Return to nccourts.org
Return to the Opinions Page
An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.

NO. COA06-813

NORTH CAROLINA COURT OF APPEALS

Filed: 17 July 2007

MODULAR TECHNOLOGIES, INC.,
        Plaintiff,

v .                         Lenoir County
                            No. 04 CVS 549
MODULAR SOLUTIONS, INC.; and
ALICE S. ROUSE and ERIC ROUSE,
        Defendants.

    Appeal by plaintiff and defendants from an order and judgment entered 28 November 2005 by Judge Paul L. Jones in Lenoir County Superior Court. Heard in the Court of Appeals 7 March 2007.

    Emanuel & Dunn, PLLC, by Raymond E. Dunn, Jr., for plaintiff- appellant/cross-appellee.

    Ward and Smith, P.A., by E. Bradley Evans and Gary J. Rickner, for defendant-appellees/cross-appellants.

    BRYANT, Judge.

    Modular Technologies, Inc. (plaintiff) appeals from an order and judgment entered 28 November 2005 granting defendants' motion for judgment notwithstanding the verdict. For the reasons stated herein, we affirm the order and judgment of the trial court.

Facts

    Modular Technologies, Inc., (MTI) is a North Carolina corporation in the business of modular building sales and construction and provides pre-engineered commercial modular buildings to schools, day care facilities, health care facilities and churches in more than thirteen states along the easternseaboard. MTI was established by Terry Andrews in 1992, immediately after leaving his father-in-law's modular building business. Mr. Andrews serves as MTI's President, sole shareholder and director. Terry's wife, Debbie Andrews, works full-time for MTI performing accounting duties.
    In 1997 MTI elected to outsource its bookkeeping, accounting and tax return preparation to Pittard, Perry & Crone (PP&C), a regional accounting firm. The business and financial records delivered to PP&C included: all checks, deposit slips and bank statements; the names and addresses of all customers, vendors, subcontractors, freight operators and manufacturers; a detailed listing and summary of all costs and operational expenses; and an internal financial analysis of every contract awarded to Modular Technologies. Shortly after MTI transferred its accounting to PP&C, defendant Alice Rouse joined PP&C as a staff accountant.
    In 1998, Mrs. Rouse was licensed as a Certified Public Accountant (CPA) and began working on the MTI account. As the CPA for MTI, Mrs. Rouse was responsible for analyzing all of its financial records and for preparing its tax returns and reviewed financial statements. While at PP&C, Mrs. Rouse performed accounting work for MTI for the tax years 1997, 1998, 1999 and 2000. In order to prepare reviewed financial statements, Mrs. Rouse was required to perform a detailed financial analysis of all of MTI's contracts for the delivery and construction of commercial modular buildings. PP&C also prepared IRS Form 1099's and performed monthly bookkeeping and bank reconciliation for MTI.    On 14 March 2001, Mrs. Rouse completed MTI's corporate tax returns for the year 2000 and delivered the returns to Mrs. Andrews. On 9 April 2001, Mrs. Rouse filed Articles of Incorporation forming Modular Solutions, Inc. (MSI). Mrs. Rouse prepared all of the organizational documents for MSI and became MSI's President, sole shareholder, sole director and Chief Executive Officer, but her involvement in the day-to-day business of MSI is generally limited to accounting activities. On behalf of MSI, Mrs. Rouse subsequently applied for and received designation as a minority-owned business with the North Carolina Department of Administration.
    Mrs. Rouse's husband, Eric Rouse, testified that MSI was formed because he had an epiphany after a heated argument with his family concerning their family business and decided to break away from the family business to form a commercial modular construction business. Mr. Rouse had been involved in the modular building and construction industry through his family's businesses, B&R Rentals and Triple R Electric. Mr. Rouse's responsibilities with Triple R Electric included preparation and submission of public bids. Mr. Rouse now controls the management and daily operations of MSI.
    Mrs. Rouse recognized that MSI might compete with MTI and in April of 2001 she advised Dean Horne, her supervisor and the office manager at the LaGrange office of PP&C, that she wished to be removed from any and all work for MTI. She explained that her husband intended to start a business that might potentially compete with MTI, and she wanted to avoid any conflicts of interest. Mrs.Rouse was removed from working on MTI's accounts and performed no substantive accounting work for MTI following this conversation. Mrs. Rouse ended her employment with PP&C in October 2002, when her daughter was born.
    MSI is now in the business of selling modular buildings for use as classrooms, office buildings, and the like to both public and private customers. Since the incorporation of MSI, it has competed with MTI on seventeen public bids, and has only won six. Mr. Andrews has admitted that he has no evidence of MTI losing any private sales to MSI. Had MSI not won the six public project bids, MTI would potentially have generated profits of more than $349,929.00 from those projects. After initially competing solely in North Carolina, MSI now competes with MTI on projects in other states such as Virginia, Maryland, and South Carolina and represents that it is prepared to conduct business in Georgia, Florida, West Virginia and Washington, DC. In projects where MSI was a known bidder, MTI was forced to lower its bids because of the presence of MSI.
Procedural History

