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All opinions are subject to modification and technical correction prior to official publication in the North Carolina Reports and North Carolina Court of Appeals Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the North Carolina Reports and North Carolina Court of Appeals Reports, the latest print version is to be considered authoritative.
NORTH CAROLINA COURT OF APPEALS
Filed: 6 November 2007
KINESIS ADVERTISING, INC.,
No. 04 CVS 3127
LARRY HILL, DAN ROBINETTE, and
ROBERT K. ADKINS, NANCY J.
ADKINS, and ADKINS &
and STEVE REAVIS,
(See footnote 1)
Additional Counterclaim Defendants.
Appeal by defendants from order entered 30 June 2004 by Judge
Catherine C. Eagles and appeal by plaintiff and additional
counterclaim defendants and cross-appeal by defendants from order
entered 16 May 2006 by Judge John O. Craig, III in Superior Court,
Guilford County. Heard in the Court of Appeals 8 May 2007.
Wishart, Norris, Henninger & Pittman, P.A., by Pamela S. Duffy
and Molly A. Orndorff, for plaintiff-appellant/cross-appellee
and additional counterclaim defendants-appellants/cross-
Saintsing, PLLC, by James R. Saintsing, for defendants-
appellees/cross-appellants Larry Hill and Dan Robinette.
J. Michael Thomas, for defendant-appellee/cross-appellant
WYNN, Judge. This case stems from a business dispute between Plaintiff
Kinesis Advertising, Inc., and Defendants Larry Hill and Dan
Robinette, who worked at Kinesis before leaving and founding their
own advertising agency, Defendant Altyris Incorporated. Among
other issues, a covenant-not-to-compete, non-solicitation
agreement, confidentiality agreement, and shareholders' agreement
involving Mr. Hill and Mr. Robinette and Kinesis lie at the heart
of this case. After a careful review of the trial courts' orders
dismissing certain counterclaims and granting summary judgment as
to other claims and counterclaims, we dismiss in part, reverse in
part, and affirm in part.
On 8 January 2004, Kinesis filed a complaint against its two
former employees, Mr. Hill and Mr. Robinette, and their new
company, Altyris Incorporated (collectively, Defendants). The
complaint alleged that Mr. Hill and Mr. Robinette had breached a
covenant-not-to-compete by leaving Kinesis and starting Altyris,
their own advertising agency. Additionally, Kinesis asserted in
its complaint claims of breach of confidentiality, trade secrets
violation, breach of employee solicitation, breach of fiduciary
duty, conversion, tortious interference with contract, constructive
trust or unjust enrichment, and unfair and deceptive trade
practices. Kinesis sought an accounting from Defendants for their
advertising services rendered before and after leaving Kinesis.
Kinesis also filed motions for a temporary restraining order and
preliminary injunction, which were denied by the trial court. On 25 February 2004, Kinesis was granted leave to amend its
complaint to include information concerning property and
confidential information that was allegedly missing after Mr. Hill
and Mr. Robinette left Kinesis, as well as contentions that Mr.
Hill and Mr. Robinette had engaged in specific acts intended to
deplete the company's cash reserves.
According to the allegations of the complaint, Kinesis issued
3,500 shares of stock to Mr. Hill and five hundred shares to Mr.
Robinette in January 2000, as consideration for signing a
confidentiality, non-competition, and non-solicitation agreement
and a shareholders' agreement with Kinesis. In September 2003, Mr.
Hill and Mr. Robinette resigned from Kinesis and started their own
company, Altyris, also engaged in advertising, with offices a block
away from those of Kinesis.
Kinesis contends that, before leaving Kinesis and starting
Altyris, Mr. Hill and Mr. Robinette engaged in negotiations with
other shareholders of Kinesis, namely, Robert and Nancy Adkins, to
buy their stock. However, Kinesis alleges that Mr. Hill and Mr.
Robinette did not engage in these negotiations in good faith, but
rather with the intention of establishing a competing business.
Additionally, after Mr. Hill and Mr. Robinette left Kinesis and
started Altyris, six of Kinesis's seven employees left Kinesis
within a week and took positions at Altyris; Kinesis asserts that
Mr. Hill and Mr. Robinette solicited these employees in violation
of the agreements they signed with Kinesis. On 13 April 2004, Altyris filed an answer to the Kinesis
complaint, and set forth the defenses of failure to state a claim,
breach of contract, and illegal restraint on trade. On 14 April
2004, Mr. Hill and Mr. Robinette also filed an answer and further
asserted counterclaims against Kinesis and additional defendants
Robert and Nancy Adkins, Adkins & Associates, and Steve Reavis.
