When I premiered this Newsletter, I said that I was trying to do something that no other lawyers were doing: give a monthly roundup of all of the NC Business Court’s Orders and Opinions via a newsletter. I was wrong about my uniqueness and should have given a shout out to Rayburn, Cooper & Durham’s Business Court Blast, a semi-monthly newsletter on the Business Court’s Orders and Opinions. They are doing a more thorough job of writing about the Business Court’s decisions that I ever want to or will be able to (there’s only one of me and lots of them). And they get their Newsletter out quicker than mine. But I find my writing to be much more readable than theirs. Decide on your own. The Blast doesn’t have a subscribe page, but you can subscribe by emailing a request to Ashley Oldfield ([email protected]), a writer on the Blast and a partner at Rayburn Cooper You can subscribe to this Newsletter by finding the subscribe button below.

As for this month’s Opinions, there were nine. I wrote about all of them, though the eighth and ninth had to spill into a second Newsletter, for reasons explained in Part II of this month’s Opinions Newsletter (coming shortly) I can’t not highlight Judge Davis’ Opinion in The Town of Carrboro v. Duke Energy Corp., 2026 NCBC 13, which opens with the memorable line “[i]t would be a vast understatement to say that this case presents an issue of first impression under North Carolina law.” And to add to that, there’s an Opinion from Chief Judge Robinson, Mezcalito Apex, Inc. v. Murillo, 2026 NCBC 14, which rules definitively that unique Mexican food and drink options cannot be the subject of trade secret misappropriation. And if you have trouble falling asleep, Judge Brown’s Opinion in Child Care, Inc. v. LJ Schools (Carolina), Inc., 2026 NCBC 8 will do the trick. Just to be clear, it’s not his writing style, it’s the subject matter.

You can communicate with me at an email address that I've set up specifically for this Newsletter: [email protected].

Mack Sperling

The North Carolina Business Court is statutorily required to issue written opinions whenever it makes any order “granting a motion under G.S. sec. 1A-1, Rule 12 [motion to dismiss], 56 [motion for summary judgment], 59 [motion for new trial], or 60 [motion for relief from judgment or order].” N.C. Gen. Stat. §7A-45.3.

In February 2026, the Business Court issued nine Opinions. This Newsletter covers seven of them, with the eighth and ninth of them coming in the next Newsletter.

The Opinion in Child Care, Inc. v. LJ Schools (Carolina), Inc., 2026 NCBC 8 (Brown, J.) revolved around three words in an Asset Purchase Agreement. Under the APA, the Defendant, an owner and operator of daycare facilities in North Carolina purchased childcare facilities and other assets from the Plaintiff.

The purchase price was to be paid in three separate components. $10,750,000 was due on the closing date; $250,000 was a “Holdback Amount”’ and a ”Contingent Payment” not to exceed $6 million was due at a later date, based on future financial performance.

The APA was obviously the product of substantial input from accountants and financial officers. I won’t bore you with the arcane details of how the contingent payment was to be calculated, But I will try to sum it up briefly, as did Judge Brown.

The formula was this:

6 x Purchased Assets’ rolling 12-month EBITDA less $11,310,696.00.8

The APA required Defendant to prepare quarterly statements of Purchased Assets’ rolling 12-month EBITDA during an earn out period (the “Earn Out Period”), using the following formula: Total Revenue less Non-Recurring Revenue less Center Level Personal [sic] Costs less Operating Costs less Fixed Costs less Dues and Taxes less Overheard [sic] Costs plus (Non-Recurring Revenue × 12%)

The ultimate issue became the interpretation of “Non-Recurring Revenue.” The Defendant was given “sole discretion” to determine the specific variables in the EBITDA formula, including “Non-Recurring Revenue.” The APA said “For greater certainty, the specific variables associated with each of the above formula (including the application of the term EBITDA) in the equation shall be determined by [Defendant] in its sole discretion.

The APA went on to say with regard to “Non-Recurring Revenue” that ”Without limiting the above in any way, the parties agree to the following principles. . . . Non-Recurring Revenue in the above equation in Section 4.2.c.iii shall include all grants, payments for non attending [sic] children, or government stimulus funds received by [Defendant] that are free of mandated expense obligations by the grantor or administrator of such funds during the Earn Out Period.

