1–2). No reply brief was filed.
32. The Court held a hearing on the Motions on November 30, 2020. The
Motions are now ripe for decision.
III. ANALYSIS
A. Standard of Review
33. Summary judgement is appropriate where “the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that any party is
entitled to a judgment as a matter of law.” Variety Wholesalers, Inc. v. Salem
Logistics Traffic Servs., 365 N.C. 520, 523 (2012) (quoting N.C.G.S. § 1A-1, Rule
56(c)). “An issue is ‘genuine’ if it can be proven by substantial evidence and a fact is ‘material’ if it would constitute or irrevocably establish any material element of a
claim or a defense.” CSX Transp., Inc. v. City of Fayetteville, 247 N.C. App. 517, 521
(2016) (quoting Lowe v. Bradford, 305 N.C. 366, 369 (1982)).
34. On a motion for summary judgment, the Court views the evidence in the
“light most favorable to the non-moving party.” Allstate Ins. Co. v. Lahoud, 167 N.C.
App. 205, 207 (2004) (citation omitted). “The party moving for summary judgment
ultimately has the burden of establishing the lack of any issue of triable fact.” Unitrin
Auto & Home Ins. Co. v. McNeill, 215 N.C. App. 465, 467 (2011) (citations omitted).
The moving party may meet this burden by “proving an essential element of the
opposing party’s claim does not exist, cannot be proven at trial, or would be barred by
an affirmative defense.” Dobson v. Harris, 352 N.C. 77, 83 (2000) (citations omitted).
Once the moving party “makes the required showing, the burden shifts to the
nonmoving party to produce a forecast of evidence demonstrating specific facts, as
opposed to allegations, showing that he can at least establish a prima facie case at
trial.” Unitrin Auto & Home Ins. Co., 215 N.C. App. at 467 (citations omitted).
35. In KNC’s Motion for Partial Summary Judgment, KNC seeks entry of
summary judgment in its favor on its First Claim for breach of contract against
Tutton and its Second Claim for breach of contract against I-Tech. (ECF No. 63.)
Defendants’ Motion for Summary Judgment seeks summary judgment as to KNC’s
remaining claims for breach of contract, tortious interference with contract, and
violation of the UDTPA. (ECF No. 64, at pp. 1–2.) Defendants also seek summary
judgment in their favor that the Liquidated Damages Provision in the Settlement Agreement is unenforceable. (Id. at p. 1.) Since both Motions seek summary
judgment on the claims for breach of the Settlement Agreement and Consent Order,
the Court will first address the arguments relating to those claims.
B. Waiver
36. KNC contends that Tutton waived his right to challenge the
enforceability of the restrictive covenants because the Consent Order states that
Tutton “waives any and all right to seek modification to or relief from its terms until
its natural expiration.” (ECF No. 93, at pp. 3–4; ECF No. 3, p. 33, ¶ 9.) KNC did not
make this argument in Plaintiff’s Brief in Support of SJ, but only in reply to
Defendants argument that the Consent Order is not beyond judicial review.
Defendants point to this Court’s prior finding in the Dismissal Order that it is “bound
by North Carolina’s appellate jurisprudence to treat the Consent Order as a contract”
and that “[t]he reasonableness of a non-competition covenant [in a contract] is a
matter of law for the court to decide.” (ECF No. 91, at pp. 4–5 (quoting KNC Techs.,
LLC, 2019 NCBC 72, at *11).)
37. It is well settled in North Carolina that a “party may waive a contractual
right by an intentional and voluntary relinquishment.” McNally v. Allstate Ins. Co.,
142 N.C. App. 680, 683 (2001) (citation omitted). “The essential elements of waiver
are (1) the existence, at the time of the alleged waiver, of a right, advantage, or
benefit; (2) the knowledge, actual or constructive, of the existence thereof; and (3) an
intention to relinquish such right, advantage or benefit.” Fetner v. Granite Works,
251 N.C. 296, 302 (1969) (citation omitted). “The question of waiver is mainly one of intention, which lies at the foundation of the doctrine.” Comput. Design &
Integration, LLC v. Brown, 2018 NCBC LEXIS 216, at **28 (N.C. Super. Ct. Dec. 10,
2018) (citing Butler v. Charlotte-Mecklenburg Bd. of Educ., 2012 N.C. App. LEXIS
675, at *11 (N.C. Ct. App. June 5, 2012)).
38. In Plaintiff’s Reply in Support of SJ, KNC provides minimal argument
and cursory citation to North Carolina authority, and does not attempt to apply the
law regarding waiver to the specific facts of this case. KNC provides no argument
and cites to no evidence that, at the time Tutton’s attorneys signed the Consent
Order, Tutton intended to relinquish his right to a judicial determination as to the
enforceability of its terms. The Court is not persuaded that the broad waiver
provision in the Consent Order, by itself, is sufficient to establish that Tutton waived
his right to seek a judicial review of the enforceability of the restrictive covenants
under North Carolina law.
39. In addition, the public policy concerns that require scrutiny of
agreements in restraint of trade are not served by permitting parties to divest the
courts of their authority to determine the enforceability of restrictive covenants. “At
common law all contracts in restraint of trade were against public policy and void.”
Kadis v. Britt, 224 N.C. 154, 158 (1994). However,
the strict early common law rule invalidating all restraints was relaxed and subsequently replaced by the test of the reasonableness of the restraint. But it must be added that this test must be applied against a public policy which has come to recognize exceptions to the general rule. Contracts in partial restraint of trade do not escape the condemnation of public policy unless they possess qualifying conditions which bring them within that exception. They are still contrary to public policy and void if nothing shows them to be reasonable.
Id. (internal quotations and citations omitted). The task of applying the “test of
reasonableness of the restraint” lies with the courts. Jewel Box Stores Corp. v.
Morrow, 272 N.C. 659, 663 (1968) (“The reasonableness of a restraining covenant is
a matter of law for the court to decide.”). Since the courts must decide whether a
restrictive covenant is reasonable, parties cannot shield the covenant from “the
condemnation of public policy” through a preemptive waiver of judicial review. Kadis,
224 N.C. at 158.
40. Therefore, the Court concludes, as a matter of law, that Tutton has not
waived the right to have this Court determine the enforceability of the restrictive
covenants in the Consent Order.
