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A New Year’s Refresher on Some Basic Departing-Employee Case Principles

As the calendar turns into 2025, a recent Business Court opinion presented an opportunity for some reminders of basic principles in departing-employee cases. So, grab your candy and popcorn, and settle in for this short post on these principles.

First, let’s enjoy some Twizzlers, as the opinion in Miller v. Redgoose LLC d/b/a Nerds to Go acknowledges that it involved a “twist” on a familiar fact pattern. The familiar fact pattern was a former employee allegedly misusing proprietary information on the company’s computer systems. The twist is that the former employee, Dwayne Miller, told Nerds to Go that he was resigning, and the employer asked him to assist with his transition by ensuring that remaining employees knew the location of key client data on their computer systems.

If you insist on preferring Red Vines, we have another twist. This case did not start when NTG sued Miller, but rather when Miller sued NTG in Wake County District Court for unpaid wages. The company then filed counterclaims that it believed provided a sufficient basis to designate the case to the Business Court.

The opinion addresses the sufficiency of several of the company’s counterclaims against the former employee: for fraud, computer trespass, tortious interference, and violations of section 75-1.1. In the end, the employee bit off more than he could chew, and the counterclaims were allowed to proceed past the Rule 12 stage.

Background

Nerds to Go does not sell gummy clusters or an old-fashioned box of small grape and strawberry candies, but rather IT solutions and computer services. Dwayne Miller had worked for NTG for about 18 months when he resigned on June 1, 2023. NTG then asked him if he would stay for another two weeks to assist in the transition process. Miller agreed but NTG claims that he did so under false pretenses—that he had no intention of helping, but instead wanted continued access to NTG’s computer systems and proprietary information for a new business he was starting that would compete with NTG.

Procedural Background

In another interesting twist, Miller filed his wage and hour case in the Wake County District Court division. When NTG filed its answer and counterclaims, it coupled those with a motion to transfer the case from the District Court division to Superior Court. Contemporaneous with those filings, NTG designated the case to the Business Court, citing issues relating to the use and licensing of computer software, information technology, and data security. After the case was assigned to Judge Davis in the Business Court, he granted the motion to transfer division without a hearing based on NTG’s allegations that its counterclaims sought more than $25,000, and the case proceeded in the Superior Court division. 

This order did not discuss the propriety of initially designating the case to the Business Court before the case had been transferred to the Superior Court division. After all, section 7A-45.4(a) says that “any party may designate as a mandatory complex business case an action that involves a material issue,” without limiting that to cases filed in the Superior Court division. And the new section 7A-45.4(d) also does not mention which division the case is originally filed in. But section 7A-45.4(g) (as does section 7A-45.4(c)) assumes that a case being designated as a mandatory complex business case has been filed in Superior Court. (“the Superior Court in which the action has been filed shall”). Perhaps this was a drafting oversight, since almost all mandatory complex business cases begin in Superior Court, but it is an interesting point to note for nerds of all flavors.

Miller then filed a brief opposing designation to the Business Court, arguing that the case involved less than $10,000 in wages and was not a complex business case. He argued that the counterclaims did not even mention the phrase “intellectual property” and that the dispute was about his actions after he resigned, and not about the ownership or licensing of any specific intellectual property. The court disagreed and construed Redgoose’s arguments as alleging that Miller misused his access to their computer systems, locked personnel out of their systems, and deleted administrative credentials to the system. The court found that this was sufficient to show that there was a material issue in the case involving the use of intellectual property, including computer software, as required by the Business Court designation statute.

Fraud

Reaching the merits of Miller’s motion to dismiss, the court began with NTG’s fraud claim and held that it passed muster under Rule 9(b)’s requirement that a party plead fraud with particularity, including the content, date, and other circumstances of the alleged misrepresentations. Of course we all know that it is not sufficient to just throw up any Whatchamacallit in a complaint. The primary misrepresentation that NTG identified was Miller’s agreement to assist NTG by assisting in the transition process. NTG claimed that Miller was not Honest here, and had no intention to do so and instead sought to use the transition period for his own purposes, including soliciting NTG’s customers for his new venture. 