The phrases “Non-Recurring Revenue” and “mandated expense obligations” were critical to this litigation battle. Judge Brown observed:

Op. ¶12.

If the Grant Funds were categorized as Non-Recurring Revenue, those funds would be deducted from total revenue under the EBITDA formula, and the Plaintiff would not be entitled to any Contingent Payment. Plaintiff calculated that they should be included in Total Revenue, and that it was due the full $6,000,000. Defendant calculated the Contingent Payment due to be zero. Order ¶15.

Shouldn’t this exceedingly complicated accounting interpretation with the parties six million dollars apart have been left to an accountant rather than the Business Court? Well, in my mind, yes, and the parties contemplated exactly that. Section 4.2(c)(vii) of the APA provided:

Op. ¶16 & n.22 (emphasis added). Plaintiff and defendant each appointed a qualified accountant to determine the disputed aspects of the Contingent Payment. The accountants were unable to agree on the amount of the payment due or not due, so it fell to the Business Court to make a final decision. Perhaps dealing with this morass hastened Judge Brown’s retirement from the Business Court.

If you’ve read this far even though you are not an actuary, hoping for something of legal interest, here it is: the meaning and operation of the term “sole discretion.” The APA granted the Defendant the right of sole discretion to determine the variables taken into account in determining EBITDA, including whether revenues were “free of mandated expense obligations.” Judge Brown boiled down the issue before him to whether the Defendant had properly exercised the discretion granted to it. He concluded that it had.

He first rejected the argument that the grant of sole discretion made the contract illusory and unenforceable. He observed:

Order ¶35. Judge Brown held that the Defendant’s sole discretion was not unlimited. He held that: “in every contract there is an implied covenant of good faith and fair dealing that neither party will do anything which injures the right of the other to receive the benefits of the agreement.” Order ¶40 (quoting Governor’s Club Inc. v. Governors Club Ltd. P’ship, 152 N.C. App. 240, 251 (2002)).

After determining that the APA was not illusory, Judge Brown ruled that the Defendant’s exercise of its discretion had been properly exercised. The defendant pointed to a dictionary definition of “mandated expenses” supporting its interpretation. It also argued that one of the Grants obligated it “to pay bonuses and raises to teachers—an additional expense on top of existing wages.” Op. ¶43.

In order for a party to have breached the implied covenant of good faith and fair dealing, Defendant: “must have acted in a manner, ‘which injured the right of the other to receive the benefits of the agreement, thus depriving the other of the fruits of the bargain.’” Op. ¶50 (quoting Conleys Creek Ltd. P’ship v. Smoky Mt. Country Club Prop. Owners Ass’n, 255 N.C. App. 236, 253 (2017). This can be shown by “[e]vasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance” Op.¶50 (quoting Intersal, Inc. v. Wilson, 2023 NCBC LEXIS 29, at *67 (N.C. Super. Ct. Feb. 23, 2023) (quoting Restatement 2d of Contracts § 205 cmt. d (1981)).

The Court found that there was “no credible evidence presented . . . that Defendant has engaged in any such conduct.” Op. ¶50. Judge Brown approved the Defendant’s reliance on a dictionary definition, notice that North Carolina’s appellate courts had approved interpreting undefined in a contract by referring to dictionaries. Op. ¶51 (citing a number of cases).

The plaintiff took a halfhearted run at the argument that the Defendant’s exercise of its “sole discretion” had been taken in bad faith. Judge Brown rejected this argument as well, holding that:

Judge Houston’s Opinion in Weatherspoon Family LLC v. Hatteras Investment Partners, L.P., 2026 NCBC 12 about the futility of making a pre-suit demand in a derivative action. It could have been written by a Chancellor from the Delaware Court of Chancery as easily as it was from a North Carolina Business Court Judge.

Plaintiff Weatherspoon Family LLC is a North Carolina limited liability company. Op.¶6. It a member of, and a minority investor in, Nominal Defendant Hatteras Evergreen Private Equity Fund, LLC (“Evergreen Fund”) Op.¶7. The Manager of the Evergreen Fund was Defendant Hatteras Investment Partners (“HIP”). The majority owner and manager of HIP was Defendant Perkins.