    On 19 April 2004, plaintiff filed a Complaint against defendants seeking compensatory damages, treble damages, attorney fees and injunctive relief. In its complaint, plaintiff asserted eleven claims for relief, including: (1) Breach of Fiduciary Duty against Alice Rouse, (2) Negligence against Alice Rouse, (3) Negligence against Eric Rouse and Modular Solutions, (4) Fraud against Alice Rouse, (5) Fraud against Eric Rouse and ModularSolutions, (6) Conversion, (7) Misappropriation of Trade Secrets, (8) Unfair and Deceptive Trade Practices, (9) Unfair Competition, (10) Punitive Damages, and (11) Injunctive Relief. On 21 June 2004, defendants filed an Answer denying the material allegations of the Complaint and raising affirmative defenses. After the completion of discovery, defendants moved for summary judgment which the trial court denied on 29 August 2005.
    This matter was tried before a jury duly impaneled beginning on 10 October 2005. At the close of plaintiff's evidence, the trial court denied defendants' Motion for Directed Verdict on the issues of misappropriation of trade secrets and unfair trade practices, but granted defendants' motion as to all remaining issues including breach of fiduciary duty, fraud, negligence and unfair competition. At the close of all evidence, defendants' renewed Motion for Directed Verdict was denied and the trial court submitted the issues of misappropriation of trade secrets and unfair trade practices to the jury. On 19 October 2005, the jury foreperson reported that the jury was hopelessly deadlocked, and the trial court subsequently declared a mistrial.
    On 27 October 2005, defendants filed a Motion for Judgment pursuant to Rule 50 of the North Carolina Rules of Civil Procedure and, on 21 November 2005, defendants filed a Motion to Tax Costs Against Plaintiff. On 28 November 2005, the trial court entered a final Order and Judgment granting defendants' Motion for Judgment, but denying defendants' Motion to Tax Costs. Plaintiff filed a Notice of Appeal on 27 December 2005 from both the final Judgmentand the previous order granting defendants' Motion for Directed Verdict at the close of plaintiff's evidence. On 29 December 2005, defendants also filed a Notice of Appeal from the trial court's order denying their Motion to Tax Costs.
    On 27 November 2006, defendants filed a motion with this Court to partially dismiss plaintiff's appeal as to the rulings of the trial court on defendant's Motion for Directed Verdict. Additionally, on 4 December 2006, defendants filed a motion to withdraw their appeal as to the trial court's order denying their Motion to Tax Costs. This Court allowed defendants' motion to withdraw on 5 December 2006, and allowed defendants' motion to partially dismiss plaintiff's appeal on 7 December 2006.
_________________________

    Two issues from plaintiff's appeal remain before this Court: (I) whether the trial court erred in concluding pursuant to Rule 50 that the evidence presented at trial created no genuine issues of material fact for the jury on the question of whether defendants misappropriated plaintiff's valuable trade secrets; and (II) whether the trial court erred in concluding pursuant to Rule 50 that the evidence presented at trial created no genuine issues of material fact for the jury on the questions of whether the actions and conduct of defendants amounted to unfair and deceptive trade practices.
Standard of Review

    On appeal, this Court reviews an order granting a motion for judgment notwithstanding the verdict de novo. See Denson v.Richmond County, 159 N.C. App. 408, 411, 583 S.E.2d 318, 320 (2003).
        The standard of review of a ruling entered upon a motion for judgment notwithstanding the verdict is “whether upon examination of all the evidence in the light most favorable to the non-moving party, and that party being given the benefit of every reasonable inference drawn therefrom, the evidence is sufficient to be submitted to the jury.”

Branch v. High Rock Realty, Inc., 151 N.C. App. 244, 249-50, 565 S.E.2d 248, 252 (2002) (quoting Fulk v. Piedmont Music Ctr., 138 N.C. App. 425, 429, 531 S.E.2d 476, 479 (2000)), disc. review denied, 356 N.C. 667, 576 S.E.2d 330 (2003). “A motion for . . . judgment notwithstanding the verdict 'should be denied if there is more than a scintilla of evidence supporting each element of the non-movant's claim.'” Denson, 159 N.C. App. at 412, 583 S.E.2d at 320 (quoting High Rock Realty, 151 N.C. App. at 250, 565 S.E.2d at 252).
I

    Plaintiff first argues the trial court erred in granting defendants' motion for judgment notwithstanding the verdict as to plaintiff's claim that defendants misappropriated plaintiff's valuable trade secrets. We disagree.
    Plaintiff may establish a prima facie case of misappropriation of trade secrets by
        the introduction of substantial evidence that the person against whom relief is sought both:

            (1) Knows or should have known of the trade secret; and
            (2) Has had a specific opportunity to acquire it for disclosure or use or has acquired, disclosed, or used it without the express or implied consent or authority of the owner.

