Nfh, Inc. v. Troutman

2019 NCBC 64

• Court: North Carolina Business Court
• Decided: October 29, 2019
• Docket: 19-CVS-209
• Status: Published

Opinion

NFH, Inc. v. Troutman, 2019 NCBC 64.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION IREDELL COUNTY 19 CVS 209

NFH, INC.,

Plaintiff,

v. ORDER AND OPINION ON DEFENDANTS’ MOTIONS TO JOSEPH H. TROUTMAN, III; DISMISS ALL CLAIMS IN WILLIAM TROUTMAN; ABBI PLAINTIFF’S AMENDED TROUTMAN; SHELTON COOPER, COMPLAINT LLC; and TROUTMAN FUNERAL HOME, INC.,

Defendants.

1. THIS MATTER is before the Court on Defendants’ Motions to Dismiss All

Claims in Plaintiff’s Amended Complaint (the “Motion”) filed on May 28, 2019 by

Defendants Joseph H. Troutman, III (“Joseph”); William Troutman (“William”); Abbi

Troutman (“Abbi”); Shelton Cooper, LLC (“SC, LLC”); and Troutman Funeral Home,

Inc. (“TFH, Inc.”) (collectively, “Defendants”). (ECF No. 29.)

2. This case involves a dispute between a funeral home in Iredell County and

two of its former employees who left the funeral home and began running a competing

funeral home located six miles away. The Amended Complaint asserts eight (8)

claims in total, one of which was dismissed prior to the hearing on the Motion.1 (See

Am. Compl. 13–20, ECF No. 23 [“Am. Compl.”].) Two of those claims are brought

solely against Joseph: breach of contract (Count I), (Am. Compl. ¶¶ 75–84), and unjust

1 Plaintiff voluntarily dismissed its conversion claim on June 10, 2019. (ECF No. 34.) enrichment (Count VIII), (Am. Compl. ¶¶ 132–138); and three claims are brought

against Joseph and William: misappropriation of trade secrets (Count II), (Am.

Compl. ¶¶ 85–93), breach of fiduciary duty (Count IV), (Am. Compl. ¶¶ 100–10), and

fraudulent concealment (Count VI), (Am. Compl. ¶¶ 120–26). As to all Defendants,

the Amended Complaint brings claims for tortious interference with contract (Count

V), (Am. Compl. ¶¶ 111–19), and unfair and deceptive trade practices (Count VII),

(Am. Compl. ¶¶ 127–131). The Motion seeks dismissal of all seven (7) of Plaintiff’s

remaining claims.

3. For the reasons set forth herein, the Court GRANTS in part and DENIES

in part the Motion.

Bell, Davis & Pitt, P.A., by Marc E. Gustafson and Joshua B. Durham, for Plaintiff.

Eisele, Ashburn, Greene & Chapman, P.A., by Douglas G. Eisele, for Defendants.

Robinson, Judge.

I. FACTUAL BACKGROUND

4. The Court does not make findings of fact on a motion to dismiss pursuant

to Rule 12(b)(6) but only recites those factual allegations that are relevant and

necessary to the Court’s determination of the Motion.

A. The Parties

5. Plaintiff NFH, Inc. d/b/a Nicholson Funeral Home (“NFH” or “Plaintiff”) is

a North Carolina corporation with its principal office in Statesville, North Carolina. (Am. Compl. ¶ 6.) Defendants Joseph, (Am. Compl. ¶ 7), William, (Am. Compl. ¶ 8),

and Abbi, (Am. Compl. ¶ 8), are citizens and residents of Iredell County.

6. Joseph was a fifty percent (50%) owner of NFH with his then-wife, Pamela

Strandburg (“Strandburg”) from 1983 until 2003. (Am. Compl. ¶¶ 14–16.) For over

thirty-five (35) years, Joseph served as NFH’s Licensed Funeral Director, Vice

President, Chairman of Operations, and President. (Am. Compl. ¶ 20.) In order to

serve in these roles, Joseph met with customers and their families across Iredell

County to discuss funeral services. (Am. Compl. ¶ 21.)

7. William is the son of Joseph and Strandburg. (Am. Compl. ¶¶ 8, 17.)

William began working for NFH immediately after college and served in a number of

roles at NFH over a thirteen (13) year period. (Am. Compl. ¶ 46.) William is listed

in certain documents dated around 2003 as “Chairman of Operations.” (Stock

Purchase Agreement § 2.24, Ex. C to Am. Compl. [“SPA”].) As late as January 25,

2018, a listing of those authorized to conduct business for NFH indicates William was

NFH’s Treasurer. (Company Resolution, Ex. E to Am. Compl.) Plaintiff alleges that

Joseph was “grooming” his son to take over his position with NFH and “introduced

William to many of NFH’s customers in order to further their personal relationship

with the Troutman family.” (Am. Compl. ¶ 21.)

8. Abbi is the wife of William, the daughter-in-law of Joseph, and, upon

information and belief, is alleged to have been one of the purchasers of Troutman Funeral Home,2 a second funeral home operating in Iredell County located six miles

from NFH. (Am. Compl. ¶¶ 60–61, 67.)

9. SC, LLC and TFH, Inc. (collectively referred to as “TFH” in the Amended

Complaint3) both have their principal offices and main corporate offices in Statesville,

North Carolina. (Am. Compl. ¶¶ 6, 11.) Plaintiff alleges, upon information and belief,

that William, Abbi, SC, LLC and/or TFH, Inc. purchased Troutman Funeral Home on

December 13, 2018. (Am. Compl. ¶ 60.) Troutman Funeral Home, the purchased

business, is a competitor of NFH, offering many of the same services that NFH offers,

to the same customers. (Am. Compl. ¶ 67.)

B. NFH Stock Purchase and Subsequent Acquisition

10. In 1983, Strandburg and Joseph, then married, purchased NFH and

operated it together as a funeral home for fifteen years, each owning one-half of the

business. (Am. Compl. ¶¶ 14, 15.) The couple divorced in 1999 but maintained their

equal ownership of NFH until 2003, when Joseph sold his interest to Strandburg,

(Am. Compl. ¶ 16), in exchange for $800,000, (Am. Compl. ¶¶ 16, 37).

11. The purchase of Joseph’s stock in NFH was governed by the terms of a Stock

Purchase Agreement (the “SPA”) entered into and executed by and between Joseph,

2To complicate matters, “Troutman” is, among other things, the last name of three of the Defendants, the name of a town in Iredell County, North Carolina, the first word of a corporate entity founded by William (TFH, Inc.), and apparently the first word in the name of an unincorporated business (Troutman Funeral Home), a competing funeral home business also located in Iredell County.

3 For the reasons set forth in Section IV.A below, the Court does not use the defined term

“TFH” to refer to these two entities and instead separately sets out both entities as “TFH, Inc. and/or SC, LLC” anywhere the Amended Complaint references an action taken by “TFH.” Strandberg, and NFH on August 12, 2003. (SPA 1.) Section 4.02 of the SPA provided

that Strandberg’s purchase of Joseph’s stock was conditioned upon Joseph “entering

into an agreement containing a covenant on the part of [Joseph] that he will not

compete, directly or indirectly, for himself or for others, with NFH or [Strandburg.]”

(SPA § 4.02.) Also on August 12, 2003, Joseph and NFH executed an employment

agreement (the “Employment Agreement”), which included, in addition to other post-

employment restrictions, a covenant not to compete. (Employment Agreement ¶ 1,

Ex. B. to Am. Compl. [“Emp. Agmt.”].). Pursuant to the Employment Agreement,

Joseph agreed to work as the Vice President and Chairman of Operations of NFH “for

a term of five (5) years from [August 12, 2003]” – i.e., until August 11, 2008. (Emp.

Agmt. ¶ 1.)4

12. Approximately thirteen years later, in or around 2016, negotiations

between Strandburg and CMS East Acquisition Corp. (“CMS”) regarding the sale of

NFH began. (Am. Compl. ¶ 47.) Joseph and William were aware of these discussions

and William himself presented a letter of intent to purchase NFH. (Am. Compl. ¶

47.) However, in or about June 2018, CMS and NFH entered into a confidential letter

of intent for CMS to purchase the stock of NFH. (Am. Compl. ¶ 47.) On or about

December 14, 2018, CMS purchased all of the stock of NFH and became its present

owner. (Am. Compl. ¶ 24.)

13. In addition to negotiating for the purchase of NFH, CMS submitted a letter

of intent to the owners of Troutman Funeral Home in July 2018 in an effort to

4 The relevant provisions of the SPA and the Employment Agreement are discussed in Section I.D below. purchase that business as well, (Am. Compl. ¶ 47), but Troutman Funeral Home was

ultimately purchased by William, Abbi, SC, LLC and/or TFH, Inc. on or about

December 13, 2018. (Am. Compl. ¶¶ 49, 60.)

C. NFH’s Business, Confidential, Proprietary and Trade Secret Information

14. NFH conducts a funeral home business throughout Iredell County, North

Carolina, with many of its customers residing in Iredell County. (Am. Compl. ¶ 18.)

According to Plaintiff, “[d]uring its more than a century of operation NFH has

developed an incredible amount of goodwill” within the community. (Am. Compl. 19.)

Most of NFH’s customers come from families who have used NFH’s services for

multiple generations. (Am. Compl. ¶ 26.) NFH alleges that its business success and

competitive position are dependent both on its confidential information and its trade

secret information (which is largely its customer list) as well as its relationships and

goodwill with its customers. (Am. Compl. ¶¶ 25, 26.)

15. The majority of this goodwill is furnished through NFH’s customers’

relationships with NFH’s employees, which for many years included Joseph and

William. (Am. Compl. ¶ 20.) William served as NFH’s licensed insurance agent,

licensed funeral director, and Treasurer, and Joseph served as its Licensed Funeral

Director, Vice President, Chairman of Operations, and President, until they each

resigned from NFH on December 12, 2018 and December 17, 2018, respectively. (Am.

Compl. ¶ 20.) Plaintiff alleges that Joseph and William “had significant, if not

exclusive, responsibility for the solicitation of customers, the execution of pre-

arrangement contracts with those customers, and retention of NFH’s customers.” (Am. Compl. ¶ 20.) NFH alleges it “pays and employs its personnel to create,

maintain and strengthen its relationships with its customers.” (Am. Compl. ¶ 27.)

As a result, Joseph and William have “maintained a very close working relationship

with many, if not all, of NFH’s pre-arranged customers and many of their families.”

(Am. Compl. ¶ 34.)

16. NFH also alleges that it owns and maintains a “complete, comprehensive”

customer database, containing information regarding the customer’s pre-

arrangement contract terms, specific customer needs, initial deposits, and insurance

and banking information. (Am. Compl. ¶ 29.) The pre-arrangement contracts in

NFH’s customer database are contracts entered into between NFH and customers

prior to a customer’s death to pre-pay for burial and funeral costs. (Am. Compl. ¶ 18.)

Although freely transferrable, Plaintiff alleges that these contracts have “material

value” to NFH’s business in part because they provide information regarding the

types of products and services its customers may need in the future. (Am. Compl. ¶¶

18, 29.) Plaintiff alleges that “a competitor with access to non-public information

regarding these contracts could easily solicit these customers to transfer their

business away from NFH.” (Am. Compl. ¶ 18.)

17. NFH avers that the pre-arrangement contracts, NFH’s business practices,

other customer information, and business strategies are “among the principal assets

of its business” and a competitor with access to this information would have an unfair

advantage over NFH. (Am. Compl. ¶¶ 32, 34.) Access by a competitor to NFH’s

customer information “would drastically shortcut the sales process, eliminating the need for a competitor to identify and cultivate potential customers.” (Am. Compl. ¶

34.) Plaintiff alleges that, given the way NFH develops its customer list and the time

it takes to compile the list, “it would be impossible for anyone to duplicate a list of

NFH’s customers, or any significant portion of it, without access to that list.” (Am.