The lawsuit concerns a catastrophically failed investment by Evergreen Fund of $46 million of its assets and cash into preferred equity shares in The Beneficient Company Group, LLP (“BEN”). This was a questionable assessment from the start. Judge Houston stated that at the time of the Evergreen Fund investment, BEN “was an early-stage startup company with a limited operating history.” Op. ¶14. Furthermore, BEN’s parent company, a publicly traded company called GWG Holdings, had disclosed in its annual Form 10-K

The loss was catastrophic, tens of millions of dollars . As Judge Houston put it:

In The lawsuit, Plaintiff contended that Defendants HIP and Perkins “ignored numerous ‘red flags’ in causing Evergreen Fund to transact with Ben, that they consummated the transaction due to personal interests, and that their conduct was otherwise wrongful and harmful to Evergreen Fund. Op.¶23.

Plaintiff styled this action as a derivative action but did not make a pre-suit demand on HIP or Perkins to investigate or otherwise to assert claims. Whether a pre-suit demand was required, or whether it as excused due to futility was the central issue before Judge Houston.

The resolution of that issue required an examination of Delaware law. Why? Well, “under Article 8 of the North Carolina Limited Liability Act, ‘[i]n any derivative proceeding in the right of a foreign LLC, the matters covered by [Article 8 (derivative actions)] will be governed by the law of the jurisdiction of the foreign LLC’s organization’ with limited exceptions not applicable here. Op. ¶34. Evergreen fund was a Delaware limited liability company, and its LLC agreement was governed by Delaware law. Op. ¶35. This was the same reason that Judge Davis had to apply South Carolina law in WP Church, LLC v. Whalen, 2026 NCBC.11.

Delaware is particularly stringent about the burden a plaintiff must carry in showing that a demand would have been futile. Delaware courts are required to examine three factors:

Op. ¶41 (quoting United Food & Commercial Workers Union v. Zuckerberg, 262 A.3d 1034,1059 (Del. 2021). Conclusory allegations won’t make the cut. There must be factual particularity that goes well beyond “permissive notice pleadings.” Op. ¶43.

Judge Houston ruled that the Plaintiff had failed to satisfy any of the three grounds for establishing demand futility under Delaware law.

Plaintiff claimed that both the defendants had received a “material personal benefit” from the transaction between BEN and Evergreen Fund. These benefits were allegedly in an Advisory Contract and advisory fees that HIP (or the “Adviser”) was promised in connection with another transaction with BEN, and (ii) the general ability to cosponsor new funds and to require BEN to seed such funds.

Although Judge Houston said that those allocations “successfully paint Defendants in a poor light,” (Op. ¶ 52) the problem for plaintiff with this argument was that the alleged material personal benefit was not connected with “the alleged misconduct that is the subject of the litigation demand,” the forty plus million dollar investment in BEN. Op. ¶51. That connection is a requirement of Delaware law.

The Court also questioned whether the alleged benefits were really “material” to the Defendants. Although the Amended Complaint refer to hundreds of millions of dollars all told being contributed to BEN, Judge Houston rejected these “eye-poppingly-large sums” as being sufficient to establish materiality. Op. ¶59. He said that “‘there is no bright-line dollar amount at which’ amounts received by a manager ‘become material’ for purposes of excusing the demand requirement in a derivative action. Op. ¶59. He went on to say that “[f]or precisely this reason, the size of the transaction alone does not render an alleged benefit ‘material’ to the recipient; instead, the plaintiff must make a particularized showing of how and why the benefit is allegedly material.” Id.

That ‘particularized showing” was completely lacking in Plaintiff’s Complaint. It did not specify any percentage of the funds under management or the fees that the Defendants would allegedly receive. Instead, all it said in conclusory terms was that the arrangement was “”lucrative” or in exchange for “lucrative business opportunities.”

In another argument on materiality, the Plaintiff alleged that Defendant Perkins had lied to the board of another entity and persuading it to invest in BEN. Plaintiff said that Perkins would not have lied if the benefit to him from the investment was not material.

Here, Judge Houston's observations on human morality are quite interesting. He said “[p]eople, of course, lie frequently—often about the most mundane of things— and those lies are often immaterial.” Op. ¶65. He rejected plaintiff's argument that “people must lie only about issues that are material or for which there is a material benefit.” Op. ¶67 He said that “[t]his does not align with reality or applicable case law and is not convincing for purposes of its defense against the motion at issue. “ Id.

