Constr. Managers, Inc. v. Amory,
2019 NCBC 31.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF WAYNE 18 CVS 1359
CONSTRUCTION MANAGERS,
INC. OF GOLDSBORO;
CONSTRUCTION MANAGERS,
LLC; ACTS CONTRACTING, INC.;
and ACTS INVESTMENTS, LLC,
ORDER AND OPINION ON
Plaintiffs,
DEFENDANT’S MOTION TO DISMISS
v. PLAINTIFFS’ AMENDED
COMPLAINT
KEVIN D. AMORY,
Defendant.
THIS MATTER comes before the Court upon Defendant Kevin D. Amory’s
(“Amory”) Motion to Dismiss Plaintiffs’ Amended Complaint. (“Motion”, ECF No. 89.)
THE COURT, having thoroughly reviewed the Motion, the briefs filed in
support of and in opposition to the Motion, the oral arguments of counsel, and other
appropriate matters of record, concludes, in its discretion, that the Motion should be
GRANTED, in part, and DENIED, in part.
Brooks, Pierce, McLendon, Humphrey & Leonard LLP by Gary S.
Parsons, Eric M. David, and Shepard D. O’Connell for Plaintiffs
Construction Managers, Inc. of Goldsboro, Construction Managers, LLC,
ACTS Contracting, Inc., and ACTS Investments, LLC.
Ellis & Winters, LLP by Jonathan D. Sasser and Michelle Liguori for
Defendant Kevin D. Amory.
McGuire, Judge.
I. FACTUAL AND PROCEDURAL BACKGROUND
1. The facts relevant to determination of the Motion are drawn from the
Amended Complaint. (“Amended Complaint”, ECF No. 78.)
A. Plaintiffs’ Business
2. Plaintiffs Construction Managers, Inc. of Goldsboro (“CMI”),
Construction Managers, LLC (“CM, LLC”), ACTS Contracting, Inc., (“ACTS”), and
ACTS Investments, LLC (“ACTS Investments”; collectively CMI, CM, LLC, ACTS,
and ACTS Investments are “Plaintiffs”) are affiliated North Carolina entities that are
managed and operated from Wayne County, North Carolina. (ECF No. 78, at ¶¶ 1–
4, 15, 20–24.) Plaintiffs have common ownership, are highly integrated, and are
controlled and managed by Sammy Sasser (“Sasser”), Robert Crenshaw
(“Crenshaw”), and Justin Thorn (“Thorn”). (Id. at ¶¶ 6–8, 15, 20–24.) Amory worked
for Plaintiffs CM, LLC and ACTS from April 2015 through June 2018. (Id. at ¶ 5.)
3. Since 2010, Plaintiffs have been engaged in the business of building,
leasing, and managing small and mid-sized medical clinics for the United States
Department of Veteran Affairs (the “VA”). (Id. at ¶ 15.) The clinics are called
community-based outpatient clinics (“CBOC”). (Id.) The process by which Plaintiffs
acquire work projects from the VA is known as the “design-to-build-to-lease process,”
which Plaintiffs describe as “technical, arcane, and laden with bureaucratic hurdles.”
(Id. at ¶ 17.) During this process, the VA first publicly identifies a city or town in
which to locate a CBOC. (Id.) Potential bidders on the project then identify and
arrange to acquire property on which to locate the VA clinic. (Id. at ¶ 18.) The
property acquired must meet VA requirements. According to Plaintiffs, “[t]hese
requirements are learned from past experiences, and many of them are unpublished
and known only to companies that work in this area with the VA.” (Id.) Next, after
the VA approves a particular piece of property on which to locate a CBOC, the VA
issues a request for lease proposal (“RLP”) “seeking bids from lessors to have
contractors build the clinic on the identified property and then, after the clinic is built,
to lease the building to the VA.” (Id. at ¶ 19.) The winning bidder then designs and
builds the CBOC, leases it to the VA, and manages the property. (Id.) Plaintiffs have
been selected a total of 13 times to design, build, and lease clinics for the VA. (Id. at
¶ 15.)
4. Plaintiffs consider themselves experts in the VA design-build-to-lease
process and “have organized themselves, in substantial part, to be highly successful
in the VA CBOC bidding and leasing process.” (Id. at ¶ 20.) Plaintiff CM, LLC
manages CMI. (Id. at ¶ 24.) Plaintiff CMI is the corporate entity that deals with,
submits proposals to, and contracts with the VA. (Id. at ¶ 21.) Plaintiff ACTS signs
construction contracts for Plaintiffs’ CBOC projects. (Id. at ¶ 22.) Plaintiff ACTS
Investments is a part-owner of the entities that hold the leases for various completed
CBOCs. (Id. at ¶ 23.)
B. CMI’s Trade Secrets
5. CMI identifies the CMI Process—“a proprietary analytical formula and
process for assessing and managing all aspects of the VA’s ‘design-build-to-lease’
program, from land acquisition to design-build to property management”—as its
primary trade secret. (Id. at ¶¶ 25–26.) According to Plaintiffs, the CMI Process “is
a comprehensive and proprietary set of formulas, financial spreadsheets, design
drawings, property criteria, and property management guidelines . . . .” (Id. at ¶ 32.)
Plaintiffs consider both the CMI process as a whole, and its constituent parts, to be
trade secrets. (Id. at ¶ 26.)
6. The aspects of the CMI Process that Plaintiffs allege to be trade secrets,
include:
a. The specific criteria and methodology by which CMI identifies
properties on which to build a VA clinic.
b. Detailed and proprietary financial formulas and spreadsheets that
allow CMI to submit a comprehensive bid in response to an RLP that
will meet the VA’s specific financial criteria while also being profitable
for CMI and its affiliated companies.
c. CMI’s proprietary method and strategy for preparing bids in response
to an RLP. These bids are 400 to 1,000 pages long, with detailed
information about the property, the proposed [Patient Aligned Care
Team (“PACT”)] design and construction (down to the carpets and other
finishes), and the financial details of the proposed lease.
d. Detailed and proprietary pricing and other supplier information
covering all aspects of the construction and ongoing management of
properties housing VA clinics. CMI knows from experience how much a
project will cost, how to save the government money, and how to
complete the project with high quality, at a profit for Plaintiffs.
e. Information about the specific requirements and preferences for VA
projects, developed by CMI after many years of dealing with the VA and
its contract officers.
(Id. at ¶ 28.)
7. In addition to the components listed above, Plaintiffs allege that their
Quickbook files are trade secrets that are part of the CMI Process. Plaintiffs’
Quickbook files contain detailed bank account information, private financial
information about Plaintiffs and Plaintiffs’ employees, and the various financial data
that goes into CMI’s pricing and bidding documents. Plaintiffs contend that these
Quickbook files “are like the Rosetta Stone to the CMI Process, allowing anyone with
access to them to re-create, down to the penny, how Plaintiffs are able to successfully
bid for and operate VA CBOCs across the country.” (Id. at ¶ 29.)
8. Plaintiffs state that the CMI Process is the product of years of work and
experience, and that “if stolen, the CMI Process would allow the thief to immediately
compete with CMI without any of the investment of time and money that Plaintiffs
have committed since 2010 to get to this point.” (Id. at ¶ 32.)
C. Plaintiffs’ Efforts to Protect the CMI Process
9. Most of Plaintiff’s confidential and trade secret information, including
the CMI Process, is in electronic form. CMI protects its electronic data by storing it
on a password-secured cloud account (“the Box Account”). (Id. at ¶ 36.) Access to
files in the Box Account is limited to employees with a specific business need to access
the files. (Id.) Additionally, the Box Account allows company managers to track and
log every time any company file was accessed, copied, or moved. (Id. at ¶ 41.)
10. With respect to its confidential information kept in paper form, CMI
holds any paper files in its office, which is locked at night and which is not generally
open to the public. Further, it is a company policy that paper files are not taken out
of the office, unless Sasser specifically approves. (Id. at ¶ 35.)
11. CMI also attempts to protect its confidential information when
submitting bids to the VA by “insisting that the VA keep the financial information
included in the bid confidential to the full extent allowed by law.” (Id. at ¶ 39.) Based
on this policy, “when the VA has been asked to publicly disclose such information, it
has redacted the sensitive information from all documents.” (Id.)
D. Amory’s Employment with Plaintiffs, Downloading of Alleged Trade
Secrets, and Resignation
12. Amory was employed by CM, LLC from April 7, 2015 through
approximately April 2017. Then, from April 2017 through June 5, 2018, Amory was
employed by ACTS as the Vice President. (Id. at ¶ 5.) During his employment, Amory
acquired a 25% ownership interest in ACTS and in ACTS Investments and was a
manager of ACTS Investments. (Id.)
13. While employed by CM, LLC and ACTS, Amory had substantial
accounting and bookkeeping responsibilities and also acted as a project manager for
certain of CMI’s CBOC projects. (Id. at ¶¶ 81, 82.)
