Se. Auto., Inc. v. Genuine Parts Co., 2016 NCBC 61.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF CUMBERLAND 16 CVS 1186
SOUTHEASTERN AUTOMOTIVE, ) INC., ) ) Plaintiff, ) ) v. ) ORDER OVERRULING OPPOSITION ) TO DESIGNATION GENUINE PARTS COMPANY d/b/a ) NAPA AUTO PARTS and ) JOHN MICHAEL RIESS, II, ) ) Defendants. ) )
1. THIS MATTER is before the Court on Plaintiff Southeastern
Automotive, Inc.’s (“Southeastern”) Opposition to Designation to Business Court
(“Opposition”). For the reasons set forth below, the Opposition is OVERRULED.
The Law Offices of Lonnie M. Player, Jr., PLLC by Lonnie M. Player, Jr. and Stevens Martin Vaughn & Tadych, PLLC by K. Matthew Vaughn for Plaintiff. Alston & Bird LLP by Michael A. Kaeding and Ryan P. Ethridge for Defendants. Gale, Chief Judge.
2. Southeastern filed its Complaint in this action on February 12, 2016.
The Complaint was served on Defendant Genuine Parts Company (“Genuine Parts”)
on February 24, 2016, and on John Michael Riess, II (“Riess”) on March 12, 2016. In
response, Defendants filed a notice of designation, and the case was designated as a
mandatory complex business case on March 22, 2016. The case was assigned to the
Honorable Gregory P. McGuire on March 23, 2016. 3. The case was subsequently removed to federal court. Following
removal, Southeastern filed its Opposition in this Court on April 21, 2016. The
federal court remanded the case on July 18, 2016. Defendants filed a response to
Southeastern’s Opposition on August 2, 2016. The Opposition has now been fully
briefed and is ripe for ruling.
4. Defendants designated the matter as a mandatory complex business
case pursuant to subsections (a)(1) and (a)(5) of section 7A-45.4. N.C. Gen. Stat.
§ 7A-45.4(a)(1),(5) (2015). Although the Court need not further consider the point in
light of its ruling as described below, the Court notes that Defendants’ Notice of
Designation further indicated that the case otherwise falls within the scope of section
7A-45.4(b), and the amount in controversy is at least five million dollars, such that
designation would be mandatory whether or not requested by one of the parties. See
id. § 7A-45.4(b)(2).
5. A matter falls within the scope of subsection (a)(1) if there is a material
issue related to a dispute involving the law governing corporations. Id.
§ 7A-45.4(a)(1). A matter falls within the scope of subsection (a)(5) if there is a
material issue involving a dispute regarding the use or performance of intellectual
property, including computer software or data. Id. § 7A-45.4(a)(5).
6. Southeastern opposes designation, arguing that there is no material
dispute involving the law of corporations, making designation under subsection (a)(1)
inappropriate. Southeastern further contends that while the claims involve the use
and performance of Genuine Parts’ software and data systems, the Complaint presents no material issue regarding Genuine Parts’ intellectual-property rights in
those systems, making designation under subsection (a)(5) inappropriate. The Court
agrees that the Complaint raises no material issue within the scope of subsection
(a)(1) but disagrees with Southeastern’s narrow reading of subsection (a)(5).
7. The Court considers the following allegations in the Complaint to be
pertinent to determining Defendants’ right to mandatory designation. The Court
accepts those allegations as true solely for purposes of the present Order.
8. Southeastern is an auto-parts distributor and retailer that maintains
facilities in several North Carolina locations. (Compl. ¶¶ 5–6.) Genuine Parts does
business in North Carolina as NAPA Auto Parts. (Compl. ¶ 2.) Riess is Genuine
Parts’ general manager for its NAPA Auto Parts business. Prior to contracting with
Genuine Parts to become an authorized NAPA Auto Parts retailer, Southeastern had
maintained two lines of business which it refers to as “specialty lines,” which involve
the sale of Ford Motorcraft parts and a line of business involving radiator and air-
conditioning. (Compl. ¶ 12.) Southeastern and Genuine Parts entered into an
agreement through which Southeastern would convert its locations into NAPA Auto
Parts stores, but would be able to maintain these specialty lines. (Compl. ¶ 15.) In
its agreement with Genuine Parts, Southeastern agreed to divest itself of its location
in Raleigh, North Carolina, and to acquire three additional stores from independent
NAPA Auto Parts affiliates. (Compl. ¶ 16(a)–(b).)
