Lowder Constr., Inc. v. Phillips

Lowder Constr., Inc. v. Phillips, 2019 NCBC 82.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF RANDOLPH 18 CVS 686
LOWDER CONSTRUCTION,
INC.,
Plaintiff,
v.
RONALD E. PHILLIPS; KEVIN
W. GLENN; and ATLANTIC
WOOD & TIMBER, LLC,
ORDER AND OPINION ON
Defendants. DEFENDANT RONALD E.
PHILLIPS’S MOTION FOR
JUDGMENT
RONALD E. PHILLIPS, ON THE PLEADINGS
Counterclaim
Plaintiff,
v.
LOWDER CONSTRUCTION,
INC. and J. DEAN LOWDER,
Counterclaim
Defendants.

THIS MATTER comes before the Court on Defendant Ronald E. Phillips’s

Motion for Judgment on the Pleadings. (“Motion,” ECF No. 49.) 1

THE COURT, having considered the Motion, the briefs in support of and in

opposition to the Motion, the arguments of counsel at the hearing, the pleadings at

1 Plaintiff voluntarily dismissed its claims against Defendant Kevin W. Glenn (ECF No. 61)

and reported to the Court that it settled its claims with Defendant Atlantic Wood & Timber,
LLC and that dismissals of those claims would be filed shortly. Therefore, Defendant Atlantic
Wood & Timber, LLC’s Motion to Dismiss First Amended Complaint (ECF No. 7), Defendant
Kevin W. Glenn’s Motion for Judgment on the Pleadings (ECF No. 44), Defendant Atlantic
Wood & Timber, LLC’s Motion for Judgment on the Pleadings (ECF No. 46), and Plaintiff
Lowder Construction, Inc.’s Motion to Dismiss Defendant Atlantic Wood & Timber, LLC’s
Counterclaim (ECF No. 38), which were filed in and around the same time as the Motion and
briefed and argued by the parties, are DENIED as MOOT. Lowder Construction, Inc.’s
Motion to Dismiss the Sixth Amended and Supplemental Counterclaim filed by Defendant
Ronald E. Phillips (ECF No. 39) will be addressed by separate order.
issue, and other appropriate matters of record, CONCLUDES that the Motion should

be GRANTED, in part, and DENIED, in part.

Roberson, Haworth & Reese, PLLC, by Christopher C. Finan, Esq. for
Plaintiff Lowder Construction, Inc.

David E. Shives, PLLC, by David E. Shives, Esq. for Defendant Ronald
E. Phillips.

McGuire, Judge.

I. FACTS 2 AND PROCEDURAL BACKGROUND

1. Plaintiff Lowder Construction, Inc. (“LCI”) is a North Carolina

corporation with its principal place of business in Randolph County, North Carolina.

LCI is a turnkey framing contractor that frames commercial structures such as

apartment buildings, student housing, and other multi-family residential buildings.

2. Defendant Ronald E. Phillips (“Phillips”) is a citizen and resident of

North Myrtle Beach, South Carolina, and a former independent contractor of LCI.

Phillips is employed with Atlantic Wood & Timber, LLC (“Atlantic”).

3. Defendant Kevin W. Glenn (“Glenn”) is a citizen and resident of Gaston

County, North Carolina, and a former employee of LCI. Glenn is employed with

Atlantic.

4. Defendant Atlantic Wood & Timber, LLC (“Atlantic”) is a North

Carolina limited liability company with its principal place of business in Mecklenburg

County, North Carolina. Atlantic is a competitor of LCI.

2 The facts cited herein are drawn from the First Amended Complaint. (“FAC,” ECF No. 4.)
A. LCI’s Trade Secrets

5. LCI regularly competes with other commercial framing companies in

submitting bids for framing work projects. (ECF No. 4, at ¶ 7.) To gain a competitive

advantage and grow its business, LCI has made a significant investment in

automating and refining its pricing and bidding process. (Id. at ¶ 10.)

6. LCI “independently created and developed a unique, proprietary

method, process and technique . . . to quickly and accurately develop, generate and

prepare for submission to prospective clients, full and complete three-dimensional

structural renderings of proposed Projects” (the “Structural Model”). (Id. at ¶ 11.)

LCI alleges that “[t]he Structural Model, . . . consist[s] of a significant amount of

specially-purposed and customized software.” (Id. at ¶ 16.)

7. One of the benefits of the Structural Model is that the three-dimensional

structural rendering allows LCI to identify any potential problems in its proposed

projects, permitting LCI to integrate any issues into its pricing. (Id. at ¶ 13.)