Compl. ¶ 35.)

18. NFH alleges the pre-arrangement contracts, community goodwill, and

confidential customer information NFH had gained over time were key components

in the company’s valuation for the December 2018 sale to CMS. (Am. Compl. ¶ 24.)

19. NFH protects its confidential, proprietary, and trade secret information,

which is not available to the public, in various ways and through reasonable

measures. (Am. Compl. ¶ 31.) These measures include limiting access based on each

employee’s position and need for the information. (Am. Compl. ¶ 30.) NFH also

requires all employees to execute non-disclosure agreements prohibiting

misappropriation of NFH’s customer list and other confidential information of NFH.5

(Am. Compl. ¶ 31.)

D. Joseph’s Post-Employment Restrictions

20. As noted above, Joseph executed two contracts with NFH in 2003: the SPA

and the Employment Agreement (together, the “Agreements”). (Am. Compl. ¶ 36.)

NFH alleges that both Agreements, executed on the same day and which refer to each

other, should be read together in determining the scope of Joseph’s post-employment

5 While NFH identifies and attaches to its Amended Complaint specific written agreements

it entered into with Joseph, no written contracts between NFH and William are identified or attached to the Amended Complaint. obligations and restrictions. (Am. Compl. ¶¶ 36, 38.) NFH alleges that there are

essentially three categories of post-employment restrictions binding on Joseph as a

result of his execution of the Agreements: (i) covenants not to disclose or use NFH’s

confidential information, (ii) a covenant not to solicit NFH’s customers, and (iii) a

covenant not to compete against NFH. (Am. Compl. ¶¶ 39–41.) The Court discusses

each in more detail below.

21. First, Plaintiff alleges that, pursuant to the Agreements, Joseph was not to

disclose or use any confidential information of NFH. (Am. Compl. ¶¶ 38, 39.)

Paragraph 5 of the Employment Agreement provides that Joseph “will not, either

during or after his employment with [NFH], disclose any Confidential Information of

the company to any person outside the [c]ompany,” nor “use any Confidential

Information of the [c]ompany for any purpose other than the furtherance of [NFH’s]

business.” (Emp. Agmt. ¶ 4(a).) Section 4.01 of the SPA provides that Joseph will

“refrain from disclosure of any confidential or proprietary information concerning

NFH . . . to any person, firm, corporation, association or other entity for any reason

or purpose whatsoever, from making use of any such confidential or proprietary

information for his own purpose or for the benefit of [anyone other than] NFH.” (SPA

§ 4.01.) Neither of these provisions provide an expiration date to Joseph’s obligations

not to use or disclose NFH’s confidential information.

22. Second, Plaintiff alleges that Joseph agreed “for a period of five (5) years

after the termination of Joseph’s employment with NFH” not to render any services

to or solicit any business from anyone in Iredell County “with whom or for whom NFH had done business or provided services during Joseph’s employment.” (Am. Compl. ¶

40.) The Employment Agreement does not mirror NFH’s allegations, stating instead

that Joseph “will not render any services to, or solicit any business from, any person,

firm, client, customer, or corporation located in Iredell County (whether in an

employer-employee relationship or otherwise) with whom or for whom [NFH] has

done business or provided services during the Employment Period [and for five (5)

years thereafter].” (Emp. Agmt. ¶ 7.) The SPA does not contain a non-solicitation

clause.

23. Third, Plaintiff alleges that Joseph agreed “for a period of five (5) years after

the termination of his employment with NFH, not to compete for himself or for others

against NFH in the funeral home business.” (Am. Compl. ¶ 41.) In this regard,

Paragraph 7 of the Employment Agreement provides that Joseph

agrees not to compete, directly or indirectly, for himself or for others with [NFH or Strandburg] in any manner with respect to the funeral home business. This section shall not restrict the right of [Joseph] to own securities of any company listed on a national or regional stock exchange or traded in the over-the-counter market.

(Emp. Agmt. ¶ 7.)

24. Additionally, the SPA states that,

[Joseph will provide] at closing as a condition to [Strandburg’s] obligation to consummate the transaction, an agreement containing a covenant on the part of [Joseph] that he will not compete, directly or indirectly, for himself or for others, with NFH or [Strandburg] in the funeral home business for a period of five (5) years from the date of the conclusion of his employment with NFH at any location within Iredell County, North Carolina.

(SPA § 4.02.) 25. The non-compete clause and non-solicitation clause (together, the

“Restrictive Covenants”) in the Employment Agreement fall under the same internal

heading “Noncompetition/Covenant Not to Compete” and exist for the same duration,

which is “[d]uring the Employment Period and for five (5) years thereafter (or five

years after earlier termination hereunder).” (Emp. Agmt. ¶ 7.) “Employment Period”

is expressly defined in the Employment Agreement as “a term of five (5) years from

[August 12, 2003].” (Emp. Agmt. ¶ 1.) Paragraph 1 of the Employment Agreement

also provides that Joseph’s employment is “subject to termination by [NFH] or either

party pursuant to Section 6, hereof, which shall terminate the Employment period.”

(Emp. Agmt. ¶ 1.)

26. Both Restrictive Covenants are supported by payments in the total amount

of $500,000, which are separate and apart from Joseph’s employment salary,

(compare Emp. Agmt. ¶ 7(b) with Emp. Agmt. ¶ 2(a)), and the purchase price for

Joseph’s shares, (SPA § 4.02). Plaintiff alleges that the $500,000 was to be paid in

annual installments of $50,000 over a ten-year period (from 2003–2013). NFH

further alleges that “[after the ten-year period], NFH paid Joseph monthly payments

of one thousand dollars ($1,000.00) as continuing consideration . . . .” (Am. Compl. ¶

42.) To support this allegation, Plaintiff attaches to the Amended Complaint copies

of cancelled checks for these monthly payments for the year 2018. (Ex. D to Am.

Compl.) Each of the bimonthly checks are made out to Joseph for $500. (Ex. D to

Am. Compl. 1, 2.) The phrase “non compete” appears in the memo line of each of

these checks. (Ex. D to Am. Compl.) E. Joseph’s and William’s Resignations from NFH and Alleged Wrongdoing

27. On December 12, 2018, William resigned from employment with NFH.

(Am. Compl. ¶ 59.) Five days later, on December 17, 2018, Joseph also resigned. (Am.

Compl. ¶ 59.)

28. In the months leading up to William’s resignation, Plaintiff alleges that

William accessed NFH’s computer system without authorization and gained access

to confidential and proprietary information regarding the sale of NFH to CMS. (Am.

Compl. ¶ 51.) Plaintiff also alleges that, based on a forensic analysis of William’s

computer, William downloaded NFH’s confidential and proprietary information

during that time. (Am. Compl. ¶ 52.)

29. Specifically, Plaintiff alleges that William downloaded NFH’s pre-

arrangement annual report, which contained a confidential list of every pre-arranged

customer of NFH. (Am. Compl. ¶ 53.) It is unclear from the Amended Complaint

whether downloading this company information was extraordinary or within the

normal course of William’s duties as an NFH employee. The Amended Complaint

affirmatively alleges that, in his role with NFH, William, along with Joseph, “had

significant, if not exclusive, responsibility for the solicitation of customers, the

execution of pre-arrangement contracts with those customers and retention of NFH’s

customers.” (Am. Compl. ¶20.)

30. Between August 30, 2018 and September 9, 2018, William also allegedly

accessed and printed or copied confidential financial records of NFH without

authorization. (Am. Compl. ¶ 55.) 31. Around this same time, William also allegedly transferred files from NFH

to a Dropbox cloud storage account and two hard drives, including files related to

“NFH’s pre-arrangement agreements, customized forms, vendor lists, financial

statements and insurance information.” (Am. Compl. ¶ 56.)

32. On November 14, 2018, SC, LLC was organized as a North Carolina limited

liability company. (Am. Compl. ¶ 57; Ex. F. to Am. Compl.) On December 6, 2018,

TFH, Inc. was incorporated as a North Carolina corporation. (Am. Compl. ¶ 58; Ex.

G. to Am. Compl.) The Articles for both entities filed with the North Carolina

Secretary of State listed William as the initial registered agent. (Am. Compl. ¶¶ 57–

58; Exs. F–G to Am. Compl.)

33. The Amended Complaint alleges, upon information and belief, that on

December 13, 2018, William, Abbi, SC, LLC and/or TFH, Inc. purchased Troutman

Funeral Home from its then-owners James and Susan Sappenfield and/or

Sappenfield Funeral Home Services, Inc. (Am. Compl. ¶ 60.) Troutman Funeral

Home, one of NFH’s competitors, offers many of the same services as NFH and is

located just under six miles from NFH. (Am. Compl. ¶ 67.) Joseph indicated in local

newspaper articles that he intended to market and sell the same services at

Troutman Funeral Home that he marketed and sold at NFH. (Am. Compl. ¶ 68.)

34. After William’s resignation on December 12, 2018, William continued to

access the website of one of NFH’s vendors, Homesteader Life Company, which

contained confidential information related to NFH’s pre-arranged customers. (Am.

Compl. ¶ 64.) This was done without NFH’s authorization. (Am. Compl. ¶ 64.) 35. Plaintiff calculates that its customers have transferred pre-arrangement

contracts having a value of more than $140,000 from NFH to Troutman Funeral

Home. (Am. Compl. ¶ 66; Ex. I to Am. Compl.6) Further, Plaintiff “anticipate[s] that

[ ] many of NFH’s customers will transfer their pre-arrangement contracts with NFH

to Troutman Funeral Home, based upon the relationships [Joseph and William]

developed with NFH’s customers at NFH’s time and expense and as a result of the

goodwill developed by NFH.” (Am. Compl. ¶ 72.)

36. Plaintiff further alleges that “[Joseph and William’s] competitive activities

on behalf of [TFH] will inevitably lead to the disclosure of [NFH’s] confidential

information and its trade secrets[.]” (Am. Compl. ¶ 71.)

37. Joseph and William have also allegedly hired away one of NFH’s employees

and have contacted at least three additional NFH employees in an attempt to hire

them away. (Am. Compl. ¶ 73.)

II. PROCEDURAL BACKGROUND

38. The Complaint initiating this matter was filed on January 28, 2019. (ECF

No. 3.) On January 29, 2019, this case was designated as a mandatory complex

business case by order of then-Chief Justice of the North Carolina Supreme Court

Mark Martin and assigned to the undersigned that same day by order of the Chief

Business Court Judge. (ECF No. 1, 2.) Thereafter, Defendants filed a combined

answer and motion to dismiss. (ECF No. 8.) Upon an order of the Court making it

clear that Defendants’ filing did not conform to the requirements of BCR 7.2, (see ECF

6 Exhibit I to the Amended Complaint, a spreadsheet of alleged pre-arrangement contracts,

is filed under seal pursuant to North Carolina Business Court Rule (“BCR”) 5.2. No. 10), Defendants sought and obtained relief to withdraw the filing. (ECF Nos. 11,

14.)

39. A properly formatted motion to dismiss and brief in support were then both

filed on March 4, 2019. (ECF Nos. 15, 16.) Following full briefing of the motion, a

hearing was scheduled for May 16, 2019. (ECF No. 19.) On May 14, 2019, Plaintiff

filed its Amended Complaint, (ECF No. 23), thereby mooting the March 4, 2019

motion to dismiss.