Mr. Hill and Mr. Robinette asserted defenses including failure of
consideration of the alleged agreements, equitable estoppel, fraud,
laches, waiver, and nebulosity with respect to the claim for trade
The counterclaims alleged by Mr. Hill and Mr. Robinette
included: common law fraud, rescission of the agreements, piercing
the corporate veil, unfair or deceptive trade practices, securities
fraud under North Carolina law, fraudulent filing of tax
information returns, RICO violations by mailing fraudulent tax
returns, interception of wire communications, defamation,
violations of the Employee Retirement Income Security Act (ERISA),
conversion, violations of the North Carolina Wage and Hour Act, and
aiding and abetting fraudulent accounting practices. Mr. Hill and
Mr. Robinette then amended their counterclaims to include a claim
for civil conspiracy and to seek a declaratory judgment as to the
question of the enforceability of the shareholders' and
confidentiality, non-competition, and non-solicitation agreements
and their liability for allegedly fraudulent tax returns filed by
Kinesis and the Adkinses. Finally, Mr. Hill and Mr. Robinette
later added a claim for declaratory judgment as to liability forcredit card purchases on a Kinesis Visa card made prior to their
departure from the company.
Kinesis moved to dismiss several of Defendants' counterclaims
on 18 May 2004, asserting that they had failed to state a claim for
which relief can be granted in their allegations of unfair and
deceptive trade practices, RICO violations, ERISA violations, and
North Carolina Wage and Hour Act violations. The trial court
granted the Kinesis motion on 30 June 2004, dismissing those four
Following extensive discovery by all parties, including
depositions, production of documents, and affidavits, as well as
numerous other filings by the parties, Defendants moved for summary
judgment on 20 January 2006 as to all of the claims asserted by
Kinesis. On 30 January 2006, Kinesis likewise moved for partial
summary judgment as to
the counterclaims for fraud, rescission,
piercing the corporate veil, securities fraud, fraudulent filing of
tax information returns, interception of wire communications, and
defamation. A hearing was held before the trial court on 6
February 2006, and all parties submitted extensive exhibits and
other documents for the trial court's review.
On 16 May 2006, the trial court granted partial summary
judgment to both sides of the dispute. Specifically, the trial
court granted summary judgment to Defendants on the Kinesis claims
for breach of the covenant-not-to-compete, breach of contract on
confidential information, and breach of fiduciary duty, as well as
for breach of contract on employee solicitation to the extent theclaim was based on breach of the non-solicitation agreement and not
in tort. Likewise, the trial court granted summary judgment to
Kinesis on Defendants' counterclaims for interception of wire
communications, defamation, fraudulent filing of tax returns,
securities fraud, rescission, civil conspiracy, and declaratory
judgment as to the shareholders' agreement and tax penalties.
Thus, following the trial court's 16 May 2006 order, the only
claims remaining for Kinesis were for trade secrets violations,
breach of contract on employee solicitation if based in tort,
conversion, tortious interference with contract, constructive
trust/unjust enrichment, unfair and deceptive trade practices, and
an accounting. Defendants' only remaining counterclaims at that
point were for common law fraud, piercing the corporate veil, and
a declaratory judgment as to the credit card debt. The trial court
certified its order as a final judgment under North Carolina Rule
of Civil Procedure 54(b), finding that the claims that were
dismissed and those that remain are factually and legally
intertwined and pertain to essentially the same conduct such that
proceeding to trial could produce verdicts inconsistent with
verdicts which may later result from trial of one or more of the
[claims] which were dismissed.
Both parties now appeal from the trial court's 16 May 2006
summary judgment order, and Mr. Hill and Mr. Robinette also appeal
from the 30 June 2004 order dismissing four of their claims.
In its appeal, Kinesis argues that the trial court erred by
granting summary judgment to Defendants as to its claims for (I)breach of the covenant-not-to-compete, confidentiality agreement,
and non-solicitation agreement; and (II) breach of fiduciary duty.
In their appeal, Mr. Hill and Mr. Robinette argue that the
trial court erred by (I) granting summary judgment to Kinesis on
the claim for interception of wire communications; (II) granting
summary judgment on the claim for defamation; (III) dismissing the
claim for fraudulent filing of tax information returns for lack of
subject matter jurisdiction; (IV) dismissing as moot the claims for
rescission, declaratory judgment, and civil conspiracy; and (V)
dismissing their claim for unfair and deceptive trade practices.
All Defendants further contend that the trial court erred by
denying their motion for summary judgment as to each of the Kinesis
claims remaining after the 16 May 2006 order.
We note at the outset that the parties are appealing
interlocutory orders that do not dispose of the entire case in
controversy. See Veazey v. City of Durham, 231 N.C. 357, 362, 57
S.E.2d 377, 381 (An interlocutory order is one made during the
pendency of an action, which does not dispose of the case, but
leaves it for further action by the trial court in order to settle
and determine the entire controversy.), reh'g denied, 232 N.C.