Additionally, the Structural Model automatically generates “material takeoffs,” a

full, complete, and accurate list of all necessary materials to complete a proposed

project. LCI alleges that this gives it a significant, commercially-valuable advantage

because LCI’s competitors routinely generate “material takeoffs” manually, a time-

consuming and inaccurate process. (Id. at ¶ 15.)

8. LCI also maintains a specific list of customers and potential customers,

including pricing information relating to its services, and key contact persons

associated with customers and potential customers, along with “commercially-
sensitive and confidential pricing information relating to the services it provides, and

. . . direct solicitations from potential customers” (the “Customer Data”). (Id. at ¶ 22.)

9. Lastly, LCI maintains other proprietary business data, including “cost

histories, bid and pricing policies, operating margins and profits, sales and marketing

strategies, vendor pricing and relationship histories, and other confidential business

information [(the ‘Business Data’)].” (Id. at ¶ 23.)

10. LCI alleges that the Structural Model, Customer Data, and Business

Data (collectively, the “Trade Secrets”) are trade secrets owned by LCI. (Id. at ¶ 24.)

11. LCI’s Trade Secrets are known only to a few designated LCI employees

and/or independent contractors. (Id. at ¶¶ 19, 26.) As additional security measures,

LCI retains hardware ownership and uses “permission-restricted access on a need-

to-know basis, and confidentiality policies and/or agreements.” (Id. at ¶ 27.)

B. Phillips’s and Glenn’s work for LCI

12. In January 2014, LCI retained Phillips as an independent contractor.

Phillips was tasked with assisting LCI in sales and marketing and improving LCI’s

operations. (Id. at ¶ 29.)

13. On August 11, 2014, LCI and Phillips entered into a written consulting

agreement (the “Phillips Agreement”), which included provisions governing

compensation and LCI’s confidential and proprietary information. (Id. at ¶ 31.) LCI

alleges that under the terms of the Phillips Agreement:

a. [LCI] paid, and Defendant Phillips accepted, a ‘Gross
Margin’ bonus of $195,273.00, for the calendar year 2015.
Said ‘Gross Margin’ bonus was paid in two installments—
$48,357.00 on or about September 16, 2015, and
$146,916.00 on or about March 16, 2016.

b. However, subsequent corrections and restatements of
[LCI]’s financial statements for 2015 revealed that the
amount of the foregoing bonus was, in fact, too great, and
that the same should properly have totaled only
$140,808.00.

c. Accordingly, pursuant to the terms of the Phillips
Agreement, Defendant Phillips properly owes [LCI] the
total sum of $54,465.00.

d. [LCI] has fully-paid Defendant Phillips all amounts due
him under the terms and conditions of the Phillips
Agreement.

(Id. at ¶¶ 34–36, 38.) Phillips denies that he was overpaid any bonuses.

14. The Phillips Agreement terminated on February 14, 2016. However,

Phillips continued to be associated with LCI as an independent contractor, and the

parties continued to act in conformity with the Phillips Agreement. (Id. at ¶¶ 37, 40,

41.) In November 2016, Phillips and LCI entered into an oral agreement that was

identical to the Phillips Agreement except for the terms relating to Phillips’s

compensation. (Id. at ¶¶ 44–45.)

15. LCI hired Glenn as an employee in August 2014 to assist in diversifying

LCI’s business. (Id. at ¶ 50.)

16. LCI alleges that Phillips and Glenn were the only two employees and/or

independent contractors whose duties “focused, to a significant degree, on the

creation, development and implementation of the Structural Model” and who “had

significant, direct and unfettered access to all constituent components—both tangible

and intangible—of the Structural Model.” (Id. at ¶¶ 54–55.) While employed with
LCI, Phillips and Glenn created renderings using the Structural Model for specific

proposed projects and presented them to clients and prospective clients. (Id. at ¶¶

59–60.)

17. The Structural Model resided solely on a secure computer purchased by

LCI for Glenn’s use (the “Computer”). (Id. at ¶ 55.) The Computer was not accessible

by outside parties and Glenn and Phillips “had sole possession of the tangible

components” of the Structural Model. (Id. at ¶ 120.)

C. Phillips’s and Glenn’s alleged sabotage of LCI projects

18. In approximately the summer of 2017, a disagreement arose between

LCI and Glenn and Phillips regarding the continued development and

implementation of the Structural Model. (Id. at ¶ 62.) At the conclusion of a heated

discussion between LCI’s president and Phillips regarding the Structural Model,

Phillips closed the conversation by telling LCI’s president, “I’ll fix this.” (Id. at ¶ 63.)

