In a recent decision, the North Carolina Business Court in Lorillard Tobacco Company v. R.J. Reynolds Tobacco Company, 2011 NCBC 30 (August 8, 2011) (“Lorillard”) has found that an unfair trade practice counterclaim, based on a “sham litigation” claim, can be subject to dismissal on the pleadings and need not await discovery to determine if the plaintiff’s claim was “objectively reasonable.”
In this case, Lorillard sued Reynolds for breach of a settlement agreement, common law unfair competition and unfair and deceptive trade practices under Chapter 75-1.1. Reynolds answered the complaint and asserted a Chapter 75-1.1 counterclaim on the basis “that Lorillard’s filing of its Complaint was an unfair trade practice.” Reynolds asserted that Lorillard’s claim was filed in violation of a settlement agreement that prohibited the filing of such claims and was done for anticompetitive purposes. Lorillard subsequently moved to dismiss this counterclaim.
In deciding this motion to dismiss, the Court started with the established principle in North Carolina that “a plaintiff who files an ‘objectively reasonable’ lawsuit cannot be held liable for an unfair trade practice under N.C. Gen. Stat. 75-1.1.” Id. quoting Reichold Chems., Inc. v. Goel, 146 N.C. App. 137, 157, 555 S.E.2d 281, 293 (2001). The central issue on this motion was whether the Court could decide whether Lorillard’s claim was “objectively reasonable” based on the pleadings, or whether, as Reynolds contended, the Court would need to await fact discovery before making that determination.
After first reviewing the law on the protections afforded litigants under the Noerr-Pennington Doctrine — a legal doctrine that first arose under the federal Sherman Act that generally protects a litigant for liability in bringing a legal claim — the Court then turned to a review of the law regarding the “sham litigation” exception to the Noerr-Pennington Doctrine. Under this established exception, a claim is not protected from liability if it is (1) “objectively meritless” and (2) the court finds that the “litigant’s subjective motivation” was an unlawful intent to “interfere directly with the business relationship of a competitor.” Lorillard quoting Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 113 S. Ct. 1920 (1993). Significantly, the Court noted, while citing several federal court cases and Sunbelt Rentals, Inc. v. Head & Engquist Equip., LLC 2003 NCBC 4 333 (2003)*, that the inquiry into the subjective intent of the plaintiff in filing the claim “only follows a finding that the suit is objectively baseless and does not inform that initial objective determination.” Accordingly, if the plaintiff’s action is not “objectively baseless,” then the exception to Noerr-Pennington does not apply and a claim for unfair trade practices associated with the filing of that claim must fail.
In the Lorillard case, Reynolds argued that the Court should not decide if the Plaintiff’s claim was “objectively reasonable” as a matter of law, but rather, should await discovery and further factual development regarding Lorillard’s claim. The Court declined Reynold’s invitation and instead, relying on GoldToeMoertz, LLC v. Implus Footcare, LLC, No. 5:09-CV-0072, 2101 WL 3474792 (W.D.N.C. Aug. 31, 2010), found that the court need not in every case await fact discovery before deciding the objective reasonableness of a parties claim for purposes of deciding the applicability of the exception to Noerr-Pennington Doctrine. The Court assumed that Reynolds was correct and that Lorillard had anticompetitive intent in bringing the claim. But looking “through a lens of reasonable objectivity,” the Court concluded that Lorillard had a “reasoned basis” for its breach of contract claim. According to the Court, “Lorillard’s subjective intent does not change that initial objective determination.” While the Court was careful to note that its finding in no way indicated that Lorillard would ultimately prevail on its claim, the claim was not “utterly baseless.”
The Business Court’s opinion is significant in several respects. First, this case reflects one of the rare instances where a North Carolina state court has dismissed a “sham litigation” counterclaim on the pleadings. Second, the case raises an important question. If a plaintiff’s claim withstands a motion to dismiss, is the claim “objectively reasonable” such that a “sham litigation” counterclaim based on that claim must fail and be dismissed. The Lorillard opinion would suggest this outcome.
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* Parker Poe represented Sunbelt Rentals in this lawsuit.