N.C. Gen. Stat. § 66-155 (2005). It is undisputed that, during her tenure as plaintiff's CPA, Mrs. Rouse had access to plaintiff's sensitive business information such as vendor lists, price lists, customer lists, etc. However, even assuming that at least some of the information to which Mrs. Rouse had access qualifies as trade secrets, plaintiff has not introduced substantial evidence that Ms. Rouse acquired the information for disclosure or use, or disclosed or used the information.
    Plaintiff argues it has met its prima facie burden as to defendants' disclosure or use of its trade secrets based on the following evidence: MSI's similar business structure in that it operated a regional business out of one building in a small town; MSI's bids on projects from some of plaintiff's larger customers; MSI's use of plaintiff's subcontractors; and MSI's success in underbidding plaintiff and other competitors. Yet both Terry and Debbie Andrews admitted they had no evidence to support their claims that Mrs. Rouse wrongfully disclosed any of plaintiff's confidential business and financial information. Indeed, the only evidence of Mrs. Rouse's involvement with MSI was provided by defendants and showed that she was the titular head of the company and took no part in the day-to-day operations of MSI other than preparing invoices, writing checks, filling out forms, and “typical bookkeeping type work[.]” Ms. Rouse was not involved in biddingfor projects, selecting subcontractors or selecting vendors. Plaintiff produced no evidence contrary to that established by defendants, only speculation and guesses based on the fact that she was listed as the President and Chief Executive Officer of MSI.
    Plaintiff contends this Court's decision in Byrd's Lawn & Landscaping, Inc. v. Smith, 142 N.C. App. 371, 542 S.E.2d 689 (2001), is controlling in this case. There, the defendant, J. Mark Smith, had previously worked for the plaintiff, Byrd's Lawn & Landscaping, in preparing bids for customers of the plaintiff's landscaping business. Id. at 376-77, 542 S.E.2d at 692-93. This Court found Smith “had reviewed the historical cost information relating to [plaintiff's customers] shortly before leaving his employment with [the] plaintiff.” Id. at 377, 542 S.E.2d at 693 The defendant then went on to start his own business in competition with the plaintiff and successfully underbid the plaintiff to provide landscaping services for eleven of fourteen of the plaintiff's customers. Id. This Court held that “[s]uch evidence is sufficient circumstantial evidence to sustain a finding that defendant knew of the confidential information, had the opportunity to acquire it for his own use, and did so.” Id.
    However, here, plaintiff has not made any showing that Mrs. Rouse similarly reviewed plaintiff's confidential information immediately prior to incorporating MSI or that Mrs. Rouse was even involved in preparing MSI's bids for projects. While MSI bid on projects for customers who were past customers of plaintiff, these projects were entirely new projects and not projects for whichplaintiff was required to re-bid each year as were the yearly landscaping projects in Byrd's. See Id. at 376, 542 S.E.2d at 692.
    Contrary to plaintiff's arguments, any correlation between Mrs. Rouse's work as plaintiff's CPA and the subsequent success of MSI does not imply the success was gained as a result of the application of any trade secrets possibly gleaned by Mrs. Rouse during her tenure as plaintiff's CPA. Plaintiff's evidence rises to no more than an assertion of post hoc, ergo propter hoc which we find insufficient as a matter of law to support plaintiff's claim against defendants for misappropriation of trade secrets. Thus the trial court did not err in granting defendant's motion for judgment notwithstanding the verdict as to plaintiff's claim for misappropriation of trade secrets. This assignment of error is overruled.
II

    Plaintiff next contends the trial court erred in granting defendants' motion for judgment notwithstanding the verdict as to plaintiff's claim that defendants' actions and conduct amounted to unfair and deceptive trade practices. We disagree.
    Plaintiff argues the actions of defendants in misappropriating plaintiff's confidential business and financial records constitutes a violation of North Carolina's prohibition against unfair and deceptive trade practices. See N.C. Gen. Stat. § 75-1.1 (2005). As we have held that plaintiff did not meet his burden to establish a prima facie case for misappropriation of trade secrets, see Issue I, supra, plaintiff's argument must necessarily fail.    Plaintiff also contends Ms. Rouse breached her fiduciary duty to plaintiff, giving rise to its claim for unfair and deceptive trade practices. See Sara Lee Corp. v. Carter, 351 N.C. 27, 31-32, 519 S.E.2d 308, 311 (1999) (holding a defendant's fraudulent acts and breach of fiduciary duty may constitute unfair and deceptive acts or practices under N.C. Gen. Stat. § 75-1.1). However, plaintiff's contention that Ms. Rouse breached her fiduciary duty to plaintiff again rests in its argument that she inappropriately used plaintiff's confidential business and financial information for her own gain. As plaintiff has presented no evidence of such use, only mere speculation and assumptions, see Issue I, supra, we must hold that the trial court did not err in granting defendant's motion for judgment notwithstanding the verdict as to plaintiff's claim that defendants' actions and conduct amounted to unfair and deceptive trade practices. This assignment of error is overruled.
    Affirmed.
    Judges McCULLOUGH and LEVINSON concur.
    Report per Rule 30(e).
    Judge LEVINSON concurred in this opinion prior to 7 July 2007.

*** Converted from WordPerfect ***