19. LCI alleges that thereafter “Glenn and/or [ ] Phillips prepared and/or

were requested to prepare and finalize several actual ‘structural models,’ purportedly

utilizing [LCI]’s Structural Model to do so.” (Id. at ¶ 65.) Several of these structural

models contained significant inaccuracies, and LCI only discovered after constructing

the projects for its customers that the structural models “grossly-underestimated the

actual costs necessary to complete the [p]rojects.” (Id. at ¶¶ 66–67.) The inaccuracies

caused LCI to significantly underbid the projects, which substantially impacted LCI’s

profits. (Id. at ¶ 68.) LCI alleges Phillips and Glenn intentionally underestimated

the costs “with the specific intent to cause material harm to” LCI. (Id. at ¶ 73.)
D. Atlantic hires Phillips and Glenn

20. Prior to September 2017, Atlantic was primarily a “labor only”

contractor; Atlantic would provide the labor to perform the framing, but the framing

materials would have to be purchased separately. (Id. at ¶ 76.) Atlantic then sought

to expand into providing “turnkey” framing services similar to those provided by LCI.

(Id. at ¶ 77.)

21. In September 2017, Phillips and Glenn began discussing potential

employment with Atlantic. (Id. at ¶ 79.) During these discussions, Glenn, at

Phillips’s request, provided Atlantic with one of LCI’s “structural models.” (Id.)

22. In October 2017, Atlantic communicated to Phillips and Glenn that it

was “‘all in’ on the acquisition and use of the Structural Model as a means to expand

its ‘turnkey’ business.” (Id. at ¶ 82 (emphasis in original).) In November 2017,

Atlantic discussed employment terms with Phillips and Glenn, including paying them

a bonus for two projects on which they were working for LCI that they would bring

“in hand” to Atlantic after they left LCI. (Id. at ¶ 83.)

23. In early December 2017, unbeknownst to LCI, Phillips and Glenn

accepted employment with Atlantic. (Id. at ¶ 84.) LCI alleges that Phillips and

Glenn, while still employed by LCI, performed work for Atlantic with respect to a bid

proposal for a project on which LCI was also bidding: the Overture Centennial project

offered by Greystar Real Estate Partners. (Id.) Atlantic then “wrongfully obtained

from [Phillips and Glenn] a copy of the [Structural Model LCI] prepared for the

Overture Centennial project.” (Id. at ¶ 96.)
24. On December 21, 2017, Phillips ended his association with LCI, and on

December 22, 2017, LCI terminated Glenn’s employment. (Id. at ¶¶ 85–86.) Phillips

and Glenn were immediately hired by Atlantic, and shortly thereafter began working

for Atlantic. (Id. at ¶ 87.)

25. LCI alleges that:

a. Prior to the termination of their employment with [LCI] . .
., Defendants Glen [sic] and Phillips misappropriated
[LCI]’s Trade Secrets by accessing and taking the Trade
Secrets in physical and/or electronic form.

...

b. Upon information and belief, Atlantic intended to
misappropriate [LCI]’s Trade Secrets, including without
limitation the Structural Model, for the purpose of carrying
out a plan, reached with and led by Defendants Glenn and
Phillips, to undercut [LCI]’s bids on current and upcoming
projects, and thereby acquire [LCI]’s largest and most
profitable customers for the dual purpose of crippling
[LCI]’s ability to compete and immediately establishing
Atlantic as a competitive ‘turnkey’ framing contractor for
large, complex commercial structures in the Carolinas.

c. Upon information and belief, since hiring Defendants Glenn
and Phillips, Atlantic has misappropriated [LCI]’s Trade
Secrets to acquire large project contracts from [LCI]’s most
important and critical customers, thereby harming [LCI]’s
ability to compete and allowing Atlantic to immediately
establish an expanded and more prominent presence in the
Carolinas without expending the time, money, and
resources that would have been required had Atlantic not
misappropriated [LCI]’s Trade Secrets.

d. Specifically, since hiring Defendants Glenn and Phillips,
upon information and belief Atlantic has used [LCI]’s Trade
Secrets to obtain contracts for at least two (2) large
commercial ‘turnkey’ framing jobs from key existing [LCI]
customers—The Preserve at Mountain Island (by Blue
Ridge Companies) and Hazel SouthPark (by CBG Building
Company).

e. But for Atlantic’s wrongful conduct described above,
including without limitation its misappropriation of [LCI]’s
Trade Secrets, [LCI] would have been awarded and agreed
to enter into both of these contracts with its longtime
existing customers.

(Id. at ¶¶ 89, 91–94.)

26. LCI further alleges that Atlantic intended “to acquire [LCI]’s Trade

Secrets and cripple its ability to compete with Atlantic for ‘turnkey’ framing projects.”

(Id. at ¶ 96.) Additionally, LCI alleges that the “Structural Model remains solely in

the possession of the Defendants.” (Id. at ¶ 98.)