14. Plaintiffs allege that “Sasser, Crenshaw, and Thorn reposed trust in
Amory and granted him broad access to Plaintiffs’ files because he was a project
manager with substantial bookkeeping responsibilities for the companies.” (Id. at
¶ 37.) Amory, however, was “frequently reminded [ ] of the need to maintain the
security of Plaintiffs’ electronic data” and was once refused the authority to take a
laptop with Plaintiffs’ Quickbook files home because Sasser believed allowing an
employee to have company data in their home or car without proper security
measures created a security risk. (Id. at ¶ 38.)
15. On June 5, 2018, Amory resigned from his employment with ACTS to
take a job with BridgePoint Civil, LLC (“BridgePoint”), located in Goldsboro, North
Carolina. (Id. at ¶ 12.) BridgePoint, which describes itself as a “turnkey site
development company,” is part of an affiliated group of companies which hold an
unlimited general contractor’s license and claim to be a “construction consulting firm
providing owner’s representation and sustainability consulting for building projects
of all types.” (Id. at ¶ 92.)
16. Following his resignation, Amory was removed as a manager of ACTS
Investments. Amory, however, remains a 25% owner of ACTS and ACTS
Investments. (Id. at ¶ 5.)
17. Before resigning his employment with ACTS, Amory downloaded
hundreds of gigabytes of Plaintiffs’ alleged confidential and trade secret information.
The data downloaded by Amory constituted approximately half of all data stored in
the Box Account. Plaintiffs claim that the documents Amory downloaded included
documents relating to CMI’s research and investigations for several new CBOC
projects, personal and company tax returns and bookkeeping files, and other
confidential information relating to every project Amory worked on over the years.
(Id. at ¶¶ 44–48.) Plaintiffs believe Amory may have downloaded the information to
his iPad, iPhone, personal laptop, desktop, or all the above.
18. In addition to downloading information from the Box Account, Amory
also emailed with Patti King (“King”), a former CMI employee who now works for
BridgePoint. (Id. at ¶¶ 50–51.) Amory’s emails to King included “confidential and
proprietary documents” aimed at assisting King with her work for BridgePoint and
helping BridgePoint. (Id.)
E. The Fraudulent Overpayment Scheme
19. In June 2016, while Amory was employed by CM, LLC, the VA awarded
CMI a lease for a CBOC project in Macon, Georgia. (the “Macon Lease”, Id. at ¶ 53.)
The Macon Lease provided that CMI would construct a shell building and that the
VA would negotiate with CMI the costs to upfit the building for use as a CBOC. (Id.)
The property on which the Macon CBOC was to be constructed, however, was owned
by a Georgia limited liability company (“the Georgia LLC”).1 In late 2016, the Georgia
LLC and CMI agreed that the Georgia LLC would borrow funds to construct and upfit
the Macon CBOC, take over the Macon Lease, pay CMI a fee for the assignment of
the Macon Lease and to manage the CBOC construction project, and contract with
ACTS on a cost-plus basis to serve as the general contractor for the project
(“Development Agreement”). (Id. at ¶ 58.)
20. Pursuant to the Development Agreement, the Georgia LLC separately
entered into a Construction Contract (the “Construction Contract”) with ACTS, which
provided that ACTS would construct the Macon CBOC on a “cost-plus” basis. (Id. at
¶ 61.) The Construction Contract also provided that ACTS would submit cost-plus
based payment applications to the Georgia LLC. (Id. at ¶ 62.)
1 Plaintiff alleges that a successor LLC to the Georgia LLC was formed sometime after CMI
was awarded the Macon Lease (id. at ¶ 57), but for ease of reference the Court will continue
to refer to the LLC as the “Georgia LLC.”
21. The Georgia LLC subsequently obtained a loan (“Construction Loan”)
from a Georgia bank (the “Bank”) to finance the construction of the CBOC. Amory,
as Vice President of ACTS, was responsible for preparing and submitting to the
Georgia LLC the cost-plus payment applications pursuant to the Construction
Contract. Upon receipt of the payment applications prepared by Amory, the Georgia
LLC would submit them to the Bank to obtain draws from their construction loan.
(Id. at ¶¶ 63–64.)
22. Plaintiffs allege that “sometime in mid-2017, Amory and the principals
of the Georgia LLC devised a scheme to overdraw on the Construction Loan and, in
so doing, defraud CMI and ACTS for the personal benefit of Amory and his co-
conspirators.” (Id. at ¶ 65.) To accomplish this, “Amory—without the knowledge or
consent of Sasser or any other officer or director of CMI or ACTS—conspired with the
principals of [the Georgia LLC] to create, and Amory did create, a falsified set of
ACTS payment applications on a percentage-completion basis, rather than a cost-
plus basis.” (Id. at ¶ 66.) The falsified payment applications stated that the amounts
due to ACTS were substantially greater than the amounts actually due to ACTS
under the cost-plus based Construction Contract. (Id. at ¶ 67.)
23. According to Plaintiffs, “Amory provided the falsified percentage
completion-based payment applications to the [Georgia LLC] with the knowledge and
intent that [the Georgia LLC] would submit the . . . payment applications to the
Bank.” (Id. at ¶ 68.) Additionally, “because [Amory and the principals of the Georgia
LLC] knew that the Bank would require documentation that the full amount of the
draw would be paid to ACTS, [they] conspired for Amory to misrepresent to Sasser
that the overpayments were ‘mistakes,’ and to have Sasser authorize ACTS to wire
back to counsel for [the Georgia LLC] the excess amounts paid to ACTS.” (Id. at ¶ 70.)
24. Pursuant to this conspiracy, on at least four occasions in the fall of 2017,
Amory misrepresented to Sasser that the Bank’s overpayments were mistakes. (Id.
at ¶ 71.) Based on the misrepresentations to Sasser, on at least three occasions,
ACTS wired back to counsel for the Georgia LLC the amounts that the Bank had
“mistakenly” paid in excess. (Id. at ¶ 72.)
25. In November of 2017, Sasser discovered the fraudulent overpayment
scheme following Amory’s fourth request that ACTS wire “mistaken” excess
payments from the Bank back to counsel for the Georgia LLC. (Id. at ¶ 74.) Sasser
immediately ordered Amory to stop creating and submitting to the Bank the falsified
payment applications.
26. Plaintiffs allege that because of the fraudulent overpayment scheme,
CMI and ACTS were required to “expend time and resources to engage construction
estimate, accounting, and legal professionals to investigate and document the
circumstances of the falsified payment applications . . . and to negotiate agreements
for the winding up of the Macon CBOC project and all associated agreements.”
Further, Plaintiffs claim that Amory’s wrongful conduct and involvement in the
scheme “placed in jeopardy ACTS’ and CMI’s reputation and goodwill with some of
its key business partners and the VA.” (Id. at ¶ 77.)
F. Amory’s Alleged Fiduciary Duties and Breach of Fiduciary Duties
27. Plaintiffs allege that as a corporate officer (Vice President) of ACTS and
a manager of ACTS Investments, Amory owed fiduciary duties to those entities as a
matter of law. (Id. at ¶ 78.) Plaintiffs allege Amory breached those duties by:
(a) [ ] acquiring confidential business information, that
consists of information and data owned by ACTS and
ACTS Investments, including the entirety of their
accounting and bookkeeping files, and then taking that
information to his new employer within the
construction industry[.]
(b) [ ] conspiring to carry out, and carrying out, a
fraudulent overpayment scheme[.]
(c) [ ] wait[ing] until just after ACTS made a $150,000
distribution to him to announce his departure.
(d) [ ] g[iving] an unwarranted raise and bonus to former
ACTS employee, Patti King, an employee [Amory] had
convinced Plaintiffs to hire. During her employment,
Plaintiffs found that Ms. King did not possess the
skillsets Amory claimed that she had in QuickBooks
and other necessary software. Ms. King now works for
BridgePoint.
(Id.)
28. Plaintiffs also maintain that Amory owed fiduciary duties to CMI and
CM, LLC on account of the special trust and confidence they reposed in him to act as
a bookkeeper and accountant on behalf of CMI and its affiliated companies. (Id. at
¶¶ 80–81.) Furthermore, Plaintiffs allege Amory owed a fiduciary duty to CMI on
account of the trust and confidence CMI placed in him as a project manager and
because of the way he operated as a project manager. (Id. at ¶¶ 82–84.)
29. Plaintiffs claim Amory breached his fiduciary duties to CMI and CM,
LLC by “acquiring confidential and trade secret information owned by CMI, which
consists of the CMI Process and all CMI’s and CM LLC’s accounting and bookkeeping
files, and then taking that information to his new employer within the construction
industry.” (Id. at ¶ 85.) Further, Plaintiffs allege Amory breached his duty to CMI
by “conspiring to carry out, and carrying out, [the] fraudulent overpayment scheme.”