40. On May 28, 2019, Defendants filed the Motion and a brief in support. (ECF

Nos. 29, 30.) On June 10, 2019, Plaintiff voluntarily dismissed its claim for

conversion of intellectual property. (ECF No. 34.) After full briefing on the Motion,

the Court held a hearing on July 24, 2019, at which all parties were represented by

counsel.

41. The Motion is ripe for resolution.

III. LEGAL STANDARD

42. In ruling on a motion to dismiss a complaint pursuant to Rule 12(b)(6) of

the North Carolina Rules of Civil Procedure, the Court reviews the allegations in the

Complaint in the light most favorable to the plaintiff. See Christenbury Eye Ctr., P.A.

v. Medflow, Inc., 370 N.C. 1, 5, 802 S.E.2d 888, 891 (2017). The Court’s inquiry is

“whether, as a matter of law, the allegations of the complaint . . . are sufficient to

state a claim upon which relief may be granted under some legal theory[.]” Harris v.

NCNB Nat’l Bank, 85 N.C. App. 669, 670, 355 S.E.2d 838, 840 (1987). The Court

accepts all well-pleaded factual allegations in the relevant pleading as true. See Krawiec v. Manly, 370 N.C. 602, 604, 811 S.E.2d 542, 545 (2018). The Court is not

required, however, “to accept as true allegations that are merely conclusory,

unwarranted deductions of fact, or unreasonable inferences.” Good Hope Hosp., Inc.

v. N.C. Dep’t of Health & Human Servs., 174 N.C. App. 266, 274, 620 S.E.2d 873, 880

(2005) (citation omitted).

43. Furthermore, the Court “can reject allegations that are contradicted by the

documents attached, specifically referred to, or incorporated by reference in the

complaint.” Moch v. A.M. Pappas & Assocs., LLC., 251 N.C. App. 198, 206, 794 S.E.2d

898, 903 (2016) (citation omitted). The Court may consider these attached or

incorporated documents without converting the Rule 12(b)(6) motion into a motion

for summary judgment. Id. (citation omitted).

44. Our Supreme Court has noted that “[i]t is well-established that dismissal

pursuant to Rule 12(b)(6) is proper when ‘(1) the complaint on its face reveals that no

law supports the plaintiff’s claim; (2) the complaint on its face reveals the absence of

facts sufficient to make a good claim; or (3) the complaint discloses some fact that

necessarily defeats the plaintiff’s claim.’” Corwin v. British Am. Tobacco PLC, 821

S.E.2d 729, 736−37 (N.C. 2018) (quoting Wood v. Guilford County, 355 N.C. 161, 166,

558 S.E.2d 490, 494 (2002)). This standard of review for Rule 12(b)(6) is the standard

our Supreme Court “uses routinely . . . in assessing the sufficiency of complaints in

the context of complex commercial litigation.” Id. at 737 n.7 (citations omitted). IV. ANALYSIS

A. Claims Brought Against SC, LLC

45. As an initial matter, the Court addresses the claims brought against SC,

LLC. Aside from appearing in the caption as a named defendant, SC, LLC is

referenced again only in paragraphs 4 and 10 of the Amended Complaint. In

paragraph 4, SC, LLC is combined with TFH, Inc. under the defined term “TFH.” In

that same paragraph, Plaintiff states that it brings the action against “TFH” as a

result of “TFH’s tortious interference with the Agreements” and “TFH’s unfair and

deceptive trade practices.” (Am. Compl. ¶ 4.) In paragraph 10, Plaintiff alleges that

SC, LLC is a North Carolina corporation. (Am. Compl. ¶ 10.)

46. While defined terms are typically a tool to increase readability, in this case

combining SC, LLC and TFH, Inc. into a single defined term “TFH” in the Amended

Complaint has only created confusion. This is especially so here, where “TFH” is also

an acronym for Troutman Funeral Home, the funeral home which was allegedly

purchased by William, Abbi, SC, LLC and/or TFH, Inc. on December 13, 2018. For

example, paragraph 54 of the Amended Complaint states that “on August 30, 2018,

[William] downloaded TFH’s vendor list[,]” but it is not clear whether the vendor list

is owned by Troutman Funeral Home, SC, LLC or TFH, Inc. All appear possible.

Plaintiff also refers to the “Articles of Incorporation for TFH,” which are attached to

the Amended Complaint as Exhibit G. (Ex. G to Am. Compl.) Exhibit G, however,

only refers to TFH, Inc. and not SC, LLC. (Ex. G to Am. Compl.) In fact, the Articles

of Organization for SC, LLC appear separately as Exhibit F to the Amended Complaint. (Ex. F to Am. Compl.) This confusion continues throughout the Amended

Complaint as there are numerous instances where the incorporated documents make

clear that an allegation asserted by “TFH” could only have been advanced by SC, LLC

or by TFH, Inc., but not both. In short, through its choice of defined terms, it is

impossible to discern what NFH contends SC, LLC’s role was in causing the harm

alleged by Plaintiff. Certainly neither of the two allegations specifically mentioning

SC, LLC makes out a cognizable claim for relief against it. (See Am. Compl. ¶¶ 4,

10.)

47. At the July 24, 2019 hearing on the Motion, the Court asked Plaintiff’s

counsel about this lack of clarity regarding SC, LLC’s alleged role in the alleged

misconduct. Counsel for Plaintiff, in full candor to the Court, responded that Plaintiff

believed in good faith that SC, LLC was involved in Troutman Funeral Home in some

capacity, but could not provide more details regarding its involvement until discovery

ensued.

48. Even considering the liberal pleading standard embraced by our courts, in

this case the Court does not believe that Plaintiff has provided sufficient allegations

to put SC, LLC on notice of the claims against it. See Plasman ex rel. Bolier & Co. v.

Decca Furniture (USA), Inc., 811 S.E.2d 616, 621 (N.C. Ct. App. 2018) (“Under the

notice theory of pleading a complainant must state a claim sufficient to enable the

adverse party to understand the nature of the claim, to answer, and to prepare for

trial . . . . While the concept of notice pleading is liberal in nature, a complaint must

nonetheless state enough to give the substantive elements of a legally recognized claim or it may be dismissed under Rule 12(b)(6).” (internal citations and quotation

marks omitted)). Accordingly, all claims brought against SC, LLC should be

dismissed.

49. Notwithstanding the Court’s conclusion that the claims against SC, LLC

should be dismissed, “[t]he decision to dismiss an action with or without prejudice is

in the discretion of the trial court[.]” First Fed. Bank v. Aldridge, 230 N.C. App. 187,

191, 749 S.E.2d 289, 292 (2013). The Court concludes, in the exercise of its discretion,

that Plaintiff’s claims against SC, LLC should be dismissed without prejudice to

Plaintiff’s right to attempt to reassert such claims through proper factual allegations

by way of a motion to amend if discovery discloses a good faith basis for making such

claims.

50. In contrast to SC, LLC, the Court concludes that the allegations against

TFH, Inc.—the other half of the “TFH” defined term—are otherwise sufficiently

specific. Reading the allegations in the light most favorable to Plaintiff, there are

more facts that logically implicate TFH, Inc.’s involvement in the activity complained

of by Plaintiff. Accordingly, the Court does not dismiss the claims brought against

TFH, Inc. for this reason.

B. Count I: Breach of Contract (Joseph)

51. Plaintiff alleges that Joseph breached the Agreements by violating the post-

employment terms contained therein. (Am. Compl. ¶ 80.) Specifically, Plaintiff

asserts that Joseph violated those terms by rendering services to or soliciting business from NFH’s customers, (Am. Compl. ¶ 81), and by competing “with NFH for

himself and on behalf of [Troutman Funeral Home,]” (Am. Compl. ¶ 82).

52. To properly plead a breach of contract claim, a plaintiff need only allege “(1)

[the] existence of a valid contract and (2) [a] breach of the terms of that contract.”

Poor v. Hill, 138 N.C. App. 19, 26, 530 S.E.2d 838, 843 (2000). Here, Plaintiff has

alleged the existence of a valid contract. (See Am. Compl. ¶¶ 36–45.) In fact, Plaintiff

has alleged there are two valid contracts between Joseph and NFH: the Employment

Agreement and the SPA. (Am. Compl. ¶ 36.) While not necessary to sufficiently

allege this first element, Plaintiff has attached the Agreements as exhibits to the

Amended Complaint, and therefore the Court considers them when determining the

sufficiency of Plaintiff’s allegations. See Moch, 251 N.C. App. at 206, 794 S.E.2d at

903. Nothing raised in the Motion or noted by the Court on its own review of the

incorporated documents suggests that these Agreements are not valid Agreements to

which Joseph is a party.7 Accordingly, the Court must consider whether Plaintiff has

adequately alleged a breach of the Agreements.

53. Here, Plaintiff’s breach of contract claim encompasses all of Joseph’s “post-

employment terms.” (Am. Compl. ¶ 80.) As set forth in the general factual allegations

of the Amended Complaint, these obligations can be divided into three categories: (1)

covenants not to use or disclose confidential information, (Emp. Agmt. ¶ 4; SPA §

4.01); (2) covenants not to solicit customers or employees, (Emp. Agmt. ¶ 7); and (3)

7 For the reasons discussed below, however, the Court concludes that the Restrictive Covenants within the Agreements are unenforceable. Given that this conclusion does not invalidate the Agreements in their entirety, the Court undertakes this analysis under the “breach” prong of this claim. a covenant not to compete, (Emp. Agmt. ¶ 7; see also SPA § 4.02). The Court

addresses the latter two categories first and then the confidentiality provisions.

1. A Claim for Breach of the Restrictive Covenants is Barred Based on the Express Language in the Employment Agreement

54. Upon review of the Employment Agreement, and the specific post-

employment provisions contained therein, the Court concludes that Plaintiff’s breach

of contract claim premised on the Restrictive Covenants is fatally defective and

should be dismissed because these covenants, to the extent they might otherwise be

enforceable, expired by their very terms long before Joseph left NFH in December

2018.

55. Plaintiff alleges that the Agreements, when read together, indicate that

Joseph’s post-employment obligations began to run when he stopped working for

NFH in December 2018, and therefore the Restrictive Covenants prohibit Joseph

from competing with NFH or soliciting NFH’s customers to transfer their business to

Troutman Funeral Home from December 2018 through and including December

2023.

56. However, the language in the Employment Agreement in Section 7, where

the Restrictive Covenants appear, is unambiguous and at odds with Plaintiff’s

interpretation. Section 7 provides that the Restrictive Covenants continue “[d]uring

the Employment Period and for five (5) years thereafter[.]” As noted above,

“Employment Period” is a defined term in the Employment Agreement, appearing in

Paragraph 1, and is specifically and expressly defined as “a term of five (5) years from the date hereof[.]” The “date hereof” is August 12, 2003—the date on which the

Employment Agreement was executed and took effect. (See Emp. Agmt. 1.)

57. Therefore, based on the unequivocal language of the Employment

Agreement, the post-employment Restrictive Covenants therein began to run on

August 12, 2008, the date on which the Employment Period ended by its terms, and

continued through and including August 11, 2013. Since there is no allegation in the

Amended Complaint that Joseph began his alleged misconduct before 2018, over five

years after the expiration of the Restrictive Covenants, such conduct cannot properly

be the basis for the breach of the Restrictive Covenants.

58. Plaintiff argues that it would be contrary to the “intent” of the Employment

Agreement to read the Restrictive Covenants as having started to run in 2008 when

Joseph was still employed with NFH. In support of this argument, Plaintiff contends

that the SPA exists for a longer duration than the Employment Agreement because

it is not keyed to a definite “Employment Period” and therefore its language supports

the imposition of post-employment obligations through 2018 and five years

thereafter.

