Se. Auto., Inc. v. Genuine Parts Co.

Se. Auto., Inc. v. Genuine Parts Co., 2016 NCBC 61.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF CUMBERLAND 16 CVS 1186

SOUTHEASTERN AUTOMOTIVE, )
INC., )
)
Plaintiff, )
)
v. )
ORDER OVERRULING OPPOSITION
)
TO DESIGNATION
GENUINE PARTS COMPANY d/b/a )
NAPA AUTO PARTS and )
JOHN MICHAEL RIESS, II, )
)
Defendants. )
)

1. THIS MATTER is before the Court on Plaintiff Southeastern

Automotive, Inc.’s (“Southeastern”) Opposition to Designation to Business Court

(“Opposition”). For the reasons set forth below, the Opposition is OVERRULED.

The Law Offices of Lonnie M. Player, Jr., PLLC by Lonnie M. Player, Jr. and
Stevens Martin Vaughn & Tadych, PLLC by K. Matthew Vaughn for Plaintiff.
Alston & Bird LLP by Michael A. Kaeding and Ryan P. Ethridge for
Defendants.
Gale, Chief Judge.

2. Southeastern filed its Complaint in this action on February 12, 2016.

The Complaint was served on Defendant Genuine Parts Company (“Genuine Parts”)

on February 24, 2016, and on John Michael Riess, II (“Riess”) on March 12, 2016. In

response, Defendants filed a notice of designation, and the case was designated as a

mandatory complex business case on March 22, 2016. The case was assigned to the

Honorable Gregory P. McGuire on March 23, 2016.
3. The case was subsequently removed to federal court. Following

removal, Southeastern filed its Opposition in this Court on April 21, 2016. The

federal court remanded the case on July 18, 2016. Defendants filed a response to

Southeastern’s Opposition on August 2, 2016. The Opposition has now been fully

briefed and is ripe for ruling.

4. Defendants designated the matter as a mandatory complex business

case pursuant to subsections (a)(1) and (a)(5) of section 7A-45.4. N.C. Gen. Stat.

§ 7A-45.4(a)(1),(5) (2015). Although the Court need not further consider the point in

light of its ruling as described below, the Court notes that Defendants’ Notice of

Designation further indicated that the case otherwise falls within the scope of section

7A-45.4(b), and the amount in controversy is at least five million dollars, such that

designation would be mandatory whether or not requested by one of the parties. See

id. § 7A-45.4(b)(2).

5. A matter falls within the scope of subsection (a)(1) if there is a material

issue related to a dispute involving the law governing corporations. Id.

§ 7A-45.4(a)(1). A matter falls within the scope of subsection (a)(5) if there is a

material issue involving a dispute regarding the use or performance of intellectual

property, including computer software or data. Id. § 7A-45.4(a)(5).

6. Southeastern opposes designation, arguing that there is no material

dispute involving the law of corporations, making designation under subsection (a)(1)

inappropriate. Southeastern further contends that while the claims involve the use

and performance of Genuine Parts’ software and data systems, the Complaint
presents no material issue regarding Genuine Parts’ intellectual-property rights in

those systems, making designation under subsection (a)(5) inappropriate. The Court

agrees that the Complaint raises no material issue within the scope of subsection

(a)(1) but disagrees with Southeastern’s narrow reading of subsection (a)(5).

7. The Court considers the following allegations in the Complaint to be

pertinent to determining Defendants’ right to mandatory designation. The Court

accepts those allegations as true solely for purposes of the present Order.

8. Southeastern is an auto-parts distributor and retailer that maintains

facilities in several North Carolina locations. (Compl. ¶¶ 5–6.) Genuine Parts does

business in North Carolina as NAPA Auto Parts. (Compl. ¶ 2.) Riess is Genuine

Parts’ general manager for its NAPA Auto Parts business. Prior to contracting with

Genuine Parts to become an authorized NAPA Auto Parts retailer, Southeastern had

maintained two lines of business which it refers to as “specialty lines,” which involve

the sale of Ford Motorcraft parts and a line of business involving radiator and air-

conditioning. (Compl. ¶ 12.) Southeastern and Genuine Parts entered into an

agreement through which Southeastern would convert its locations into NAPA Auto

Parts stores, but would be able to maintain these specialty lines. (Compl. ¶ 15.) In

its agreement with Genuine Parts, Southeastern agreed to divest itself of its location

in Raleigh, North Carolina, and to acquire three additional stores from independent

NAPA Auto Parts affiliates. (Compl. ¶ 16(a)–(b).)

9. One essential component of the contract between the parties included

preparing an inventory at each of Southeastern’s facilities, with certain parts being
rebranded as NAPA parts, others being returned to the original manufacturer for

credit, and a final inventory value being computed. The contract contemplated that

this inventory process would be accomplished through two Genuine Parts software

platforms known as TAMS II and Multistore (“inventory system”). (Compl. ¶ 16).

Each of the two software components was to be installed and inventory counted at

each of Southeastern’s locations, with Southeastern’s representatives observing the

inventory process. (Compl. ¶ 26.) Ultimately, Southeastern’s parts inventory was

transported to another location before the inventory process was undertaken and was

completed without Southeastern’s representatives being present. (Compl. ¶¶ 28–36.)