744, 59 S.E.2d 429 (1950). Although such orders are not usually
immediately appealable, see id., our Rules of Civil Procedure allow
a trial court to certify that his order is a final judgment as to
one or more but fewer than all of the claims or parties only if
there is no just reason for delay for an appeal. N.C. Gen. Stat.
§ 1A-1, Rule 54(b) (2005). Additionally, we allow interlocutoryappeals from orders affecting a substantial right, that is, a
legal right affecting or involving a matter of substance as
distinguished from matters of form: a right materially affecting
those interests which a man is entitled to have preserved by law:
a material right. Ostreicher v. American Nat'l Stores, Inc., 290
N.C. 118, 130, 225 S.E.2d 797, 805 (1976).
Although not binding on this Court, we afford a trial court's
Rule 54(b) certification great deference on appeal. First Atl.
Mgmt. Corp. v. Dunlea Realty Co., 131 N.C. App. 242, 247, 507
S.E.2d 56, 60 (1998). Here, given the prolonged procedural history
of the case, the number of claims and counterclaims, and the same
set of operative facts underlying the entire case, we agree with
the trial court's determination that the claims that have been
dismissed and those that remain are factually and legally
intertwined such that proceeding to trial could result in verdicts
inconsistent with the earlier dismissals. We therefore affirm the
trial court's Rule 54(b) certification and address the merits of
both Kinesis's and Defendants' appeals of the granting of summary
judgment in the 16 May 2006 order. Additionally, because we find
that the 30 June 2004 order dismissing several of Defendants'
claims likewise affects a substantial right, we address the merits
of those arguments.
However, Defendants also appeal the denial of summary judgment
in their favor as to the remaining Kinesis claims. Because
Defendants have failed to argue, and we do not find, that any
substantial right will be affected by allowing those claims toproceed to trial with the other, remaining counterclaims, we
decline to consider the merits of those contentions. Accordingly,
we dismiss those portions of Defendants' appeals that concern the
trial court's denial of their motion for summary judgment on the
Kinesis claims for trade secrets violations, breach of contract on
employee solicitation if based in tort, conversion, tortious
interference with contract, constructive trust/unjust enrichment,
unfair and deceptive trade practices, and an accounting.
(See footnote 2)
We review an appeal from summary judgment for whether the
evidence, viewed in the light most favorable to the non-moving
party, shows there is any genuine issue of material fact between
the parties, or whether the moving party is entitled to a judgment
as a matter of law. Bruce-Terminix Co. v. Zurich Ins. Co., 130
N.C. App. 729, 733, 504 S.E.2d 574, 577 (1998).
is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that any party is entitled to a judgment as a
matter of law. N.C. Gen. Stat. § 1A-1, Rule 56(c) (2005).
Additionally, a defendant may show he is entitled to summary
judgment by: (1) proving that an essential element of the
plaintiff's case is non-existent, or (2) showing through discovery
that the plaintiff cannot produce evidence to support an essential
element of his or her claim, or (3) showing that the plaintiffcannot surmount an affirmative defense. Draughon v. Harnett
County. Bd. of Educ., 158 N.C. App. 705, 708, 582 S.E.2d 343, 345
(2003) (internal quotation and citation omitted), aff'd per curiam,
358 N.C. 137, 591 S.E.2d 520, reh'g denied, 358 N.C. 381, 597
S.E.2d 129 (2004).
Kinesis argues that the trial court erred by granting summary
judgment to Defendants as to its claims for (I) breach of the
covenant-not-to-compete, confidentiality agreement, and non-
solicitation agreement; and (II) breach of fiduciary duty.
First, Kinesis asserts that a genuine issue of material fact
remains as to the value of the consideration offered to Mr. Hill
and Mr. Robinette in exchange for signing the covenant-not-to-
compete, confidentiality and non-solicitation agreement, and
shareholders' agreement. Moreover, Kinesis contends that the
restrictions imposed by the covenant-not-to-compete are not
unreasonable as a matter of law, and that there is a genuine issue
of material fact as to damages to Kinesis and whether Mr. Hill and
Mr. Robinette breached the agreements.
In January 2000, while working for Kinesis, Mr. Hill and Mr.
Robinette signed a shareholders' agreement, a covenant-not-to-
compete, and confidentiality and non-solicitation agreement, all
combined into one contract, for which Kinesis pledged to issue them
shares of stock in Kinesis. By signing the agreements, Mr. Hill
and Mr. Robinette agreed to hold confidential all trade secretsof Kinesis, defined as financial, marketing, personal, client, and
computer hardware, software, and programs information, and not
discuss, communicate or transmit to others, or make any
unauthorized copy of or use the Trade Secrets in any capacity,
position or business unrelated to [Kinesis].