E. Relevant procedural history

27. LCI initiated this action by filing its Complaint on April 18, 2018. (ECF

No. 3.) On March 14, 2019, LCI filed the Amended Complaint. (ECF No. 4.) In the

Amended Complaint, LCI alleges claims against Phillips for: a declaratory judgment

that it overpaid bonuses to Phillips (First Claim); misappropriation of trade secrets

in violation of the North Carolina Trade Secrets Protection Act, N.C.G.S. §§ 66-152 et

seq. (“NCTSPA”) (Second Claim); conversion (Third Claim); tortious interference with

prospective economic advantage (Fifth Claim); civil conspiracy (Sixth Claim); unfair

or deceptive trade practices in violation of N.C.G.S. § 75-1.1 (“UDTPA”) (Seventh

Claim); punitive damages (Eighth Claim); and injunctive relief (Ninth Claim). (ECF

No. 4, at ¶¶ 106–63.)

28. Phillips filed an Answer and Counterclaim on June 17, 2019. (ECF No.

33.)
29. On August 16, 2019, Phillips filed the Motion. Phillips simultaneously

filed a brief in support of the Motion. (ECF No. 50.)

30. LCI filed a memorandum in opposition to the Motion on September 9,

2019. (ECF No. 53.) On September 19, 2019, Phillips filed a reply brief in support of

the Motion. (ECF No. 58.)

31. The Court held a hearing on the Motion on September 25, 2019, at which

counsel for the parties made oral arguments.

32. The Motion has been fully briefed and argued, and is now ripe for

determination.

II. ANALYSIS

33. “A motion for judgment on the pleadings is the proper procedure when

all the material allegations of fact are admitted in the pleadings and only questions

of law remain. When the pleadings do not resolve all the factual issues, judgment on

the pleadings is generally inappropriate.” Ragsdale v. Kennedy, 286 N.C. 130, 137,

209 S.E.2d 494, 499 (1974). “A complaint is fatally deficient in substance, and subject

to a motion by the defendant for judgment on the pleadings if it fails to state a good

cause of action for plaintiff and against defendant[.]” Bigelow v. Town of Chapel Hill,

227 N.C. App. 1, 3, 745 S.E.2d 316, 319 (2013) (citation omitted).

34. The Court may only consider “the pleadings and exhibits which are

attached and incorporated into the pleadings.” Davis v. Durham Mental Health/Dev.

Disabilities/Substance Abuse Area Auth., 165 N.C. App. 100, 104, 598 S.E.2d 237,

240 (2004) (citation omitted). The Court must “view the facts and permissible
inferences in the light most favorable to the nonmoving party.” Ragsdale, 286 N.C.

at 137, 209 S.E.2d at 499. “A party who moves for judgment on the pleadings admits

two things: (1) the truth of all well-pleaded facts in the non-movant’s pleading,

together with all permissible inferences to be drawn from such facts; and (2) the

untruth of his own allegations in so far as they are controverted by the non-movant’s

pleading.” Hedrick v. Rains, 121 N.C. App. 466, 468, 466 S.E.2d 281, 283 (1996). “All

well pleaded factual allegations in the nonmoving party’s pleadings are taken as true

and all contravening assertions in the movant’s pleadings are taken as false. All

allegations in the nonmovant’s pleadings, except conclusions of law, legally

impossible facts, and matters not admissible in evidence at the trial, are deemed

admitted by the movant.” Ragsdale, 286 N.C. at 137, 209 S.E.2d at 499 (internal

citations omitted).

35. Phillips seeks judgment on the pleadings as to each of LCI’s claims

against him. The Court will address these claims in turn.

A. Declaratory Judgment

36. LCI’s first claim against Phillips seeks a declaratory judgment “that no

further sums whatsoever are owed by [LCI] to Defendant Phillips, pursuant to the

Phillips Agreement, the 2016 Agreement, or otherwise.” (ECF No. 4, at ¶ 114.) LCI

also requests that “pursuant to the terms and conditions of the then-in-effect Phillips

Agreement, the Court should properly enter its judgment against Defendant Phillips

in the amount of $54,465.00 in regard to the 2015 calendar year ‘Gross Margin’ bonus

overpayment made to Defendant Phillips by [LCI].” (Id. at ¶ 115.)
37. Under North Carolina law, a declaratory judgment is a statutory

remedy that grants a court the authority to “declare rights, status, and other legal

relations” when an “actual controversy” exists between parties to a lawsuit. N.C.G.S.

