Lowder Constr., Inc. v. Phillips

Lowder Constr., Inc. v. Phillips, 2020 NCBC 1.

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,
Defendants. ORDER AND OPINION ON
LOWDER CONSTRUCTION, INC.’S
MOTION TO DISMISS RONALD E.
PHILLIPS’S COUNTERCLAIM
RONALD E. PHILLIPS,
Counterclaim
Plaintiff,
v.
LOWDER CONSTRUCTION,
INC. and J. DEAN LOWDER
Counterclaim
Defendants.

THIS MATTER comes before the Court on Plaintiff/Counterclaim-Defendant

Lowder Construction, Inc.’s Motion to Dismiss the Sixth Amended and Supplemental

Counterclaim filed by Ronald E. Phillips. (“Motion,” ECF No. 39.)

THE COURT, after considering the Motion, the briefs in support of and in

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

issue, and other appropriate matters of record, CONCLUDES that the Motion should

be GRANTED.

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 AND PROCEDURAL BACKGROUND

1. Counterclaim-Plaintiff Ronald E. Phillips (“Phillips”) provides sales,

marketing, and operational services to various businesses as a business consultant.

(ECF No. 33 at CC, ¶ 6.) Counterclaim-Defendant Lowder Construction, Inc. (“LCI”)

is a commercial construction company that provides framing services for hotels and

apartment buildings. (Id. at ¶ 7.) LCI retained Phillips as an independent contractor

from January 2014 to late-December 2017. (Id. at ¶¶ 6, 9, 28.) Defendant Kevin W.

Glenn (“Glenn”) was an LCI employee who worked closely with Phillips at all times

relevant to this matter. (Id. at ¶¶ 64–65.)

2. Phillips and Glenn ended their respective employments with LCI in late

December 2017 and were hired by Defendant Atlantic Wood & Timber, LLC

(“Atlantic”). Atlantic is a competitor of LCI.

3. On March 14, 2019, LCI filed its First Amended Complaint (“FAC”) in

this action against Phillips and the other Defendants. (ECF No. 4.) In the FAC, LCI

alleges, inter alia, claims against Phillips for misappropriation of trade secrets;

conversion; tortious interference with prospective economic advantage; civil

conspiracy; and unfair or deceptive trade practices in violation of N.C.G.S. § 75-1.1

(“UDTPA”). (ECF No. 4.) The claims are based primarily on Phillips’s alleged

misappropriation of LCI’s trade secrets, including a computer-generated modeling

process, and other customer and business information. (Id.)
4. In its FAC (ECF No. 4), LCI alleges that it “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.) Generally, LCI’s claims against Phillips arise from

work Phillips and Glenn performed for LCI using LCI’s Structural Model. LCI alleges

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

purposed and customized software.” (Id. at ¶ 16.) LCI further alleges that 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, which is a time-

consuming and inaccurate process. (Id. at ¶ 15.) LCI claims the Structural Model is

a proprietary trade secret protected under the North Carolina Trade Secrets

Protection Act, N.C.G.S. §§ 66-152 et seq. (Id. at ¶ 24.) LCI claims that Phillips,

along with Glenn, misappropriated the Structural Model, along with other

confidential customer and business information, and disclosed and used the

Structural Model and other confidential information to help Atlantic unfairly

compete with LCI.

5. Phillips filed his Answer and Counterclaim on June 17, 2019. As his

“Sixth Amended and Supplemental Counterclaim” against LCI, Phillips alleges that

LCI filed this lawsuit against him for the purpose of interfering with his ability to
compete with LCI, or assist Atlantic with competing, and that such conduct is an

unfair or deceptive trade practice in violation of the UDTPA (“Sixth Counterclaim”).

