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In Departing-Employee Litigation, Can a Claim for Unfair Trade Practices Bring the Case to the Business Court?

Ellis Winters

Ellis & Winters

Today’s post concerns a recent decision about the scope of N.C. Gen. Stat. § 7A-45.4, the statute that controls which cases the North Carolina Business Court can hear.

This issue and the decision—called UNOX, Inc. v. Conway—are important for at least two reasons.

For one, and stating the obvious, the Business Court has substantial expertise in the law on N.C. Gen. Stat. § 75-1.1 (the focus of this blog). The Court has published noteworthy decisions on section 75-1.1, including decisions on the meaning of “substantial aggravating circumstances,” the choice-of-law rules that apply to claims for unfair and deceptive trade practices, and the internal-business-affairs exemption and the learned-profession exemption to section 75-1.1.

In addition, the UNOX decision specifically addresses whether, in the context of a departing-employee case, the inclusion of a section 75-1.1 claim can nudge a case over the 7A-45.4 threshold.

How did the Business Court answer this question?

Broiling-hot litigation with former employees

The plaintiff in UNOX supplies ovens in the food-service industry. (I know, I know: another food case.)

UNOX filed the case in Gaston County Superior Court in April 2019 against two former employees. UNOX accused the employees of using the company’s confidential information to benefit their new employer, which competes with UNOX. The complaint included the usual assortment of business torts, including an alleged 75-1.1 violation. UNOX sued both the former employees and their new employer.

The defendants timely filed a notice of designation to have the Business Court administer the case. The defendants said that the case raises material issues related to disputes involving (1) antitrust law and (2) trade secrets. Either of these bases satisfies section 7A-45.4.

UNOX challenged the designation. UNOX pointed out that its complaint didn’t raise any antitrust claim and didn’t involve trade secrets, even if it did involve the misuse of confidential and proprietary information.

An unfair designation despite allegedly unfair conduct

Chief Judge Louis A. Bledose, III examined these two bases. For each basis, the defendants made section 75-1.1 a central part of their argument.

As to trade secrets, the defendants argued that the section 75-1.1 claim included freestanding allegations of misappropriation of confidential information—allegations that were fundamentally the same as the allegations required to state a claim for trade-secret misappropriation. The defendants therefore contended that “there is no way to prosecute or defend this case without treating [it] as a trade secret dispute.”

Judge Bledsoe didn’t buy it. UNOX, as the plaintiff, was the master of its complaint. UNOX chose not to raise any trade-secret claims. The fact that the complaint contained allegations that could have given rise to a trade-secret claim didn’t change the fact that the complaint lacked that claim.

Notably, this explanation was accompanied by an admonition against gamesmanship. If a party wants to dodge the Business Court by excluding a claim that would otherwise give rise to a section 7A-45.4 designation, then that party must accept the “meaningful and lasting consequences” of eschewing that claim.

Judge Bledsoe then turned to whether the complaint contained material issues of antitrust law. The plain language of section 7A-45.4 forbids designation based on a 75-1.1 claim alone. The defendants tried to sidestep that prohibition by characterizing UNOX’s claims as claims for “anticompetitive conduct.”

That characterization, however, would mean that all cases on restrictive employment covenants would fall within section 7A-45.4(a)(3)—a conclusion that, as Judge Bledsoe pointed out, would clash with the Court’s historical practices.

The defendants, then, struck out entirely, and Judge Bledsoe ordered the action to proceed on Gaston County’s regular civil docket.

On designations, the complaint is the starting point

The UNOX decision further clarifies that, even if a case seems to scream for a Business Court designation, that designation needs to find its roots in the complaint. As a tactical matter, a plaintiff can choose to excise claims that fall within the realm of plausible claims simply to avoid a Business Court designation.

The plaintiff in UNOX did just that. The defendants’ desire to have the case in the Business Court is completely understandable, but section 7A-45.4 has limits, and Judge Bledsoe imposed those limits here.

The defendants are not without options. As Judge Bledsoe pointed out, by alleging claims about confidential information rather than trade secrets, the defendants are free to challenge the legal sufficiency of those claims.

And if the defendants do so, UNOX can’t say that the claim is like a trade-secret claim—at least not without feeling the heat.

Author: Stephen Feldman

September 10, 2019
Posted in  Other 75-1.1 Issues