§ 1-253; Town of Pine Knoll Shores v. Carolina Water Serv., 128 N.C. App. 321, 321,

494 S.E.2d 618, 618 (1998). The Court may, by declaratory judgment, “determine[ ]

any question of construction or validity” and declare “rights, status, and other legal

relations” under a written contract. N.C.G.S. § 1-254. An actual controversy between

the parties must exist at the time the complaint is filed in order for the court to have

jurisdiction to render a declaratory judgment. Sharpe v. Park Newspapers of

Lumberton, Inc., 317 N.C. 579, 584–85, 347 S.E.2d 25, 29 (1986).

38. Phillips argues that LCI fails to allege facts sufficient to support the

claim for a declaratory judgment. (ECF No. 50, at pp. 7–9.) The Court disagrees.

LCI alleges that it paid Phillips a 2015 bonus greater than that to which he was

entitled under the Phillips Agreement, and seeks a declaration regarding the alleged

overpayment. Phillips denies that LCI overpaid any bonus amounts to him or that

he is liable for repaying any amounts to LCI. There exists an actual controversy

between the parties, and the facts are in dispute.

39. Therefore, to the extent that the Motion seeks judgment in Phillips’s

favor on the claim for declaratory judgment, the Motion should be DENIED.

B. Misappropriation of Trade Secrets

40. LCI alleges the Structural Model, Customer Data, and Business Data

are trade secrets within the meaning of the NCTSPA and that Phillips
misappropriated those trade secrets. (ECF No. 4, at ¶¶ 116–124.) Phillips contends

that LCI’s allegations do not support the claim that the Structural Model, Customer

Data, and Business Data are trade secrets. (ECF No. 50, at pp. 9–15.)

41. The standards for pleading a claim for misappropriation of trade secrets

under the NCTSPA are well-established. See County of Wayne Constr. Managers of

Goldsboro v. Amory, 2019 NCBC LEXIS 32, at *18–23 (N.C. Super. Ct. May 17, 2019).

The Supreme Court of North Carolina recently reiterated that a plaintiff “must

identify a trade secret with sufficient particularity so as to enable a defendant to

delineate that which he is accused of misappropriating and a court to determine

whether misappropriation has or is threatened to occur.” Krawiec v. Manly, 370 N.C.

602, 609, 811 S.E.2d 542, 547–48 (2018) (citations omitted).

42. Phillips argues that the Structural Model is nothing more than a

combination of commercially available software programs and cannot be a trade

secret. (ECF No. 50, at pp. 9–13.) However, LCI alleges that it “independently

created and developed a unique, proprietary method, process and technique – utilizing,

among other things, a unique set of software tools – to quickly and accurately develop,

generate and prepare for submission to prospective clients, full and complete three-

dimensional structural renderings of proposed Projects [the ‘Structural Model’].”

(ECF No. 4, at ¶ 11 (emphasis added).) LCI further alleges that “the Structural Model

automatically generates full, complete, and accurate ‘material takeoffs’ – full,

complete, and accurate listings of all materials necessary to complete a given

prospective Project.” (Id. at ¶ 15.) LCI alleges that material takeoffs are routinely
performed manually within the industry and, consequently, “the process of

generating ‘material takeoffs’ is an inherently time-consuming and necessarily-

inaccurate process.” (Id.)

43. LCI alleges that the Structural Model provides LCI “unique benefits,”

and “a significant, commercially-valuable advantage.” (Id. at ¶¶ 13–14.) LCI

summarizes by alleging that the Structural Model is not merely the software, but a

“specially developed process and method by which the various software tools are

utilized to generate both the three-dimensional structural models and highly-

accurate ‘material takeoffs.’” (Id. at ¶ 16.) The Court concludes that these allegations

sufficiently allege that the Structural Model contains proprietary features that are

competitively advantageous to LCI to survive the Motion.

44. Phillips further argues that LCI has not alleged that it took reasonable

measures to protect the Structural Model. (ECF No. 50, at pp. 12–13.) The Court,

however, concludes that LCI’s allegations regarding the security measures to protect

the Structural Model, while thin, are sufficient to survive a motion for judgment on

the pleadings. “Generally, only where efforts to maintain secrecy of the allegedly

misappropriated trade secrets were completely absent have North Carolina courts

dismissed claims at the [pleadings] stage.” Bldg. Ctr., Inc. v. Carter Lumber, Inc.,

2016 NCBC LEXIS 79, at *14 (N.C. Super. Ct. Oct. 21, 2016).

45. Phillips also contends that LCI’s allegations do not support the claim

that the Customer Data and Business Data are trade secrets because the information
contained therein was vaguely described and is publicly available. (ECF No. 50, at

pp. 13–14.)