Moreover, Mr. Hill and Mr. Robinette agreed that, during their
employment with Kinesis, and for a period of two years following
the termination of that employment, they would:
refrain from dealing with, soliciting the
business of, or otherwise conducting business
[whether on behalf of Employee or of any other
person or entity for whom Employee is
performing services or in which Employee has a
financial interest after termination of
Employee's employment] of the type similar to
that of Employer (1) with any client of
Employer at the time of such termination, or
(2) within any county in North Carolina
wherein the Employer had a client at the time
of such termination of the Employee's
During that same period, the non-solicitation portion of the
agreement dictated that Mr. Hill and Mr. Robinette would not
solicit, induce, aid or suggest to any of the employees of,
consultants to, or other persons having a substantial contractual
relationship with [Kinesis] to leave such employment, cease such
consulting or terminate such contractual relationship with
Formation of a valid contract requires an offer, acceptance
and consideration. Cap Care Group, Inc. v. McDonald, 149 N.C.
App. 817, 822, 561 S.E.2d 578, 582, disc. review denied, 356 N.C.
611, 574 S.E.2d 676 (2002). A covenant-not-to-compete further
requires five conditions to be valid and enforceable: (1) in
writing; (2) made a part of the employment contract; (3) based on
valuable consideration; (4) reasonable as to time and territory;
and (5) designed to protect a legitimate business interest of the
employer. Farr Assocs., Inc. v. Baskin, 138 N.C. App. 276, 279,
530 S.E.2d 878, 881 (2000) (citation omitted); see also A.E.P.
Indus. v. McClure, 308 N.C. 393, 402-03, 302 S.E.2d 754, 760
(1983). If the covenant-not-to-compete is entered after the start
of employment, separate consideration must be issued in order for
the covenant-not-to-compete to be enforceable. Stevenson v.
Parsons, 96 N.C. App. 93, 97, 384 S.E.2d 291, 292-93 (1989), disc.
review denied, 326 N.C. 366, 389 S.E.2d 819 (1990).
In consideration for Mr. Hill and Mr. Robinette being bound by
all the terms of the contract, Kinesis pledged to issue 3,500
shares of stock to Mr. Hill and five hundred shares of stock to Mr.
Robinette. However, the parties now disagree as to whether the
shares were ever actually issued to Mr. Hill and Mr. Robinette, or
if the contract was made void and Mr. Hill and Mr. Robinette were
released from its terms by the failure of the consideration offered
by Kinesis. Nevertheless, the parties do agree that Mr. Hill and
Mr. Robinette never received stock certificates representing theirshares. Thus, the question before us is whether, as a matter of
law, uncertificated shares may constitute valuable consideration
for purposes of making a contract valid and enforceable. We
conclude that they do, but that a genuine issue of material fact
remains as to whether Kinesis actually issued and delivered the
shares to Mr. Hill and Mr. Robinette.
Under the North Carolina Business Corporation Act, a
corporation, through its board of directors, may issue shares
without a certificate unless its articles of incorporation or
bylaws provide otherwise, with such shares being as valid and
valuable as those with certificates. See N.C. Gen. Stat. §§ 55-6-
25(a), 55-6-26(a) (2005). If a corporation decides to issue
uncertificated shares, it must send the shareholder, within a
reasonable time, a written statement to include: (1) the name of
the issuing corporation and that it is organized under the law of
North Carolina; (2) the name of the person to whom issued; and (3)
the number and class of shares and the designation of the shares,
if any, the certificate represents. Id. §§ 55-6-25(b)(1)-(3), 55-
Both sides to the dispute assert facts that would support or
contradict the contention that the uncertificated shares were
actually issued. For example, Kinesis maintains that the
shareholders' agreement signed by Mr. Hill and Mr. Robinette
contained all of the information required by Section 55-6-25(b)(1),
while Mr. Hill and Mr. Robinette assert that the agreement only
states that Kinesis is willing to give and grant the shares inquestion and is not proof that Kinesis actually followed through on
Additionally, Mr. Hill and Mr. Robinette point to the absence
of their names listed as shareholders in the Kinesis corporate
books, as required by Section 55-16-01(c), which provides that
corporations must maintain a record of [their] shareholders, in a
form that permits preparation of a list of the names and addresses
of all shareholders, in alphabetical order by class of shares
showing the number and class of shares held by each. Id. § 55-16-
01(c). Kinesis responds that the company amended its Schedule K-
1s, a document required by the Internal Revenue Service to show the
shareholders of an S corporation, to name Mr. Hill and Mr.
Robinette as shareholders.
Mr. Hill and Mr. Robinette further note that Kinesis's
Articles of Incorporation provide that [t]ransfers of shares of
the corporation shall be made only on the stock transfer books of
the corporation by the holder of record, and Kinesis counters that
making the shareholders' agreement a part of the corporate minute
books satisfied that requirement.