(Id. at ¶ 86.)
G. Procedural History
30. On July 6, 2018, Plaintiffs initiated this case by filing a Complaint and
a Motion for Temporary Restraining Order and Preliminary Injunction in the
Superior Court of Wayne County. (“Complaint”, ECF No. 3; “Motion for TRO/PI”,
ECF No. 6.) On that same date, a Temporary Restraining Order (“TRO”) was entered
by the Honorable William Bland. (ECF No. 8.)
31. On July 11, 2018, the lawsuit was designated to this Court and assigned
to the undersigned. (“Designation Order”, ECF No. 1; “Assignment Order”, ECF No.
2.) On that same date, the Court entered an order extending the TRO until the Court
could hear and rule upon Plaintiffs’ Motion for Preliminary Injunction (“Extension
Order”, ECF No. 11), and on October 11, 2018, the Court granted in part and denied
in part Plaintiff’s Motion for Preliminary Injunction. (“Order on Motion for PI”, ECF
No. 67.)
32. On November 14, 2018, Plaintiffs filed the Amended Complaint. In the
Amended Complaint, Plaintiffs make the following claims against Amory:
misappropriation of trade secrets (first claim); breach of fiduciary duty (second claim);
constructive fraud (third claim); fraud (fourth claim); violation of the North Carolina
Unfair or Deceptive Trade Practices Act (UDTPA), N.C. Gen. Stat. § 75-1.1
(hereinafter the North Carolina General Statutes are referred to as “G.S.”) (fifth
claim); violation of G.S. § 14-458 (sixth claim); and punitive damages (seventh claim).
33. On January 14, 2019, Amory filed the Motion (ECF No. 89) and a
supporting brief. (Br. in Supp., ECF No. 90.) On February 6, 2019, Plaintiffs filed a
response brief in opposition to the Motion. (Br. in Opp., ECF No. 91.) On February
17, 2019, Defendant filed a reply brief in support of the Motion. (Reply Br., ECF No.
92.) The Motion came before the Court for a hearing on February 27, 2019 and is now
ripe for review.
II. ANALYSIS
A. Standard of Review
34. In ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court’s
inquiry is “whether, as a matter of law, the allegations of the complaint, treated as
true, are sufficient to state a claim upon which relief may be granted under some
legal theory, whether properly labeled or not.” Harris v. NCNB Nat’l Bank, 85 N.C.
App. 669, 670,
355 S.E.2d 838, 840 (1987). North Carolina is a notice pleading state.
See, e.g., Feltman v. City of Wilson,
238 N.C. App. 246, 252,
767 S.E.2d 615, 620 (2014)
(quoting Wake Cty. v. Hotels.com, L.P.,
235 N.C. App. 633, 646,
762 S.E.2d 477, 486
(2014)). “Under notice pleading, a statement of claim is adequate if it gives sufficient
notice of the claim asserted to enable the adverse party to answer and prepare for
trial, to allow for the application of the doctrine of res judicata, and to show the type
of case brought.” Id.
35. “It 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, 371 N.C. 605, 615,
821 S.E.2d 729, 736–
37 (2018) (quoting Wood v. Guilford County,
355 N.C. 161, 166,
558 S.E.2d 490, 494
(2002)).
36. In deciding a motion to dismiss, the Court must construe the Amended
Complaint liberally and accept all well-pleaded allegations as true. Laster v. Francis,
199 N.C. App. 572, 577,
681 S.E.2d 858, 862 (2009). The Court, however, is not
required “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 and quotations omitted).
37. Applying these standards, the Court will address each of Plaintiffs’
claims in turn.
B. Misappropriation of Trade Secrets
38. In their first claim in the Amended Complaint, Plaintiffs allege that
Amory misappropriated “[t]he CMI Process and other trade secret information
described in [the Amended Complaint]” in violation of G.S. § 66-152, et seq. (ECF No.
78, at ¶¶ 94–95.) Amory, however, argues that Plaintiffs have failed to plead a claim
for misappropriation of trade secrets. Specifically, Amory argues that (1) CMI, as the
owner of the purported trade secrets, is the only Plaintiff with a misappropriation of
trade secrets claim; (2) Plaintiffs’ claim fails because their overly broad allegations
do not sufficiently identify the trade secrets at issue; and (3) Plaintiffs’ claim fails
because they have not made reasonable efforts to guard the secrecy of CMI’s trade
secrets. (ECF No. 90, at pp. 5–12.)
39. Under the North Carolina Trade Secrets Protection Act (“TSPA”), “[t]he
owner of a trade secret [has a] remedy by civil action for misappropriation of his trade
secret.” G.S. § 66-153 (emphasis added). The TSPA defines a trade secret as
business 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.
G.S. § 66-152(3).
40. The TSPA defines “misappropriation” of a trade secret as the
“acquisition, disclosure, or use of a trade secret of another without express or implied
authority or consent, unless such trade secret was arrived at by independent
development, reverse engineering, or was obtained from another person with a right
to disclose the trade secret.” G.S. § 66-152(1).
41. To state a claim for misappropriation of a trade secret under the TSPA,
“a plaintiff must identify a trade secret with sufficient particularity so as to enable a
defendant to delineate that which he is accused of misappropriating and a court to
determine whether misappropriation has or is threatened to occur.” Krawiec v.
Manly, 370 N.C. 602, 609,
811 S.E.2d 542, 547–48 (2018) (citation and quotations
omitted). Additionally, the plaintiff must “set forth with sufficient specificity the acts
by which the alleged misappropriation occurred.” Bldg. Ctr., Inc. v. Carter Lumber,
Inc.,
2016 NCBC LEXIS 79, at *9 (N.C. Super. Ct. Oct. 21, 2016).
42. The North Carolina Supreme Court has stated that “there is no
presumption that a thing is secret” and has warned plaintiffs of the shortcomings of
relying on general allegations. Krawiec, 370 N.C. at 611,
811 S.E.2d at 549 (citation
and quotations omitted). Likewise, the North Carolina Court of Appeals has provided
that “a complaint that makes general allegations in sweeping and conclusory
statements, without specifically identifying the trade secrets allegedly
misappropriated, is insufficient to state a claim for misappropriation of trade secrets.”
Washburn v. Yadkin Valley Bank & Trust Co.,
190 N.C. App. 315, 327,
660 S.E.2d
577, 585–86 (2008) (citation and quotations omitted). Rather, in alleging a
misappropriation of trade secrets claim, the plaintiff must include specific details
about why the alleged trade secret qualifies as such under G.S. § 66-152(3). Krawiec,
370 N.C. at 611,
811 S.E.2d at 549 (“[P]laintiffs’ failure to describe a specific idea,
concept, strategy, or tactic with respect to their marketing plan or to provide any
detail about their dance productions renders their claim too general for this Court to
determine—even taking plaintiffs’ factual allegations as true—whether there is a
‘formula, pattern, program, device, compilation of information, method, technique, or
process’ at issue that ‘[d]erives independent actual or potential commercial value
from not being generally known or readily ascertainable through independent
development or reverse engineering.’” (quoting G.S. § 66-152(3)); Safety Test & Equip.
Co. v. Am. Safety Util. Corp.,
2015 NCBC LEXIS 40, at *25–26 (N.C. Super. Ct. Apr.
23, 2015) (“A plaintiff must also demonstrate that information is of actual or
commercial value, is not ‘generally known or readily ascertainable,’ and is subject to
reasonable efforts to maintain its secrecy.” (quoting G.S. § 66-152(3)). Simply alleging
that the information at issue falls into a category of trade secrets previously
recognized by our courts is insufficient. See Krawiec,
370 N.C. at 610,
811 S.E.2d at
548 (“Provided that the information meets the two requirements for a trade secret as
defined in subsection 66-152(3), we agree with the determination of the Court of
Appeals that [i]nformation regarding customer lists, pricing formulas and bidding
formulas can qualify as a trade secret under G.S. § 66-152(3).” (citation and
quotations omitted) (emphasis added)).
43. With respect to alleging reasonable efforts to maintain the secrecy of a
trade secret, “‘only where efforts to maintain the secrecy of the allegedly
misappropriated trade secrets were completely absent have North Carolina courts
dismissed claims at the 12(b)(6) stage.’” AYM Techs., LLC. v. Rodgers, 2018 NCBC
LEXIS 14, at *40 (N.C. Super. Ct. Feb. 9, 2018) (quoting Bldg. Ctr., Inc.,
2016 NCBC
LEXIS 79, at *14).