59. The problem with Plaintiff’s argument is that the SPA, by its express terms,

does not create a restrictive covenant, but rather states that, at the closing of the

stock sale by Joseph, Joseph would execute such an agreement. (SPA § 4.02.) The

allegations of the Amended Complaint, and the documents attached thereto make

clear that rather than creating a non-compete in the SPA, the parties included a non-

competition covenant as a part of the simultaneously-executed Employment Agreement that has a specific—and, as analyzed in Section IV.B.2 below,

unenforceable—non-compete provision.

60. The Court cannot look to a separate agreement, with a distinct purpose, to

determine the intent of the parties to an unambiguous contract with an entirely

different purpose. 8 See Anderson v. Anderson, 145 N.C. App. 453, 458, 550 S.E.2d

266, 269 (2001) (“It is a well-settled principle of legal construction that it must be

presumed the parties intended what the language used clearly expresses, and the

contract must be construed to mean what on its face it purports to mean.”). And

regardless of Plaintiff’s post-hoc argument regarding the parties’ intent, the language

of the Employment Agreement is clear and unambiguous and controls the Court’s

decision. Press v. AGC Aviation, LLC, 818 S.E.2d 365, 371 (N.C. Ct. App. 2018) (“The

parties selected the language of the contract. Finding it to be clear and unambiguous,

we have no right—nor did the lower court—to give it a meaning other than that

expressed in it. To hold otherwise would be to do violence to the most fundamental

principle of contracts.” (quoting Hamilton Constr. Co. v. Bd. of Pub. Instruction of

Dade Cty., 65 So.2d 729, 731 (Fla. 1953))).

61. Based on the plain reading of the Employment Agreement, Joseph no longer

had a valid and binding written employment agreement with NFH after 2008.

Nothing in the Employment Agreement indicates that its term was extended if

8 Even if it could, the Court is not convinced that the language in the SPA supports Plaintiff’s

position that the parties’ intent was for the non-compete to run from 2003 through 2023. Because the SPA is silent as to how long Joseph was to be employed—as that agreement was not executed for that purpose—it is entirely consistent that the parties meant the phrase “from the date of the conclusion of his employment with NFH[,]” (SPA § 4.02), to mean the five-year employment term as defined in the Employment Agreement. Joseph continued to work at NFH after 2008. In fact, the Employment Agreement

says the exact opposite: it provides that if any provision of the Employment

Agreement was to be amended, “such amendment shall require an additional writing

or agreement, so as to cause this [Employment] Agreement to be valid and

enforceable to the fullest extent permitted by law.” (Emp. Agmt. ¶ 8(b).)

62. Plaintiff has not alleged that Joseph entered into a new employment

agreement with new Restrictive Covenants. Plaintiff instead argues that NFH and

Joseph extended the period for the Restrictive Covenants9 when NFH wrote Joseph

bi-monthly checks for $500 with the memo line “non compete[,]” which Joseph cashed.

Although not clear when Joseph first started receiving these checks, the cancelled

checks attached to the Amended Complaint indicate Joseph was receiving them

throughout 2018. (See Ex. D to Am. Compl.) Plaintiff argues that these bi-monthly

payments were consideration for an extension of the period of the Restrictive

Covenants.

63. There are two problems with this argument. First, the law is clear that a

valid non-compete and/or non-solicitation clause must be part of an employment

agreement. United Labs., Inc. v. Kuykendall, 322 N.C. 643, 649–50, 370 S.E.2d 375,

380 (1988). Here, even reading the Amended Complaint in the light most favorable

to Plaintiff, there was no employment agreement after 2008. Second, the cancelled

checks themselves cannot constitute a validly written non-compete and/or non-

9 Plaintiff broadly refers to the non-solicitation clause and the non-compete covenant together

as the “non-compete” because both appear in Section 7 in the Employment Agreement, entitled “Noncompetition/Covenant Not to Compete.” solicitation clause, as the time, territory, or restrictions upon Joseph are not

expressed on the checks nor is there any language on the checks expressing an

intention that their delivery and negotiation by Joseph effectively extended the

period of the Restrictive Covenants.

64. Accordingly, the Court is unpersuaded by Plaintiff’s argument that

Joseph’s Restrictive Covenants extended through the period of the allegedly wrongful

conduct complained of in the Amended Complaint. Because there can be no breach

of contract claim premised on Joseph’s breach of the Restrictive Covenants, Plaintiff’s

first claim must be dismissed to the extent it is based on an alleged breach of the

Restrictive Covenants.

2. Even if Plaintiff’s Claim as to the Restrictive Covenants was not Barred Because the Restrictive Covenants’ Terms Have Expired, They are Overly Broad and Unenforceable

65. Assuming arguendo that the Agreements extended through and beyond

2018 as Plaintiff alleges, the Court concludes that Plaintiff’s breach of contract claim

premised on the Restrictive Covenants must be dismissed for the additional reason

that the covenants are overly broad and unenforceable on their face.10 The language

10 Though not raised by the parties in their respective briefing on the Motion, the Court

addresses Paragraph 8(b) of the Employment Agreement which provides, in relevant part, that “[t]he parties hereto agree that this covenant not to compete is reasonable as to . . . duration, geographic area and nature of the business protected.” (Emp. Agmt. ¶ 8(b).) The Court is not bound by the parties’ representation that a covenant is reasonable. See Johnston County v. R. N. Rouse & Co., 331 N.C. 88, 95, 414 S.E.2d 30, 34 (1992). In a related context, our Supreme Court has expressly concluded that the parties cannot include provisions in their non-competes to circumvent the Court’s limitations on enforcing unreasonable covenants. See Beverage Sys. of the Carolinas, LLC v. Associated Bev. Repair, LLC, 368 N.C. 693, 699–700, 784 S.E.2d 457, 461–62 (2016) (concluding that the court cannot rewrite an unreasonable non-compete even where the parties expressly provide therein that the court can revise the non-compete to be reasonable). Accordingly, the Court considers the evidencing the Restrictive Covenants in the Employment Agreement reads, in

relevant part, as follows:

7. Noncompetition/Covenant Not to Compete (a) During the Employment Period and for five (5) years thereafter (or five years after earlier termination hereunder), the Employee agrees that he will not render services to, or solicit any business from, any person, firm, client, customer, or corporation located in Iredell County (whether in an employer-employee relationship or otherwise) with whom or for whom the Company has done business or provided services during the Employment Period. Further, Employee agrees not to compete, directly or indirectly, for himself or for others with the Company or the Purchaser in any manner with respect to the funeral home business. This section shall not restrict the right of the Employee to own securities of any company listed on a national or regional stock exchange or traded in the over-the-counter market.

66. Although, in part, the non-solicitation clause and non-compete are

separated by punctuation in Paragraph 7 of the Employment Agreement, both

clauses share the same time and territory perimeters: “[d]uring the Employment

Period and for five (5) years thereafter (or five years after earlier termination[.])”

(Emp. Agmt. ¶ 7.) Further, both are supported by the same consideration ($500,000).

(Emp. Agmt. ¶ 7(b).) In fact, the two clauses are not even set forth in separate

paragraphs, but rather their terms (other than the amount of consideration) are set

forth together in Paragraph 7(a) of the Employment Agreement.

67. As this Court has recognized, the “elements are the same for non-

competition and non-solicitation clauses[.] Akzo Nobel Coatings, Inc. v. Rogers, 2011

NCBC LEXIS 42, at *31 (N.C. Super. Ct. Nov. 3, 2011). To be enforceable under

North Carolina law, non-competition and non-solicitation clauses between an

reasonableness of the covenants regardless of this representation in Paragraph 8(b) of the Employment Agreement. employer and employee must be: “(1) in writing; (2) made part of a contract of

employment; (3) based on valuable consideration; (4) reasonable both as to time and

territory; and (5) not against public policy.” Kuykendall, 322 N.C. at 649–50, 370

S.E.2d at 380.

68. Our Courts have recognized that an employer has a legitimate interest in

protecting “customer relationships and goodwill against misappropriation from

departing employees.” Id. at 651, 370 S.E.2d at 381. However, “[t]he restrictions . .

. must be no wider in scope than is necessary to protect the business of the employer.”

Manpower of Guilford Cty., Inc. v. Hedgecock, 42 N.C. App. 515, 521, 257 S.E.2d 109,

114 (1979). Restrictive covenants are overbroad, and therefore unenforceable, in this

State when they “prohibit the employee from engaging in future work that is distinct

from the duties actually performed by the employee[,]” Medical Staffing Network, Inc.

v. Ridgeway, 194 N.C. App. 649, 656, 670 S.E.2d 321, 327 (2009), or “impose

unreasonable hardship on the [employee,]” CopyPro, Inc. v. Musgrove, 232 N.C. App.

194, 200, 754 S.E.2d 188, 192 (2014) (citation omitted). “In deciding what is

reasonable [as to scope of business interests protected, geographic area, and time],

the court looks to the facts and circumstances of the particular case.” See Mkt. Am.,

Inc. v. Lee, 809 S.E.2d 32, 40 (N.C. Ct. App. Dec. 19, 2017).

69. North Carolina has adopted a “strict blue pencil doctrine” wherein a court

cannot rewrite an unenforceable covenant; instead, to avoid scrapping an entire

covenant, a Court may enforce the divisible parts of a covenant that are reasonable.

Bev. Sys. of the Carolinas, 368 N.C. at 696, 784 S.E.2d at 460. 70. Here, the Court is required on this Motion to consider the enforceability of

the Restrictive Covenants in both the Employment Agreement and the SPA.

Notwithstanding Plaintiff’s allegations that both Agreements contain such

covenants, the Court notes that only the Employment Agreement has a non-

solicitation clause. Moreover, the language potentially evidencing a non-compete in

Section 4.02 of the SPA is insufficient to be considered an enforceable non-compete.

As noted previously, that Section merely proscribes that, at closing of the stock sale,

Joseph was to execute a non-compete agreement. Joseph fulfilled this condition by

executing the Employment Agreement, and specifically Section 7 of the Employment

Agreement, which contains both a non-solicitation clause and non-competition clause.

Therefore, the Court focuses its analysis on Section 7 of the Employment Agreement,

and specifically, whether the Restrictive Covenants therein are reasonable as to time

and scope.

71. Turning first to the language evidencing a non-solicitation clause, Section

7 prevents Joseph during the Employment Period and for five years thereafter from

rendering any services to or soliciting business from anyone with whom or for whom

NFH did business during Joseph’s employment.

72. While the elements of a non-solicitation clause are identical to a non-

compete clause, North Carolina courts are generally more willing to enforce a non-

solicitation clause targeted to a former employer’s customers or prospective

customers than provisions completely prohibiting a former employee from working

for certain employers or in certain regions. Sandhills Home Care, L.L.C. v. Companion Home Care – Unimed, Inc., 2016 NCBC LEXIS 61, at *27 (N.C. Super.

Ct. Aug. 1, 2016).

73. In Sandhills, Judge McGuire of this Court considered a non-solicitation

clause that restricted former employees from soliciting any of their former employer’s

customers, regardless of whether the employee had contact with that customer. Id.

at *29. There, the duration of the non-solicitation clause was one year and all of the

employer’s customers were located in and around Robeson County, North Carolina.

Id. Considering the relatively short duration of the restriction, and that the employer

had “a relatively small and easily identified set of customers[,]” the Court could not

conclude on a 12(b)(6) motion that the non-solicitation restriction was unreasonable

as a matter of law “simply because it prohibited [the former employees] from soliciting

customers with whom they may not have had personal contact during [their]

employment.” Id. at *27–29.