Did the Defendants face a “substantial likelihood of liability” with respect to the transaction at issue? Judge Houston said that they did not, even though the transaction ”turned out poorly in hindsight.” Op. ¶72.

The business judgment rule stood in the way of this argument. It '“presumes that corporate directors, officers, and managers are discharging their duties ‘in good faith and with reasonable care, even if their actions turn out poorly in hindsight.’ Op. ¶73 (quoting In re TransUnion Derivative S’holder Litig., 324 A.3d 869, 884 (Del. 2024)).

Plaintiff could not get past the barriers of the business judgment rule and the limitation of liability provision of the operating agreement without pleading with particularity “facts indicating that the defendant consciously and knowingly failed to carry out the defendants duties to the organization — i.e., that it acted in bad faith, with similarly improper motives, or otherwise not in good faith.” Op. ¶82. In other words, plaintiff needed to plead particularized facts demonstrating” that the directors acted with scienter, i.e., that they had ‘actual or constructive knowledge ’that their conduct was legally improper. Op ¶83.

Furthermore, the LLC Agreement here has limited the managers’ liability by saying that “No Manager, former Manager, officer or former officer of [Evergreen Fund] shall be liable to the Fund or to any of its Members for any loss or damage occasioned by any act or omission in the performance of such person’s services under this Agreement.” Op. ¶74. That limitation applied so long as the “loss [was not] due to an act or omission of such person constituting willful misfeasance, bad faith or gross negligence involved in the conduct of such person’s office or as otherwise required by applicable law.” Id.

The conclusory facts that plaintiff offered did “not give rise to a reasonable inference that Defendants face a ‘substantial likelihood’ of liability. Op. ¶90.

Do not read this Opinion as an approval of Defendants’ actions by the Court. Judge Houston said that the investment at issue “might demonstrate exceptionally poor business judgment” (Op. ¶86) and that “Defendants’ alleged conduct might justify questions as to HIP’s ultimate competence as manager (and Perkins’s qualifications to manage any entity)” (Op. ¶90).

plaintiff did not allege in its complaint that the Defendants lacked “independence from any other person or entity receiving a material personal benefit or who would allegedly face a substantial likelihood of liability based on Plaintiff’s cause of action,” so the court did not consider this as a basis for excusing the pre-suit demand.

In the final part of the Opinion, Judge Houston wrestled with the question of whether his dismissal should be one without prejudice or with prejudice. He observed that Delaware case law is split on whether a dismissal due to lack of subject matter jurisdiction (as this dismissal was) should be with or without prejudice.

Faced with a fairly stark command from the North Carolina Court of Appeals:

When a trial court determines that it lacks subject matter jurisdiction over a matter because of the plaintiff's failure to establish standing, the court may not dismiss the matter with prejudice pursuant to Rule 12(b)(6). Rather, in such circumstances, the matter is properly dismissed without prejudice pursuant to Rule 12(b)(1).

Op. ¶102 (quoting Pugh v. Howard, 288 N.C. App. 576, 588 (2023), Judge Houston granted the dismissal without prejudice.

Congratulations to one of my favorite former partners, Jennifer K. Van Zant, for her involvement in the successful representation of Nominal Defendant Hatteras Evergreen Private Equity Fund, LLC

In Apex Health, Inc. v. Atrium Health, Inc., 2026 NCBC 10, Judge Earp denied the Plaintiff’s Motion to Amend its Complaint.

The case had started as a plain-vanilla breach of contract case. Plaintiff Apex, a provider of a Medicare Advantage Plan, had sued Defendant Atrium, which says it is “the third largest non-profit health system in the United States,” over the Defendant’s alleged breach of an “Health Plan Collaboration and Shared Risk Agreement” to offer a Medicare Advantage plan in North and South Carolina.

Let’s start with a basic (especially for you young whippersnappers who have not yet reached the venerable age of 65 and qualified for Medicare, as I have):

What is a Medicare advantage plan? It “is a type of health plan in the United States offered by private companies as part of the original Social Security Act of 1965 that created Medicare.^[1] It permits a private insurance option that wraps around traditional Medicare. Medicare Advantage plans attempt to fill some coverage gaps and offer alternative coverage options.” (from Wikipedia).