C. I-Tech’s Liability for Breach of Contract
41. In its Second Claim, KNC alleges that I-Tech breached the Settlement
Agreement and Consent Order. (ECF No. 3, at ¶¶ 25–30.) It is undisputed that I-
Tech is not a signatory to the Settlement Agreement or Consent Order. Nevertheless,
KNC alleges that “[t]he Settlement Agreement explicitly indicates that its terms are
binding on the parties’ successors or assigns” and “[u]pon current information and
belief, I-Tech is a successor or assign of Tutton and, therefore, is bound to the terms
of the Settlement Agreement and Consent Order.” (Id. at ¶¶ 27–28.) In its Order
and Opinion on Defendants’ Motion to Dismiss, the Court found:
[a]lthough the current allegation that I-Tech has succeeded to or been assigned Tutton’s obligations under the Settlement Agreement is threadbare, at this stage of the proceeding the Court concludes that it should not be dismissed, and Plaintiff should be permitted to take discovery on the issue.
KNC Techs., Inc., 2019 NCBC LEXIS 72, at *25–26. Discovery is now completed.
42. KNC now argues that discovery has established that Tutton holds a 49%
membership interest in I-Tech, and “this . . . undercuts” the argument that I-Tech is
not a successor of Tutton and bound by the Settlement Agreement and Consent
Order. (ECF No. 73, at p. 11.) KNC cites no authority for the proposition that a
limited liability company becomes a “successor” to contracts entered into by its
minority interest owners, nor does KNC make any other argument explaining how I-
Tech is a successor to Tutton. Cf., Terres Bend Homeowners Ass’n v. Overcash, 185
N.C. App. 45, 51 (2007) (“Citing Black's Law Dictionary 1283 (1979), the North
Carolina Supreme Court has defined the term ‘successor’ to mean ‘[o]ne that succeeds
or follows; one who takes the place that another has left, and sustains the like part
or character; one who takes the place of another by succession.’” (quoting Rosi v.
McCoy, 319 N.C. 589, 593 (1987))).
43. KNC has failed to create an issue of fact that I-Tech is a successor to
Tutton for purposes of imposing the obligations of the Settlement Agreement and
Consent Order on I-Tech. Therefore, to the extent KNC seeks summary judgment in
its favor on its Second Claim for breach of contract by I-Tech, KNC’s Motion for
Partial Summary Judgment should be DENIED. To the extent Defendants seek
summary judgment in their favor on KNC’s Second Claim for breach of contract by I-
Tech, Defendants’ Motion for Summary Judgment should be GRANTED. D. Defendants’ Challenge to the Enforceability of Restrictive Covenants
44. Defendants challenge the enforceability of the restrictive covenants in
the Consent Order and seek summary judgment in their favor on the grounds that
the covenants are overbroad and unenforceable as a matter of law. (ECF No. 72, at
pp. 6–16.)7 It is well established that “the reasonableness of a restraining covenant
is a matter of law for the court to decide.” Jewel Box Stores Corp. v. Morrow, 272 N.C.
659, 663 (1968).
45. In the Dismissal Order, the Court considered Defendants’ argument
that the restrictive covenant in the Consent Order should be analyzed solely under
the law applicable to employer-employee covenants and rejected it. KNC Techs., LLC,
2019 NCBC LEXIS 72, at *17 (“[T]he Court declines to adopt Defendants' assertion
that the restrictive covenant in the Consent Order should be treated as an employer-
employee non-compete.”). The Court also considered North Carolina authority on
7 KNC does not argue that Defendants are foreclosed from challenging the enforceability of
the restrictive covenants in their Motion for Summary Judgment based on the Court’s finding in the Dismissal Order that “the non-compete contained in the Consent Order is valid, reasonable, and enforceable.” KNC Techs., LLC, 2019 NCBC LEXIS 72 at *18. Nevertheless, the Court notes that the only challenge Defendants raised to the restrictive covenants in their Motion to Dismiss was to the ten-year restrictive period, and a ruling on the enforceability of the customer restriction could not be determined without discovery. To the extent the Dismissal Order can be read as addressing issues other than the reasonableness of the restrictive period, the Court hereby revises its prior ruling to make clear that it addressed only the reasonableness of the ten-year restrictive period. N.C.G.S. § 1A-1, Rule 54(b) (“In the absence of entry of [ ] a final judgment, any order or other form of decision is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties.”). As demonstrated by the discussion herein, the determination of the reasonableness of the Customers Restriction has benefitted from the development of the facts through discovery. See Mkt. Am., Inc. v. Lee, 257 N.C. App. 98, 110 (2017) (citation omitted). enforcement of restrictive covenants contained in agreements between buyers and
sellers of businesses. Id. at *14. Finally, the Court stated, in relevant part, as follows:
While the law in North Carolina regarding these traditional categories of non-competes is robust, “[a] number of prior decisions . . . dealing with the enforceability” of non-compete agreements “involved situations which do not fit neatly into either the employer- employee category or the business sale category.” Outdoor Lighting Perspectives Franchising v. Harders, 228 N.C. App. 613, 621 (2013). “[P]ractical differences between the typical employer-employee arrangement and the typical buyer-seller arrangement render it illogical to conclude that the rules typically govern[ing] either arrangement should be applied with unbending rigidity.” Id. at 622, 747 S.E.2d at 263.
In Outdoor Lighting, the court declined to accept plaintiff's argument that a non-compete agreement between a franchisor and franchisee should be analyzed solely under the employer-employee rubric. Id. at 621–22. The court concluded that the franchisor-franchisee relationship was a “hybrid situation” differing from both employer-employee and buyer-seller context and did not fit neatly into either category. Id. at 621. . .
