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-
Ward and Smith, P.A., by E. Bradley Evans and Gary J. Rickner,
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.
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
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.
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
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
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.
N.C. App. 425, 429, 531 S.E.2d 476, 479 (2000)), disc. review
, 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
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
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
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
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
, 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
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.
Judges McCULLOUGH and LEVINSON concur.
Report per Rule 30(e).
Judge LEVINSON concurred in this opinion prior to 7 July 2007.
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