In the Letter of Intent leading up to the execution of the agreement, the parties stated that they “ intended to form a co-branded, high-performing network Medicare Advantage health plan.” Op.¶21. What is “co-branding”? It “is the strategy that strives to capture the synergism of combining two well-known brands into a third, unique branded product.” (from The Branding Journal).

The Agreement did not contain the word “co-branded.” It said that the defendant would “use commercially reasonable efforts to support [the Plaintiff’s] Marketing efforts consistent with applicable Law. Op. ¶28.

As Plaintiff saw the Agreement, Atrium had fallen down on its obligations to cooperate and support the plan being marketed, basically failing to present a “co-branded” Plan. The first year it was marketed, the Plan signed up less than 50 beneficiaries. Complaint ¶49. The second year the Plan was offered was “also a flop. It resulted in less than 150 enrollments.” Complaint ¶55. Plaintiff blamed the Defendant’s lack of support for the Plan’s failure.

Plaintiff claimed that it had invested over $60 million in marketing and promoting the Plan, and that the Plan had failed due to the Defendant’s breach of contract. That was the one and only claim for relief in the original complaint — for breach of contract.

During the course of discovery, Plaintiff obtained multiple internal communications from the Defendant showing internal dissent about whether the plan would be co-branded. Apex claimed that these documents showed that “Atrium never intended to fulfill its obligations under the Agreement.” Op. ¶35. Plaintiff moved to amend its complaint to add a claim for unfair and deceptive trade practices based on this obtained discovery.

Leave to amend a Complaint is to be “freely given.” It says so in the governing Rule of Civil Procedure itself! But, as Judge Earp observed:

Judge Earp denied the motion to amend the basis of futility and undue delay, she did not find any undue prejudice or bad faith. First, futility. The futility hurdle basically translates to the amendment being insufficient to withstand a motion to dismiss. Given that the action was basically one for breach of contract, she noted that: ”’piggybacking’ a UDTPA claim in a breach of contract action is ‘disfavored by North Carolina and federal courts alike.’ Op. ¶62 (citations omitted).

For a breach of contract claim to support an unfair and deceptive trade practices claim “the plaintiff must allege and prove egregious or substantial aggravating circumstances to state a claim.” Op. ¶63. Furthermore, “A broken promise, standing alone, is not enough to establish a UDTP[A] claim, unless the evidence shows the promisor ‘intended to break its promise at the time that it made the promise.’ ” Op. ¶64.

Judge Earp chided the plaintiff for not including more specific language in the agreement regarding the Defendant's obligations to market the plan. She remarked:

Op. ¶69.

In a further slap to the Plaintiff, Judge Earp held that the discovery communications on which once relied fell short of the egregious or aggravating circumstances required to state a UDTPA claim. Op. ¶70. She said that those communications, at best, showed that “Atrium executives were not of one mind regarding whether to support co-branding the Plan. . . “ Op. ¶70.

As for “undue delay,” Judge Earp said that the Plaintiff’s “delay in bringing its Motion for months after discovery revealed the documents on which it relies [was] problematic.” Op. ¶78. The case had been pending since May 2024. The discovery period had ended in February 2026, after multiple extensions. She said that both parties had “back-end loaded their discovery efforts.” Op. ¶78.

I rarely finish writing about an Opinion wondering what I would do if I were in the shoes of a party’s counsel. But in this one, I do. Will plaintiff go full bore on what it has on its existing claim or will it fold up its tents and go home? Well, there’s $62 million on the table so I am hoping that the Plaintiff won’t give up.

In WP Church, LLC v. Whalen, 2026 NCBC 11, Judge Davis had to consult South Carolina law in ruling on Defendant’s Motion to Dismiss.

You probably remember the WP Church case from last month’s Orders of Significance Newsletter, in which Judge Davis disqualified Defendant Whalen’s counsel from representing both Whalen, the Manager of an LLC on whose behalf the litigation was being brought, as well as the LLC. That previous Order is here.

To refresh you, the Plaintiff, WP Church, LLC was suing derivatively on behalf of 5Church (another LLC of which it was a member) against the sole manager (Whalen) of 5Church for improperly transferring over $4.2 million of the LLC’s funds for his own personal use in connection with expenses related to hotels and restaurants not operated by the LLC and other personal matters, like buying BMWs and Audis.