9. One essential component of the contract between the parties included
preparing an inventory at each of Southeastern’s facilities, with certain parts being rebranded as NAPA parts, others being returned to the original manufacturer for
credit, and a final inventory value being computed. The contract contemplated that
this inventory process would be accomplished through two Genuine Parts software
platforms known as TAMS II and Multistore (“inventory system”). (Compl. ¶ 16).
Each of the two software components was to be installed and inventory counted at
each of Southeastern’s locations, with Southeastern’s representatives observing the
inventory process. (Compl. ¶ 26.) Ultimately, Southeastern’s parts inventory was
transported to another location before the inventory process was undertaken and was
completed without Southeastern’s representatives being present. (Compl. ¶¶ 28–36.)
10. Southeastern contends that the inventory process could not be
conducted as the contract provided because of limitations of Genuine Parts’ inventory
system, particularly the incompatability of the two software modules and the
inability of Genuine Parts’ personnel to utilize those components effectively. (Compl.
¶¶ 37–49.) In addition to the inventory process not having been completed as the
contract required, Southeastern further asserts that use of Genuine Parts’ software
caused Southeastern’s stores to become overstocked, requiring Southeastern to make
excessive purchases from Genuine Parts. (Compl. ¶ 48.)
11. Ultimately, Genuine Parts declared that Southeastern should suffer a
$1.4 million write-down from the inventory valuation on which the parties had based
their agreement. (Compl. ¶ 53.) Southeastern further complains that the software it
was required to install does not account for the additional specialty lines that
Genuine Parts agreed Southeastern could continue. (Compl. ¶ 57.) 12. In regard to the contract undertakings that required Southeastern to
divest itself of its Raleigh location and to expand by acquiring operations of three
independent affiliates in other locations, Southeastern asserts that Genuine Parts
falsely represented that those independent affiliates had agreed to be merged into
Southeastern. (Compl. ¶ 30.)
13. Southeastern first makes a breach-of-contract claim, asserting that
Genuine Parts breached the agreement between the parties by (1) failing to perform
on-site accounting and inventory, (2) inaccurately accounting for Southeastern’s
inventory, (3) failing to credit Southeastern for $1.4 million of inventory, and
(4) failing to enroll Southeastern’s representatives in the NAPA management
training program. (Compl. ¶ 59.) In its second claim, Southeastern asserts that
Genuine Parts made fraudulent statements to induce Southeastern to enter into the
contract.
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Se. Auto., Inc. v. Genuine Parts Co., 2016 NCBC 61.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF CUMBERLAND 16 CVS 1186
SOUTHEASTERN AUTOMOTIVE, ) INC., ) ) Plaintiff, ) ) v. ) ORDER OVERRULING OPPOSITION ) TO DESIGNATION GENUINE PARTS COMPANY d/b/a ) NAPA AUTO PARTS and ) JOHN MICHAEL RIESS, II, ) ) Defendants. ) )
1. THIS MATTER is before the Court on Plaintiff Southeastern
Automotive, Inc.’s (“Southeastern”) Opposition to Designation to Business Court
(“Opposition”). For the reasons set forth below, the Opposition is OVERRULED.
The Law Offices of Lonnie M. Player, Jr., PLLC by Lonnie M. Player, Jr. and Stevens Martin Vaughn & Tadych, PLLC by K. Matthew Vaughn for Plaintiff. Alston & Bird LLP by Michael A. Kaeding and Ryan P. Ethridge for Defendants. Gale, Chief Judge.
2. Southeastern filed its Complaint in this action on February 12, 2016.
The Complaint was served on Defendant Genuine Parts Company (“Genuine Parts”)
on February 24, 2016, and on John Michael Riess, II (“Riess”) on March 12, 2016. In
response, Defendants filed a notice of designation, and the case was designated as a
mandatory complex business case on March 22, 2016. The case was assigned to the
Honorable Gregory P. McGuire on March 23, 2016. 3. The case was subsequently removed to federal court. Following
removal, Southeastern filed its Opposition in this Court on April 21, 2016. The
federal court remanded the case on July 18, 2016. Defendants filed a response to
Southeastern’s Opposition on August 2, 2016. The Opposition has now been fully
briefed and is ripe for ruling.