In Outdoor Lighting, the court elected to utilize elements of both the employer-employee and the buyer-seller categories when analyzing the non-compete in the franchisor-franchisee context. Id. After assessing the varying degrees of relevance of the factors in the employer- employee and buyer-seller context, the court concluded that: “the ultimate issue . . . in resolving such disputes . . . is the extent to which the non-competition provision . . . is no more restrictive than necessary . . . with relevant factors to include . . . duration . . . geographic scope . . . and the extent to which the restriction is otherwise necessary to protect the legitimate interests of the franchisor.” Id. at 623, 747 S.E.2d at 264.
Id. at *15–16. Finally, applying the reasoning underlying Outdoor Lighting, the
Court held “that the facts alleged in this case do not fit squarely under the analysis applied to restrictive covenants between employer and employee or buyer and seller,
but instead call for a more situation-specific approach.” Id. at *16–17.
46. In accordance with the conclusion reached in the Dismissal Order, the
Court now considers Defendants’ arguments regarding the enforceability of the
Consent Order to determine, under the specific facts of this case, whether the
restrictive covenant is no more restrictive than necessary to protect KNC’s legitimate
business interests. Briefly summarized, the specific undisputed facts of this case
establish that Tutton admittedly committed egregious violations of restrictive
covenants contained in the Non-Compete Agreement he executed during his
employment with KNC; that KNC sued Tutton (Tutton I) and Nitor (Nitor Lawsuit)
as a result of those violations; that KNC and Tutton were represented by counsel in
Tutton I; that KNC and Tutton negotiated a Settlement Agreement and a Consent
Order resolving KNC’s claims against Tutton in Tutton I; that as part of the
consideration provided by Tutton, he agreed to restrictive covenants prohibiting him
for a period of ten years from soliciting, contacting, and/or making sales to KNC
customers and to certain KNC suppliers; and that the restrictive covenants were
contained in a Consent Order entered by the court in Tutton I.
i. Length of Restrictive Period
47. Defendants first argue that the ten-year length of the restrictive period
in the Consent Order is too long and therefore unenforceable as a matter of law. (ECF
No. 72, at pp. 8–9.) Defendants raised this argument in their Motion to Dismiss, and
the Court rejected it at that early stage of the proceeding in its Dismissal Order. KNC Techs., LLC, 2019 NCBC LEXIS 72, at *17 (“On these facts, the Court is compelled
to find that the ten-year duration of the covenant in the Consent Order is reasonable
and enforceable.”). The Court will concludes that its determination, even aided by
discovery conducted since then, is correct and will not revisit this issue again.
ii. Customers Restriction
48. Defendants also now raise a different challenge to the restrictive
covenants, arguing that KNC’s “interpretation” of the term “customers” as including
all KNC customers since KNC’s formation in 2003 through November 14, 2013 is
overly broad and unenforceable. (ECF No. 72, at p. 9.) KNC’s understanding of
“customers” as defined in the Consent Order appears to be well-founded. The Consent
Order prohibits Tutton from “indirectly or directly soliciting[,] contacting, and/or
making sales to any customers of [KNC]” and very clearly defines “customers” as “any
party KNC provided services as of November 14, 2013,” which appears to
unambiguously include all individuals and entities to which KNC provided services
from KNC’s inception in 2003 up through November 14, 2013. (ECF No. 3, at Ex. 3,
¶¶ 1–2.)
49. Defendants argue that such a broad definition of “customers”
unreasonably restricts Tutton from soliciting or even contacting customers with
which Tutton had no contact as a KNC employee; customers for which KNC
performed a single, isolated job or for which KNC had not performed work for at least
several years prior to November 14, 2013; customers for which KNC performed work
only during periods that Tutton was not even employed by KNC; and customers for which Defendants performed work only as a subcontractor of JCI. (ECF No. 72, at p.
9–16.) Defendants contend that in restrictive covenants between employers and
employees, “[a] client-based limitation cannot extend beyond contacts made during
the period of employment.” (Id. at pp. 9–10; quoting Farr Assocs., Inc. v. Baskin, 138
N.C. App. 276, 282 (2000) and citing other North Carolina authority holding the
same.)
50. Defendants further argue that the unreasonable nature of the
restriction is exacerbated by the fact that KNC and Tutton never agreed on a list of
customers falling within the definition of “customers” under the Consent Order.
Defendants contend, and KNC doesn’t dispute, that the record evidence does not
support a claim that Tutton possessed a list or had knowledge of all of KNC’s
customers at the time the Consent Order was entered. (ECF No. 72, at p. 11.) The
customer list produced by KNC that is in the record is 237 pages long and identifies
many hundreds of KNC customers for which it performed work between January
2003 and November 2013. (ECF No. 66.11 [SEALED], pp. 1–238.) KNC does not
provide information in its briefing as to which of these customers Tutton had contact
with during his employment with KNC.
51. Finally, Defendants point to evidence showing that, even with regard to
the ten KNC customers that KNC claims Tutton solicited or contacted in violation of
the Consent Order, Tutton never had contact with at least seven of them while he
was employed with KNC. (ECF No. 72, at pp. 12–16.) KNC had not performed work for at least four of the ten customers since 2010. (Id.) KNC does not dispute this
evidence.
52. Thus, the Customers Restriction prohibits Tutton from contacting any
customer for which KNC has ever performed services since KNC’s inception in 2003
without regard to (a) when KNC performed work for the customer, (b) the number of
jobs KNC performed for the customer or how long a relationship KNC had with the
customer, or (c) whether Tutton provided services to the customer or even ever had
contact with the customer. While KNC undoubtedly has an interest in its customer
relationships, the sweeping nature of the Customers Restriction does not appear to
be designed to protect KNC’s legitimate business interests. For example, the
evidence establishes that the Customers Restriction would prohibit Tutton from
contacting, in 2018, customers which KNC last performed services in 2008 and 2010,
and with which Tutton had no contact as a KNC employee. (ECF No. 72, at pp. 12–
16.) The restrictive covenant also would prevent Tutton from performing services
indirectly as a subcontractor of JCI for Arbor Acres, the City of Greensboro, Teleflex,
Thomas Bus, and WFBH. As Tutton explained in his deposition, this is work on
proprietary JCI systems that KNC could not be hired to perform:
Q: Okay, so you did work [at Thomas Bus], but, again, you feel that you’re shielded from them being your customer because of the intermediate contractor?
