There were only three Orders of Significance issued by the Business Court in August 2026. This edition covers all of them.

For The Second Time This Month, The Business Court Dismisses A Claim For Failure To Prosecute

I wrote earlier this month about Chief Judge Conrad's dismissal of a claim for "failure to prosecute.” You can read that post here.

Judge Davis followed that ruAugust Order in Greentouch USA, Inc. v. Lowe’s Cos., 2026 NCBC Order 68 (Davis, J.).

Here's what led to the Rule 41(b) dismissal: in March 2026, then Presiding Business Court Judge Earp permitted counsel for both Plaintiffs (they are related companies) to withdraw as counsel. The Business Court thereafter stayed all pending deadlines in the case, so that the two Plaintiffs could obtain new counsel. Order ¶14. Firm deadlines were given for the parties to obtain new counsel. New counsel thereafter appeared in June 2026 for only one Plaintiff — Greentouch USA. No attorney appeared for Plaintiff HK Greentouch.

The unrepresented Plaintiff could not have been under any illusion over its obligation to obtain new counsel. The Court had entered an Order directing that Plaintiff to retain replacement counsel by no later than May 3, 2026. The court subsequently extended the deadline to June 2, 2026. Order ¶26

The Defendants filed a Motion to Dismiss on June 10, 2026. That motion came on for hearing on July 31, 2026. No counsel appeared at the hearing for Plaintiff HK Greentouch.

Perhaps Plaintiff HK Greentouch thought that it didn't need a new attorney to pursue its own interests? Perhaps it thought it could just ride the coattails of its represented affiliate, or that it could represent itself?

Judge Davis was having none of that. He observed that “HK Greentouch is a corporate entity and is incapable of representing itself pro se in this matter under well-established North Carolina law.” Order ¶28. He referenced the Court's previous Orders directing Plaintiff HK Greentouch to obtain replacement counsel by a date certain.

All this led to Judge Davis dismissing Plaintiff HK Greentouch as a Plaintiff in the case. He did that pursuant to Rule 41(b) of the North Carolina Rules of Civil Procedure. Here's what the COA says is the standard for granting a dismissal for failure to prosecute:

Before a civil case may be involuntarily dismissed with prejudice for failure to prosecute pursuant to Rule 41(b), the trial court must address the following three factors in its order: (1) whether the plaintiff acted in a manner which deliberately or unreasonably delayed the matter; (2) the amount of prejudice, if any, to the defendant caused by the plaintiff’s failure to prosecute; and (3) the reason, if one exists, that sanctions short of dismissal would not suffice.

Order ¶24 (quoting Lentz v. Phil’s Toy Store, 228 N.C. App. 416, 421 (2013)).

Judge Davis found that all three of these factors were met. With regard to undue delay, he ruled that “proceedings in this action have been delayed for a significant amount of time (a few months?) due to HK Greentouch’s failure to retain new counsel.” Order ¶26. He also found that the defendants had been prejudiced “both by the resulting delay and by having to bear the costs of serving the Court’s 4 March and 30 April Orders on HK Greentouch (how much could that have cost?)” Order ¶27. He also found that no sanction lesser than dismissal was possible on these facts.

The Unrepresented Plaintiff is not Clear of this Case

Despite its dismissal as a Plaintiff, HK Greentouch is not completely separated from this case. It is still a Counterclaim Defendant. But as Judge Davis observed it is “prohibited from defending itself from Defendant's Counterclaims as an unrepresented corporate entity. Order ¶30 & n.1

There is a little bit more to know about this case

There was at least one other discovery-related issue dealt with Judge Davis in his Order. It concerned a motion for extension of time to conduct discovery. When that Motion was made, the discovery period had already closed, in February 2026^. Judge Davis granted the Motion, extending the discovery period through October 2026.

He did so based upon the delinquency of Plaintiff Greentouch USA in producing its general ledgers. After stating repeatedly that they could not be found (!), that Plaintiff finally produced them seven days before the scheduled close of expert discovery. Order ¶ 44.Judge Davis ruled that the defendants would be prejudiced if they were not permitted to take limited additional discovery regarding those financial records. Order ¶46.