(ECF No. 33 at CC, ¶¶ 61–112.) In the Sixth Counterclaim, Phillips alleges that LCI’s

allegations in the FAC are “false.” (Id. at CC, ¶ 63.) Phillips alleges that the

Structural Model is not a trade secret, but simply consists of two or more

commercially available software programs that have not been modified, altered, or

upgraded by LCI in any way. More specifically, in his Sixth Counterclaim, Phillips

alleges in relevant part:

a. In late 2016, LCI purchased a Dell Precision 5810 Desktop computer for

the dedicated purpose of running a Building Information Modeling

software program to edit and/or manipulate three-dimensional

structural models of buildings (the “Computer”). (Id. at CC, ¶ 68.)

b. LCI purchased two software licenses for programs that were

downloaded onto the Computer: “(a) Revit, a software product created

by Autodesk, Inc. and purchased from Advanced Solutions which is

capable of creating three-dimensional structural models for larger,

commercial construction projects (“Revit”); and (b) StrucSoft Solutions

North America’s MWF (“StrucSoft”), a plugin or application that works

within Revit to specifically assist with framing issues.” (Id. at CC, ¶ 70.)

c. In September 2017, LCI formed Construction Modeling & Management,

LLC (“CM&M”), and LCI transferred the Revit and StrucSoft licenses
and its contract with Advanced Solutions to CM&M. (Id. at CC, ¶¶ 67,

71.)

d. Starting in February 2017, LCI, and later CM&M, hired Advanced

Solutions to construct most of the structural models LCI sought to

utilize in connection with its projects. Advanced Solutions used Revit to

construct the models, and then billed LCI (and CM&M) for its modeling

services. LCI and CM&M engaged Advanced Solutions to create

structural models only for projects that LCI had already been awarded.

“Advanced Solutions never created a structural model for the purposes

of assisting LCI with a bid on a particular project.” (Id. at CC, ¶¶ 73–

74.)

e. After Advanced Solutions sent a structural model to Glenn, Glenn used

Revit and StrucSoft to complete the framing component of the structural

model. “Glenn only completed the framing components for models of

projects that had already been awarded to LCI; Glenn never generated

the framing component of a structural model for the purpose of assisting

LCI with a bid on a particular project.” (Id. at CC, ¶ 75.)

f. Neither Glenn nor Advanced Solutions created or developed any unique

or customized software, program, application, or plugin for LCI to use

in the Structural Model. “Advanced Solutions did provide Glenn with

certain macroinstructions (“Macros”) for use within Revit in order to

more efficiently accomplish specific tasks. Glenn did not create or assist
in the creation of the Macros . . . .” Phillips alleges, upon information

and belief, that the Macros are owned by Advanced Solutions and/or

Autodesk, Inc., and not LCI. (Id. at CC, ¶¶ 76–79.)

6. Phillips also alleges that LCI never took any steps to secure or protect

the Computer or the software on it. (Id. at CC, ¶¶ 83–86.) Phillips further alleges

“Revit, StrucSoft, and the Macros are freely available in the market for purchase and

use by any individual or entity, including LCI” and “LCI did not, does not, and cannot

possess any trade secret in connection with any structural model.” (Id. at CC, ¶¶ 90–

91.)

7. On December 14, 2017, LCI executed an agreement transferring

ownership of the Computer, with the loaded Revit and StrucSoft software, to Glenn

as payment for certain bonus compensation due to him. (Id. at CC, ¶ 81.)

8. Atlantic does not hold licenses for Revit or StrucSoft and “could not use

those software programs or associated Macros.” (Id. at CC, ¶ 98.)

9. Phillips alleges that “LCI’s claim of misappropriation of trade secrets

and each of its other claims, all founded upon its purported trade secret in a

‘Structural Model,’ are objectively frivolous, unreasonable, and non-justiciable.” (Id.

at CC, ¶ 96.) “LCI has, without justification, intentionally attempted to interfere

with the agreements between Atlantic and its employee Glenn and contractor

Phillips, and has also interfered with Atlantic’s and Phillips’[s] prospective business

opportunities” and “[s]pecifically, LCI intends to disrupt, impede and prevent

Phillips’[s] contract and potential future employment and/or contracts with Atlantic,
in the absence of a non-compete agreement with Phillips, in order to gain a

competitive advantage in the market and deprive Phillips and Atlantic of the

competitive benefits afforded by such relationships.” (Id. at CC, ¶¶ 101–02.)