A: No, I’m not shielded. You know – and you’ve got to understand the whole way this thing works. [JCI] has been supporting Thomas Bus, Teleflex, Arbor Acres, everyone we’ve mentioned, they’ve been supporting the City of Greensboro. They’ve been supporting these systems – these proprietary systems. [JCI] installs proprietary systems. KNC can’t work on them. KNC never worked on them. These locations, KNC has never done work on these systems. So, you know, KNC might have done something at Thomas Bus like pull a cable, but when – you know, you’re talking about two different systems. And I’m getting off track here, but, you know, a lot of times, we don’t know who these customers are. We don’t have no interaction with these customers. Our customer is [JCI].
(ECF No. 66.2 [SEALED], redacted at ECF No. 74.2, at pp. 16–17.)
53. KNC does not argue that it has a legitimate business interest in such a
broad Customers Restriction. Rather, KNC argues that the specific facts of this case
warrant enforceability of the Customers Restriction because of Tutton’s egregious
conduct that was the subject of the Settlement Agreement and Consent Order. (ECF
No. 90, at pp. 4–5, 8.)
54. The Court has previously acknowledged the unique circumstances of
this case, which involves restrictive covenants obtained by KNC through a negotiated
Settlement Agreement resolving a prior lawsuit and a Consent Order entered by the
court. KNC Techs., LLC, 2019 NCBC LEXIS 72, at *12–13. The Court also has
acknowledged what appears to be Tutton’s “propensity to ignore” restrictive
covenants based on his conduct leading to the filing of Tutton I. Id. at *18.
Nevertheless, the Court’s focus must be on “the extent to which the non-competition
provision . . . is no more restrictive than necessary.” Outdoor Lighting Perspectives,
228 N.C. App. at 623. KNC has not demonstrated a legitimate business interest that
would support a client-based restriction of this magnitude. Therefore, the Court
concludes that the Customers Restriction is overbroad, and therefore unenforceable
as a matter of law. 55. Accordingly, to the extent KNC seeks summary judgment in its favor on
its First Claim for breach of contract as to the Customers Restriction, KNC’s Motion
for Partial Summary Judgment should be DENIED. To the extent Defendants seek
summary judgment in their favor on KNC’s First Claim for breach of contract as to
the Customers Restriction, Defendants’ Motion for Summary Judgment should be
GRANTED.
iii. Suppliers Restriction
56. The Suppliers Restriction prohibits Tutton from “soliciting, contacting,
and/or making sales to” nine specific KNC suppliers. Tutton admittedly contacted
and made purchases from five of the listed suppliers. Defendants contend that KNC
has not established a legitimate business justification for the Suppliers Restriction
because “making a purchase from a supplier does not harm KNC,” and therefore the
Court should find the covenant restricting Tutton from “contacting” KNC’s Suppliers
unenforceable. (ECF No. 91, at p. 15.)
57. KNC contends that “[r]elationships with suppliers improve a
contractor’s business” and “can provide better pricing and access to training.” (ECF
No. 73, at p. 10.) KNC argues that “[i]t would make sense for KNC, in its efforts to
settle its claims in Tutton I, to have Mr. Tutton agree to not compete by taking
advantage of KNC’s relationship with its suppliers.” (ECF No. 73, at p. 10.) Finally,
KNC points to the fact that Tutton’s purchases from the suppliers listed in the
Consent Order were “wholly unnecessary” because Tutton admits he could have
obtained the same materials from suppliers not listed in the Suppliers Restriction. (ECF No. 73, at p. 10; ECF No. 67.15 [SEALED], redacted at ECF No. 75.2, at pp. 21–
22.)
58. Defendants provide evidence that any alleged advantage Tutton could
get from using KNC’s suppliers is largely illusory because a supplier’s pricing is
simply a product of the volume of purchases, as set by the manufacturer, and the
supplier has little discretion in setting pricing. (ECF No. 66.19, at pp. 2, 4–7; ECF
No. 87.4, at pp. 1–2.)
59. While the evidence indicates that KNC’s business interest in prohibiting
Tutton from purchasing materials from KNC’s suppliers in tenuous, the Court
concludes that, under the specific facts of this case, the Suppliers Restriction is not
unreasonable. First, unlike the Customers Restriction, prohibiting Tutton from using
a discrete list of suppliers has little impact on Tutton’s ability to work in his field of
expertise. Tutton admittedly is able to purchase materials necessary to I-Tech’s
business from suppliers other than those from which he is restricted.
60. Second, the nine expressly identified suppliers listed by KNC are likely
its key suppliers. Defendants do not claim that there is evidence that KNC had not
done business with the specific suppliers for long periods of time or that Tutton did
not have contact with these suppliers during his employment with KNC.
61. Finally, given the facts underlying Tutton I, it was not unreasonable for
KNC to seek limited constraints on Tutton’s ability to immediately compete with
KNC by potentially trading on KNC’s goodwill with its suppliers to obtain favorable
pricing or other advantageous treatment. While KNC ultimately overreached in attempting to prohibit solicitation of every customer with which it had ever done
business, the prohibition on Tutton’s contact with targeted suppliers is more
reasonable.
62. Therefore, the Court concludes that the Customers Restriction
prohibiting Tutton from contacting the nine expressly identified suppliers is not
unreasonable.
E. Claim for breach of Suppliers Restriction
63. KNC’s First Claim for breach of contract encompasses a claim that
Tutton breached the Suppliers Restriction. It is undisputed that Tutton, directly or
indirectly through I-Tech, purchased supplies from five suppliers on the list of
restricted suppliers: Accu-Teck, ADI, Norfolk Wire, CSC, and Graybar. (ECF No. 91,
at p. 15; ECF No. 72, at p. 16.) Nevertheless, Defendants argue that “the plain
language [of the Suppliers Restriction] mirrors the language regarding customers
and implies the restriction is on sales and contact leading to sales,” and not
purchases. (ECF No. 91, at p. 15.) KNC does not respond to this specific argument
by Defendants.
