A party seeking to unseat a verdict by JNOV “bears a heavy burden under North Carolina law.” Only a “scintilla of evidence” is needed to support the elements of the prevailing claim. But as the Business Court reminded in Emrich Enters., LLC v. Hornwood, Inc., 2023 NCBC 86, ¶¶ 18, 19, a movant armed with a precisely drawn operating agreement can still don a tacky tux and top hat and dream:

“So you’re telling me there’s a chance.”

– Jim Carrey as Lloyd Christmas in

Dumb and Dumber, no doubt

speaking for JNOV filers everywhere

Emrich Enterprises and Hornwood are the sole members of Triangle Automotive Components, LLC, an entity that supplied “headliner fabric” (look above you in the car) to auto companies. The crux of the dispute that reached the jury involved Hornwood’s threats to stop supplying fabric to Triangle and its apparent interest in selling, instead, to Triangle’s competitors. Id. ¶¶ 11-13.

The jury found that Hornwood breached its fiduciary duties to Triangle by its surreptitious efforts to sell fabric to competitors, and threatening to cease supplying Triangle. Id. ¶ 20. Triangle’s Operating Agreement required its members to first offer to Triangle any business ventures that would compete with it.

The central issue was whether this “right of first refusal” provision in the operating agreement could survive as against a broadly worded “Limitation of Liability” provision that shielded Triangle’s members from liability for damages for (i) acts or omissions known to be in conflict with Triangle, or (ii) transactions that resulted in improper personal benefits. Id. ¶ 9. Consistent with the Business Court’s practice of seeking to honor the agreements of parties reflected in their formation and governing documents, Judge Robinson noted that: (Id. ¶ 28):

“An operating agreement is a contract[,] and should be interpreted under North Carolina’s established rules of contract construction.”

The Court observed that the right of first refusal duty imposed on Triangle’s members “is far narrower that the fiduciary duties typically owed by managers of an LLC, which were waived[.]” That comparison, along with the ability of members to “extend the limitation of liability to the extent the [Limited Liability Company] Act permits,” led the Court to reject the jury’s finding that a fiduciary duty existed, and was breached. Id. ¶¶ 29, 31.

Plaintiffs fared better in upholding breach of contract awards to Emrich ($145,000) and Triangle ($309,000) for Hornwood’s failure to disclose its competitive business dealings. The right of first refusal might not have survived as a fiduciary duty, but it was a contractual duty Hornwood violated when it “entered into a non-disclosure agreement [with a competitor, and] concealed the opportunity” from Triangle. Id. ¶ 62.

The jury’s $236,000 award of punitive damages was set aside based on the Court’s ruling that any fiduciary duties had been waived in the operating agreement. With only breach of contract claims remaining, no punitive damages could lie given the statutory mandate that “[p]unitive damages shall not be awarded against a person solely for breach of contract.’ Id. ¶ 66, quoting N.C.G.S. § 1D-15(d).

Takeaways

• Before a party even gets to bearing the “heavy burden” to win a JNOV motion, “[t]o have standing after the verdict to move for JNOV, a party must have made a directed verdict motion at trial on the specific issue which is the basis of the JNOV.” Id. ¶ 39 (quoting Plasma Ctrs. Of Am., LLC v. Talecris Plasma Res., Inc., 222 N.C. App. 83, 87 (2012)).
• In deciding a motion for new trial on the breach of contract awards, the Court noted that its discretion to do so “must be used with great care and exceeding reluctance.” Id. ¶ 70, (quoting Shaw v. Gee, 2018 WL 5259142, *6 (N.C. Super Ct. Oct. 19, 2018)). Noting the variance in evidence upon which the jury could have relied in determining these awards to Emrich and Triangle, the Court reminded that it “does not need to understand ‘exactly how the jury reached its overall figure.’” Id. ¶ 76 (quoting Blakeley v. Town of Taylortown, 233 N.C. App. 441, 449 (2014)).

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