The existence of these conflicting contentions, based on
evidence in the record, reminds us that it is not our task on
review of summary judgment to determine which side's evidence is
most persuasive or compelling. Rather, we consider only whether a
genuine issue of material fact remains or if judgment may be
rendered as a matter of law. Bruce-Terminix Co., 130 N.C. App. at
733, 504 S.E.2d at 577. Accordingly, we hold that a genuine issueof material fact remains as to whether the Kinesis shares promised
to Mr. Hill and Mr. Robinette were actually issued, such that they
constituted valuable consideration to make the covenant-not-to-
compete and confidentiality and non-solicitation agreement valid
Reasonableness of Restrictions
Next, Kinesis contends that the restrictions of the covenant-
not-to-compete were not unreasonable as a matter of law, so Mr.
Hill and Mr. Robinette were not entitled to summary judgment on
that basis. We agree.
When considering the geographic limits outlined in a covenant-
not-to-compete, we look to six overlapping factors:
(1) the area, or scope, of the restriction;
(2) the area assigned to the employee; (3) the
area where the employee actually worked or was
subject to work; (4) the area in which the
employer operated; (5) the nature of the
business involved; and (6) the nature of the
employee's duty and his knowledge of the
employer's business operation.
Hartman v. W.H. Odell & Assocs., Inc., 117 N.C. App. 307, 312, 450
S.E.2d 912, 917 (1994), disc. review denied, 339 N.C. 612, 454
S.E.2d 251 (1995).
Additionally, the time and geographic limitations of a
covenant-not-to-compete must be considered in tandem, such that
[a] longer period of time is acceptable where the geographic
restriction is relatively small, and vice versa. Baskin, 138 N.C.
App. at 280, 530 S.E.2d at 881 (citing Jewel Box Stores Corp. v.
Morrow, 272 N.C. 659, 158 S.E.2d 840 (1968)). To show
reasonableness of a geographic restriction, an employer must firstshow where its customers are located and that the geographic scope
of the covenant is necessary to maintain those customer
relationships. Hartman, 117 N.C. App. at 312, 450 S.E.2d at 917.
Nevertheless, to be valid, the restrictions must be no wider in
scope than is necessary to protect the business of the employer.
Manpower of Guilford County, Inc. v. Hedgecock, 42 N.C. App. 515,
521, 257 S.E.2d 109, 114 (1979).
Here, the covenant-not-to-compete signed by Mr. Hill and Mr.
Robinette had a two-year time restriction against soliciting or
conducting business of the type similar to that of [Kinesis] with
any Kinesis client or in any North Carolina county in which Kinesis
did business at the time they left the company. Mr. Hill and Mr.
Robinette do not challenge the reasonableness of the two-year time
restriction, nor the geographic restriction that would have barred
them from doing business similar to that of Kinesis in Forsyth and
Guilford Counties, where Kinesis had clients at the time of their
departure from the company. Rather, Mr. Hill and Mr. Robinette
contend that the similar to language is impermissibly vague
because it does not sufficiently describe the activities they would
be barred from pursuing. We find this argument to be unpersuasive.
We have previously held that a covenant-not-to-compete is
overly broad in that, rather than attempting
to prevent [the former employee] from
competing for  business, it requires [the
former employee] to have no association
whatsoever with any business that provides
[similar] services. . . . Such a covenant
would appear to prevent [the former employee]
from working as a custodian for any entity
which provides [similar] services.
Hartman, 117 N.C. App. at 317, 450 S.E.2d at 920. The language in
the covenant-not-to-compete signed by Mr. Hill and Mr. Robinette
would not bar them from any type of employment or activities with
any company similar to Kinesis; rather, they are restricted only
from dealing with, soliciting the business of, or otherwise
conducting business . . . of the type similar to that of [Kinesis]
for two years in two counties. We have concluded that similar
language in other covenants-not-to-compete is not unreasonable as
a matter of law. See Okuma America Corp. v. Bowers, ___ N.C. App.
___, ___, 638 S.E.2d 617, 622 (2007) (finding language that would
allow employment with a direct competitor in area that would not
compete with business not to be overly broad as a matter of law);
Precision Walls, Inc. v. Servie, 152 N.C. App. 630, 638-39, 568
S.E.2d 267, 273 (2002) (holding valid and enforceable a provision
barring employment in an identical position with a direct
competitor); but see VisionAIR, Inc. v. James, 167 N.C. App. 504,
606 S.E.2d 359 (2004) (finding language that would bar any type of
employment with a business similar to the company in question to be
Accordingly, we likewise hold here that the restrictions
imposed by Kinesis in the covenant-not-to-compete are no wider in
scope than is necessary to protect the business of the employer.
Hedgecock, 42 N.C. App. at 521, 257 S.E.2d at 114. Moreover, we
note that whether the activities engaged in by Mr. Hill and Mr.