74. Our appellate courts have also enforced non-solicitation clauses where the

restrictions were not limited to clients or customers with whom the employee had

direct contact. See Triangle Leasing Co. v. McMahon, 327 N.C. 224, 229, 393 S.E.2d

854, 857–58 (1990) (concluding that the restriction that prevented the employee from

soliciting the company’s customers was reasonable); see also Wade S. Dunbar Ins.

Agency, Inc. v. Barber, 147 N.C. App. 463, 469, 556 S.E.2d 331, 335–36 (2001).

75. Like in Sandhills, NFH alleges here that it operates in a relatively small

geographic area: Iredell County. Moreover, Plaintiff has affirmatively alleged that

Joseph “maintained a very close working relationship with many, if not all, of NFH’s pre-arranged customers and many of their families.” (Am. Compl. ¶ 34.) In this

regard, therefore, it is not facially unreasonable to prevent someone in Joseph’s

position—who was, for all intents and purposes, the face of the company—from

soliciting all of NFH’s pre-arranged customers.

76. However, the non-solicitation clause is not just limited to NFH’s pre-

arranged customers, and it is this fact that separates the case at bar from Sandhills

and the appellate cases cited above. In each of those cases, the non-solicitation

clauses were limited to the solicitation of the employer’s customers. Here, by contrast,

Joseph is prevented from rendering “any” services or soliciting “any” business from

anyone for whom or with whom NFH has done business (whether in an employer-

employee relationship or otherwise) at any time during the restrictive period.

Pursuant to the language of this non-solicitation clause language, Joseph would be

prevented from contacting any customer or vendor—from the janitor to the payroll

administrator—for any purpose at all, even those unrelated to the provision of funeral

home services.

77. And, as noted above, since the non-solicitation period defined by the term

“Employment Period” means from August 12, 2003 through August 11, 2008, the non-

solicitation clause would reach back as much as fifteen (15) years, preventing Joseph

from contacting a customer or vendor/supplier who did business with NFH as early

as 2003. See Farr Assoc., Inc. v. Baskin, 138 N.C. App. 276, 280, 530 S.E.2d 878, 881

(2000) (declaring that when a restrictive covenant “reaches back to include clients of

the employer during some period in the past, that look back period must be added to the restrictive period to determine the real scope of the time limitation”). This

language is simply too broad and far-reaching. See Sterling Title Co. v. Martin, 831

S.E.2d 627, 633 (N.C. Ct. App. 2019) (concluding that an agreement preventing the

defendant from soliciting or providing competitive services to any of the plaintiff’s

customers with whom the defendant had contact during her ten-year employment

and one year thereafter was “in essence an 11-year restriction” and was “patently

unreasonable”). For these reasons, therefore, the Court believes that the non-

solicitation clause is unreasonably broad and therefore unenforceable.

78. The Court further concludes that the non-compete provision is likewise

unreasonably broad. Here, the non-compete provides, in relevant part, that Joseph

“agrees not to compete, directly or indirectly, for himself or for others with [NFH] or

[Strandburg] in any manner with respect to the funeral home business” for a period

of five years after the end of the Employment Period. (Emp. Agmt. ¶ 7 (emphasis

added).) Our courts have routinely found that language preventing a former

employee from working “indirectly” with a competitor, is overbroad and not

enforceable. See Outdoor Lighting Perspectives Franchising v. Harders, 228 N.C.

App. 613, 628, 747 S.E.2d 256, 267 (2013) (finding unenforceable a non-compete

restricting franchisee from having any involvement in any business “operating in

competition with an outdoor lighting business” or any business “similar” to the

franchisee’s as it went “well beyond the prohibition of activities that would put

[franchisee] in competition with [franchisor]”); VisionAIR, Inc. v. James, 167 N.C.

App. 504, 508–09, 606 S.E.2d 359, 362–63 (2004) (concluding that a non-compete is unreasonably broad where it prevents an employee from working “indirectly” for a

competitor because it would prevent the employee “from doing even wholly unrelated

work at any firm similar to [the employer]”); CNC/Access, Inc. v. Scruggs, 2006

NCBC LEXIS 22, at *24 (N.C. Super. Ct. Nov. 17, 2006) (holding that a provision

restricting an employee from competing “directly or indirectly” was greater than

necessary to protect a legitimate business interest of the employer).

79. Moreover, the non-compete extends for a period of five years after the end

of the employment period in the Employment Agreement, thereby also making the

non-compete extend to what our courts have considered the “outer boundary” 11 of

reasonableness. Farr Assocs., Inc., 138 N.C. App. at 280, 530 S.E.2d at 881; see also

Eng'g Assocs., Inc. v. Pankow, 268 N.C. 137, 139, 150 S.E.2d 56, 58 (1966) (“[I]n some

instances and under extreme conditions five years would not be held to be

unreasonable.”).

80. Plaintiff contends that whether or not a restrictive covenant is reasonable

is a question that cannot be ordinarily resolved on a Rule 12(b)(6) motion. In support,

11 Although in the sale of business context our courts have upheld five-year or longer restrictive covenants, the Court is confronted with a more complicated factual scenario here. While originally the non-compete was executed in connection with Joseph’s sale of his shares in NFH, that sale occurred in 2003. At the time of the misconduct alleged, Joseph had not been an owner of NFH for over fifteen (15) years. Therefore, even if the Court were to read the Employment Agreement as Plaintiff intends—that the five year non-compete period began to run in 2018 after Joseph left his employment with NFH—the Court believes it can hardly consider this non-compete as made in connection with the sale of his shares that occurred fifteen years prior to his departure from the company. Joseph, when entering into the Agreements, did not agree to a non-compete for fifteen (15) or more years in connection with the sale of his shares. He agreed to a five (5) year term. Therefore, the Court distinguishes the facts of this case from those cases considering the reasonableness of non- competes in the sale of business context. Cf. Jewel Box Stores Corp. v. Morrow, 272 N.C. 659, 663, 158 S.E.2d 840, 843 (1968). Plaintiff points to Market America, Inc. v. Lee, in which the Court of Appeals stated

that, “a ruling on the enforceability of [a non-compete] agreement cannot be made at

the pleading stage in cases where evidence is needed to show the reasonableness of

the restrictions contained therein.” Mkt. Am., Inc., 809 S.E.2d at 41. The court in

Market America relied on its earlier decision in Okuma America Corp. v. Bowers,

where the duration of the covenant not to non-compete was six months and prevented

the employee from working for a direct competitor in “areas in which [the employee

did] business.” Okuma Am. Corp. v. Bowers, 181 N.C. App. 85, 87–88, 638 S.E.2d

617, 619 (2007). The Okuma Court held that “the six-month period was ‘well within

the established parameters for covenants not to compete in this State’ and that

although ‘the geographic effect of the restriction is quite broad . . . taken in

conjunction with the six-month duration, it is not per se unreasonable . . . .” Mkt.

Am., Inc., 809 S.E.2d at 41 (quoting Okuma, 181 N.C. App. at 90, 638 S.E.2d at 630).

81. Here, however, the Court concludes that the Restrictive Covenants in the

Employment Agreement are per se unreasonable. Unlike Okuma, where the

covenant’s territory and coverage of competing activities limitation was for a

relatively short duration, here (for the reasons noted above in paragraphs 71–79) the

Restrictive Covenants are overbroad and extend well past the outer boundary of

reasonableness as to time period. Accordingly, the Court concludes that the facts of Okuma are distinguishable from the case at bar and that the Restrictive Covenants

are properly determined to be unreasonably broad and unenforceable.

82. Having so concluded, the Court determines that, even if the governing time

period regarding the Restrictive Covenants had not expired prior to 2018, the Court

could not use the blue pencil doctrine to enforce either the non-solicitation clause or

the non-compete clause because neither covenant could be made reasonable without

this Court re-writing the scope of the activity covered by the covenants. See Beverage

Sys. of the Carolinas, 368 N.C. at 699, 784 S.E.2d at 461 (“[W]hen an agreement not

to compete is found to be unreasonable, . . . the Court is powerless unilaterally to

amend the terms of the contract.” (citation omitted)). Here, the Court cannot remedy

either covenant by striking out certain words because the problem with the

Restrictive Covenants is that the language used itself is overly broad, and the Court

cannot choose different words to give the covenants a more defined scope. See

Window Gang Ventures, Corp. v. Salinas, 2019 NCBC LEXIS 24, at *22–23 (N.C.

Super. Ct. April 2, 2019). Therefore, assuming arguendo that the Restrictive

Covenants are not barred by the expiration of their term, they nonetheless are overly

broad and unenforceable as a matter of law. Accordingly, the Motion is GRANTED

as to Plaintiff’s breach of contract premised on claimed breaches by Joseph of the two

Restrictive Covenants in the Employment Agreement. 3. Plaintiff’s Breach of Contract Claim is Supported by its Factual Allegations Regarding Joseph’s Breach of the Confidentiality Provisions in the Agreements

83. Although the Court concludes that Plaintiff’s breach of contract claim

cannot be based on one or more alleged breaches by Joseph of the Restrictive

Covenants, Plaintiff’s breach of contract claim is expressly premised on all of Joseph’s

“post-employment terms[.]” The Court therefore must evaluate whether there are

any other “post-employment terms” set forth in the Amended Complaint and in the

Agreements that were in effect at the time of Joseph’s alleged wrongdoing. Reading

the Amended Complaint in the light most favorable to Plaintiff, and considering the

language in the Agreements, the Court concludes that the confidentiality provisions

in both Agreements binding Joseph are not limited to an employment term plus five

(5) years that prevented him—at any time during his employment or afterwards—

from disclosing or using NFH’s confidential information. (Emp. Agmt. ¶ 4(a); SPA §

4.01.) Accordingly, finding that these provisions were in effect through 2018,12 the

Court must consider whether Plaintiff has adequately alleged a breach of contract

claim premised on breach of the confidentiality provisions in the Employment

Agreement and/or SPA.

12 By definition, a claim for breach of a covenant preventing disclosure of confidential information must be based on facts supporting the argument that: (1) the information the defendant possessed was “confidential”; and (2) the defendant improperly disclosed it. See Barbarino v. Cappuccine, Inc., 2012 N.C. App. LEXIS 305, at *6–8 (N.C. Ct. App. Mar. 6, 2012). Whether the information alleged by NFH to have been improperly disclosed by Joseph was in fact confidential cannot be determined by the Court at this stage of the proceeding. 84. Other than alleging broadly that Joseph breached his “post-employment

terms[,]” Plaintiff does not allege within its first claim for relief that Joseph breached

the Agreements by disclosing NFH’s confidential information.

85. Notwithstanding that fact, Plaintiff does “re-allege the allegations of the

foregoing paragraphs” of the Amended Complaint in its first claim for relief, (Am.

Compl. ¶ 75), and therefore the Court considers those other allegations in evaluating

this claim. Several times Plaintiff alleges that the Agreements provided that Joseph

would not “disclose or use any confidential information of NFH” during or after his

employment with NFH. (Am. Compl. ¶¶ 38–39.) This allegation is supported by the

Agreements themselves, each of which provides that Joseph agreed not to disclose

any of NFH’s confidential information to any person outside of NFH or use the

information for any purpose other than in furtherance of the NFH’s business. (Emp.

Agmt. ¶ 4(a); SPA § 4.01.) Confidential information is defined specifically in the

Employment Agreement to include, among other things, “information used by or in

the possession of the Company that relates to . . . customers[,]” (Emp. Agmt. ¶ 4(b)),

and more generally in the SPA as “all information, which is known only to [Joseph]

in a confidential relationship with NFH and/or [Strandburg,]” (SPA § 4.01).