10. Southeastern contends that the inventory process could not be

conducted as the contract provided because of limitations of Genuine Parts’ inventory

system, particularly the incompatability of the two software modules and the

inability of Genuine Parts’ personnel to utilize those components effectively. (Compl.

¶¶ 37–49.) In addition to the inventory process not having been completed as the

contract required, Southeastern further asserts that use of Genuine Parts’ software

caused Southeastern’s stores to become overstocked, requiring Southeastern to make

excessive purchases from Genuine Parts. (Compl. ¶ 48.)

11. Ultimately, Genuine Parts declared that Southeastern should suffer a

$1.4 million write-down from the inventory valuation on which the parties had based

their agreement. (Compl. ¶ 53.) Southeastern further complains that the software it

was required to install does not account for the additional specialty lines that

Genuine Parts agreed Southeastern could continue. (Compl. ¶ 57.)
12. In regard to the contract undertakings that required Southeastern to

divest itself of its Raleigh location and to expand by acquiring operations of three

independent affiliates in other locations, Southeastern asserts that Genuine Parts

falsely represented that those independent affiliates had agreed to be merged into

Southeastern. (Compl. ¶ 30.)

13. Southeastern first makes a breach-of-contract claim, asserting that

Genuine Parts breached the agreement between the parties by (1) failing to perform

on-site accounting and inventory, (2) inaccurately accounting for Southeastern’s

inventory, (3) failing to credit Southeastern for $1.4 million of inventory, and

(4) failing to enroll Southeastern’s representatives in the NAPA management

training program. (Compl. ¶ 59.) In its second claim, Southeastern asserts that

Genuine Parts made fraudulent statements to induce Southeastern to enter into the

contract. Southeastern’s third claim asserts that Defendants have committed unfair

and deceptive trade practices under N.C. Gen. Stat. § 75-1.1.

14. This case was filed after October 1, 2014. The Court must then

determine whether the case was properly designated as a mandatory complex

business case by applying section 7A-45.4 as it was amended, effective October 1,

2014.

15. The Court first addresses Defendants’ assertion that designation is

proper under section 7A-45.4(a)(1), because the Complaint raises a material issue

involving the law governing corporations. Defendants base their position on the

argument that the law governing corporations is implicated from Southeastern’s
complaint that Genuine Parts induced Southeastern to enter into the agreement by

promising that Southeastern could acquire and merge with NAPA’s independent

affiliates, which must lead to a conclusion that “[i]ssues concerning any potential

merger would necessarily implicate material issues related to the law governing

corporations.” (Notice of Designation ¶ 12.) The Court concludes that Defendants’

argument does not square with statutory requirements. The Complaint presents no

claims among Southeastern, Genuine Parts, and NAPA’s various affiliates or the

terms of any merger agreement between Southeastern and the affiliated entities.

Factual allegations regarding those potential acquisitions or mergers are incidental

to the claims that are actually presented against Genuine Parts. Accordingly, the

claims do not present a material issue involving the law governing corporations

within the scope of section 7A-45.4(a)(1).

16. The Court next addresses Defendants’ assertion that designation is

proper under section 7A-45.4(a)(5). Southeastern asserts in the Opposition that

section 7A-45.4(a)(5) requires a material issue involving intellectual-property law.

(Opp’n 4.) While the Court agrees that the Complaint does not raise issues that are

governed by what might ordinarily be considered intellectual-property law, it also

concludes that section 7A-45.4(a)(5) is not so narrowly worded as to require that there

be such an issue.

17. Southeastern’s position might have been more persuasive under section

7A-45.4 prior to its October 1, 2014 amendment. Southeastern’s position does not

comport with the statute as it was amended.
18. As amended effective October 1, 2014, section 7A-45.4(a)(5) includes

actions that involve a material issue relating to

[d]isputes involving the ownership, use, licensing, lease, installation, or
performance of intellectual property, including computer software,
software applications, information technology and systems, data and
data security, pharmaceuticals, biotechnology products, and bioscience
technologies.

N.C. Gen. Stat. § 7A-45.4(a)(5).

19. Prior to October 1, 2014, section 7A-45.4(a)(5) was more limited in scope

and covered only disputes involving “[i]ntellectual property law, including software

licensing disputes.” Id. (amended 2014).

20. The Court concludes that the 2014 amendment to section 7A-45.4(a)(5)

expanded the scope of disputes within the statute’s purview to include a dispute that

involves a material issue regarding the use or performance of intellectual property,

including computer software and data, without requiring a dispute regarding

ownership of the intellectual property or another dispute that may require

application of principles of the body of law known as intellectual-property law.

21. Having concluded that section 7A-45.4(a)(5) should be so construed, the

Court concludes that the Complaint presents material issues regarding the use or

performance of Genuine Parts’ computer software, information systems, or data.

Accordingly, Defendants are entitled to designate the matter as a mandatory complex

business case pursuant to section 7A-45.4(a)(5).
22. The Opposition must be OVERRULED. The action shall continue as a

mandatory complex business case before the Honorable Gregory P. McGuire.

IT IS SO ORDERED, this the 17th day of August, 2016.

/s/ James L. Gale
James L. Gale
Chief Special Superior Court Judge
for Complex Business Cases