44. At the outset, the Court first concludes that CMI is the only Plaintiff
with a cognizable misappropriation of trade secrets claim with respect to the CMI
Process and its component parts, with the exception of each Plaintiff’s individually
owned QuickBook files. The TSPA grants only “[t]he owner of a trade secret” the
remedy of a civil action for misappropriation of a trade secret. G.S. § 66-153. Here,
Plaintiffs allege that the CMI Process and its component trade secrets and
confidential information “belong[ ] to CMI.” (ECF No. 78, at ¶ 26.) Plaintiffs even
titled the section of the Amended Complaint discussing the trade secrets at issue
“CMI’S TRADE SECRETS—THE CMI PROCESS.” (Id. at p. 5.) The only trade
secret which Plaintiffs claim is owned by an entity other than CMI is the QuickBook
files. The Amended Complaint states that “each Plaintiff owns its individual
QuickBook files[.]” (Id. at ¶ 29.) Therefore, each of Plaintiffs has a cognizable
misappropriation of trade secrets claim with respect to their individual Quickbook
files, but only CMI has a claim with respect to the other components of the CMI
Process.
45. Next, the Court concludes that the Amended Complaint sets forth “with
sufficient specificity the acts by which the alleged misappropriation occurred.” Bldg.
Ctr., Inc., 2016 NCBC LEXIS 79, at *9. The allegations clearly allege that Amory
downloaded a large quantity of information from Plaintiffs’ Box Account to his
personal device(s), including many of CMI’s alleged trade secrets. (ECF No. 78, at
pp. 9–11.)
46. Additionally, Plaintiffs have alleged that they’ve taken some measures
to protect the secrecy of their trade secret information, such as storing their trade
secrets in the password protected Box Account, limiting access to trade secret
information to employees with a specific business need to access the information,
having the ability to track who has accessed or copied trade secret information from
the Box Account, and keeping any paper files containing trade secrets secured in their
office. This is sufficient, at this stage, to state that Plaintiffs have taken reasonable
measures to protect their trade secrets. Bldg. Ctr., 2016 NCBC LEXIS 79, at *14
(“[O]nly where efforts to maintain secrecy of allegedly misappropriated trade secrets
were completely absent have North Carolina courts dismissed claims at the 12(b)(6)
stage.”).
47. Lastly, the Court addresses the real crux here, whether Plaintiffs
allegations sufficiently identify, in more than conclusory fashion, the aspects of their
alleged trade secrets which “[d]erive[ ] independent actual or potential commercial
value from not being generally known or readily ascertainable through independent
development or reverse engineering[.]” G.S. § 66-152(3).
48. While Plaintiffs’ allegations are less than robust, Plaintiffs have
identified their trade secrets, and the aspects of their trade secrets that derive value
from not being known, sufficiently enough to put Amory on notice of what he is
accused of misappropriating and for this Court to determine whether
misappropriation has or is threatened to occur. First, Plaintiffs have alleged that
their trade secrets include information—such as financial formulas, pricing policies,
methods and strategies, and confidential pricing and supplier information—that our
courts have previously recognized can qualify as trade secrets. See GE Betz, Inc. v.
Conrad, 231 N.C. App. 214, 233,
752 S.E.2d 634, 649 (2013) (“This Court has held
that cost history records; pricing policies, formulas, and information; and customer
lists constitute trade secrets.”); see also Byrd’s Lawn & Landscaping, Inc. v. Smith,
142 N.C. App. 371, 375,
542 S.E.2d 689, 692 (2001) (agreeing that “[c]onfidential data
regarding operating and pricing policies can . . . qualify as trade secrets.”); New
Friendship Used Clothing Collection, LLC v. Katz,
2017 NCBC LEXIS 72, at *7, 34–
37 (N.C. Super. Ct. Aug. 18, 2017) (concluding Plaintiff stated a claim for
misappropriation of its “confidential and proprietary strategies” contained in a
document).
49. Next, Plaintiffs have identified why their trade secrets derive
commercial value from not being known. Plaintiffs’ overarching allegation is that the
CMI Process and its component parts are valuable because they reflect what
Plaintiffs have learned, through experience, “works and does not work when it comes
to building and operating VA CBOCs.” (ECF No. 78, at ¶ 31.) Furthermore, Plaintiffs
allege that the information contained in the CMI Process is only obtainable through
working on VA CBOC projects and learning the VA’s “unpublished” preferences and
can’t be independently developed or reverse engineered. (Id. at ¶¶ 18, 26.) For
example, CMI’s detailed financial formulas and spreadsheets derive value because
they “allow CMI to submit a comprehensive bid in response to an RLP that will meet
the VA’s specific financial criteria while also being profitable[.]” (Id.) In other words,
Plaintiffs imply that CMI has manipulated the formulas and spread sheets to reflect
its knowledge of how to submit successful bids to the VA and make a profit. Similarly,
Plaintiffs’ QuickBook files are valuable because they contain “detailed bank account
information, private financial information about Plaintiffs and Plaintiffs’ employees,
and the various financial data that goes into CMI’s pricing and bidding documents.”
(Id. at ¶ 29.) Plaintiffs insist that access to the QuickBook files would allow
competitors to re-create “how Plaintiffs are able to successfully bid for and operate
VA CBOCs across the country.” (Id.) Liberally construed, these and other similar
allegations of Plaintiffs are sufficient, at this juncture, to allow Plaintiffs’
misappropriation of trade secrets claim to survive.
50. In conclusion, Amory’s motion to dismiss each Plaintiff’s
misappropriation of trade secrets claim related to the QuickBook files should be
DENIED. Additionally, Amory’s motion to dismiss CMI’s misappropriation of trade
secrets claim, with respect to the CMI Process and its component parts, should be
DENIED. To the extent CM, LLC, ACTS or ACTS Investments attempts to state a
misappropriation of trade secrets claim based on CMI’s trade secrets, however,
Amory’s motion to dismiss should be GRANTED.
C. Breach of Fiduciary Duty and Constructive Fraud
51. In their second and third claims for relief, Plaintiffs bring breach of
fiduciary duty and constructive fraud claims against Amory. Plaintiffs allege that
Amory owed fiduciary duties to each individual Plaintiff and willfully and maliciously
breached those duties by (1) misappropriating confidential and trade secret
information; (2) conspiring with the owners of the Georgia LLC to carry out the
fraudulent overpayment scheme; (3) waiting until after ACTS made a $150,000
distribution to announce his resignation; and (4) giving an unwarranted bonus and
raise to King. (ECF No. 78, at ¶ 103.) Plaintiffs further allege that Amory personally
benefitted from the breaches of fiduciary duty, thereby giving rise to a constructive
fraud claim. (Id. at ¶¶ 106–11.) Amory argues that Plaintiffs failed to state claims
for breach of fiduciary duty and constructive fraud because (1) CMI and CM, LLC
have not sufficiently alleged that Amory owed them a fiduciary duty; (2) Plaintiffs
have not sufficiently alleged that Amory breached a fiduciary duty or caused harm to
any of Plaintiffs; and (3) Plaintiffs do not allege that Amory benefitted himself at
their expense. (ECF No. 90, at pp. 14–20.)
52. To state a claim for breach of fiduciary duty, a plaintiff must show the
existence of a fiduciary relationship, a breach of that duty, and that the breach
proximately caused injury to the plaintiff. Gao v. Sinova Specialties, Inc., 2018 NCBC
LEXIS 71, at *36 (N.C. Super. Ct. July 16, 2018) (citing Farndale Co., LLC v.
Gibellini,
176 N.C. App. 60, 68,
628 S.E.2d 15, 20 (2006)).
53. In contrast, to plead a claim for constructive fraud, a plaintiff must
allege a breach of a fiduciary duty and allege that the defendant benefitted himself
as a result of the breach. White v. Consol. Planning, Inc., 166 N.C. App. 283, 294,
603
S.E.2d 147, 156 (2004) (“The primary difference between pleading a claim for
constructive fraud and one for breach of fiduciary duty is the constructive fraud
requirement that the defendant benefit himself.”); Crumley & Assocs., P.C. v. Charles
Peed & Assocs., P.A.,
219 N.C. App. 615, 620,
730 S.E.2d 763, 767 (2012) (“To establish
constructive fraud, a plaintiff must show that defendant (1) owes plaintiff a fiduciary
duty; (2) breached this fiduciary duty; and (3) sought to benefit himself in the
transaction.”). Additionally, a claim of constructive fraud must be pled with
particularity. Terry v. Terry,
302 N.C. 77, 85,
273 S.E.2d 674, 679 (1981). The
particularity requirement is satisfied by “alleging facts and circumstances “(1) which
created the relation of trust and confidence, and (2) [which] led up to and surrounded
the consummation of the transaction in which defendant is alleged to have taken
advantage of his position of trust to the hurt of plaintiff.”
Id. (citation and quotations
omitted).
i. Existence of Fiduciary Relationship
54. The Court begins its analysis by assessing whether a fiduciary
relationship existed between Amory and Plaintiffs. Amory does not dispute that, as
a corporate officer of ACTS and a manager of ACTS Investments, he owed fiduciary
duties to ACTS and ACTS Investments as a matter of law. (ECF No. 90, at p. 15.)