Moreover, Plaintiff has specifically alleged that NFH’s customer list is part of its

confidential information and that NFH’s customer information is one of the “principal

assets of its business.” (Am. Compl. ¶ 32.)

86. As to breach of this specific covenant, the Court first notes that Plaintiff

alleges Joseph’s involvement with TFH, Inc. “will inevitably lead to the disclosure of NFH’s confidential information.” (Am. Compl. ¶ 71.) An allegation of “inevitable

disclosure”, however, is not enough to support a breach of contract claim. See DSM

Dyneema, LLC v. Thagard, 2015 NCBC LEXIS 50, at *16 (N.C. Super. Ct. May 12,

2015). There must actually be a breach of the agreement based on improper

disclosure before such a claim can be brought. See Penley v. Penley, 314 N.C. 1, 20,

332 S.E.2d 51, 62 (1985) (concluding that a claim for breach of contract begins to

accrue once the promise has been broken).

87. Plaintiff also alleges that William accessed NFH’s confidential information

without authorization and that, thereafter, this information was used by both

William and Joseph to operate Troutman Funeral Home. (Am. Compl. ¶¶ 52–56, 64.)

Specifically, after alleging that William downloaded, copied, and otherwise accessed

NFH’s confidential information without authorization from NFH, Plaintiff alleges

that “William and Joseph are using [that] information . . . in the operation of TFH

and specifically to solicit NFH’s customers.” (Am. Compl. ¶ 65.) Plaintiff has clearly

alleged that information regarding NFH’s customers is considered NFH’s confidential

information. Therefore—regardless of who downloaded the information—Joseph’s

alleged use of that information, for his and TFH’s benefit, is sufficient for purposes of

alleging a breach of contract claim against Joseph for violation of Paragraph 4 of the

Employment Agreement and Section 4.01 of the SPA. The Court therefore concludes

that Plaintiff’s breach of contract claim is sufficiently pled as to Joseph’s breach of

the confidentiality provisions in the Agreements. Accordingly, the Motion is DENIED

to the extent it seeks dismissal of this claim on that ground. 88. In summary, Plaintiff’s claim for breach of contract may proceed as it

relates to Joseph’s alleged breach of the confidentiality provisions of the Agreements

but is dismissed as to Joseph’s alleged breaches of the Restrictive Covenants.

C. Count II: Misappropriation of Trade Secrets (Joseph and William)

89. Plaintiff’s second claim for relief is based on both Joseph’s and William’s

alleged trade secret misappropriation. (Am. Compl. ¶¶ 85–93.) A claim for

misappropriation of trade secrets is a cause of action codified in the North Carolina

Trade Secrets Protection Act. N.C.G.S. § 66-153 (“NCTSPA”). The NCTSPA defines

trade secret misappropriation as “acquisition, disclosure, or use of a trade secret of

another without express or implied authority or consent . . . .” Id. § 66-152. A trade

secret, in turn, is defined as follows:

[B]usiness or technical information, including but not limited to a formula, pattern, program, device, compilation of information, method, technique, or process that:

(a) Derives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use; and

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

N.C.G.S. § 66-152.

90. Plaintiff bases its misappropriation of trade secrets claim upon Joseph’s

and William’s access to and use of NFH’s customer list and other confidential

customer information at Troutman Funeral Home. (Am. Compl. ¶¶ 86–93.) Plaintiff

alleges that its customer list, pre-arrangement contract terms, and specific customer needs are “confidential and proprietary and . . . valuable commercial asset[s] to

NFH.” (Am. Compl. ¶ 86.)

91. Defendants argue that Plaintiff has not alleged with sufficient specificity

any trade secret. The Court disagrees. Our Supreme Court has recently explained

why private customer lists like those alleged here can be a protected trade secret. See

Krawiec, 370 N.C. at 610, 811 S.E.2d at 548. The key is whether “[D]efendants could

have compiled a similar database through public listings” or otherwise readily

derived the information without access to the trade secrets. Id. Plaintiff has

affirmatively alleged that its database was compiled from information not “generally

known or readily ascertainable[,]” (Am. Compl. ¶ 87), and that “[g]iven the ways that

(a) NFH’s customers are developed and (b) the long period of time over which it is

compiled, it would be impossible for anyone to duplicate a list of NFH’s customers, or

any significant portion of it,” (Am. Compl. ¶ 35). Accordingly, the Court concludes

that Plaintiff has sufficiently alleged that its information is a trade secret under

Chapter 66.

92. Defendants also argue that Plaintiff has not alleged how or in what capacity

Joseph and William misappropriated NFH’s alleged trade secrets. As to William, the

Court believes the Amended Complaint is sufficiently clear in this regard. The

Amended Complaint alleges that William accessed NFH’s computer system without

authorization, (Am. Compl. ¶ 51), and downloaded trade secret information in the

period leading up to his resignation, (Am. Compl. ¶¶ 52–55). The Amended

Complaint further alleges that William continued to log into the website of an NFH vendor even after his resignation from employment with NFH which gave him access

to Plaintiff’s trade secret information. (Am. Compl. ¶ 64.) Since trade secret

misappropriation encompasses “acquisition . . . without express or implied authority

or consent,” these statements are adequate to allege misappropriation with respect

to William. See N.C.G.S. § 66-152.

93. In contrast, however, the allegations against Joseph are far less specific. In

fact, the allegations against Joseph come close to solely relying on the “inevitable

disclosure” doctrine.13 (See Am. Compl. ¶ 71 (“[Joseph’s and William’s] competitive

activities . . . will inevitably lead to the disclosure of NFH’s confidential information

. . . .”).) This doctrine has not been adopted by the North Carolina courts. See DSM

Dyneema, LLC, 2015 NCBC LEXIS 50, at *16 (citing Analog, 157 N.C. App. at 470,

579 S.E.2d at 454–55).14

94. Here, while there is an “inevitable disclosure” component to Plaintiff’s

allegations, Plaintiff also affirmatively alleges that Joseph has used the alleged trade

13 The inevitable disclosure doctrine is applied on occasion by courts in other states “when an

employee who knows trade secrets of his employer leaves that employer for a competitor and, because of the similarity of the employee’s work for the two companies, it is ‘inevitable’ that he will use or disclose trade secrets of the first employer.” See Analog Devices, Inc. v. Michalski, 157 N.C. App. 462, 470 n.3, 579 S.E.2d 449, 454 (2003).

14 In DSM Dyneema, this Court analyzed a misappropriation of trade secrets claim where the

defendant argued for dismissal on the theory that the plaintiff’s claim was based on the inevitable disclosure doctrine. DSM Dyneema, 2015 NCBC LEXIS 50, at *16. There, Judge Bledsoe concluded that while there was clearly an “inevitable disclosure” component to the plaintiff’s allegations, its claim was “based on more than simply the fact that [the defendant] had access to [the plaintiff’s] alleged trade secrets and then went to work for a competitor[.]” Id. at *17. In fact, the defendant there was a “chief scientist” at the plaintiff’s company, who downloaded trade secret information from his computer and then used that information to win a competing contract. Id. secret information that William downloaded from his NFH computer “in the

operation of TFH and specifically to solicit NFH’s customers.” (Am. Compl. ¶¶ 56,

64, 65.) Moreover, Plaintiff alleges that Joseph and TFH have been able to quickly

sign a number of former NFH’s customers to pre-arrangement contracts in a way that

only someone with Joseph’s level of access to the trade secret information could have

accomplished. (Am. Compl. ¶¶ 34, 66.) The Court concludes that these allegations,

while sparse, are nonetheless sufficient to survive dismissal at this stage without

reference to the inevitable disclosure doctrine.

95. Accordingly, because the Amended Complaint adequately alleges the

existence and identity of trade secrets and their actual misappropriation and use, the

Motion is DENIED to the extent it seeks dismissal of Plaintiff’s second claim for relief.

D. Count IV:15 Breach of Fiduciary Duty (Joseph and William)

96. Plaintiff’s fourth claim for relief alleges that Joseph and William owed and

breached fiduciary duties to NFH. (Am. Compl. ¶¶ 100–10.) A breach of fiduciary

duty claim requires a plaintiff to allege and show (1) that the defendant owes to

plaintiff a fiduciary duty through the existence of a fiduciary relationship, and (2)

that the defendant breached that duty. See Green v. Freeman, 367 N.C. 136, 141, 749

S.E.2d 262, 268 (2013). The Court’s inquiry in this case turns on whether, at the

relevant times, Joseph and William were officers of NFH owing the company fiduciary

duties or whether they were mere employees without any such duties.

15 As noted previously, Plaintiff has voluntarily dismissed without prejudice Count III. 97. In determining whether either Joseph or William was a fiduciary of NFH,

the Court is mindful that, in North Carolina, the “relation of employer and employee

is not one of those regarded as confidential.” Dalton v. Camp, 353 N.C. 647, 651–52,

548 S.E.2d 704, 707–08 (2001). Dalton has been read to demonstrate “that North

Carolina courts are extremely hesitant to burden employees with [fiduciary] duties

to their employers.” Eli Research Inc. v. United Communs. Grp., LLC, 312 F. Supp.

2d 748, 760 (M.D.N.C. 2004).

98. In contrast to the duties owed by a mere employee, a corporate officer owes

a statutory fiduciary duty to discharge his obligations in good faith, with the care of

a prudent person in a like position, and in a manner reasonably believed to be in the

best interests of the corporation. See N.C.G.S. § 55-8-42; see also, Loy v. Lorm Corp.,

52 N.C. App. 428, 436, 278 S.E.2d 897, 903 (1981) (“Directors owe a duty of fidelity

and due care in the management of a corporation and must exercise their authority

solely for the benefit of the corporation and all its shareholders.”); Pierce Concrete,

Inc. v. Cannon Realty & Constr. Co., 77 N.C. App. 411, 413–14, 335 S.E.2d 30, 31

(1985) (declaring that corporate officers’ “fiduciary duty to the corporation is a high

one”).

99. Here, Defendants argue that Joseph was never an officer of the company

and that if he was, his tenure extended no later than August 2008. However, on a

Rule 12(b)(6) motion, the Court considers the facts as alleged by Plaintiff to be true.

In the Amended Complaint, Plaintiff alleges that Joseph and William were both corporate officers and continued in those roles “until their resignations” in late 2018.

(Am. Compl. ¶ 20.)

100. Specifically, Joseph is alleged to have been NFH’s Vice President,

Chairman of Operations, and President, and William is alleged to have been NFH’s

Treasurer. (Am. Compl. ¶ 20.) Exhibit E to the Amended Complaint is a January

2018 listing of NFH’s officers which lists William as “Treasurer.” (Ex. E to Am.

Compl.) At this stage of the litigation, and based on the allegations of the Amended

Complaint, Plaintiff has sufficiently alleged that Joseph and William were officers of

NFH at relevant times, and therefore owed fiduciary duties to the company.

101. Moreover, allegations, like those alleged here, that a fiduciary prepared to

establish a competing business, while concealing that business opportunity from the

company to whom he owed fiduciary duties, may be sufficient to support a breach of

fiduciary duty claim. See, e.g., SCA-Blue Ridge, LLC v. WakeMed, 2016 NCBC LEXIS

2, at *20–26 (N.C. Super. Ct. Jan. 4, 2016). Accordingly, the Motion is DENIED

insofar as it seeks dismissal of Plaintiff’s breach of fiduciary duty claim against

Joseph and William.