64. “When the language of the contract is clear and unambiguous,
construction of the agreement is a matter of law for the court and the court cannot
look beyond the terms of the contract to determine the intentions of the parties.”
Bank of Am., N.A. v. Rice, 230 N.C. App. 450, 456 (2013); see also Lynn v. Lynn, 202
N.C. App. 423 (2010) (“Whether or not the language of a contract is ambiguous . . . is
a question for the court to determine.”). A plain and unambiguous contract must be interpreted as written. RME Mgmt., LLC v. Chapel H.O.M. Assocs., LLC, 251 N.C.
App. 562, 568 (2017). If a contract is ambiguous, however, interpretation of the
contract is a question of fact for the jury. Variety Wholesalers, Inc., 365 N.C. at
525. An ambiguity exists when the effect of provisions is uncertain or capable of
several reasonable interpretations. Id.
65. The Suppliers Restriction prohibits Tutton from “soliciting, contacting,
and/or making sales to any Suppliers of [KNC]” but does not expressly prohibit
purchasing from KNC’s suppliers. (ECF No. 3, at Ex. 3, ¶ 3.) Further, the Suppliers
Restriction uses the term “and/or,” which can be interpreted as either conjunctive or
disjunctive and is ambiguous. Wells Fargo Ins. Servs. USA v. Link, 2018 NCBC
LEXIS 42, at *23 (N.C. Super. Ct. May 8, 2018) (finding that the use of “and/or” in
prohibitions within a restrictive covenant “creates an ambiguity” because the
prohibition “could be read in both the conjunctive and disjunctive senses”), aff’d per
curiam, 372 N.C. 260 (2019). In the conjunctive, the term “soliciting, contacting, and
making sales to any Suppliers” could support Defendants’ interpretation of the
provision as prohibiting only contacts or solicitations of the suppliers that result in
sales by one or more of the Defendants. Read in the disjunctive, the provision can be
interpreted as prohibiting each of the separate activities of soliciting, contacting, or
making sales, and would make Tutton’s contact with KNC’s suppliers for purposes of
making purchases a breach of the Suppliers Restriction. Accordingly, the Court
concludes that the language in the Suppliers Restriction is susceptible of two
reasonable interpretations and is ambiguous. 66. Since the Suppliers Restriction is ambiguous, the Court cannot decide
KNC’s claim that Tutton breached the Consent Order by contacting KNC’s suppliers.
Therefore, to the extent KNC seeks summary judgment in its favor on its First Claim
of breach of contract for violation of the Suppliers Restriction, KNC’s Motion for
Partial Summary Judgment should be DENIED. To the extent Defendants seek
summary judgment in their favor on KNC’s First Claim of breach of contract for
violation of the Suppliers Restriction, Defendants’ Motion for Summary Judgment
should be DENIED.
F. The Liquidated Damages Provision and the Motion to Exclude
67. Defendants seek summary judgment on their argument that the
Liquidated Damages Provision in the Settlement Agreement is an unenforceable
penalty. (ECF No. 64, at p. 1; ECF No. 72, at pp. 16–25.) “[I]t is well established that
a sum specified in the contract as the measure of recovery in the event of a breach
will be enforced if the court determines it to be a provision for liquidated damages,
but not enforced if it is determined to be a penalty.” Majestic Cinema Holdings, LLC
v. High Point Cinema, LLC, 191 N.C. App 163, 167 (2008) (citing Brenner v. Little
Red Schoolhouse, Ltd., 302 N.C. 207, 214 (1981)). Our Supreme Court has
distinguished between liquidated damages provisions in contracts, which are
enforceable, and penalty clauses which are not enforceable:
Liquidated damages are a sum which a party to a contract agrees to pay or a deposit which he agrees to forfeit, if he breaks some promise, and which, having been arrived by a good faith effort to estimate in advance the actual damage which would probably ensue from the breach, are legally recoverable and retainable . . . if the breach occurs. A penalty is a sum which a party similarly agrees to pay or forfeit . . . but which is fixed, not as a pre-estimate of probable actual damages, but as a punishment, the threat of which is designed to prevent the breach, or as security . . . to insure that the person injured shall collect his actual damages.
Kinston v. Suddreth, 266 N.C. 618, 620 (1966) (citation and internal quotations
omitted). In order to determine whether a fixed sum as a measure of recovery is a
liquidated damage or an unenforceable penalty, “this Court will consider ‘the nature
of the [c]ontract, the intention of the parties, [and] the sophistication of the
parties . . . .’” Majestic Cinema Holdings, LLC, 191 N.C. App. at 167 (quoting E.
Carolina Internal Med., P.A. v. Faidas, 149 N.C. App. 940 (2002)). “The party seeking
to invalidate the liquidated damages clause bears the burden of proving the provision
invalid.” WFC Lynnwood I LLC v. Lee of Raleigh, Inc., 259 N.C. App. 925, 929 (2018)
(internal citations omitted).
68. Under North Carolina law
[w]hether a stipulated sum will be treated as a penalty or as liquidated damages may ordinarily be determined by applying one or more aspects of the following rule: A stipulated sum is for liquidated damages only (1) where the damages which the parties might reasonably anticipate are difficult to ascertain because of their indefiniteness or uncertainty and (2) where the amount stipulated is either a reasonable estimate of the damages which would probably be caused by a breach or is reasonably proportionate to the damages which have actually been caused by the breach.
Knutton v. Cofield, 273 N.C. 355, 361 (1968) (emphasis added); see also Green Park
Inn, Inc. v. Moore, 149 N.C. App. 531, 538–39 (2002). 69. In this case, the Liquidated Damages Provision provides: “Tutton
acknowledges and agrees that [KNC] shall be entitled to a payment of liquidated
damages in the amount of Twenty-Five Thousand and No/100 Dollars ($25,000.00)
per violation.” (ECF No. 3, at Ex. 2, ¶ 6.)
i. Difficulty of calculation
70. Defendants provided the testimony of their expert, Michael Womble
(“Womble”), that calculating or attempting to estimate an amount of damages
resulting from breach of the Consent Order would not have been overly difficult.