Defendant Whalen had moved to dismiss the derivative action not on the grounds that he had transferred the $4.2 million, but based on contending that he had proper authority to take the funds.

Defendant Whalen also contended that the lawsuit should be dismissed because 5Church had not been named as a nominal defendant in the complaint. If North Carolina law applied, that position would have been correct:

Op. ¶22.

But 5Church was a South Carolina LLC. Given its out-of-state status, North Carolina law required that the law of the state of its formation be applied. N.C.G.S. § 57D-8-06 states as follows: “In any derivative proceeding in the right of a foreign LLC, the matters covered by this Article will be governed by the law of the jurisdiction of the foreign LLC’s organization except for the matters governed by G.S. 57D-8-02 [stay of proceedings in a derivative action], 57D-8-04 [discontinuance or settlement of derivative action], and 57D-8-05 [payment of expenses following termination of a derivative action]” N.C.G.S. § 57D-8-06.” Op. ¶25.

Defendant Whalen next argued that he had acted within the scope of managerial authority given him by the 5Church Operating Agreement. in appropriating a mere few million dollars. The agreement did indeed give Whalen the “full, exclusive and complete discretion to manage and control the business and affairs of the Company.” And also “to make all decisions affecting the business and affairs of the Company.” Op. ¶39.

Judge Davis rejected this argument. He looked to section 33-44-409 of the South Carolina Uniform Limited Liability Company Act which sets forth the standards of conduct for members and managers of limited liability companies. Courts applying South Carolina law “have held that an the manager of a limited liability company owes a duty of loyalty to the company itself.” Op. ¶44.

Again per South Carolina law, “this duty of loyalty cannot be waived in an operating agreement, but the operating agreement can ‘identify specific types of categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable. Op. ¶45.

Judge Davis ruled that even if the operating agreement could somehow be construed to give Whalen the authority to spend the LLC’s funds on his own personal business ventures, it would be “manifestly unreasonable” to give those provisions effect. Op.¶46. He further characterized Defendant Whalen's argument that he at all times possessed the power to take as much of 5Church’s funds as he desired and use them for his own personal business interests as the “epitome of a conflicted transaction.” Op. ¶47.

But Whalen was not done flailing around trying to obtain a dismissal. He next argued that his $4.2 million in transfers was protected from attack by the business judgment rule. The business judgment rule “protects corporate directors and officers from personal liability for decisions that result in losses, provided they acted in good faith, in the company’s best interests, and with reasonable care.” (quoting Cornell’s Legal Information Institute) South Carolina’s Supreme Court defines the Rule similarly. Op. ¶51.

Of course these transactions were not protected by the Business Judgment Rule. Whalen was transferring funds to entities in which he had a personal interest and spending funds on his personal behalf he therefore “effectively stood on both sides of the transaction — as both lender and borrower.” Op. ¶52. He was not disinterested in the transactions and was not entitled to the shield of the Business Judgement Rule.

Judge Davis also shut down Whalen's argument that the economic loss rule barred all of the claims against him. He relied upon in a South Carolina Supreme Court decision ruling that the economic loss rule ”applies only in the product liability context and when the only injury is to the product itself.” Op. ¶¶56-57.

The most ridiculous argument raised by Whalen in support of his motion to dismiss was that the LLC had not made an adequate pre-suit demand upon him before commencing the derivative action. Both North Carolina (G.S. §57D-8-03) and South Carolina (SCRCP 23) require that a member of an LLC make a demand on the LLC to rectify complained of matters before instituting a derivative action.

WP Church had sent a pre-suit demand and requested that the LLC institute a derivative action against Whalen for his self-dealing. Whalen, as sole manager of 5Church, ridiculed the demand. He wrote to the other members of the LLC stating that the demand was “a ludicrous position. There is no reason to incur that kind of expense. There’s no reason to, I mean, to me, it’s just sort of a flailing, grasping attempt to threaten us with litigation, which I find kind of hilarious[.]” Op. ¶10.

Whalen also had the temerity to argue that the demand not been properly served on the LLC's registered agent. He argued this notwithstanding that demand had been set sent to both his business address and his email address and that a copy was sent to his attorney. Furthermore, he had actually received a copy, given his belittling response.