10. On July 19, 2019, LCI filed the Motion. LCI simultaneously filed a brief

in support of the Motion. (Mem. Supp. Pls.’ Mot. to Dismiss, ECF No. 40.) The Motion

seeks dismissal of Phillips’s Sixth Counterclaim for unfair or deceptive trade

practices in violation of the UDTPA.

11. Phillips filed a response in opposition to the Motion. (ECF No. 50.) On

September 9, 2019, LCI filed a reply brief in support of the Motion. (ECF No. 55.)

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

counsel for the parties made oral arguments.

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

determination.

II. STANDARD OF REVIEW

14. In ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court’s

inquiry is “whether, as a matter of law, the allegations of the [counterclaim], treated

as true, are sufficient to state a claim upon which relief may be granted under some

legal theory, whether properly labeled or not.” Harris v. NCNB Nat’l Bank, 85 N.C.

App. 669, 670, 355 S.E.2d 838, 840 (1987). “It is well established that dismissal

pursuant to Rule 12(b)(6) is proper when ‘(1) the [counterclaim] on its face reveals

that no law supports the plaintiff’s claim; (2) the [counterclaim] on its face reveals

the absence of facts sufficient to make a good claim; or (3) the [counterclaim] discloses
some fact that necessarily defeats the plaintiff’s claim.’” Corwin v. British Am.

Tobacco PLC, 371 N.C. 605, 615, 821 S.E.2d 729, 736–37 (2018) (quoting Wood v.

Guilford County, 355 N.C. 161, 166, 558 S.E.2d 490, 494 (2002)).

15. In deciding a motion to dismiss, the court must construe the complaint

liberally and accept all well-pleaded allegations as true. Laster v. Francis, 199 N.C.

App. 572, 577, 681 S.E.2d 858, 862 (2009). The court, however, is not required “to

accept as true allegations that are merely conclusory, unwarranted deductions of fact,

or unreasonable inferences.” Good Hope Hosp., Inc. v. N.C. Dep’t of Health & Human

Servs., 174 N.C. App. 266, 274, 620 S.E.2d 873, 880 (2005) (citation and quotations

omitted).

16. In addition, “when ruling on a Rule 12(b)(6) motion, a court may

properly consider documents which are the subject of [the counterclaim] and to which

the [counterclaim] specifically refers even though they are presented by the

defendant.” Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 60, 554 S.E.2d 840,

847 (2001).

III. ANALYSIS

17. LCI seeks dismissal of Phillips’s Sixth Counterclaim against LCI for

unfair or deceptive trade practices in violation of the UDTPA. LCI argues that

Phillips’s Sixth Counterclaim should be dismissed because LCI’s claims against

Phillips are protected by the Noerr-Pennington doctrine, “which provides that a party

who seeks redress by filing a lawsuit is immune from claims that are based solely on

the pursuit of that lawsuit.” Velocity Solutions, Inc. v. BSG Fin., LLC, 2016 NCBC
LEXIS 19, at *15 (N.C. Super. Ct. Feb. 22, 2016) (following E. R.R. Presidents

Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 139 (1961)). As the Supreme

Court of North Carolina recently explained:

The Noerr-Pennington doctrine originates from the U.S.
Supreme Court’s decisions in Eastern Railroad Presidents
Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.
Ct. 523, 5 L. Ed.2d 464 (1961) (“Noerr”), and United Mine
Workers v. Pennington, 381 U.S. 657, 85 S. Ct. 1585, 14 L.
Ed.2d 626 (1965) (“Pennington”), which are together its
namesake. In Noerr, the Supreme Court held that the
First Amendment protects businesses when they engage in
certain petitioning activities, such as initiating litigation,
providing them with immunity from antitrust liability
when their conduct is aimed at influencing governmental
action and their petitioning activity otherwise potentially
violates §§ 1 and 2 of the Sherman Act, which proscribe
conspiracies to restrain trade and attempts to impose
monopolies, respectively. See 365 U.S. at 135–37, 81 S. Ct.
at 528–29. Pennington then reiterated the core teaching
of Noerr: that immunity from antitrust liability under the
First Amendment exists for ‘concerted effort[s] to influence
public officials regardless of intent or purpose.’ 381 U.S. at
670, 85 S. Ct. at 1593.