(ECF No. 72, at pp. 20–23.) For example, using KNC’s historical financial data,
Womble calculated, inter alia, that:
• KNC’s average revenue, not profit, per job were substantially less than $25,000 each year from 2011-2018. (ECF No. 66.7, 22:7-26:2, 114:24-115:9; ECF No. 66.8, Ex 4, Ex 22; ECF No. 66.18, p. 2).
• Only a small percentage of KNC’s jobs actually had gross revenue of $25,000.00 or more in 2011, 2012, or 2013. (ECF No. 66.7, 26:15-29:15, 200:10-202:6, 204:5-205:11; ECF No. 66.8, Ex 5; ECF No. 66.18, p. 2).
• From 2011-2013, KNC’s average annual gross profit per job was substantially less than $25,000.00. (ECF No. 66.18, p. 2).
(Id. at p. 23.) Womble also determined that for the years 2011–2013, only about 6%
of KNC’s jobs for customers were for amounts greater than $25,000, and that KNC’s
average gross profit per job was $1,275. (ECF No. 66.18, at p. 3.) 71. In the face of this evidence, KNC provides no explanation as to why
calculating damages would have been difficult. Instead, KNC simply provides the
following conclusion from its rebuttal expert, Eric Lioy:
At the time the Settlement Agreement was executed, and the Consent Order approved, estimating the damages that KNC would incur due to a violation of those agreements would have been difficult. Womble’s opinions to the contrary are flawed and incorrect based on inadequate analysis of the facts and evidence.
(ECF No. 66.16, at p. 5.) However, Lioy testified that the damages were only
uncertain “because you don't know ahead of time . . . what would happen.” (ECF No.
66.15 [SEALED], redacted at ECF No. 74.5, at p. 89.) Nevertheless, Lioy admitted
that the cost of an average job and average profitability per customer could be
calculated. (Id. at p. 90.)
72. While KNC’s evidence is sparse, the Court concludes that there remains
a genuine dispute of material fact on this issue of whether a reasonable estimate of
damages was difficult to ascertain. Regardless, Defendants may still meet their
burden of establishing that the Liquidated Damages Provision is unenforceable by a
showing that the stipulated amount is not a “reasonable estimate” of the damages
likely to be caused by a breach and is not “reasonably proportionate” to the damages
actually caused by the breach. Green Park Inn, Inc., 149 N.C. App. at 538–39.
ii. Reasonable estimate or reasonably proportionate to actual damages
73. Defendants argue that, even if KNC has created an issue of fact as to
the difficulty of calculating the damages that would result from a breach, the
undisputed facts establish that the $25,000 Liquidated Damages Provision was not a reasonable estimate of the damages that would be caused by a breach, nor is it
reasonably proportionate to the actual damages that resulted from any breach. (ECF
No. 72, at pp. 20–25.)
74. Defendants note that KNC was unable to provide any explanation for
how the sum of $25,000 was calculated or how it reflected a reasonable estimate of
KNC’s potential damages. 8 (Id. at p. 20 (citing testimony of KNC’s corporate witness,
ECF No. 66.7, passim.).) Rather, KNC’s corporate witness admitted under oath that
the $25,000 Liquidated Damages Provision was intended to be a “deterrent” or
“penalty” to discourage Tutton from breaching the Settlement Agreement and
Consent Order:
Q: Okay. From KNC’s point of view, was the point of the $25,000 provision just to be there as a – a stick or a sword to make sure [Tutton] didn’t violate the – the agreement?
A: It should have been a deterrent.
Q: But from KNC’s point of view was that the – the reason for the $25,000 figure?
A: No. The reason for the $25,000 figure was the injunction. The injunction was signed in order to keep [Tutton] from competing with – directly with KNC’s customers, or against us with our customers and our suppliers. ...
Q: Okay, but back in August and September of 2014, was KNC’s perspective on $25,000 that it was a number that would, you know, motivate [ ] Tutton not to break the agreement?
8 Defendants also note that KNC did not have Lioy analyze whether $25,000 per violation
was a reasonable estimate of KNC’s damages or reasonably proportionate to KNC’s actual damages. (Id. at p. 24 (citing ECF No. 66.15 [SEALED], redacted at ECF No. 74.5, at p. 15).) A: It should have, yes.
Q: From KNC’s perspective was that the primary reason that, you know, $25,000 was selected?
A: I don’t know if that was the primary reason, but it was to ensure that there was – a – a penalty for a combination of things, and that is copying the network, illegal acts, and then furthermore, you know, if you don’t keep the agreement this is what’s going to happen.
(ECF No. 66.7 [SEALED], redacted at ECF No. 74.4, at p. 9.)
75. Further, Defendants cite to the following testimony from KNC’s
corporate witness, which reveals KNC’s intention as to the application of the
Liquidated Damages Provision:
Q: Okay, and if there are three phone calls [by Tutton] to the same KNC customer that don’t result in any work, are those three phone calls a $75,000 violation?
A: If we know about them, yes. ...
Q: And if there are multiple phone calls to the same supplier is each phone call a separate $25,000 violation?
A: Yes.
(ECF No. 66.7 [SEALED], redacted at ECF No. 74.4, at p. 3.) Naturally, Defendants
argue that a calculation of damages under the Liquidated Damages Provision, as
KNC would have it, cannot be a reasonable estimate of damages or reasonably
proportionate to the damages actually suffered by KNC. (ECF No. 72, at p. 23.) This
would result in a $25,000 “liquidated damage” for each and every time Tutton came
in “contact” with a KNC customer or supplier, regardless of whether that contact resulted in actual work. Further, Defendants point out that the total damages KNC
is seeking are more than KNC’s total gross profit per job in 2011 and 2012, per year
or combined. 9 (ECF No. 72, at p. 24 (citing ECF No. 66.18, at pp. 1–3).)