Robinette were indeed similar to those of Kinesis is a question
of fact for a jury to decide. The issues of actual damages suffered by Kinesis and whether
Mr. Hill and Mr. Robinette did, in fact, breach the covenant-not-
to-compete and confidentiality and non-solicitation agreement are
likewise questions of fact for a jury to decide. The parties have
presented a voluminous number of documents, exhibits, and
depositions to this Court in support of their positions; it is
clear that there are two, if not several, sides to this story.
Given that summary judgment should not have been granted on the
basis of failure of consideration or the reasonableness of the
restrictions imposed in the covenant-not-to-compete, we reverse the
trial court and remand these claims to be heard by a jury with the
others that are pending.
Next, Kinesis argues that a genuine issue of material fact
remains as to whether Mr. Hill owed a fiduciary duty to Kinesis
that he did, in fact, breach. We agree.
An officer of a corporation with discretionary authority
must discharge his duties in good faith, conform to a reasonable
standard of care, and act in a manner he reasonably believes is in
the best interests of the corporation. N.C. Gen. Stat. § 55-8-
42(a) (2005). Corporate officers are described in the
corporation's bylaws or appointed by its board of directors in
accordance with those bylaws. Id. 55-8-40(a). Additionally, in
North Carolina, an individual may owe a fiduciary duty to the
corporation if he is considered to be a de facto officer or
director, with authority for tasks such as signing tax returns,offering major input as to the company's formation and operation,
or managing the company. Lowder v. All Star Mills, Inc., 75 N.C.
App. 233, 241, 330 S.E.2d 649, 654-55, disc. review denied, 314
N.C. 541, 335 S.E.2d 19 (1985).
In the instant case, Kinesis's bylaws provide for a President,
Secretary, Treasurer, and such Vice-Presidents, Assistant
Secretaries, Assistant Treasurers, and other officers as may from
time to time be appointed by or under the authority of the Board of
Directors. The bylaws further state that the President shall be
the principal executive officer of the corporation and, subject to
the control of the Board of Directors, shall in general supervise
and control all of the business and affairs of the corporation.
The President is authorized by the bylaws to sign certain legal
instruments binding Kinesis, such as stock certificates, deeds,
mortgages, bonds, and contracts.
Although none of Kinesis's corporate records indicate that Mr.
Hill was the President of Kinesis, Ms. Adkins stated in her
deposition that Mr. Hill was promoted to that position in January
2000, when he signed the covenant-not-to-compete, shareholders'
agreement, and confidentiality and non-solicitation agreement.
Moreover, Mr. Hill's own business cards named him as President of
Kinesis. Although Mr. Adkins is named President in Kinesis's books
and records, and Mr. Hill claimed to have no authority to sign
legal documents and only limited authority over business decisions,
Ms. Adkins explained that Mr. Hill was not the elected president,
but everybody received him as the president publicly. [Mr. Adkins]and I were not known basically to anyone outside of Kinesis.
Whether Mr. Hill's level of control and authority rose to the
level of a de facto officer, regardless of the official position of
Mr. Adkins as President, is a question of fact for the jury to
decide. We therefore reverse the trial court's grant of summary
judgment on this claim.
In sum, we hold that the trial court erred by granting summary
judgment to Defendants on Kinesis's claims for breach of the
covenant-not-to-compete and the confidentiality and non-
solicitation agreements, and breach of fiduciary duty.
Hill and Robinette Appeal
In their remaining arguments on appeal, Mr. Hill and Mr.
Robinette argue that the trial court erred by (I) granting summary
judgment to Kinesis on the claim for interception of wire
communications; (II) granting summary judgment on the claim for
defamation; (III) dismissing the claim for fraudulent filing of tax
information returns for lack of subject matter jurisdiction; (IV)
dismissing as moot the claims for rescission, declaratory judgment,
and civil conspiracy; and (V) dismissing their claim for unfair and
deceptive trade practices.
First, Mr. Hill and Mr. Robinette argue that the trial court
erred by granting summary judgment to Kinesis on their counterclaim
for interception of wire communication. We disagree.
The Federal Electronic Communications Privacy Act bars
individuals from intentionally intercept[ing], endeavor[ing] tointercept, or procur[ing] any other person to intercept or endeavor
to intercept, any wire, oral, or electronic communication. 18
U.S.C. § 2511(1)(a) (2005). North Carolina likewise prohibits such
N.C. Gen. Stat. § 15A-287(a)(1) (2005).
(See footnote 3)
Nevertheless, both statutes allow for an exception for
an officer, employee, or agent of a provider
of electronic communication service, whose
facilities are used in the transmission of a
wire or electronic communication, to
intercept, disclose, or use that communication
in the normal course of employment while
engaged in any activity that is a necessary
incident to . . . the protection of the rights
or property of the provider of that service.
§ 15A-287(c). Moreover, the statute applies only to those
communications that have been intercepted, not those that have been
stored. See id.