E. Count V: Tortious Interference with Contract (Joseph, William, Abbi, and TFH, Inc.)

102. Plaintiff’s fifth claim for relief is based on alleged interference with two

different sets of contracts: first, Plaintiff alleges that William, Abbi, and TFH, Inc.

tortiously interfered with Joseph’s obligations pursuant to the Agreements by

inducing Joseph to violate his non-compete and confidentiality provisions contained

therein, (Am. Compl. ¶ 114); and second, Plaintiff also alleges that Joseph, William, Abbi, and TFH, Inc. interfered with the pre-arrangement contracts between NFH and

its customers. (Am. Compl. ¶ 117.)

103. Our Supreme Court has identified the five elements of a tortious

interference with contract claim as follows: “(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 plaintiff.” Kuykendall, 322 N.C. at

661, 370 S.E.2d at 387. “Generally speaking, interference with contract is justified if

it is motivated by a legitimate business purpose, as when the plaintiff and the

defendant, an outsider, are competitors.” Embree Constr. Grp., Inc. v. Rafcor, Inc.,

330 N.C. 487, 498, 411 S.E.2d 916, 924 (1992).

104. As an initial matter, the Court addresses this claim as brought by Plaintiff

against Abbi. The allegations in the Amended Complaint do not show that Abbi had

a role at NFH or was otherwise involved in her husband or father-in-law’s business

affairs at NFH. To the contrary, she is seldom mentioned in the Amended Complaint,

and the only allegation tying her to Plaintiff’s claims is that, due to her “close familial

relationship” with Joseph (as his daughter-in-law), she had knowledge of the

Agreements.16 (Am. Compl. ¶ 113.)

16 The Amended Complaint does not allege that Abbi had any knowledge of the pre- arrangement contracts, and therefore Plaintiff’s tortious inference claim against Abbi cannot be based on those contracts. (See Am. Compl. ¶ 116 (mentioning only Joseph and William).) 105. As noted previously, while the Court must accept factual allegations as true

on a Rule 12(b)(6) motion, the Court need not accept unwarranted deductions or

inferences. See Good Hope Hosp., Inc., 174 N.C. App. at 274, 620 S.E.2d at 880. The

Court does not believe that a close familial relationship, standing alone, is sufficient

to impute knowledge of a family member’s post-employment contractual obligations.

There is no allegation that Abbi ever saw the Agreements, ever heard Joseph and

William discussing their employment at NFH, or even their desire to purchase

Troutman Funeral Home and the implications thereof. Rather, Abbi is identified in

this lawsuit simply as William’s wife and Joseph’s daughter-in-law and, “upon

information and belief,” as one of the owners of Troutman Funeral Home. (Am.

Compl. ¶ 60.) Accordingly, Plaintiff has failed to sufficiently allege Abbi’s knowledge

of the Agreements. In addition, other than the bare-boned legal assertions under

Plaintiff’s tortious interference claim heading, (Am. Compl. ¶¶ 113, 114, 119)—which

the Court is entitled to ignore, McCrann v. Pinehurst, LLC, 225 N.C. App. 368, 377,

737 S.E.2d 771, 777 (2013)—the Amended Complaint does not allege any facts to

support the remaining elements of Plaintiff’s tortious interference claim against Abbi.

Therefore, the Court dismisses without prejudice Plaintiff’s tortious interference

claim against Abbi.

106. As to Plaintiff’s claim against William and TFH, Inc. regarding alleged

tortious interference with Joseph’s post-employment obligations, it follows from the

Court’s earlier conclusion about the unenforceability of the Restrictive Covenants

that William and TFH, Inc. cannot be liable for tortious inference on that basis. That said, Plaintiff’s claim may proceed against them if the Court concludes that Plaintiff

has sufficiently alleged that these two defendants tortiously interfered with Joseph’s

confidentiality obligations contained in the Agreements.

107. At this time, the Court concludes that the allegations of the Amended

Complaint taken as a whole, and solely for purposes of evaluation of the Amended

Complaint under a 12(b)(6) standard, indicate that William, and TFH, Inc. with

William as its agent, knew of Joseph’s Agreements and his post-employment

obligations therein. The Amended Complaint further alleges that William and TFH,

Inc. employed Joseph at Troutman Funeral Home in direct competition with NFH

and encouraged him to use NFH’s confidential information to run Troutman Funeral

Home and solicit customers for the competing business. Finally, the Amended

Complaint alleges that Joseph used NFH’s confidential information improperly. (See,

e.g., Am. Compl. ¶ 117.) Thus, at this stage in the proceedings, the Court finds

Plaintiff’s allegations sufficient under Rule 12(b)(6) to withstand the Motion as to

William and TFH, Inc.’s alleged tortious interference, at least insofar as the

interference claim is based on Joseph’s alleged violation of his confidentiality

obligations under the Agreements.

108. Plaintiff also brings a tortious interference claim against Joseph, William,

and TFH, Inc. based on these defendants’ alleged interference with NFH’s pre-

arrangement contracts between it and its customers. Plaintiff contends that this

interference has resulted in the loss of over $140,000 in pre-arrangement contracts.

(Am. Compl. ¶ 66.) 109. Defendants argue that Plaintiff’s claim based on these grounds should be

dismissed because the pre-arrangement contracts are freely transferable and the law

does not recognize tortious interference with a freely transferable contract.

Defendants’ argument is basically that, by being freely transferable, the contract

between NFH and its pre-arrangement customers are terminable at will.

110. The Court is unpersuaded by Defendants’ argument, at least at this early

stage of the proceeding. The pre-arrangement contracts are alleged to be valid

contracts that confer a benefit upon Plaintiff, and therefore can be the basis of a

tortious inference claim like other at will contracts. See Kuykendall, 322 N.C. at 661,

370 S.E.2d at 387; see also Childress v. Abeles, 240 N.C. 667, 678, 84 S.E.2 176, 184

(1954) (concluding that a plaintiff’s tortious interference claim can be based on an

employment contract that was terminable at will).

111. Accordingly, the Court concludes Plaintiff’s tortious interference claim

based on Joseph, William, and TFH, Inc.’s alleged interference with NFH’s pre-

arrangement contracts should not be dismissed at this time for this reason.

112. Based on the foregoing, the Motion is DENIED in part and GRANTED in

part as to Plaintiff’s tortious interference claim brought against Joseph, William, and

TFH, Inc. However, the Motion is GRANTED as to this claim brought against Abbi

and the claim against her is dismissed without prejudice to Plaintiff’s ability to

reassert this claim (through proper allegations and in conformity with the Court’s

analysis herein). F. Count VI: Fraudulent Concealment (Joseph and William)

113. Plaintiff’s sixth claim for relief alleges that Joseph and William

fraudulently concealed material information from NFH. (Am. Compl. ¶¶ 120–126.)

North Carolina law permits fraud claims to be based on either: (1) affirmative

misrepresentations; or (2) concealment or nondisclosure of material facts. See Kron

Medical Corp. v. Collier Cobb & Assoc., Inc., 107 N.C. App. 331, 339, 420 S.E.2d 192,

197 (1992) (citing Rosenthal v. Perkins, 42 N.C. App. 449, 452, 257 S.E.2d 63, 66

(1979)).

114. Fraud claims based on either theory must be pled with particularity

pursuant to Rule 9(b), but what is required to meet that standard differs between the

two. Where a fraud claim is based on concealment or nondisclosure of material facts,

a plaintiff must allege that the defendant(s) “had a duty to disclose material

information to [the plaintiff], as silence is fraudulent only when there is a duty to

speak.” Lawrence v. UMLIC-Five Corp., 2007 NCBC LEXIS 20, at *8 (N.C. Super.

Ct. June 18, 2007) (citing Griffin v. Wheeler-Leonard & Co., 290 N.C. 185, 198, 225

S.E.2d 557, 565 (1976)). This Court has acknowledged that “fraud by omission is, by

its very nature, difficult to plead with particularity.” Id. at *9 (quoting Breeden v.

Richmond Cmty. Coll., 171 F.R.D. 189, 195 (M.D.N.C. 1997)). Recognizing this

difficulty, Judge Diaz of this Court adopted the factors considered by the Breeden

court on fraud by omission claims. Id. at *10. Accordingly, for a fraudulent omission

claim to survive a 12(b)(6) challenge, a plaintiff must allege:

(1) the relationship [between plaintiff and defendant] giving rise to the duty to speak; (2) the event or events triggering the duty to speak and/or the general time period over which the relationship arose and the fraudulent conduct occurred; (3) the general content of the information that was withheld and the reason for its materiality; (4) the identity of those under a duty who failed to make such disclosures; (5) what [the defendant] gained by withholding information; (6) why plaintiff’s reliance on the omission was both reasonable and detrimental; and (7) the damages proximately flowing from such reliance.

Id. (citing Breeden, 171 F.R.D. at 195); see also Christenbury Eye Ctr., P.A. v. Medflow,

Inc., 2015 NCBC LEXIS 64, at *13–14 (N.C. Super. Ct. June 19, 2015).

115. Here, the Court concludes that Plaintiff has properly pled six of the seven

elements of this claim. First, as explained above, Plaintiff has sufficiently alleged

that both Joseph and William are officers and fiduciaries of NFH. Our Court of

Appeals has held that a duty to disclose material information arises where there is a

fiduciary relationship between the parties to a transaction. Harton v. Harton, 81 N.C.

App. 295, 297–98, 344 S.E.2d 117, 119 (1986). Accordingly, the first and forth

elements of Plaintiff’s claim have been pled.

116. Second, Plaintiff has alleged that Joseph and William specifically had a

duty to speak about their “pursuit of and employment with a competing business with

NFH.” (Am. Compl. ¶ 122.) This duty to speak arose when Joseph and William “took

material steps to pursue the purchase of and employment with Troutman Funeral

Home[.]” (Am. Compl. ¶ 123.) Plaintiff further provides some detail on what those

“material steps” included. For example, Plaintiff alleges the duty to speak arose as

soon as Joseph and William began engaging in conversations with the previous

owners of Troutman Funeral Home to purchase their business, or at least when they

submitted a letter of intent or similar document to purchase the company. (Am. Compl. ¶ 124.) If not at this time, Plaintiff alleges that the duty to speak arose during

Joseph’s and William’s preparation and/or filing of organizational documents for

TFH, Inc. (Am. Compl. ¶ 124.) While the Amended Complaint is silent on when the

Troutmans began discussions with the Sappenfields about the purchase of Troutman

Funeral Home, the Amended Complaint does disclose that TFH, Inc. was formed on

December 6, 2018 listing William as the registered agent, when William was still an

officer and employee of NFH. (Am. Compt. ¶¶ 58, 59.) Therefore, the Court concludes

that Plaintiff has adequately alleged the second element of this claim.

117. Third, as to the information withheld, Plaintiff has alleged that Joseph and

William failed to disclose their plans to purchase Troutman Funeral Home, a direct

competitor of NFH, and that a competing business run by NFH’s former officers

would be detrimental to NFH. (See, e.g., Am. Compl. ¶ 69.) Plaintiff also alleges that

Joseph’s and William’s concealment of their plans was material: had it known about

the Troutmans’ intentions to purchase a competing business, NFH would have had

the opportunity to protect its confidential information as well as make a public

statement regarding the departure of two key employees. (Am. Compl. ¶ 125.) Based

on these allegations, the Court concludes that Plaintiff has sufficiently pled this third

element.

118. As to the fifth element, Plaintiff has alleged throughout the Amended

Complaint that Joseph and William were able to access, and in the case of William

download, NFH’s confidential information, which would “help [Troutman Funeral

Home] shortcut the path to attract customers and to convince them to transfer their pre-arrangement contracts from NFH to [Troutman Funeral Home].” (Am. Compl. ¶

69.) This is sufficient to allege the fifth element of Plaintiff’s fraudulent concealment

claim.