He does, however, dispute that he owed de facto fiduciary duties to CMI and CM, LLC
arising from his relationship with those entities. Amory primarily argues that CMI
and CM, LLC cannot meet the extraordinary bar of alleging a de facto fiduciary duty
because he “had no relationship with either CMI or CM, LLC” as he was never
employed by CMI and was not an employee of CM, LLC at the time of the alleged
breaches. (ECF No. 90, at pp. 15–16.)
55. “Courts in North Carolina recognize that ‘a fiduciary duty can arise by
operation of law (de jure) or based on the facts and circumstances (de facto)[.]’”
Alkemal Sing. Private Ltd. v. Dew Global Fin., LLC, 2018 NCBC LEXIS 36, at *34
(N.C. Super. Ct. April 19, 2018) (quoting Lockerman v. S. River Elec. Membership
Corp.,
250 N.C. App. 631, 635,
794 S.E.2d 346, 351 (2016) (alteration in original)).
“The standard for finding a de facto fiduciary relationship is a demanding one: [o]nly
when one party figuratively holds all the cards—all the financial power or technical
information, for example—have North Carolina courts found that the special
circumstance of a fiduciary relationship has arisen.” Lockerman, 250 N.C. App. at
636,
794 S.E.2d at 352 (quoting S.N.R. Mgmt. Corp. v. Danube Partners 141, LLC,
189 N.C. App. 601, 613,
659 S.E.2d 442, 451 (2008) (internal quotations omitted)).
Put another way, a de facto fiduciary relationship exists only where “‘there is
confidence reposed on one side, and resulting domination and influence on the other.’”
Dalton v. Camp,
353 N.C. 647, 652,
548 S.E.2d 704, 708 (2001) (emphasis in original)
(quoting Abbitt v. Gregory,
201 N.C. 577, 598,
160 S.E. 896, 906 (1931)).
56. Here, Plaintiffs first maintain that Amory owed de facto fiduciary duties
to CMI and CM, LLC because of the special trust and confidence they reposed in him
as an accountant/bookkeeper. Plaintiffs allege that “CMI and CM, LLC trusted
Amory with substantial responsibility for accounting and bookkeeping on behalf of
CMI and all its affiliated companies[,]” including providing Amory with “access to all
of Plaintiffs’ QuickBook files and tax returns.” (Id. at ¶¶ 80–81.)
57. The Court concludes that Plaintiffs’ allegations fall well short of alleging
that Amory was in a position of domination and influence over CMI or CM, LLC with
regard to his role as an accountant and bookkeeper. While his role as bookkeeper
undoubtedly provided Amory access to confidential financial information, this alone
does not create fiduciary responsibilities to CMI or CM, LLC. See Hager v. Smithfield
E. Health Holdings, LLC, No. COA18-651, 2019 N.C. App. LEXIS 238, at *17 (2019)
(“While it is true that the provision of confidential information places confidence in
the recipient, that alone does not create a fiduciary duty[.]”). Plaintiffs do not allege
that the owners or managers of CMI or CM, LLC lacked access to the financial and
other information needed to manage the companies. Nor do Plaintiffs allege that
Sasser and Crenshaw did not have access to the same financial and other information
to which Amory was provided access, or that Amory was the only one with access to,
or technical knowledge of, CMI’s or its affiliated companies’ accounting records. In
the absence of such allegations, the mere fact that Amory was given substantial
accounting and bookkeeping responsibility is not sufficient to establish a fiduciary
relationship. Timbercreek Land & Timber Co., LLC v. Robbins,
2017 NCBC LEXIS
64, at *20 (N.C. Super. Ct. July 28, 2017) (“Even when an employee is entrusted with
substantial managerial authority, a fiduciary relationship will not exist absent
evidence that such authority led to the employer being subjugated to the improper
influences or domination of [its] employee” (citation and quotations omitted)).
58. Plaintiffs also allege that Amory owed a fiduciary duty to CMI because
of the trust CMI reposed in him to act as a project manager for eight of its CBOC
projects and “because of the way [he] operated as a project manager[.]” (Id. at ¶¶ 82–
84.) Plaintiffs state that, in his role as project manager, Amory “shared extremely
limited information with Sasser, Crenshaw, or Thorn about the project[s], and he
never shared any information about his work on the project in Macon, Georgia.” (Id.
at ¶ 83.) Therefore, Amory “had superior knowledge about [the projects he worked
on], and CMI and its principals were forced to rely on [him] to a substantial degree.”
(Id. at ¶ 84.)
59. The allegations also are insufficient to give rise to a fiduciary
relationship between Amory and CMI based on Amory’s role as a project manager.
Plaintiffs state only that Amory shared limited information about the CBOC projects
he managed with Sasser and Crenshaw, the officers and directors of CMI. Plaintiffs,
however, do not allege that Amory refused to share information about the projects
with Sasser and Crenshaw or somehow dominated or controlled Sasser, Crenshaw,
and CMI with respect to managing CBOC projects. Nor do they allege facts showing
that Amory held all the financial power or technical knowledge with regard to
managing CBOC projects. Therefore, the allegations fail to give rise to a fiduciary
relationship between CMI and Amory with regard to his role as a project manager.
See Sandhills Home Care, L.L.C. v. Companion Home Care - Unimed, Inc., 2016
NCBC LEXIS 61, at *55 (N.C. Super. Ct. Aug. 1, 2016) (stating that the mere fact
that an employer delegated responsibility or “placed confidence” in an employee is
not enough to create a fiduciary duty, unless the facts show “that the employer [ ] was
somehow subjugated to the improper influences or domination of his employee.”
(citations and quotations omitted)).
60. In conclusion, the Plaintiffs have failed to allege the existence of a
fiduciary relationship between Amory and CMI or CM, LLC. Therefore, Amory’s
motion to dismiss CMI and CM, LLC’s breach of fiduciary duty and constructive fraud
claims should be GRANTED.
ii. Breach and Injury
61. The Court now turns its attention to whether Plaintiffs sufficiently
alleged a breach of fiduciary duty by Amory against ACTS and ACTS Investments
and whether Plaintiffs allege that the breach proximately caused injury to ACTS or
ACTS Investments. Plaintiffs state that Amory breached his fiduciary duties to
ACTS and ACTS Investments by acquiring and taking their trade secrets and
confidential information to his new employer. (ECF No. 78, at ¶ 78.) Additionally,
Plaintiffs state that Amory breached his fiduciary duties to ACTS by carrying out the
fraudulent overpayment scheme; waiting until after receiving a $150,000 distribution
from ACTS to announce his departure; and giving an unwarranted raise and bonus
to former ACTS employee King. (Id. at ¶¶ 78–79.) Amory argues that Plaintiffs
failed to allege a breach of fiduciary duty because (1) only CMI owned the trade
secrets at issue; (2) the Amended Complaint fails to explain how Amory’s
participation in the fraudulent overbilling scheme constituted a breach of his duties
to ACTS; (3) Amory remains a 25% owner of ACTS and the Amended Complaint does
not allege he was not entitled to the distribution or that he would not have received
it had he announced his resignation earlier; and (4) the Amended Complaint does not
allege that Amory knew that King’s raise and bonus were unwarranted. (ECF No.
90, at pp. 17–19.) Amory also argues that Plaintiffs have failed to allege that they
suffered any cognizable harm. Id.
62. The Court first concludes that Plaintiffs have sufficiently stated a
breach of fiduciary duty by Amory against ACTS and ACTS Investments arising from
his alleged misappropriation of their QuickBook files. Amory owed fiduciary duties
to ACTS as an officer, and to ACTS Investments as a Manager. The Amended
Complaint states that ACTS and ACTS Investments owned their individual
QuickBook files, which they consider trade secrets, and that Amory misappropriated
this information and took it to his new employer in the construction industry. (ECF
No. 78, at ¶¶ 29, 78.) Further, Plaintiffs allege they have suffered substantial
damages as a result of this breach and are entitled to over $25,000 in damages. These
allegations are sufficient, at this stage, to allege that Amory breached his fiduciary
duties to ACTS and ACTS Investments by wrongfully taking their trade secrets with
the intention of using them to compete with Plaintiffs. RoundPoint Mortg. Co. v.
Florez,
2016 NCBC LEXIS 18, at *24–26 (N.C. Super. Ct. Feb. 18, 2016) (concluding
that the plaintiff’s breach of fiduciary duty claim survived a motion to dismiss where
the plaintiff contended that the defendant, a former employee of plaintiff, took
“improper steps,” including allegedly misappropriating trade secrets, to facilitate
competition against the plaintiff).