4. Defendants designated the matter as a mandatory complex business
case pursuant to subsections (a)(1) and (a)(5) of section 7A-45.4. N.C. Gen. Stat.
§ 7A-45.4(a)(1),(5) (2015). Although the Court need not further consider the point in
light of its ruling as described below, the Court notes that Defendants’ Notice of
Designation further indicated that the case otherwise falls within the scope of section
7A-45.4(b), and the amount in controversy is at least five million dollars, such that
designation would be mandatory whether or not requested by one of the parties. See
id. § 7A-45.4(b)(2).
5. A matter falls within the scope of subsection (a)(1) if there is a material
issue related to a dispute involving the law governing corporations. Id.
§ 7A-45.4(a)(1). A matter falls within the scope of subsection (a)(5) if there is a
material issue involving a dispute regarding the use or performance of intellectual
property, including computer software or data. Id. § 7A-45.4(a)(5).
6. Southeastern opposes designation, arguing that there is no material
dispute involving the law of corporations, making designation under subsection (a)(1)
inappropriate. Southeastern further contends that while the claims involve the use
and performance of Genuine Parts’ software and data systems, the Complaint presents no material issue regarding Genuine Parts’ intellectual-property rights in
those systems, making designation under subsection (a)(5) inappropriate. The Court
agrees that the Complaint raises no material issue within the scope of subsection
(a)(1) but disagrees with Southeastern’s narrow reading of subsection (a)(5).
7. The Court considers the following allegations in the Complaint to be
pertinent to determining Defendants’ right to mandatory designation. The Court
accepts those allegations as true solely for purposes of the present Order.
8. Southeastern is an auto-parts distributor and retailer that maintains
facilities in several North Carolina locations. (Compl. ¶¶ 5–6.) Genuine Parts does
business in North Carolina as NAPA Auto Parts. (Compl. ¶ 2.) Riess is Genuine
Parts’ general manager for its NAPA Auto Parts business. Prior to contracting with
Genuine Parts to become an authorized NAPA Auto Parts retailer, Southeastern had
maintained two lines of business which it refers to as “specialty lines,” which involve
the sale of Ford Motorcraft parts and a line of business involving radiator and air-
conditioning. (Compl. ¶ 12.) Southeastern and Genuine Parts entered into an
agreement through which Southeastern would convert its locations into NAPA Auto
Parts stores, but would be able to maintain these specialty lines. (Compl. ¶ 15.) In
its agreement with Genuine Parts, Southeastern agreed to divest itself of its location
in Raleigh, North Carolina, and to acquire three additional stores from independent
NAPA Auto Parts affiliates. (Compl. ¶ 16(a)–(b).)
9. One essential component of the contract between the parties included
preparing an inventory at each of Southeastern’s facilities, with certain parts being rebranded as NAPA parts, others being returned to the original manufacturer for
credit, and a final inventory value being computed. The contract contemplated that
this inventory process would be accomplished through two Genuine Parts software
platforms known as TAMS II and Multistore (“inventory system”). (Compl. ¶ 16).
Each of the two software components was to be installed and inventory counted at
each of Southeastern’s locations, with Southeastern’s representatives observing the
inventory process. (Compl. ¶ 26.) Ultimately, Southeastern’s parts inventory was
transported to another location before the inventory process was undertaken and was
completed without Southeastern’s representatives being present. (Compl. ¶¶ 28–36.)
10. Southeastern contends that the inventory process could not be
conducted as the contract provided because of limitations of Genuine Parts’ inventory
system, particularly the incompatability of the two software modules and the
inability of Genuine Parts’ personnel to utilize those components effectively. (Compl.
¶¶ 37–49.) In addition to the inventory process not having been completed as the
contract required, Southeastern further asserts that use of Genuine Parts’ software
caused Southeastern’s stores to become overstocked, requiring Southeastern to make
excessive purchases from Genuine Parts. (Compl. ¶ 48.)
11. Ultimately, Genuine Parts declared that Southeastern should suffer a
$1.4 million write-down from the inventory valuation on which the parties had based
their agreement. (Compl. ¶ 53.) Southeastern further complains that the software it
was required to install does not account for the additional specialty lines that
Genuine Parts agreed Southeastern could continue. (Compl. ¶ 57.) 12. In regard to the contract undertakings that required Southeastern to
divest itself of its Raleigh location and to expand by acquiring operations of three
independent affiliates in other locations, Southeastern asserts that Genuine Parts
falsely represented that those independent affiliates had agreed to be merged into
Southeastern. (Compl. ¶ 30.)