It is not often that I develop a dislike for a Defendant based on reading a ruling from the Business Court. But, I really don't like Whalen

If I had to anoint an Opinion of the month, it would be The Town of Carrboro, North Carolina v. Duke Energy Corporation, 2026 NCBC 13 (Davis, J.) That's for a couple of reasons.

First, that opening line: “It would be a vast understatement to say that this case presents an issue of first impression under North Carolina law.” This is probably a little excessive, but I rank those words up there with “Call me Ishmael” as an opening line. I am not saying that Judge Davis deserves to be in the panoply of great authors like Herman Melville, but it is worth pointing out that Judge Davis is a published author.. He has written A Warren Court of our Own, published by the Carolina academic press. I’ve just started reading the book (I’m 38% into it per my Kindle) and I am enjoying it. [Note that I get no compensation from any purchases of the book as a result of this newsletter, but I nevertheless recommend that you go ahead and buy it and read it].

Second, the subject of the opinion is the Carrboro's effort to take on climate change. It accuses Duke Energy of failing to inform the public about how its greenhouse gas emissions contribute to climate change, and in fact actively misleading the public about that subject. Carrboro claims that its property has been damaged as a result of climate change. It specifically points to damage to its 85 miles of roadways as a result of heat waves and excessive precipitation. It also says that it has been required to invest substantial funding in order to “upgrade, maintain, and repair its buildings, parks, and other infrastructure.” Op. ¶11.

If you're wondering whether Duke Energy is the appropriate whipping boy to take on for climate change, Duke ”is one of the largest electric, natural gas, and energy companies in the world and owns and operates fossil fuel fired electric plants in a number of states, including North Carolina, South Carolina,” Op. ¶4. The claims were for “(1) public nuisance, (2) private nuisance, (3) trespass, (4) negligence, and (5) gross negligence.” Op. ¶17.

Regardless of how you feel about climate change, Judge Davis ruled that the Towns' claim against Duke Energy could not proceed. In so doing, he quickly brushed aside Duke Energy's argument that the town lacked standing to bring its claims. He noted that the North Carolina General Assembly had granted North Carolina and used municipalities broad general corporate powers and rights (N.C. Gen. Stat. §160A). In so doing, the Gen. assembly vested Carrboro and other municipalities with “traditional common law rights held by property owners—including the right to file suit to redress harm to that property.” Op. ¶ 30 (citing Town of Morganton v. Hudson, 207 N.C. 360, 362 (1934))

Judge Davis had a tougher time with Duke Energy's argument that Carrboro's claims regarding greenhouse gas emissions were preempted by federal law. Here, the Judge was not writing on a blank slate. I had begun writing about this case thinking that the Town’s claims were the first strike of a lawsuit attempting to take on the perpetrators of climate change, but it is not. There have been lawsuits in state and federal courts in Maryland (against British Petroleum), Colorado (against Suncor Energy), and New York (against Chevron)(referred to in Op. ¶35), and probably many others. The courts have split on whether such claims are preempted by federal law, especially the Clean Water Act.

The Town attempted to evade the preemption quagmire in which it found itself knee-deep by arguing that its case is not about emissions. Judge Davis summarized what he referred to as a “novel theory” as the Town’s argument that:

Op. ¶38. Judge Davis ruled that this ”revised legal theory” did not entirely sidestep the preemption question since the suit was still basically over “global greenhouse gas emissions.” He went on to rule that the lawsuit was barred by the political question doctrine

The political question doctrine is that “as ‘a function of the separation of powers’ in our system of government, certain matters are ‘nonjusticiable’ and should be left to the coordinate branches of government.’” Op. ¶43 (citing Baker v. Carr, 369 U.S. 186, 210 (1962). The doctrine also applies to claims arising under North Carolina law. Op. ¶44 (citing Bacon v. Lee, 353 N.C. 696, 717 (2001)).

Judge Davis ruled that the Gen. Assembly had delegated issues concerning possible fossil fuel-related emissions to the Utilities Commission and to the Department of Environmental Quality. Op. ¶53

Judge Davis posed a long list of “unanswerable questions” raised by the Town’s claims and theory of recovery (They are contained in Paragraph 62 of the Opinion, and are worth reading). He said they were questions "that no one — including 12 persons sitting in an Orange County jury box in 2026 — could even begin to answer.”

After a long and thoughtful analysis, Judge Davis dismissed the town of Carrboro's claims as being barred by the political question doctrine.