§ 15A-286(13) (defining intercept as the aural
or other acquisition of the contents of any wire, oral, or
electronic communication through the use of any electronic,
mechanical, or other device[,] and aural transfer as containing
the human voice at any point between and including the point of
origin and the point of reception.).
Mr. Hill and Mr. Robinette contend that Kinesis accessed their
voicemail and e-mail accounts after they had left the company and
thereby violated the statutes. However, such allegations, even
when taken in the light most favorable to Mr. Hill and Mr.Robinette, would not constitute a violation of the Act. Kinesis
was the provider of both the voicemail and e-mail accounts and had
the right to access them to retrieve business-related
protect their rights and property. Id.
287(c). Additionally, Kinesis accessed the messages after they had
been received and stored in its system; therefore, the messages
were not intercepted within the meaning of the Act. Accordingly,
we affirm the trial court's grant of summary judgment to Kinesis on
Next, Mr. Hill and Mr. Robinette contend that the trial court
erred by granting summary judgment to Kinesis on the counterclaim
for defamation. We disagree.
Under North Carolina law, slander per se is an oral
communication to a third party which amounts to (1) an accusation
that the plaintiff committed crime involving moral turpitude, (2)
an allegation that impeaches the plaintiff in his trade, business,
or profession, or (3) an imputation that the plaintiff has
loathsome disease. Boyce & Isley, PLLC v. Cooper, 153 N.C. App.
25, 29-30, 568 S.E.2d 893, 898 (2002), disc. review denied and
dismissed, 357 N.C. 163, 580 S.E.2d 361, cert. denied, 540 U.S.
965, 157 L. Ed. 2d 310 (2003). False words imputing to a merchant
or business man conduct derogatory to his character and standing as
a business man and tending to prejudice him in his business are
actionable, and words so uttered may be actionable per se. Id. at
30, 568 S.E.2d at 898. Nevertheless, this Court has noted that
[E]ven where a statement is found to be
actionable per se, the law regards certain
communications as privileged. A qualified
privilege exists when a communication is made:
(1) on subject matter (a) in which
the declarant has an interest, or
(b) in reference to which the
declarant has a right or duty, (2)
to a person having a corresponding
interest, right, or duty, (3) on a
privileged occasion, and (4) in a
manner and under circumstances
fairly warranted by the occasion and
duty, right, or interest.
The essential elements for the qualified
privilege to exist are good faith, an interest
to be upheld, a statement limited in its scope
to this purpose, a proper occasion and
publication in a manner and to the proper
parties only. Whether a communication is
privileged is a question of law for the court
to resolve, unless a dispute concerning the
circumstances of the communication exists, in
which case it is a mixed question of law and
fact. Where the privilege exists, a
presumption arises that the communication was
made in good faith and without malice. To
rebut this presumption, the plaintiff must
show actual malice or excessive publication.
DaimlerChrysler Corp. v. Kirkhart, 148 N.C. App. 572, 583, 561
S.E.2d 276, 284-85 (2002) (internal citations and quotations
omitted), disc. review denied and dismissed, 356 N.C. 668, 577
S.E.2d 112 (2003).
Here, Mr. Hill and Mr. Robinette allege that Ms. Adkins made
statements to T.R. Johns, a Kinesis employee, that they had stolen
millions of dollars from Kinesis. Assuming arguendo that this
statement is slanderous, we find that the communication was
privileged because Mr. Johns was tasked with conducting aninventory of Kinesis assets to determine what Kinesis property, if
any, was taken by Mr. Hill and Mr. Robinette. As such, Ms. Adkins
had an interest in the statement, and she made a statement limited
in scope and publication which was proper to the occasion of
informing Mr. Johns as to the nature of his investigatory duties.
Mr. Hill and Mr. Robinette have failed to rebut the presumption
that Ms. Adkins was acting in good faith when she made the
statement. Kinesis has successfully shown that Mr. Hill and Mr.
Robinette cannot overcome the affirmative defense of qualified
privilege. Accordingly, we affirm the trial court's grant of
summary judgment to Kinesis on this counterclaim.
Next, Mr. Hill and Mr. Robinette contend that the trial court
erred by dismissing their claim for fraudulent filing of tax
information returns on the basis of lack of subject matter
jurisdiction. We disagree with the grounds specified by the trial
court but nevertheless affirm its dismissal of the claim.
Under federal law, a person may bring a civil action against
any person who willfully files a fraudulent information return
with respect to payments purported to be made to any other
person[.] 26 U.S.C. § 7434 (2004) (emphasis added). This Court
has held that federal tax matters are not exclusively vested in the
federal courts and that state courts have concurrent jurisdiction
over such matters. Griffin v. Fraser, 39 N.C. App. 582, 588, 251
S.E.2d 650, 654 (1979). We also noted that federal courts and the
Internal Revenue Service have consistently ignored state courtrulings on federal tax questions where the state rulings threatened
to impair the uniformity of the national tax scheme. Id.