- See more at: http://blogs.parkerpoe.com/antitrust-competition/?p=648#sthash.9PjrY4Xi.dpuf
In a recent decision, the North Carolina Business Court in Lorillard Tobacco Company v. R.J. Reynolds Tobacco Company, 2011 NCBC 30 (August 8, 2011) (“Lorillard”) has found that an unfair trade practice counterclaim, based on a “sham litigation” claim, can be subject to dismissal on the pleadings and need not await discovery to determine if the plaintiff’s claim was “objectively reasonable.”
In this case, Lorillard sued Reynolds for breach of a settlement agreement, common law unfair competition and unfair and deceptive trade practices under Chapter 75-1.1. Reynolds answered the complaint and asserted a Chapter 75-1.1 counterclaim on the basis “that Lorillard’s filing of its Complaint was an unfair trade practice.” Reynolds asserted that Lorillard’s claim was filed in violation of a settlement agreement that prohibited the filing of such claims and was done for anticompetitive purposes. Lorillard subsequently moved to dismiss this counterclaim.
In deciding this motion to dismiss, the Court started with the established principle in North Carolina that “a plaintiff who files an ‘objectively reasonable’ lawsuit cannot be held liable for an unfair trade practice under N.C. Gen. Stat. 75-1.1.” Id. quoting Reichold Chems., Inc. v. Goel, 146 N.C. App. 137, 157, 555 S.E.2d 281, 293 (2001). The central issue on this motion was whether the Court could decide whether Lorillard’s claim was “objectively reasonable” based on the pleadings, or whether, as Reynolds contended, the Court would need to await fact discovery before making that determination.
After first reviewing the law on the protections afforded litigants under the Noerr-Pennington Doctrine — a legal doctrine that first arose under the federal Sherman Act that generally protects a litigant for liability in bringing a legal claim — the Court then turned to a review of the law regarding the “sham litigation” exception to the Noerr-Pennington Doctrine. Under this established exception, a claim is not protected from liability if it is (1) “objectively meritless” and (2) the court finds that the “litigant’s subjective motivation” was an unlawful intent to “interfere directly with the business relationship of a competitor.” Lorillard quoting Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 113 S. Ct. 1920 (1993). Significantly, the Court noted, while citing several federal court cases and Sunbelt Rentals, Inc. v. Head & Engquist Equip., LLC 2003 NCBC 4 333 (2003)*, that the inquiry into the subjective intent of the plaintiff in filing the claim “only follows a finding that the suit is objectively baseless and does not inform that initial objective determination.” Accordingly, if the plaintiff’s action is not “objectively baseless,” then the exception to Noerr-Pennington does not apply and a claim for unfair trade practices associated with the filing of that claim must fail.
In the Lorillard case, Reynolds argued that the Court should not decide if the Plaintiff’s claim was “objectively reasonable” as a matter of law, but rather, should await discovery and further factual development regarding Lorillard’s claim. The Court declined Reynold’s invitation and instead, relying on GoldToeMoertz, LLC v. Implus Footcare, LLC, No. 5:09-CV-0072, 2101 WL 3474792 (W.D.N.C. Aug. 31, 2010), found that the court need not in every case await fact discovery before deciding the objective reasonableness of a parties claim for purposes of deciding the applicability of the exception to Noerr-Pennington Doctrine. The Court assumed that Reynolds was correct and that Lorillard had anticompetitive intent in bringing the claim. But looking “through a lens of reasonable objectivity,” the Court concluded that Lorillard had a “reasoned basis” for its breach of contract claim. According to the Court, “Lorillard’s subjective intent does not change that initial objective determination.” While the Court was careful to note that its finding in no way indicated that Lorillard would ultimately prevail on its claim, the claim was not “utterly baseless.”
The Business Court’s opinion is significant in several respects. First, this case reflects one of the rare instances where a North Carolina state court has dismissed a “sham litigation” counterclaim on the pleadings. Second, the case raises an important question. If a plaintiff’s claim withstands a motion to dismiss, is the claim “objectively reasonable” such that a “sham litigation” counterclaim based on that claim must fail and be dismissed. The Lorillard opinion would suggest this outcome.
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* Parker Poe represented Sunbelt Rentals in this lawsuit.