46. To the extent that the Customer Data and Business Data constitute

trade secrets, they would have to be “compilation[s] of information.” N.C.G.S. § 66-

152(3). “[I]n some instances, a trade secret can be found if the information or process

has particular value as a compilation or manipulation of information, even if the

underlying information is otherwise publicly available. Whether a compilation or

manipulation of information deserves trade secret protection depends on several

factors, including the difficulty with which the information could be gathered,

compiled, or manipulated.” RoundPoint Mortg. Co. v. Florez, 2016 NCBC LEXIS 18,

at *32 (N.C. Super. Ct. Feb. 18, 2016); see also Safety Test & Equip. Co. v. Am. Safety

Util. Corp., 2015 NCBC LEXIS 40, at *26 (N.C. Super. Ct. Apr. 23, 2015) (“A

compilation of publicly available information may, however, receive trade secret

protection where the claimant encountered some difficulty in assembling each of the

public components.”).

47. Again, while the allegations are minimal, the Court concludes that LCI’s

allegations regarding its Customer Data satisfy the burden of alleging the nature of

its trade secret with “sufficient particularity so as to enable a defendant to delineate

that which he is accused of misappropriating and a court to determine whether

misappropriation has or is threatened to occur.” Krawiec, 370 N.C. at 609, 811 S.E.2d

at 547–48. LCI alleges that the Customer Data is “a highly-specific list of customers

and potential customers” compiled with “commercially-sensitive and confidential
pricing information relating to the services it provides,” and can contain information

about “direct solicitations from potential customers not generally known to the

public.” (ECF No. 4, at ¶ 22.) This goes beyond mere allegations of customer

identities and contact information and includes information that could be valuable to

a competitor of LCI.

48. LCI alleges that its Business Data consists of “proprietary data and

information in the conduct of its business, including without limitation cost histories,

bid and pricing policies, operating margins and profits, sales and marketing

strategies, vendor pricing and relationship histories, and other confidential business

information.” (Id. at ¶ 23.) This also describes private information that could be

considered, in compilation, a trade secret.

49. Finally, LCI alleges that Phillips acquired and used trade secret

information regarding specific projects for which LCI was bidding—The Preserve at

Mountain Island (by Blue Ridge Companies) and Hazel SouthPark (by CBG Building

Company)—to help Atlantic win those projects. (Id. at ¶ 93.) This allegation is highly

specific and can leave no doubt as to the information that LCI claims Phillips

misappropriated.

50. LCI sufficiently pleads its claim for misappropriation of trade secrets to

survive Phillips’s challenge, and to the extent the Motion seeks judgment in Phillips’s

favor on the claim for misappropriation of trade secrets in violation of the NCTSPA,

the Motion should be DENIED.
C. Conversion

51. LCI attempts to repackage its misappropriation of trade secrets claim

as a claim for common law conversion. (ECF No. 4, at ¶¶ 125–31.) Phillips moves for

judgment on the pleadings on LCI’s conversion claim, arguing that “LCI fails to allege

that it has been deprived of the possession or use of its Structural Model, Customer

Data, or Business Data.” (ECF No. 50, at p. 15.) The Court agrees with Phillips as

to the Customer Data and Business Data, but not as to the Structural Model.

52. Under North Carolina law, conversion is the “unauthorized assumption

and exercise of the right of ownership over goods or personal chattels belonging to

another, to the alteration of their condition or the exclusion of an owner’s rights.”

Variety Wholesalers, Inc. v. Salem Logistics Traffic Servs., LLC, 365 N.C. 520, 523,

723 S.E.2d 744, 747 (2012) (citation omitted). There are two elements in a claim for

conversion: (1) the plaintiff’s ownership and (2) the defendant’s wrongful possession.

Id.

53. “The essence of conversion is not the acquisition of property by the

wrongdoer, but a wrongful deprivation of it to the owner.” Bartlett Milling Co., L.P.

v. Walnut Grove Auction & Realty Co., 192 N.C. App. 74, 86, 665 S.E.2d 478, 488

(2008) (citation omitted). “[R]etention by a wrongdoer of an electronic copy in a

manner that does not deprive the original owner of access to the same electronic data

cannot constitute conversion under current North Carolina law.” Duo-Fast

Carolinas, Inc. v. Scott’s Hill Hardware & Supply Co., 2018 NCBC LEXIS 2, at *36

(N.C. Super. Ct. Jan. 2, 2018); see also New Friendship Used Clothing Collection, LLC
v. Katz, 2017 NCBC LEXIS 72, at *38–39 (N.C. Super. Ct. Aug. 18, 2017) (“[M]erely

making a copy of, as opposed to deleting, electronically stored information does not

support a conversion claim because the owner is not deprived of possession or use of

the information.”).