63. The Court also concludes that Plaintiffs sufficiently alleged that Amory
breached his fiduciary duty to ACTS by engaging in the fraudulent overpayment
scheme. Generally, the existence of a fiduciary relationship creates a duty to fully
disclose material facts. Vail v. Vail, 233 N.C. 109, 116,
63 S.E.2d 202, 207 (1951) (“[A]
confidential of fiduciary relation imposes upon the one who is trusted the duty
to . . . disclose all material facts affecting the relation.”). Here, Plaintiffs allege that
Amory intentionally withheld information about the fraudulent concealment scheme
from other officers and directors of ACTS in breach of his duty to disclose. This is
sufficient to allege that Amory breached his fiduciary duty to ACTS. Furthermore,
Plaintiffs allege that they suffered actual damages on account of the fraud because
they were “forced to expend time and resources” to investigate the fraudulent scheme
and because the scheme placed ACTS and CMI’s professional reputation in jeopardy.
These allegations of actual damages were sufficient to put Amory on notice of the
alleged harm caused by his breach and to state a claim for breach of fiduciary duty
with respect to the fraudulent overpayment scheme.
64. Finally, the Court concludes that Plaintiffs fail to allege that Amory
breached his fiduciary duty to ACTS by receiving a $150,000 distribution before
departing from the company, or by paying ACTS employee King a bonus and giving
her a raise. Amory remains a 25% owner of ACTS and Plaintiffs failed to allege in
any way that he was not entitled to receive the distribution at issue from ACTS. Nor
have Plaintiffs cited any authority for the proposition that leaving a company after
receiving an ownership distribution constitutes a breach of fiduciary duty.
Additionally, Plaintiffs present no more than a bare allegation that the raise and
bonus Amory paid to Patti King was “unwarranted.” Plaintiffs do not provide
supporting allegations that Amory was aware that King was unqualified or
undeserving of the raise or bonus. Therefore, Plaintiffs have failed to allege that
Amory breached his fiduciary duty to ACTS by accepting his $150,000 distribution
before resigning his employment with ACTS, or by paying King a raise and bonus
while she was employed by ACTS.
iii. Personal Benefit
65. Amory next argues that Plaintiffs’ claims for breach of fiduciary duty
and constructive fraud should be dismissed because (1) Plaintiffs’ breach of fiduciary
duty claim does not allege that Amory sought to benefit himself; and (2) Plaintiffs’
constructive fraud claim fails to allege with particularity that Amory sought to benefit
himself.
66. Amory relies on the Supreme Court case of King v. Bryant for the
proposition that a claim for breach of fiduciary duty must allege that the defendant
sought personal benefit. 369 N.C. 451,
795 S.E.2d 340 (2017). In Bryant, the court
wrote that “before liability for breach of fiduciary duty can exist, it must be shown
that the defendant sought to benefit himself at the expense of the other party.” Id.
at 465, 795 S.E.2d at 349. The Bryant court also stated in a footnote that “[t]he
elements of a claim for breach of fiduciary relationship are the same as those for
constructive fraud.” Id. at n.3.
67. The Court notes that the holding in Bryant is difficult to reconcile with
the many North Carolina appellate court and business court decisions which
recognize a distinction between breach of fiduciary duty and constructive fraud
claims, most notably that “wrongful benefit is . . . an element of constructive fraud
and not of a claim for breach of fiduciary duty.” White, 166 N.C. App. at 294, 603
S.E.2d at 155–56 (citing Barger, 346 N.C. at 666, 488 S.E.2d at 224) (internal
quotations omitted)); e.g., Hauser v. Hauser,
252 N.C. App. 10, 16,
796 S.E.2d 391,
395 (2017) (“The primary difference between pleading a claim for constructive fraud
and one for breach of fiduciary duty is the constructive fraud requirement that the
defendant benefit himself.” (citation and quotations omitted)); Trillium Ridge Condo.
Ass’n v. Trillium Links & Vill., LLC,
236 N.C. App. 478, 502,
764 S.E.2d 203, 220
(2014) (same); Ellison v. Alexander,
207 N.C. App. 401, 408,
700 S.E.2d 102, 108
(2010) (same); Can-Dev, ULC v. SSTI Centennial, LLC,
2018 NCBC LEXIS 9, at *21
(N.C. Super. Ct. Jan. 25, 2018) (same); Azure Dolphin, LLC v. Barton,
2017 NCBC
LEXIS 90, at *23–24 (N.C. Super. Ct. Oct. 2, 2017) (“[C]auses of action [for breach of
fiduciary duty and constructive fraud] are different and require Plaintiffs to prove
different elements.”).
68. The requirement that a fiduciary seek to benefit himself appears
particularly problematic in the context of claims based on breach of statutory duties
by corporate directors and officers for failure to exercise a duty of care transacting
the business of the corporation or LLC, which may not involve any benefit to the
director. See, e.g., Seraph Garrison, LLC v. Garrison, No. COA14-1166, 2016 N.C.
App. LEXIS 1376, at *12–16 (2016) (holding a corporate president’s failure to pay
payroll taxes owed by corporation to state and federal tax authorities for three years
was a breach of fiduciary duties imposed on corporate officers by G.S. § 55-8-42(a)).
69. In any event, the Court need not address in this case the impact of
Bryant on the elements of a claim for breach of fiduciary duty since the Amended
Complaint sufficiently alleges that Amory personally benefitted from his alleged
breaches, and states a claim for breach of fiduciary duty, even under the Bryant
Court’s recitation of the claim. Plaintiffs allege that Amory “took advantage of his
fiduciary relationship . . . in order to benefit himself financially by . . . using Plaintiffs’
trade secrets to compete unfairly against Plaintiffs” and that “Amory personally
benefitted from [the fraudulent] overpayment scheme.” (ECF No. 78, at ¶¶ 73, 109.)
While the claim of personal benefit may not be borne out by the facts revealed in
discovery, the allegations are minimally sufficient at this early stage of the case to
survive a motion to dismiss.
70. In conclusion, Plaintiffs have sufficiently stated claims against Amory
for breach of his fiduciary duties to ACTS and ACTS Investments by
misappropriating their alleged trade secrets with the intent to compete and by
carrying out the fraudulent overpayment scheme. Amory’s motion to dismiss those
claims should be DENIED. Amory’s motion to dismiss all other breach of fiduciary
duty claims brought by Plaintiffs, however, should be GRANTED.
71. The Court also is not persuaded by Amory’s argument that the
element of personal benefit necessary to a claim for constructive fraud must be
alleged with particularity since Amory does not cite, and the Court is unable to locate,
any authority supporting that proposition. (ECF No. 90, at pp. 19–20.) The Court
has concluded that Plaintiffs adequately allege that Amory personally benefitted
from the breaches of fiduciary duty.
72. In conclusion, ACTS and ACTS Investments have also sufficiently
alleged constructive fraud claims against Amory for his alleged misappropriation of
their QuickBook files with intent to compete, and ACTS has sufficiently alleged a
constructive fraud claim against Amory for his participation in the fraudulent
overpayment scheme. Amory’s motion to dismiss those claims should be DENIED.
Amory’s motion to dismiss Plaintiffs’ other constructive fraud claims, however,
should be GRANTED.
D. Actual Fraud
73. In their fourth claim for relief, CMI and ACTS bring a claim of actual
fraud against Amory arising from the fraudulent overpayment scheme.2 Plaintiffs
allege that: (1) Amory made false representations of material fact to Sasser when he
stated, on at least four different occasions, that overpayments to the Bank were
mistakes; (2) the false representations were reasonably calculated to deceive and
made with the intent to deceive Sasser; (3) Sasser was deceived and reasonably relied
upon Amory’s representations by wiring excess payments back to the owners of the
Georgia LLC; and (4) that as a result of the false representations CMI and ACTS
2 Plaintiffs’ fraud claim does not state that it was brought solely on behalf of ACTS and CMI,
but Plaintiffs allege that ACTS and CMI were the only entities to suffer damages from the
scheme. (ECF No. 78, at ¶¶ 76–77, 118.) Thus, the Court will treat the claim as being
brought on behalf of ACTS and CMI.
Contracting incurred costs for professional services in excess of $25,000. (ECF No.
78, at pp. 20–21.) Amory argues that the claim must be dismissed because Plaintiffs
failed to allege the elements of reliance or injury. (ECF No. 90, at p. 12.)
74. The elements of a claim for actual fraud are: “(1) false representation or
concealment of a material fact, (2) reasonably calculated to deceive, (3) made with
intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injured
party.” Collier v. Bryant, 216 N.C. App. 419, 430–31,
719 S.E.2d 70, 80 (2011)
(citation and quotations omitted). Further, claims for actual fraud must be pled with
particularity. Terry, 302 N.C. at 84–85, 273 S.E.2d at 678–79. “[I]n pleading actual
fraud the particularity requirement is met by alleging time, place and content of the
fraudulent representation, identity of the person making the representation and
what was obtained as a result of the fraudulent acts or representations.” Id. at 85,
273 S.E.2d at 678. “Dismissal of a claim for failure to plead with particularity is
proper where there are no facts whatsoever setting forth the time, place, or specific
individuals who purportedly made the misrepresentations.” Town of Belhaven v.