Miller argued that even so, NTG failed to show a causal connection between this alleged misrepresentation and any harm that NTG suffered. Miller claims that the only possible damages NTG suffered that were causally connected were the two weeks in wages that it paid Miller, not any damages related to its loss of customers. The court disagreed and read the counterclaims to allege that Miller’s intent to seek computer access was for the purpose of soliciting customers, and that but for his false statement that he was willing to assist with the transition, he would not have been able to carry out that plan. The court concluded this Mounds of allegations were sufficient to state a claim for fraud.

Computer Trespass

NTG also brought a claim under N.C. Gen. Stat. § 14-458(a), which prohibits certain kinds of computer access. At issue here is whether Miller’s accessing NTG’s systems was “without authority” as defined by the statute—i.e., “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.”

Of course, Miller claimed that he was given express permission to use NTG’s computer system for the transition phase, more than just going through Ice Breakers with his former colleagues. NTG responded that his actual use grossly exceeded his permitted use. The Business Court and a recent federal district court decision answered this question.  In both Relation Insurance, Inc. v. Pilot Risk Management Consulting, LLC, and CHGYM, LLC v. Unify Athletics, LLC, the courts found that just because the employee had initially been given access, a claim under the statute was still possible if the employee later used the system in a manner that exceeded the defendant’s authorization.

Tortious Interference

As you might expect, Miller argued that he couldn’t be liable for tortious interference because the elements of that claim under North Carolina law include a requirement that the alleged interference be done “without justification.”  And numerous cases have found that a legitimate business purpose can defeat this claim. But this ignores the case law that has found that a defendant can be liable under this theory when the competition is done through unlawful means.

After all, as an earlier Business Court case (Marketplace 4 Insurance v. Vaughn) points out, if a defendant could automatically escape tortious interference liability by claiming that it was competing with the plaintiff, then it would be virtually impossible to ever prove such a claim. Here, the court allowed NTG’s tortious interference claim to proceed since it alleged unlawful methods of competition; among other things, NTG alleged that Miller illegally used his credentials to NTG’s systems to lock out NTG personnel, and then Miller asked for a ransom payment to return working passwords to NTG. This was Good and Plenty enough for the court.

Section 75-1.1

Given the court’s findings on the other three claims, there was little doubt that the unfair and deceptive trade practices claim would survive on its merits. The question, though, was whether the conduct alleged, was “in or affecting commerce” as required by the statute.  After all, as White v. Thompson reminds us, this statute does not apply to the internal conduct of individuals within a single market participant or business.

The court quickly disposed of this contention because NTG had alleged a Symphony of wrongdoing that reached outside the company. This included that Miller induced NTG’s former clients to leave and follow him to his new business. In addition, NTG alleged that Miller engaged with NTG’s software wholesaler in an attempt to shift their agreements to Miller’s new venture. The court found that these actions, which were not internally focused, were sufficient, if proven, to constitute acts “in or affecting commerce.”

Conclusion

This opinion is a good reminder of a few fundamental principles in departing-employee cases besides generally watching out for Butterfingers among one’s employees. First, obviously, to the extent that there is a fraud claim in play, it must be pleaded with particularity, including the time, content, and speaker of any alleged misrepresentations, and the attendant circumstances of any omissions. Second, a claim for computer trespass under section 14-458 of our general statutes is viable when an employee has been given computer access but exceeds the rights or permissions that he was given. Third, a defendant cannot escape tortious interference liability simply by claiming that he was justified by market competition; competing in an unlawful manner can lead to liability under this theory. Fourth, the White v. Thompson internal-affairs exclusion for section 75-1.1 claims does not apply when the employee’s wrongful acts reach outside the internal affairs of an entity; here, when the employee solicited former customers and engaged with a software vendor, that was sufficient to meet the “in or affecting commerce” prong of the statute.

January 14, 2025 James M. Weiss