I’m dismayed by the dismissal of Carrboro’s claims. I usually don’t insert my personal political views into my Newsletter (or try not to), but I hope that you agree that climate change is a real issue. I applaud the Town of Carrboro and their lawyers from taking on this issue head-on, even if they were unsuccessful. Judge Davis is right that the solution to this problem — if there is one — lies with the government. The United States was party to the Paris Agreement, which was a brave first step to addressing climate change, but our President serendipitously withdrew us from it.

In Mezcalito Apex, Inc. v. Murillo, 2026 NCBC14 (Robinson, CJ.) the Business Court addressed the spicy issue of whether a Mexican restaurant’s food and drink preparations could be protected as trade secrets.

The Plaintiff, Mezcalito Apex, operates one of several restaurants operating under the Mezcalito name. They currently are located in North Carolina (in Apex, Durham, Clayton, Roles, and Cary, with Raleigh coming soon). Mezcalto prides itself for “combin[ing] traditional signature recipes with unique preparations” and using “particular ingredients, with particular seasonings and flavorings. . . from particular suppliers,” Op. ¶8.

Defendant Murillo work for Mezcalito Apex as a senior level employee. As such, he was “knowledgeable regarding Plaintiff’s recipes, ingredients, business plans, menus, costs, and revenues.” Op. ¶10. He also signed a “Non-Competition, NonDisclosure & Confidentiality Agreement with Plaintiff.” Op. ¶11. The Agreement defined “Confidential Information” as including ”the current, future and proposed menus, ingredients, food or drink recipes or preparations of the Company or its Affiliates.” Op. ¶14.

As always happens in these cases, the defendant quit his job with Mezcalito Apex and moved to Springfield, Missouri, where he worked for a competitive Tex-Mex restaurant called Habaneros. Plaintiff contends in its lawsuit that the Defendant “implemented changes at Habaneros that were copies of Plaintiff’s menu, recipes, preparations, drinks, decorations, glassware, dishes, dish preparations, dish names, and aesthetics.” Op. ¶18.

Before filing the present lawsuit in North Carolina, plaintiff sued the Defendant and Habaneros. As a part of a settlement in that case with Habaneros only, the Missouri testaurant “terminated the defendant's employment and implemented changes to its restaurant to make it distinct from Mezcalito.” Op. ¶18.

The case before the Business Court concerns the Defendant’s employment at another Mexican restaurant, this time again in North Carolina, in Cary, called Acqui Mero. Mezcalito asserted that the Defendant would inevitably provide its trade secrets to Acqui Mero.

Choice of law was the first problem for the plaintiff. Defendant argued that the trade secret misappropriation had occurred in Missouri and therefore, North Carolina could not apply. Op. ¶40. The choice of law principle applicable in a trade secrets claim is the lex loci delicti test, Which applies the substantive law of the state where the injury or harm was sustained or suffered. This is ordinarily the law of the state where the last event necessary to make the actor liable or the last event required to constitute the tort took place. Op. ¶41

Plaintiff attempted to stave off the choice of law determination by contending that it should be made only after discovery, once there were sufficient facts to establish where the alleged misappropriation occurred. Op. ¶43. Chief Judge Robinson saw no reason to hold off. He said that “a choice-of-law issue may be determined at the motion to dismiss stage, particularly where there are no allegations in the relevant pleading that support an inference that the last act giving rise to the injury occurred anywhere other than outside North Carolina.”

The Amended Complaint being considered by the court contains no allegations that any misappropriation of the claim trade secrets had occurred before Defendants’s relocation to Missouri. Thus, the court concluded that Missouri law governed the trade secret misappropriation claim. Since the plaintiff had not included a claim for misappropriation under Missouri law, the court concluded that the trade secret misappropriation claim had to be dismissed.

Fortunately for those of you curious enough to wonder whether this Plaintiff could have succeeded on a trade secrets misappropriation cause of action on its claim that the defendant had misappropriated its menus and food and drink preparations, the answer is no. Plaintiff’s counsel essentially gave up on this claim at the Motion to Dismiss hearing by conceding:

Op. ¶49. Judge Robinson, faced with that conciliation said that “The Court agrees and concludes that Plaintiff cannot maintain a claim for trade secret misappropriation as to menus or unique food and drink presentations.” Id.