Pantego Creek, LLC,
2016 N.C. App. LEXIS 1164, at *15,
793 S.E.2d 711, 718 (2016).
75. Here, Plaintiffs have alleged the necessary elements of a claim for actual
fraud with the requisite particularity. Plaintiffs’ allegations state that Amory, on
four occasions in the fall of 2017, made misrepresentations to Sasser that
overpayments by the Bank to ACTS were “mistakes” when they were actually part of
an intentional scheme to defraud the bank. (ECF No. 78, at ¶¶ 53–77.) Furthermore,
the allegations detail that Amory’s false representations were intended to mislead
Sasser into wiring the Bank’s overpayments back to the owners of the Georgia LLC,
which Sasser in fact did on three occasions. (Id.) Lastly, the allegations state that
as a result of Amory’s intentional misrepresentations and failure to disclose the
overpayment scheme to CMI and ACTS, the companies were forced to spend time and
resources investigating what went on to protect CMI and ACTS.
76. Contrary to Amory’s argument, Plaintiffs have alleged both reliance and
damages. First, the allegation that Sasser in fact wired overpayments back to the
LLC after Amory misrepresented to Sasser that the overpayments were “mistakes”
is sufficient to show that Sasser relied on Amory’s false statements. See Hunter v.
Guardian Life Ins. Co. of Am., 162 N.C. App. 477, 481,
593 S.E.2d 595, 599 (2004)
(stating that the element of reliance can be inferred from allegations that the plaintiff
was actually deceived by and acted upon the misleading statements). Lastly,
Plaintiffs identified the specific ways that Amory’s fraudulent acts caused damage to
them: CMI and ACTS “were forced . . . to expend time and resources [(over
$25,000)] . . . to investigate and document the [fraudulent overpayment scheme], and
to negotiate agreements for the winding up the Macon CBOC project and all
associated agreements.” (ECF No. 78, at ¶¶ 76, 118.) This is a sufficient allegation
of damages, as plaintiffs in North Carolina have a duty to mitigate their damages
and may recover as damages reasonable mitigation expenses. Smith v. Martin,
124
N.C. App. 592, 600–02,
478 S.E.2d 228, 233–34 (1996) (noting that “[a] plaintiff has
the duty to avoid or minimize the consequences of the defendant’s wrong[,]” and
concluding that the trial court did not err in awarding the plaintiff reasonable
mitigation expenses).
77. In conclusion, Amory’s motion to dismiss Plaintiffs’ actual fraud claim
should be DENIED.
E. Unfair or Deceptive Trade Practices
78. In their fifth claim for relief, Plaintiffs allege that Amory
misappropriated CMI’s trade secrets “in order to compete unfairly against Plaintiffs”
in violation of the UDTPA. (ECF No. 78, at ¶ 120.) Plaintiffs argue that since they
“have sufficiently stated a claim for misappropriation of trade secrets, . . . Plaintiffs
have sufficiently stated a claim for a UDTP[A] violation.” (ECF No. 91, at p. 21.)
Plaintiffs are incorrect. To state a claim for violation of the UDTPA, a plaintiff must
show that “(1) defendant committed an unfair or deceptive act or practice, (2) the
action in question was in or affecting commerce, and (3) the act proximately caused
injury to the plaintiff.” Dalton, 353 N.C. at 656,
548 S.E.2d at 711. While a claim for
misappropriation of trade secrets can support a claim for violation of the UDTPA, it
must meet all three of the elements of an unfair trade practices claim. Drouillard v.
Keister Williams Newspaper Servs., Inc.,
108 N.C. App. 169, 172,
423 S.E.2d 324, 326
(1992) (“If the violation of the Trade Secrets Protection Act satisfies [the] three prong
test, it would be a violation of [G.S.] § 75-1.1.”). Accordingly, the Court must decide
whether Plaintiffs have alleged the three elements of the claim.
79. The Court concludes that Plaintiffs’ allegations that Amory
misappropriated trade secrets sufficiently states an unfair or deceptive act. In
addition, Amory does not contend that Plaintiffs fail to allege an injury. Instead,
Amory argues that Plaintiffs have failed to state a claim for violation of the UDTPA
because they do not allege Amory or BridgePoint is competing with Plaintiffs. (ECF
No. 90, at p. 20.) The Court interprets this as an argument that Plaintiffs have not
alleged facts supporting an allegation that Amory’s misappropriation of trade secrets
is “in or affecting commerce.”
80. In the Amended Complaint, Plaintiffs allege that “Amory’s violation of
[the UDTPA] was in or affecting commerce.” (ECF No. 78, at ¶ 122.) However, the
Court is not required to accept this conclusory allegation where it is not otherwise
supported by allegations of fact. 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). Plaintiffs allege
that Amory is “using Plaintiffs’ confidential and trade secret information to compete
unfairly against Plaintiffs,” (id. at ¶ 109), but don’t allege facts regarding how Amory
is competing with them. Plaintiffs don’t allege that Amory has disclosed the trade
secrets to his new employer, BridgePoint. There also is no allegation that Amory has
used any trade secrets to prepare or submit proposals to the VA for projects on which
Plaintiffs are bidding, nor that BridgePoint has suddenly started bidding on VA
projects or otherwise soliciting the VA. Plaintiffs also have not alleged that Amory
or BridgePoint has interfered with relationships between Plaintiffs and the VA or
between Plaintiffs and their employees. These types of allegations are usually
present in cases in which an employer makes a claim for violation of the UDTPA
based, at least in part, on a former employee’s misappropriation of trade secrets.3
81. Elsewhere in the Amended Complaint, Plaintiffs seemingly undercut
their allegation that Amory is actually using CMI’s trade secrets to compete with
Plaintiff, alleging instead that “with the information Amory
acquired . . . BridgePoint . . . could begin to unfairly compete with Plaintiffs
immediately.” (Id. at ¶ 90; see also ¶ 12 (“Plaintiffs are informed and believe that
Amory is preparing to cause Plaintiffs millions of dollars in damages by using their
own trade secrets and confidential information to compete unfairly against them.”);
¶ 87 (“If Amory is allowed to take the trade secrets he has stolen and deliver them to
BridgePoint or another of Plaintiffs’ competitors, thus allowing the competitor to
immediately compete against CMI for VA CBOC projects, Plaintiffs will suffer
irreparable harm.”) (emphasis added to each quote).)
3 See e.g., Southern Fastening Sys. v. Grabber Constr. Prods., 2015 NCBC LEXIS 42, at *7–
8, 29 (N.C. Super. Ct. Apr. 28, 2015) (plaintiff’s UDTPA claim survived a motion to dismiss
where the plaintiff sufficiently alleged a misappropriation of trade secrets claim, including
allegations that defendant had contacted over 40 of the plaintiff’s customers and that 17 of
the plaintiff’s former customers had either reduced or stopped doing business with plaintiff);
Am. Air Filter Co. v. Price,
2017 NCBC LEXIS 55, at * 8–9, 31–32 (N.C. Super. Ct. June 26,
2017) (refusing to dismiss plaintiff’s UDTPA claim where plaintiff alleged that defendant was
working for a competitor and that defendant was soliciting business from customers of
plaintiff); Bldg. Ctr., Inc.,
2016 NCBC LEXIS 79, at *30 (dismissal of plaintiff’s claim for
violation of UDTPA denied where plaintiff alleged that defendant-competitor hired the
plaintiff’s salespersons and solicited plaintiff’s customers to take their business); Window
Gang Ventures, Corp. v. Salinas,
2019 NCBC LEXIS 24, at *5–6, 55 (N.C. Super. Ct. Apr. 2,
2019) (plaintiff’s UDTPA claim survived a motion to dismiss where plaintiff alleged that the
defendant launched a competing business utilizing the plaintiff’s customer lists, phone
numbers, and trade secrets and that the defendant “intentionally diverted plaintiff’s
customers and revenue” to the new business).
82. In determining what constitutes unfair or deceptive conduct “in or
affecting commerce,” the Supreme Court of North Carolina has held that the
UDTPA’s provisions apply to “interactions between market participants,” but not to
conduct that is “contained solely within a single business.” White, 364 N.C. at 53,
691 S.E.2d at 680. Therefore, where “the unfairness of [a defendant’s] conduct [does]
not occur in his dealings with other market participants[,]” the defendant’s conduct
is not in or affecting commerce and is outside the purview of the UDTPA. Alexander
v. Alexander, 2016 N.C. App. LEXIS 1252, at *10,
792 S.E.2d 901, 905 (2016) (quoting
White, 364 N.C. at 54, 691 S.E.2d at 680 (quotations omitted)). Plaintiffs allege that
Amory acquired CMI’s trade secrets without authorization and is using them to
compete, but do not allege additional specific facts showing that Amory has used or
disclosed the trade secrets in a way that creates an “interaction between market
participants,” that would support the allegation that Amory’s wrongful conduct is “in
or affecting commerce and not merely “contained solely within a single business.”