Moreover, [q]uestions of federal taxation are generally matters of
substantial complexity, and the federal courts and the Internal
Revenue Service have well established procedures for determining
tax controversies and construing the meaning of federal tax
Because this Court has previously determined that the federal
and state courts have concurrent jurisdiction, the trial court did
have subject matter jurisdiction over Mr. Hill's and Mr.
Robinette's counterclaim. However, we note our earlier holding
that such matters are better left to the consideration of the
federal courts. Nothing requires the trial court to exercise the
concurrent subject matter jurisdiction; we therefore affirm the
trial court's dismissal of this claim, particularly in light of the
uncertainty in federal law as to whether the Schedule K-1s
complained of by Mr. Hill and Mr. Robinette are payee statements or
information returns within the meaning of 26 U.S.C. § 7434.
Mr. Hill and Mr. Robinette further contend that the trial
court erred by dismissing their counterclaims for rescission, a
declaratory judgment, and civil conspiracy on the grounds of
mootness. We agree.
A matter is rendered moot when (1) the alleged violation has
ceased, and there is no reasonable expectation that it will recur,
and (2) interim relief or events have completely and irrevocablyeradicated the effects of the alleged violation. Comer v. Ammons,
135 N.C. App. 531, 536, 522 S.E.2d 77, 80 (1999) (citing County of
Los Angeles v. Davis, 440 U.S. 625, 631, 59 L. Ed. 2d 642, 649
Here, the trial court concluded that Mr. Hill's and Mr.
Robinette's counterclaims for rescission, declaratory judgment, and
civil conspiracy were moot because summary judgment had been
granted as to Kinesis's claims for breach of the covenant-not-to-
compete and the non-solicitation and confidentiality agreements.
Because we now reverse that grant of summary judgment, Mr. Hill's
and Mr. Robinette's counterclaims for rescission, declaratory
judgment, and civil conspiracy are no longer moot. We therefore
reverse the trial court's dismissal of these claims.
Finally, Mr. Hill and Mr. Robinette argue that the trial court
erred by dismissing their counterclaim for unfair and deceptive
trade practices for failure to state a claim for which relief may
be granted. We disagree.
We have consistently held that the employer/employee
relationship does not fall within the intended scope and purpose of
the Unfair and Deceptive Trade Practices Act (UDTP). See, e.g.
Buie v. Daniel Int'l Corp.,
56 N.C. App. 445, 448, 289 S.E.2d 118,
119-20, disc. review denied
305 N.C. 759, 292 S.E.2d 574 (1982).
Indeed, we have specifically held that
a violation of a covenant-
not-to-compete, essentially a breach of contract within the
employer/employee relationship, lies outside the scope of the UDTP. See American Marble Corp. v. Crawford
, 84 N.C. App. 86, 88, 351
S.E.2d 848, 849-50 (affirming summary judgment against a claim
alleging that a covenant-not-to-compete violated the UDTP), disc.
, 319 N.C. 464, 356 S.E.2d 1 (1987). As such, the
trial court properly dismissed the UDTP counterclaim for failure to
state a claim for which relief may be granted. Accordingly, this
assignment of error is overruled.
In sum, we dismiss those portions of Defendants' appeals that
concern the trial court's denial of their motion for summary
judgment on the Kinesis claims for
trade secrets violations, breach
of contract on employee solicitation if based in tort, conversion,
tortious interference with contract, constructive trust/unjust
enrichment, unfair and deceptive trade practices, and an
accounting. We further hold that the trial court did not err by
dismissing Mr. Hill's and Mr. Robinette's counterclaims for
interception of wire communications, defamation, fraudulent filing
of tax information returns, and unfair and deceptive trade
practices. However, we reverse the trial court's ruling dismissing
the counterclaims for rescission, declaratory judgment, and civil
conspiracy, and we also reverse the trial court's grant of summary
judgment to Defendants on Kinesis's claims for breach of the
covenant-not-to-compete, confidentiality, and non-solicitation
agreement, and for breach of fiduciary duty.
Dismissed in part, affirmed in part, and reversed in part.
Judges TYSON AND CALABRIA concur.
Steve Reavis was not a named additional counterclaim
defendant in the 16 May 2006 order but was listed as such in the 30
June 2004 order.
We note that those were the only arguments put forth by
Defendant Altyris on appeal; therefore, Altyris's entire appeal is
dismissed as interlocutory.
As previously noted by this Court, the federal and state
wiretapping laws are substantially the same. See State v. Price
170 N.C. App. 57, 65, 611 S.E.2d 891, 897 (2005).
will refer to the state law here, even though Defendants have
brought their claim under both statutes, as both allow for a
private right of action against an individual who violates the
terms of the statute.
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