Cheryl Lloyd Humphrey Land Inv. Co., LLC v. Resco Prods., 831 S.E.2d 395, 399 (N.C.

Sup. Ct. 2019).

18. The immunity provided by the Noerr-Pennington doctrine, however,

“can be lost if the litigation is only a sham. Under the sham-litigation exception to

the Noerr-Pennington doctrine, ‘[t]he institution of a lawsuit may be the basis for an

unfair trade practices claim if the lawsuit is a mere sham to cover what is actually

nothing more than an attempt to interfere directly with the business relationships of

a competitor.’” Velocity Solutions, Inc., 2016 NCBC LEXIS 19, at *15 (quoting United

States v. Ward, 618 F. Supp. 884, 907 (E.D.N.C. 1985)). “[T]he ‘sham litigation’
exception to the Noerr-Pennington doctrine would apply to claims under [the UDTPA]

when 1) the claim asserted is ‘objectively meritless’ and 2) the court finds ‘the

litigant’s subjective motivation’ was an unlawful intent to ‘interfere directly with the

business relationships of a competitor.’” Lorillard Tobacco Co. v. R.J. Reynolds

Tobacco Co., 2011 NCBC LEXIS 31, at *15–16 (N.C. Super. Ct. Aug. 8, 2011) (quoting

Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60

(1993)). “Proving that the filing of a lawsuit is a mere sham carries an extremely

high burden, and, even if the Court assumes that an action was brought for no

legitimate purpose and with a subjective anti-competitive intent, it can still conclude

that the suit is objectively reasonable because it is not utterly baseless.” Velocity

Solutions, Inc., 2016 NCBC LEXIS 19, at *15 (quotations omitted).

19. In deciding whether Phillips’s Sixth Counterclaim is a sham, the Court

first must determine whether LCI’s lawsuit against Phillips is “objectively

reasonable.” “A lawsuit is objectively reasonable if an objective litigant could

conclude that the suit is reasonably calculated to elicit a favorable outcome.”

Reichhold Chems., Inc. v. Goel, 146 N.C. App. 137, 157, 555 S.E.2d 281, 293 (2001)

(citation and quotation marks omitted). Only if the Court concludes that LCI’s

lawsuit is not objectively reasonable does it consider whether the suit was brought

for a subjective anti-competitive purpose. Lorillard Tobacco Co., 2011 NCBC LEXIS

31, at *16 (“[T]he inquiry into subjective intent only follows a finding that the suit is

objectively baseless and does not inform that initial objective determination.”). As

this Court succinctly summarized
[The] inquiry . . . requires the Court to consider whether,
accepting the allegations of the Counterclaim as true and
allowing all favorable factual inferences from those facts,
the Court can and should make that determination as a
matter of law without need for further discovery. The
controlling ultimate issue is whether [p]laintiffs’
Complaint is ‘objectively reasonable.’ If it is, [p]laintiffs’
subjective intent in filing the suit is irrelevant, and further
inquiry into that intent is not necessary.

Id. at *2. Accordingly, the Court first must decide whether LCI’s FAC is objectively

reasonable.

20. Phillips’s Sixth Counterclaim against LCI alleges that LCI’s institution

of the present litigation “is a mere sham” intended to interfere with Phillips’s contract

and potential future employment with Atlantic, and that LCI’s act of filing the

“objectively unreasonable, frivolous, and baseless” lawsuit against him constitutes an

unfair or deceptive trade practice. (ECF No. 33 at CC, ¶¶ 102, 108.) Rather than

addressing the entirety of LCI’s lawsuit, Phillips’s argument in opposition to the

Motion focuses exclusively on LCI’s claim against Phillips for misappropriation of

trade secrets. Phillips contends that if the misappropriation claim is not objectively

reasonable, then LCI’s lawsuit is utterly baseless and a sham. (ECF No. 50, at pp.

9–13; ECF No. 48, at pp. 18–22.) Phillips’s argument relies heavily on his allegations

in the Sixth Counterclaim denying LCI’s allegations regarding the proprietary nature

of the Structural Model, and confidential customer and business information. (Id.)