White, 364 N.C. at 53, 691 S.E.2d at 680.
83. Nevertheless, North Carolina is a notice pleading state, and
A complaint sufficiently states a claim upon which relief
can be granted when it gives sufficient notice of the events
or transactions which produced the claim to enable the
adverse party to understand the nature of it and the basis
for it, to file a responsive pleading, and by using the rules
provided for obtaining pretrial discovery to get any
additional information he may need to prepare for trial.
Spoor v. Barth, 811 S.E.2d 609, 612,
2018 N.C. App. LEXIS 93, at *6 (2018). “The
system of notice pleading affords a sufficiently liberal construction of complaints so
that few fail to survive a motion to dismiss.” Wray v. City of Greensboro,
370 N.C. 41,
46,
802 S.E.2d 894, 898 (2017) (quoting Ladd v. Estate of Kellenberger,
314 N.C. 477,
481,
334 S.E.2d 751, 755 (1985)). Here, Plaintiffs have alleged that Amory is using
CMI’s trade secrets to compete, albeit without specific explanation of such
competition, and the Court must reluctantly conclude that the allegation is barely
sufficient to provide Amory with sufficient notice of the nature of the claim to
withstand Amory’s motion to dismiss. Accordingly, Amory’s motion to dismiss
Plaintiffs’ claim for violation of the UDTPA should be DENIED.
F. Computer Trespass
84. In their sixth claim for relief, Plaintiffs assert that Amory violated G.S.
§ 14-458, and seek to impose civil liability against him. G.S. § 14-458 governs the
crime of computer trespass. According to Plaintiffs, Amory committed a computer
trespass by “ma[king] or caus[ing] to be made an unauthorized copy of computer data
belonging to Plaintiffs and stored in the Box Account owned by Plaintiffs.” (Id. at
¶ 127.) In so doing, Plaintiffs assert “Amory used his company computer and the Box
Account in a manner exceeding the right or permission granted to him by Plaintiffs.”
(Id. at ¶ 128.) Plaintiffs further allege that they’ve “sustained substantial damage as
a result of Amory’s computer trespass.”
85. Amory argues that Plaintiffs fail to allege a claim because they (1) do
not have a cause of action under § 14-458 because they do not allege they suffered
injury to their “property or person”; (2) fail to identify their damages with reasonable
certainty; (3) have not shown that Amory was “without authority” to access the Box
Account files; and (4) do not identify any company policy or agreement that prohibited
Amory from downloading the Box Account files. (ECF No. 90, at pp. 22–25.)
86. Under G.S. § 14-458(c), “[a]ny person whose property or person is
injured by reason of a [computer trespass] may sue for and recover any damages
sustained and the costs of the suit pursuant to G.S. 1-539.2A.” Property, as used in
the statute, means “financial instruments, information, including electronically
processed or produced data, and computer software and computer programs in either
machine or human readable form, and any other tangible or intangible item of value.”
G.S. § 14-453(8). Relevant here, a computer trespass includes the unlawful use of a
computer or computer network without authority and with the intent to “[m]ake or
cause to be made an unauthorized copy, in any form, including, but not limited to,
any printed or electronic form of computer data, computer programs, or computer
software residing in, communicated by, or produced by a computer or computer
network.” G.S. § 14-458(a)(5). “[A] person is ‘without authority’ when [ ] the person
has no right or permission of the owner to use a computer, or the person uses a
computer in a manner exceeding the right or permission[.]” G.S. § 14-458(a).
87. There is very little guidance from North Carolina courts on how a civil
claim for computer trespass should be analyzed at the 12(b)(6) stage. Nevertheless,
the Court concludes that Plaintiffs have done enough here to state a claim for
computer trespass. Plaintiffs allege that Amory’s downloading of their computer data
from the Box Account to his personal device(s) exceeded the right or permission
granted to him by Plaintiffs and resulted in damage to them. See Spirax Sarco, Inc.
v. SSI Eng’g, Inc., 122 F. Supp. 3d 408, 417–18 (E.D.N.C. Aug. 10, 2015) (stating that
the plaintiff companies’ allegations that “[the defendant] intentionally used his
[company-issued] laptop to download vast quantities of computer files to his own
media devices and Dropbox account, without authorization and . . . deleted vast
quantities of computer files from [company-issued] laptop without authorization”
were “sufficient to state a claim [for computer trespass] under North Carolina law”).
These allegations put Amory on notice of his actions which are at issue, allow him to
understand the nature of Plaintiffs’ claim, and enable him to answer and prepare for
trial. Wake County v. Hotels.com, L.P.,
235 N.C. App. 633, 646,
762 S.E.2d 477, 486
(2014). Therefore, Amory’s motion to dismiss Plaintiffs’ computer trespass claim
should be DENIED.
G. Punitive Damages
79. In their seventh and final claim for relief, Plaintiffs allege a claim for
punitive damages. (ECF No. 78, at ¶¶ 132–135.) Amory argues the claim should be
dismissed because, inter alia, it was not pled with particularity.
80. Punitive damages are recoverable “only if the claimant proves the
defendant is liable for compensatory damages” and the aggravating factor of (1) fraud;
(2) malice; or (3) willful or wanton conduct “was present and was related to the injury
for which compensatory damages were awarded.” G.S. § 1D-15. North Carolina Rule
of Civil Procedure 9(k) requires a plaintiff to aver with particularity the aggravating
factor that supports an award of punitive damages. N.C. R. Civ. P. 9(k). The
particularity requirement is satisfied by allegations of “facts or elements showing the
aggravating circumstances which would justify the award of punitive damages.”
Wiley v. L3 Communs. Vertex Aero., LLC, 251 N.C. App. 354, 367,
795 S.E.2d 580, 590
(2016) (citation and quotations omitted).
81. Here, Plaintiffs allege that “Amory’s acts described [in the Amended
Complaint]” were undertaken with personal ill will toward Plaintiffs, with
intentional disregard of and indifference to their rights, and that he knew or should
have known that his conduct was likely to cause damage or harm to them. The
Amended Complaint alleges claims against Amory for constructive and actual fraud
and misappropriation of trade secrets. Those claims have survived Amory’s motion
to dismiss, support a claim for compensatory damages, and allege facts or elements
that show the potential presence of the aggravating factors of fraud and willful or
wanton conduct. See G.S. § 66-154(c); see also Collier v. Bryant, 216 N.C. App. 419,
434,
719 S.E.2d 70, 82 (2011) (“[P]unitive damages can be awarded if either actual or
constructive fraud is shown.”). Thus, Amory’s motion to dismiss Plaintiffs’ punitive
damages claim should be DENIED.
III. CONCLUSION
Therefore, it is ORDERED that:
1. Amory’s motion to dismiss each Plaintiff’s misappropriation of trade secrets
claim related to their QuickBook files is DENIED. Amory’s motion to
dismiss CMI’s misappropriation of trade secrets claim, with respect to the
CMI Process and its component parts, is DENIED. To the extent CM, LLC,
ACTS or ACTS Investments attempt to state a misappropriation of trade
secrets claim based on the CMI Process and its component parts, Amory’s
motion to dismiss is GRANTED.
2. Amory’s motion to dismiss ACTS and ACTS Investments’ breach of
fiduciary duty and constructive fraud claims based on his misappropriation
of their trade secrets is DENIED.
3. Amory’s motion to dismiss ACTS’ breach of fiduciary duty and constructive
fraud claim based on his participation in the fraudulent overpayment
scheme is DENIED. Amory’s motion to dismiss ACTS’ breach of fiduciary
duty and constructive fraud claim based on his decision to resign shortly
after receiving a $150,000 distribution is GRANTED. Amory’s motion to
dismiss ACTS’ breach of fiduciary duty and constructive fraud claim based
on his decision to give a promotion and raise to Patti King is GRANTED.
4. Amory’s motion to dismiss CMI and CM, LLC’s breach of fiduciary duty and
constructive fraud claims is GRANTED.
5. Amory’s motion to dismiss Plaintiffs’ actual fraud claim is DENIED.
6. Amory’s motion to dismiss Plaintiffs’ Unfair or Deceptive Trade Practices
Act claim is DENIED.
7. Amory’s motion to dismiss Plaintiffs’ Computer Trespass claim is DENIED.
8. Amory’s motion to dismiss Plaintiffs’ punitive damages claim is DENIED.
SO ORDERED, this the 17th day of May, 2019.
/s/ Gregory P. McGuire
Gregory P. McGuire
Special Superior Court Judge for
Complex Business Case