54. While LCI alleges that Phillips took its Business Data and Customer

Data, inter alia, “by accessing and taking [the data] in physical and/or electronic

form,” LCI does not allege that it no longer has access, or that it has been deprived of

access, to the data. (ECF No. 4, at ¶ 89.)

55. On the other hand, LCI alleges that since the separation of Phillips and

Glenn from LCI, the “Structural Model remains solely in the possession of the

Defendants.” (Id. at ¶ 98.) The Court is satisfied that, read in the light most favorable

to LCI, it has alleged that it has been deprived of access to the Structural Model.

56. Therefore, to the extent the Motion seeks judgment in Phillips’s favor on

the claim for conversion regarding the Structural Model, the Motion should be

DENIED. However, to the extent the Motion seeks judgment in Phillips’s favor on

the claim for conversion regarding the Customer Data and Business Data, the Motion

should be GRANTED.

D. Tortious Interference with Prospective Economic Advantage

57. LCI alleges that Defendants, including Phillips, interfered with its

potential acquisition of contracts with its customers. (ECF No. 4, at ¶¶ 140–46.) In

support of its claim, LCI alleges, inter alia:

a. The Defendants knowingly, intentionally, and without
privilege, justification, or excuse induced [LCI] customers
to cease using [LCI] on certain ‘turnkey’ commercial
framing projects and to award those projects to Atlantic
instead.

b. At minimum, the Defendants’ wrongful actions specifically
induced Blue Ridge Companies to enter into a framing
contract with Atlantic, and not with [LCI], for its Preserve
at Mountain Island project, and specifically induced CBG
Building Company to enter into a framing contract with
Atlantic, and not with [LCI], for its Hazel SouthPark
project.

c. Based on the nature and length of its existing business
relationship with both companies, [LCI]’s own bid history
with both companies, and the terms of other submitted
bids, at least these two (2) contracts would in fact, upon
information and belief, have been awarded to and accepted
by [LCI], but for the Defendants’ wrongful conduct.

(Id. at ¶¶ 141–43.)

58. The Supreme Court of North Carolina recently reaffirmed that the tort

of interference with prospective economic advantage “arises when a party interferes

with a business relationship by maliciously inducing a person not to enter into a

contract with a third person, which he would have entered into but for the

interference, . . . if damage proximately ensues, when this interference is done not in

the legitimate exercise of the interfering person’s rights. However, a plaintiff’s mere

expectation of a continuing business relationship is insufficient to establish such a

claim. Instead, a plaintiff must produce evidence that a contract would have resulted

but for a defendant’s malicious intervention.” Beverage Sys. of the Carolinas, LLC v.

Associated Bev. Repair, LLC, 368 N.C. 693, 701, 784 S.E.2d 457, 463 (2016) (internal

quotation marks and citations omitted).
59. “Stating a claim for tortious interference with prospective economic

advantage requires that the plaintiff ‘allege facts [ ] show[ing] that the defendants

acted without justification in inducing a third party to refrain from entering into a

contract with them[,] which contract would have ensued but for the

interference.’” Cheryl Lloyd Humphrey Land Inv. Co., LLC v. Resco Prods., 831

S.E.2d 395, 403 (N.C. Ct. App. 2019) (citing Walker v. Sloan, 137 N.C. App. 387, 393,

529 S.E.2d 236, 242 (1999)). “Interference with a contract is justified if it is motivated

by a legitimate business purpose, as when the plaintiff and the defendant, an

outsider, are competitors.” Beverage Sys. of the Carolinas, LLC, 368 N.C. at 700, 784

S.E.2d at 462 (internal quotation marks and citation omitted). On the other hand,

“‘[i]nterference is without justification if it is ‘malicious and wanton[.]’” Alcorn v.

Bland, No. COA12-613, 2012 N.C. App. LEXIS 1416, at *21 (Dec. 18, 2012) (citing

Coleman v. Whisnant, 225 N.C. 494, 506, 35 S.E.2d 647, 655 (1945)).

60. Phillips’s very short argument in support of dismissal of the claim for

tortious interference is hard to follow. (ECF No. 50, at pp. 16–17.) It appears that

Phillips contends that LCI does not allege that, to the extent Phillips interfered with

LCI’s prospective contracts for the Preserve at Mountain Island and Hazel SouthPark

projects, he acted maliciously or “without justification.” (Id.)

61. LCI makes no argument in response to Phillips’s motion for judgment

on the claim for tortious interference with prospective economic advantage.

Nevertheless, LCI alleges that Phillips interfered, in part, “for the [ ] purpose of

crippling [LCI]’s ability to compete.” (ECF No. 4, at ¶¶ 91, 96.) Considering the
allegations in the FAC and the inferences therefrom in the light most favorable to

LCI, Ragsdale, 286 N.C. at 137, 209 S.E.2d at 499, the Court concludes that LCI has

adequately alleged that Phillips acted without justification in interfering with LCI’s

prospective contracts.