76. KNC does not respond to most of the evidence presented by Defendants
showing that $25,000 is not a reasonable estimate of the damages KNC would suffer
from a breach of the Consent Order and not proportional to the damages KNC actually
suffered. Rather, KNC contends only that it believes damages would have been
difficult to estimate, and that the Liquidated Damages Provision should be enforced
because the parties agreed to it in the Settlement Agreement. (ECF No. 91, at pp. 10–
12.)
77. The undisputed facts establish that the $25,000 per violation Liquidated
Damages Provision was neither a reasonable estimate of the damages that would be
caused by a breach of the Consent Order nor reasonably proportionate to the damages
which were actually caused by the alleged breaches. The undisputed facts also
establish that the Liquidated Damages Provision was intended as a penalty.
Defendants have carried their burden of establishing that the Liquidated Damages
Provision is unenforceable. WFC Lynnwood I LLC, 259 N.C. App. at 929.
Accordingly, the Court concludes that the Liquidated Damages Provision in the
Settlement Agreement of $25,000 per violation is an unenforceable penalty.
9 Defendants contend that “KNC remains unable to calculate the full scope of its liquidated
damages, only calculating liquidated damages ‘in excess of $2 million’ regarding Customers and ‘exceeds $1,000,000’ for Suppliers.” (ECF No. 72, at p. 23 (citing KNC’s Responses to Defs’ First Interrogs., ECF No. 66.9; KNC’s Supp. Responses to Defs.’ First Interrogs., ECF No. 66.10, at pp. 3–5; ECF No. 66.7, at pp. 168).) Therefore, to the extent Defendants seek summary judgment in their favor on the
issue of the enforceability of the Liquidated Damages Provision, Defendants’ Motion
for Summary Judgment should be GRANTED.
iii. Motion to Exclude
78. Defendants move to exclude Eric Lioy’s testimony based on various
alleged inadequacies in the formulation of his rebuttal opinion. (ECF No. 69, at pp.
2–5.) The Court has carefully considered the Motion to Exclude, the briefs filed in
support of and in opposition to the Motion to Exclude, the exhibits filed by the parties,
the applicable law, and other appropriate matters of record, and concludes in its
discretion that the Motion to Exclude should be DENIED, without prejudice to
Defendants’ right to seek to exclude Eric Lioy’s testimony and report from trial in this
matter.
G. Third and Sixth Claims for Relief
79. Defendants also move for summary judgment on KNC’s remaining
claims for tortious interference against I-Tech (Third Claim) and for unfair and
deceptive trade practices against both Tutton and I-Tech (Sixth Claim). (Id. at pp.
26–27; see ECF No. 3, at ¶¶ 31–37, 49–53.)
i. Tortious Interference with Contract
80. In the Complaint, KNC alleges that “[u]pon current information and
belief, I-Tech intentionally induced Tutton to breach the [Settlement Agreement and
Consent Order]” and “I-Tech’s actions were done without justification.” (ECF No. 3,
at ¶¶ 34–35.) Defendants argue that they are entitled to summary judgment on the claim for tortious interference on the grounds that (a) there is no evidence that I-Tech
intentionally induced Tutton to breach the Settlement Agreement and Consent
Order, and (b) I-Tech did not act with legal malice. (ECF No. 72, at p. 26.) In support
of this argument, Defendants contend “[t]he evidence shows the other owners of I-
Tech had limited knowledge of the Consent Order” and “I-Tech was not founded to
injure or gain advantage over KNC, but to be a family company and support their
family,” citing to the deposition of Tutton and Regina Bagby. (Id. (citing to ECF No.
66.2 [SEALED], redacted at ECF No. 74.2, at pp. 9–10; ECF No. 66.6, at p. 4; ECF
No. 66).)
81. KNC argues that “Defendants appear to confuse actual malice with legal
malice” and “[a]t a minimum, the sheer volume of contacts and jobs that Defendants
acquired with [GCS] at times in directly [sic] competition with KNC, creates an issue
of material fact,” precluding summary judgment on this claim. (ECF No. 90, at p.
82. The elements of a claim for tortious interference with contract are:
(1) a valid contract between the plaintiff and a third person which confers upon the plaintiff a contractual right against a third person; (2) the defendant knows of the contract; (3) the defendant intentionally induces the third person not to perform the contract; (4) and in doing so acts without justification; (5) resulting in actual damage to the plaintiff.
Beverage Sys. of the Carolinas, LLC v. Associated Bev. Repair, LLC, 368 N.C. 693,
699 (2016). “This Court has interpreted ‘induce’ to mean ‘purposeful conduct,’ ‘active
persuasion, request, or petition.’” Charah, LLC v. Sequoia Servs. LLC, 2019 NCBC
LEXIS 18, at *18 (N.C. Super. Ct. Mar. 11, 2019) (quoting KRG New Hill Place, LLC v. Springs Inv’rs, LLC, 2015 NCBC LEXIS 20, at *14–15 (N.C. Super. Ct. Feb. 27,
2015)) (citation omitted). “[T]he inducement required to establish a claim for
intentional interference . . . requires purposeful conduct intended to influence a third
party not to enter into a contract with the claimant.” KRG New Hill Place, LLC, 2015
NCBC LEXIS 20, at *15.
83. KNC did not respond to Defendants’ argument that there is no evidence
that I-Tech induced Tutton to breach the Settlement Agreement and Consent Order.
Further, Defendants provided no evidence of any purposeful conduct by I-Tech or any
of its owners or employees to induce Tutton to breach the Settlement Agreement and
Consent Order. (ECF No. 90, at p. 12.) Therefore, to the extent Defendants seek
summary judgment in their favor on KNC’s Third Claim for tortious interference of
contract against I-Tech, Defendants’ Motion for Summary Judgment should be
ii. Unfair and Deceptive Trade Practices
84. In its Complaint, KNC alleges that “Defendants have engaged in unfair
trade practices and methods of competition, including engaging in willful violations
of this Court's permanent injunction” in violation of the UDTPA. (ECF No. 3, at ¶
50.) Defendants argue that KNC’s UDTPA claim should be dismissed on summary
judgment because “[t]here is no evidence of egregious or aggravating circumstances
necessary to prove a UDTP[A] claim.” (ECF No. 72, at p. 27.) Further, Defendants
argue that the “violation of a covenant not-to-compete, essentially a breach of contract within the employer/employee relationship, lies outside the scope of the UDTP[A],”
quoting Kinesis Advertising, Inc. v. Hill, 187 N.C. App. 1, 21 (2007). (Id.)