Judge Davis was not happy with this curious behavior in discovery. He stated that “the Court has concerns about the possibility of misconduct that Defendants have raised with regard to the manner in which Greentouch USA and HK Greentouch have litigated this case.”

Another Motion to Amend a Complaint is Denied by the Business Court

it is pretty difficult to find a way to have your Motion to Amend a Complaint denied by a Judge (remember that the NC Supreme Court has said that “[t]here is no more liberal canon in the [R]ules than that leave to amend shall be freely given when justice so requires.” (Order ¶15) but plaintiff managed to do so in Daedong-USA, Inc. v. KI Fin., Inc., 2026 NCBC Order 67 (Davis, J.).

You can tell the way that this Order is going by its first paragraph, which reads:

After more than two years since this lawsuit was initiated, four months since the discovery period closed, and two weeks following the Court’s hearing on dispositive motions, Plaintiff has moved for leave to amend its complaint for the third time. Because such a motion is untimely and, if granted, would unfairly prejudice Defendants, denial of the Motion is appropriate.

Order ¶1 (emphasis added).

A significant factor in the Court’s ruling was that the Motion to Amend had been “made within such close proximity to the summary judgment stage.” Order ¶23.Judge Davis also observed that the newly raised issues in the proposed Third Amended Complaint might have changed the Defendants’ approach to discovery. He said:

Had Defendants known of the new allegations Daedong now seeks to include in a Third Amended Complaint, it is possible—if not probable—that they would have conducted discovery differently by, for example, propounding new written discovery requests to Daedong, issuing additional subpoenas to third parties, and/or deposing new witnesses or asking different questions to existing witnesses at their depositions.

Order ¶26. Ju dge Davis ruled that allowing the Amendment would have constituted unfair prejudice to the Defendants.

The Question of Arbitrability (Arbitrator or Court) Can Be Really Complicated When There Is A “Carve-Out” From What Is To Be Arbitrated

I have written several times on the question of arbitrability— whether a judge or an arbitrator decides whether a dispute is subject to arbitration. If you have a deep and abiding interest in that subject, you can read my past writings here, here, and here.

the general rule is that:

unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.

AT&T Techs. v. Commun. Workers of America, 476 U.S. 643, 649 (1986)(emphasis added).

But last month, in VF Servs., LLC v. Kyndryl, Inc., 2026 NCBC Order 69 (Shirley, J.), Judge Shirley wrestled with the question whether Plaintiff VF Services, LLC was required to submit its dispute with Defendant Kyndryl to arbitration.

The first hurdle that the court had to jump over was to decide whether the dispute was subject to the Federal arbitration act or the North Carolina Revised Uniform Arbitration Act.

Did the Arbitration Agreement “ Involve Commerce?”

The FAA applies to any “contract evidencing a transaction involving commerce[.]” 9 U.S.C. § 2 (2012) Op. ¶34. That “requires only that the transaction involves foreign or interstate commerce; the parties to the transaction need not “contemplate” an interstate commerce connection.” Id. There was diversity of citizenship between the parties. Plaintiff VF’s principal place of business is in Greensboro, North Carolina; Defendant Kyndryl’s is in New York. But the diversity of citizenship of the parties was not sufficient to dictate the application of the Federal Act..

Looking into the terms of the Master Services Agreement that governed the parties’ relationship, Judge Shirley determined that the Agreement “involved commerce.” because:

(a) at least one of Kyndryl’s designated Key Supplier Personnel was providing services to VF from outside the United States, (b) three data centers from which Kyndryl performed services for VF were located outside the United States and a fourth was located in a state other than North Carolina, and (c) the supplier facilities from which services may be performed were located in at least 20 countries including the United States.

Order ¶36.

From there, Judge Shirley turned to the application of the recent United States Supreme Court's Opinion in Coinbase, Inc. v. Suski, 602 U.S. 143 (2024), a rare unanimous 9-0 decision from a very fragmented Court.