21. In analyzing whether LCI’s lawsuit is “objectively reasonable,” on the

one hand, or “utterly baseless,” on the other, the Court must decide whether “‘an

objective litigant could conclude that the suit is reasonably calculated to elicit a
favorable outcome.’” Reichhold Chems., Inc., 146 N.C. App. at 157, 555 S.E.2d at 293

(quoting Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., 508 U.S. 49,

60 (1993) (“[T]he lawsuit must be objectively baseless in the sense that no reasonable

litigant could realistically expect success on the merits. If an objective litigant could

conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit

is immunized under Noerr, and an antitrust claim premised on the sham exception

must fail.”)).

22. As discussed thoroughly in the Order and Opinion on Phillips’s Motion

for Judgment on the Pleadings (ECF No. 62), LCI has sufficiently alleged a viable

claim for misappropriation of trade secrets against Phillips to survive a motion for

judgment on the pleadings. LCI alleges that it developed its own proprietary

modeling and costing process, the Structural Model, and that the Structural Model

provides LCI with unique advantages over its competitors. (ECF No. 4, at ¶¶ 11–16.)

LCI alleges that Phillips, along with Glenn, “focused, to a significant degree, on the

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

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

and intangible—of the Structural Model.” (Id. at ¶¶ 54–55.) LCI further alleges that:

while Phillips was still employed with LCI, he directed Glenn to provide an example

of a Structural Model to Atlantic; Phillips accepted employment with Atlantic but

continued working for LCI and provided Atlantic with copies of structural models for

projects on which LCI was bidding; and after Phillips began working for Atlantic, he

helped Atlantic win projects from LCI customers using LCI’s trade secrets and
confidential customer and business data. (Id. at ¶¶ 79–94.) LCI alleges that it has

been injured by Phillips’s conduct. (Id. at ¶ 105.)

23. While Phillips alleges that the Structural Model is not a trade secret,

and undoubtedly will contest LCI’s allegations that he misappropriated trade secrets,

the Court finds that, based on LCI’s allegations in the FAC, “an objective litigant

could conclude that” the claim for misappropriation “is reasonably calculated to elicit

a favorable outcome” for LCI. Reichhold Chems., Inc., 146 N.C. App. at 157, 555

S.E.2d at 293.

24. In addition, in the Sixth Counterclaim, Phillips specifically alleges only

that the Structural Model is not a trade secret. Phillips does not specifically allege

how or why LCI’s confidential customer and business data are not trade secrets, or

why LCI’s claim that Phillips misappropriated the customer and business data is not

objectively reasonable and not calculated to seek a favorable outcome on LCI’s claim

for misappropriation of trade secrets. Similarly, Phillips does not specifically allege

on what grounds an objective litigant could conclude that LCI’s allegations that

Phillips interfered with LCI’s opportunity to win at least two specific projects offered

by LCI’s customers do not support its claim for tortious interference with prospective

economic advantage. (ECF No. 4, at ¶¶ 140–46.) Therefore, even if Phillips has

alleged that LCI’s claim for misappropriation of the Structural Model is baseless, he

does not adequately allege that LCI’s other claims are utterly baseless. Velocity

Solutions, Inc., 2016 NCBC LEXIS 19, at *15.
25. As existing authority makes clear, the burden of establishing an

exception to the protection to petition the courts provided by the Noerr-Pennington

doctrine is a heavy one that must be reserved for those lawsuits that are truly “utterly

baseless”; the courts should not be hesitant to dismiss claims for unfair or deceptive

trade practices grounded in another party’s decision to file a lawsuit. See, e.g.,

Lorillard Tobacco Co., 2011 NCBC LEXIS 31; Velocity Solutions, Inc., 2016 NCBC

LEXIS 19. Phillips’s allegations in the Sixth Counterclaim fail to support his claim

that LCI’s lawsuit against him is objectively unreasonable or utterly baseless.

Therefore, the Motion should be GRANTED.

IV. CONCLUSION

THEREFORE, IT IS ORDERED that the Motion is GRANTED, and Phillips’s

Sixth Counterclaim is dismissed with prejudice.

SO ORDERED, this the 8th day of January, 2020.

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