119. Plaintiff has also alleged damages stemming from Joseph’s and William’s

concealment of their intentions regarding Troutman Funeral Home, namely that

NFH’s inability to proactively protect their confidential information and pre-

arrangement contracts led to the transfer of over $140,000 in contract value from

NFH to Troutman Funeral Home. (Am. Compl. ¶¶ 66, 125, 126.) Therefore, the

seventh element of this claim is sufficiently pled to withstand dismissal on

Defendants’ Motion.

120. However, Plaintiff has failed to allege that NFH relied on Joseph’s and

William’s concealment, or how any such reliance was reasonable. For example, NFH

has not alleged any facts to indicate that NFH reasonably believed Joseph and

William planned to stay at NFH after CMS’s acquisition of the company, or that it

was otherwise reasonable for NFH to assume Joseph and William would not purchase

a competing business that CMS, NFH’s new owner, knew was for sale. (See Am.

Compl. ¶ 49 (alleging that CMS submitted a letter of intent to purchase Troutman

Funeral Home).)

121. Because Plaintiff has failed to plead one of the necessary elements of its

fraudulent concealment claim, the Court concludes that Plaintiff’s sixth claim for

relief must be dismissed without prejudice and the Motion is GRANTED as to this

claim. G. Count VII: Unfair or Deceptive Trade Practices (Joseph, William, Abbi, and TFH, Inc.)

122. Plaintiff also alleges that Joseph, William, Abbi, and TFH, Inc. committed

unfair and deceptive trade practices by misappropriating NFH’s trade secrets.17 (Am.

Compl. ¶¶ 128, 129.) Further, Plaintiff alleges that William’s, Abbi’s, and TFH, Inc.’s

tortious interference with Joseph’s performance of the Agreements constitutes an

unfair or deceptive trade practice. (Am. Compl. ¶ 128.)

123. North Carolina law has created a private right of action under Chapter 75

(“UDTP Claim”) as part of its effort to protect consumers from unfair or deceptive

trade practices. See N.C.G.S. § 75-1.1 (outlawing unfair or deceptive practices in

trade) and N.C.G.S. § 75-16 (creating private right of action and authorizing treble

damages). The three elements of a prima facie unfair or deceptive trade practices

claim are (1) an unfair or deceptive trade practice, (2) in or affecting commerce, and

(3) proximately causing actual injury. See Mitchell v. Linville, 148 N.C. App. 71, 73,

557 S.E.2d 620, 623 (2001). The few elements of the tort belie the extent of the

jurisprudence that has gone into defining its bounds. There are, in fact, several

recognized categories of conduct that our courts have determined fall outside the

scope of Chapter 75. Notably, our court of appeals held in Buie v. Daniel International

Corp. that “employer-employee relationships do not fall within the intended scope of

G.S. 75-1.1[.]” Buie v. Daniel Int’l Corp., 289 S.E.2d 119–20 (N.C. Ct. App. 1982).

17 Plaintiff also originally based its UDTP claim on its now-dismissed conversion of intellectual property claim. 124. Plaintiff has alleged that Joseph and William misappropriated NFH’s trade

secrets and other confidential information in order to further the success of a

competing business they purchased while concealing from NFH their efforts toward

purchasing that business. Although Joseph and William were employees of NFH, the

conduct complained of in the Amended Complaint extended beyond their roles as

employees, and rather covered their self-dealing conduct and decision to engage in

competing “business activities” alleged to be in breach of their fiduciary duties to the

Plaintiff.

125. Under well-settled North Carolina law, a violation of North Carolina’s

Trade Secret Protection Act may support liability under N.C.G.S § 75-1.1. See, e.g.,

Ge Betz, Inc. v. Conrad, 231 N.C. App. 214, 236, 752 S.E.2d 634, 650 (2013). Further,

Plaintiff’s claim for tortious interference with contract survives dismissal in part as

to Defendants Joseph, William, and TFH, Inc. This claim, like Plaintiff’s Trade

Secret claim, may constitute the basis for a 75-1.1 claim. Roane-Barker v. Se. Hosp.

Supply Corp., 99 N.C. App. 30, 41, 392 S.E.2d 663, 670 (1990).

126. Therefore, Plaintiff’s UDTP claim as against Joseph, William and TFH, Inc.

(to the extent Joseph or William is alleged to be its agent) is sufficiently pled to

survive dismissal under Rule 12(b)(6). The Motion, therefore, is DENIED as to this

claim against these defendants.

127. As to Abbi, however, since the Court has already concluded that Plaintiff

has failed to allege a tortious inference claim against her—the sole claim upon which this UDTP claim against her is based,18 (see Am. Compl. ¶ 128)—Plaintiff’s UDTP

claim against Abbi must also be dismissed (without prejudice) and the Motion is

GRANTED in this respect.

H. Count VIII: Unjust Enrichment (Joseph)

128. Plaintiff’s eighth and final claim, lodged solely against Joseph, sounds in

unjust enrichment. (Am. Compl. ¶ 133.) Plaintiff claims that, if its breach of contract

claim against Joseph fails, then Joseph was unjustly enriched and Plaintiff is entitled

to receive all of the funds paid for Joseph’s agreement not to compete with NFH,

including both the original $500,000 paid over a period of ten years (from 2003–2013),

as well as the continuing $1,000 per month payments made from 2013 up until

Joseph’s resignation in December of 2018. (Am. Compl. ¶ 134.)

129. Our Court of Appeals has explained that a valid prima facie claim for unjust

enrichment has five elements:

First, one party must confer a benefit upon the other party . . . . Second, the benefit must not have been conferred officiously, that is it must not be conferred by an interference in the affairs of the other party in a manner that is not justified in the circumstances. Third, the benefit must not be gratuitous. Fourth, the benefit must be measurable. Last, “the defendant must have consciously accepted the benefit.”

JP Morgan Chase Bank, Nat'l Ass'n v. Browning, 230 N.C. App. 537, 541–42, 750

S.E.2d 555, 559 (2013).

130. Defendant responds with four arguments: (1) Strandburg is not a party to

the Amended Complaint and therefore NFH cannot make a claim that Joseph was

18 Paragraph 128 generally states that Plaintiff’s UDTP Claim is premised on all Defendants’

misappropriation of NFH’s trade secrets, but Plaintiff’s misappropriation of trade secrets claim is only brought against Joseph and William. unjustly enriched by payments she made, (2) an unjust enrichment claim cannot be

made when a contract governs the same subject matter, (3) the $1,000 per month

payments were not for a non-compete but instead were consideration for employment,

and (4) the statute of limitations has run on any implied contractual claim like unjust

enrichment.

131. The first argument is straightforward and unconvincing, at least at the

12(b)(6) stage. While Strandburg, who purchased Joseph’s stock, is not a party to this

lawsuit, paragraph 42 of the Amended Complaint alleges that “. . . as consideration

for the post-employment restrictions in the agreements, NFH paid to Joseph an

initial five hundred thousand dollars[.]” (Am. Compl. ¶ 42.) Additionally, the

Employment Agreement was between Joseph and NFH, and the SPA was between

Joseph, Strandburg, and NFH. This is not a claim based on NFH attempting to assert

Strandburg’s rights, but instead is one in which NFH asserts its own rights under

the Agreements.

132. Defendants’ second argument is similarly unavailing. It is well established

that unjust enrichment can be pled in the alternative to a breach of contract claim,

as Plaintiff explicitly stated it is doing here. (Am. Compl. ¶ 133.) This can be true

when non-compete covenants are invalidated but are a part of a larger agreement

that remains legally binding. See, e.g., Campbell Oil Co. v. AmeriGas Propane, LP,

2016 NCBC LEXIS 50, at *11 (N.C. Super. Ct. July 8, 2016) (holding that an unjust

enrichment claim can survive when a non-compete was unenforceable, the

consideration for the non-compete was distinct from that provided for the rest of the agreement, and the contract contained a severability clause). Thus, the fact that a

contract covers the same subject matter does not defeat Plaintiff’s unjust enrichment

claim at the Rule 12(b)(6) stage.

133. As for Defendants’ third argument, Defendants’ counter-factual allegations

that the $1,000 monthly payments were further consideration in the form of monthly

bonuses for Joseph’s continued employment are of no consequence. On a Rule 12(b)(6)

motion, the Court takes Plaintiff’s factual allegations as true and does not consider

any factual statements provided by Defendants to rebut those allegations.

134. The statute of limitations is also not a bar to recovery here. Unjust

enrichment is a claim on an implied contract and therefore must be brought within

three years of accrual. See Stratton v. Royal Bank of Can., 211 N.C. App. 78, 85, 712

S.E.2d 221, 228 (2011). The period begins to run “when the wrong is complete[,]”

whether or not it is discovered. See Housecalls Home Health Care, Inc. v. State, 200

N.C. App. 66, 70, 682 S.E.2d 741, 744 (2009). Reading the Amended Complaint in

the light most favorable to Plaintiff, Plaintiff has alleged that the breach occurred

when Joseph committed to go into competition with NFH, which is less than a year

before the original complaint was filed. Since the $1,000 monthly payments allegedly

continued into 2018, at least some of the payments are not time-barred. Accordingly,

Plaintiff’s unjust enrichment claim survives dismissal at this stage, and the Motion

is DENIED in that respect. I. Punitive Damages

135. Associated with the aforementioned claims for relief, the Amended

Complaint contains a request against Joseph, William, Abbi, and TFH, Inc. for

punitive damages. At the July 24, 2019 hearing on the Motion, Plaintiff’s counsel

withdrew the request for punitive damages. Therefore, Plaintiff’s request for punitive

damages is hereby deemed WITHDRAWN and the Motion, to the extent it seeks

dismissal of this request, is DENIED as moot.

V. CONCLUSION

136. For the foregoing reasons, the Court hereby ORDERS as follows:

A. The Motion is GRANTED as to Plaintiff’s breach of contract claim

against Joseph premised on Joseph’s alleged breach of the Restrictive

Covenants in the Employment Agreement. This claim is therefore

DISMISSED WITH PREJUDICE as to breach of those covenants.

B. The Motion is DENIED as to Plaintiff’s breach of contract claim

against Joseph premised on Joseph’s alleged breach of the

confidentiality provisions appearing in Paragraph 4 of the

Employment Agreement and Section 4.01 of the SPA. This claim,

therefore, shall proceed.

C. The Motion is GRANTED as to Plaintiff’s tortious interference with

contract claim against William, Abbi, and TFH, Inc. premised on their

alleged interference with Joseph’s Restrictive Covenants. The Motion

is DENIED as to this same claim brought against William and TFH, Inc. premised on their alleged interference with Joseph’s

confidentiality obligations under the Agreements. The Motion is

DENIED as to this claim brought against Joseph, William, and TFH,

Inc. premised on their alleged interference with NFH’s pre-

arrangement contracts.

D. The Motion is GRANTED as to Plaintiff’s fraudulent concealment

claim against Joseph and William. This claim is DISMISSED

WITHOUT PREJUDICE.

E. The Motion is GRANTED as to all claims against Abbi. Except as

otherwise indicated, these claims against her are DISMISSED

F. The Motion is GRANTED as to all claims against SC, LLC. These

claims are DISMISSED WITHOUT PREJUDICE.

G. Plaintiff’s request for punitive damages is WITHDRAWN, and

Plaintiff shall not be entitled to recover punitive damages based on the

Amended Complaint.

H. Except as otherwise expressly provided, the Motion is DENIED.

SO ORDERED, this the 29th day of October, 2019.

/s/ Michael L. Robinson Michael L. Robinson Special Superior Court Judge for Complex Business Cases