First, Second, Third, and Fourth Order Disagreements

In the Coinbase case, the high court identified four types of disputes that can arise in a disagreement about whether a particular issue should be arbitrated.. It identified those types as a “first order” disagreement, a “second order” disagreement, a “third order” disagreement, and a “fourth order” disagreement,

Order ¶38.

This Case Presented a Question of the “Second Order”

The VF Opinion presents a question of the “second order,” whether the question of arbitrability should be decided by the Business Court or by an arbitrator appointed by the American Arbitration Association.

The Master Services Agreement governing the IT infrastructure services provided by Defendant Kyndryl to Plaintiff VF contained a ”Limited Arbitration Right.” Any matter involving "Disputed Charges” was to be resolved via expedited arbitration “solely to resolve the dispute(s) which is the basis of VF Services withholding payments hereunder.” Order ¶11 (quoting MSA Section 12.4(g)(i)).

The Limited Arbitration Right specifically referenced the AAA Rules. Rule 7 of the AAA "Commercial Arbitration Rules and Mediation Procedures (Including Procedures for Large, Complex Commercial Disputes) Amended and Effective June 1, 2009, (AAA Rules 2009 Edition), which were in effect at the time the MSA was executed state that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.”

That provision conflicted with a general consent to the jurisdiction of the North Carolina courts in the parties’ Agreement”. Section 19.3 of the MSA said that:

‘[e]ach Party irrevocably agrees that any legal action, suit or proceeding brought by it in any way arising out of this Agreement must be brought solely and exclusively in Greensboro, North Carolina, and each Party irrevocably submits to the sole and exclusive jurisdiction of the courts in North Carolina in personam, generally and unconditionally with respect to any action, suit or proceeding brought by it or against it by the other Party.’

Order ¶8.

Defendant Kyndryl filed a Demand for Arbitration with the AAA in May 2026. The AAA has begun administering the arbitration, but plaintiff VF filed a Complaint for Declaratory Judgment and Injunction in Guilford County Superior Court and then a Motion to Stay Arbitration in the Business Court after the case was designated there.

So, who decides whether the matter before the AAA should go forward? The arbitrator? Or Judge Shirley of the Business Court? Judge Shirley seized the resolution of that question for the Business Court. He treated the question as a “carve-out” issue, involving an arbitration agreement that carved out certain types of claims from the arbitration agreement. As he put it:

A carve-out scenario occurs when there is a general agreement to arbitrate all disputes arising from or related to a contract and the arbitration agreement also carves out certain exceptions to the general agreement to arbitrate (e.g., agreement to arbitrate all claims arising out of the contract except claims in which an injunction is sought).

Order ¶53.

The general standard for determining whether the arbitrability of an issue has been delegated to an arbitrator or remains with the court is that:

unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.

AT&T Techs. v. Commun. Workers of America, 476 U.S. 643, 649 (1986)(emphasis added).

Put another way, if the contracting party has clearly and unmistakably given that power of deciding arbitrability to an arbitrator, the Court is powerless to engage in that decision. Ordinarily, the incorporation of the AAA rules into the Arbitration Agreement is sufficient to resolve the question. (The parties’ express incorporation of the AAA Commercial Rules is a “clear[] and unmistakabl[e]” sign that the parties intended to delegate substantive arbitrability to the arbitrator.” Order ¶51). But Judge Shirley questioned whether “something more” than the incorporation of the AAA Rules was needed to meet the “clear and unmistakable” standard given the presence of the carve-out.

Without resolving that question, Judge Shirley found that the parties had made significant modifications to the AAA rules, “including but not limited to limiting the powers and authority of the arbitrators in several ways.” Order ¶63. Moreover, the parties had not modified AAA Rule 7 or otherwise restricted the arbitrators from determining the substantive arbitrability of claims. Id. As he summed it up:

The parties’ modification of the AAA Rules reflects an intentional and deliberative process to define the limits of the arbitrators’ powers and their decision to not modify Rule 7(a) constitutes clear and unmistakable evidence that the parties delegated to the arbitrators the power to decide arbitrability of these disputes.