85. KNC argues that “[t]he volume of violations [of the Consent Order by
Tutton] is sufficient to create an issue of material fact as to the UDTP[A] claim” and
the precedent in Kinesis Advertising should not apply because “the facts unique to
this case[ ] show that the analogy to employer-employee non-competition agreements
is wholly inappropriate[.]” (ECF No. 90, at p. 13.)
86. A claim of unfair trade practices requires proof of “(1) an unfair or
deceptive act or practice, (2) in or affecting commerce, which (3) proximately caused
actual injury to the [plaintiff].” Nucor Corp. v. Prudential Equity Grp., LLC, 189 N.C.
App. 731, 738 (2008). However, “a mere breach of contract, albeit willful or
intentional, cannot serve as the sole basis for a UDTP[A] claim.”
Flanders/Precisionaire Corp. v. Bank of N.Y. Mellon Trust Co., 2015 NCBC LEXIS
36, at *37 (N.C. Super. Ct. Apr. 7, 2015) (citing Mitchell v. Linville, 148 N.C. App. 71,
74 (2001)). A “breach of contract must be accompanied by aggravating
circumstances—which may include ‘forged documents, lies, and fraudulent
inducements’—to elevate it to an unfair or deceptive trade practice.” Tillery Envtl.
LLC v. A&D Holdings, Inc., 2017 NCBC LEXIS 68, at *9–10 (N.C. Super. Ct. Aug. 4,
2017) (citation omitted).
87. The Court already has concluded that I-Tech cannot be held liable for
violations of the Settlement Agreement and Consent Order and granted summary
judgment to Defendants on KNC’s claims against I-Tech for breach of contract. The Court also has granted summary judgment to Defendants on KNC’s claim for tortious
interference with contract against I-Tech. Therefore, the Court concludes that there
are no grounds upon which I-Tech can be held liable for engaging in unfair trade
practices against KNC under the UDTPA. To the extent Defendants seek summary
judgment in their favor on KNC’s claim against I-Tech for violation of the UDTPA,
Defendants’ Motion for Summary Judgment should be GRANTED.
88. KNC’s claim against Tutton for violation of the UDTPA rests upon the
claim that Tutton breached the Settlement Agreement and Consent Order. More
specifically, KNC’s UDTPA claim now rests upon Tutton’s breach of the Suppliers
Restriction. To the extent Defendants argue that the UDTPA claim against Tutton
should be dismissed because it involves breach of a contract arising from the
employer/employee relationship that is outside of the protections of the UDTPA, see
Kinesis Advertising, 187 N.C. App. at 21, the Court disagrees with Defendants’
argument. This case does not involve violation of an agreement between an employer
and employee, it involves violation of a Consent Order entered as result of settlement
between civil litigants. The Court finds the facts underlying this case do not fall
under the holding in Kinesis Advertising.
89. While the alleged breaches of the Suppliers Restriction do not fall within
the traditional categories of “aggravating circumstances” which support a claim
under the UDTPA, see Tillery Envtl. LLC, 2017 NCBC LEXIS 68, at *9–10, the facts
and circumstances weigh against dismissal of the UDTPA claim at this stage. As
previously addressed by this Court in assessing the Suppliers Restriction’s reasonableness, the Suppliers Restriction targets nine specifically listed entities of
which Tutton was clearly and unambiguously put on notice. Further, Tutton is
admittedly able to purchase materials necessary to I-Tech’s business from suppliers
other than those listed in the Suppliers Restriction. When considered in the context
of Tutton’s apparent disregard for the restrictive covenants in the Settlement
Agreement and Consent Order, there is a question of fact as to whether Tutton
intended to comply with the Suppliers Restriction at the time entered into the
agreements. See Wells Fargo Bank, N.A. v. Corneal, 238 N.C. App. 192, 196–97 (2014)
(acknowledging that a party’s intention to “break its promise at the time that it made
the promise” may qualify as an aggravating circumstance supporting a UDTPA
claim). For these reasons, to the extent Defendants seek summary judgment in their
favor on KNC’s claim against Tutton for violation of the UDTPA, Defendants’ Motion
for Summary Judgment should be DENIED.
IV. CONCLUSION
THEREFORE, IT IS ORDERED that the Motions are GRANTED, in part,
and DENIED, in part, as follows:
1. To the extent Defendants seek summary judgment in their favor on
KNC’s claim that Tutton breached the Customers Restriction (First
Claim), Defendants’ Motion for Summary Judgment is GRANTED;
2. To the extent Defendants seek summary judgment in their favor on
KNC’s claim that Tutton breached the Suppliers Restriction (First
Claim), Defendants’ Motion for Summary Judgment is DENIED; 3. To the extent Defendants seek summary judgment in their favor on
KNC’s claim of breach of contract against I-Tech (Second Claim),
Defendants’ Motion for Summary Judgment is GRANTED;
4. To the extent Defendants seek summary judgment on the contention
that the Liquidated Damages Provision is unenforceable,
5. To the extent Defendants seek summary judgment in their favor on
KNC’s tortious interference with contract claim (Third Claim),
Defendants’ Motion for Summary Judgment is GRANTED.
6. To the extent Defendants seek summary judgment in their favor on
KNC’s UDTPA claim (Sixth Claim), Defendants’ Motion for
Summary Judgment is DENIED;
7. Defendants’ Motion to Exclude (ECF No. 68) is DENIED, without
prejudice; and
8. KNC’s Motion for Partial Summary Judgment on its breach of
contract claims against Tutton (First Claim) and I-Tech (Second
Claim) is DENIED.
SO ORDERED, this the 8th day of April, 2021.
/s/ Gregory P. McGuire Gregory P. McGuire Special Superior Court Judge for Complex Business Cases
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