62. Therefore, to the extent the Motion seeks judgment in Phillips’s favor on

the claim for tortious interference with prospective economic advantage, the Motion

should be DENIED.

E. Civil Conspiracy

63. LCI alleges that Phillips took part in a civil conspiracy with the other

Defendants and “agreed to act, and in fact did act, in concert and conjunction with

one another in engaging in the wrongful and unlawful conduct complained of by [LCI]

hereinabove, all in furtherance of their conspiracy.” (ECF No. 4, at ¶ 148.) Phillips

argues that “‘[t]here is no independent cause of action for civil conspiracy. A claim

for conspiracy is dependent on ‘an underlying claim for unlawful conduct.’” (ECF No.

50, at p. 17 (quoting Sellers v. Morton, 191 N.C. App. 75, 83, 661 S.E.2d 915, 922

(2008)).) Phillips contends he is entitled to judgment in his favor because “LCI has

failed to allege any such claim against Phillips.” (Id.)

64. Phillips’s argument that LCI has not alleged claims for unlawful conduct

against Phillips is, of course, incorrect. The Court already has concluded that LCI

states claims against Phillips for misappropriation of trade secrets and tortious

interference with prospective economic advantage. Accordingly, to the extent the
Motion seeks judgment in Phillips’s favor on the claim for civil conspiracy, the Motion

should be DENIED.

F. UDTPA Claim

65. LCI claims Phillips’s conduct constitutes unfair or deceptive trade

practices in violation of the UDTPA. (ECF No. 4, at ¶¶ 153–56.) The entirety of

Phillips’s argument in his brief in opposition to the Motion is as follows:

LCI’s . . . claim for unfair [or] deceptive trade practices is
entirely premised on an insufficient claim of
misappropriation of trade secrets. Where a violation of the
UDTPA is based on a claim for tortious interference with
contract or misappropriation of trade secrets – or any other
claim – for which the plaintiff has failed to state a claim for
relief, the UDTPA claim also fails. Krawiec, 370 N.C. at
613, 811 S.E.2d at 550. Phillips is therefore entitled to
judgment in its favor on LCI’s claim under the UDTPA.

(ECF No. 50, at p. 17.)

66. As stated above, the Court concludes that LCI has sufficiently alleged

claims against Phillips for misappropriation of trade secrets and tortious

interference. Accordingly, to the extent the Motion seeks judgment in Phillips’s favor

on the claim for violation of the UDTPA, the Motion should be DENIED.

G. Punitive Damages and Injunctive Relief

67. With regard to LCI’s cause of action in the FAC labeled “Punitive

Damages” (ECF No. 4, at ¶¶ 157–59), Phillips argues only that LCI has failed to state

a claim against Phillips that would support an award of punitive damages. (ECF No.

50, at pp. 17–18 (citing Watson v. Dixon, 352 N.C. 343, 348, 532 S.E.2d 175, 178 (2000)

(Under the statute, “[p]unitive damages may be awarded only if the claimant proves
that the defendant is liable for compensatory damages.”)).) The Court already has

concluded that Phillips alleges claims that would support an award of punitive

damages. See N.C.G.S. § 66-154(c) (Punitive damages can be awarded for

misappropriation of trade secrets if “willful and malicious misappropriation exists.”).

To the extent the Motion seeks judgment in Phillips’s favor on the claim for punitive

damages, the Motion should be DENIED.

68. Phillips also argues that LCI’s claim labeled “Injunctive Relief” (ECF

No. 4, at ¶¶ 160–63) should be dismissed because it is a “remed[y], not [an]

independent cause[ ] of action.” (ECF No. 50, at p. 18 (citing Brewster v. Powell Bail

Bonding, Inc., 2018 NCBC LEXIS 76, at *18–19 (N.C. Super. Ct. July 26, 2018)).)

Since LCI has stated viable claims against Phillips, the Court concludes it is

premature to dismiss the claim for injunctive relief. To the extent the Motion seeks

judgment in Phillips’s favor on the claim for injunctive relief, the Motion should be

DENIED.

III. CONCLUSION

THEREFORE, IT IS ORDERED that:

69. To the extent Phillips seeks judgment in his favor as to LCI’s claim for

conversion of the Customer Data and Business Data, the Motion is GRANTED, and

LCI’s claim is dismissed with prejudice.

70. Except as expressly granted herein, the Motion is DENIED.
SO ORDERED, this the 30th day of December, 2019.

/s/ Gregory P. McGuire
Gregory P. McGuire
Special Superior Court Judge
for Complex Business Cases