13. Southeastern first makes a breach-of-contract claim, asserting that
Genuine Parts breached the agreement between the parties by (1) failing to perform
on-site accounting and inventory, (2) inaccurately accounting for Southeastern’s
inventory, (3) failing to credit Southeastern for $1.4 million of inventory, and
(4) failing to enroll Southeastern’s representatives in the NAPA management
training program. (Compl. ¶ 59.) In its second claim, Southeastern asserts that
Genuine Parts made fraudulent statements to induce Southeastern to enter into the
contract. Southeastern’s third claim asserts that Defendants have committed unfair
and deceptive trade practices under N.C. Gen. Stat. § 75-1.1.
14. This case was filed after October 1, 2014. The Court must then
determine whether the case was properly designated as a mandatory complex
business case by applying section 7A-45.4 as it was amended, effective October 1,
2014.
15. The Court first addresses Defendants’ assertion that designation is
proper under section 7A-45.4(a)(1), because the Complaint raises a material issue
involving the law governing corporations. Defendants base their position on the
argument that the law governing corporations is implicated from Southeastern’s complaint that Genuine Parts induced Southeastern to enter into the agreement by
promising that Southeastern could acquire and merge with NAPA’s independent
affiliates, which must lead to a conclusion that “[i]ssues concerning any potential
merger would necessarily implicate material issues related to the law governing
corporations.” (Notice of Designation ¶ 12.) The Court concludes that Defendants’
argument does not square with statutory requirements. The Complaint presents no
claims among Southeastern, Genuine Parts, and NAPA’s various affiliates or the
terms of any merger agreement between Southeastern and the affiliated entities.
Factual allegations regarding those potential acquisitions or mergers are incidental
to the claims that are actually presented against Genuine Parts. Accordingly, the
claims do not present a material issue involving the law governing corporations
within the scope of section 7A-45.4(a)(1).
16. The Court next addresses Defendants’ assertion that designation is
proper under section 7A-45.4(a)(5). Southeastern asserts in the Opposition that
section 7A-45.4(a)(5) requires a material issue involving intellectual-property law.
(Opp’n 4.) While the Court agrees that the Complaint does not raise issues that are
governed by what might ordinarily be considered intellectual-property law, it also
concludes that section 7A-45.4(a)(5) is not so narrowly worded as to require that there
be such an issue.
17. Southeastern’s position might have been more persuasive under section
7A-45.4 prior to its October 1, 2014 amendment. Southeastern’s position does not
comport with the statute as it was amended. 18. As amended effective October 1, 2014, section 7A-45.4(a)(5) includes
actions that involve a material issue relating to
[d]isputes involving the ownership, use, licensing, lease, installation, or performance of intellectual property, including computer software, software applications, information technology and systems, data and data security, pharmaceuticals, biotechnology products, and bioscience technologies.
N.C. Gen. Stat. § 7A-45.4(a)(5).
19. Prior to October 1, 2014, section 7A-45.4(a)(5) was more limited in scope
and covered only disputes involving “[i]ntellectual property law, including software
licensing disputes.” Id. (amended 2014).
20. The Court concludes that the 2014 amendment to section 7A-45.4(a)(5)
expanded the scope of disputes within the statute’s purview to include a dispute that
involves a material issue regarding the use or performance of intellectual property,
including computer software and data, without requiring a dispute regarding
ownership of the intellectual property or another dispute that may require
application of principles of the body of law known as intellectual-property law.
21. Having concluded that section 7A-45.4(a)(5) should be so construed, the
Court concludes that the Complaint presents material issues regarding the use or
performance of Genuine Parts’ computer software, information systems, or data.
Accordingly, Defendants are entitled to designate the matter as a mandatory complex
business case pursuant to section 7A-45.4(a)(5). 22. The Opposition must be OVERRULED. The action shall continue as a
mandatory complex business case before the Honorable Gregory P. McGuire.
IT IS SO ORDERED, this the 17th day of August, 2016.
/s/ James L. Gale James L. Gale Chief Special Superior Court Judge for Complex Business Cases