Vitaform, Inc. v. Aeroflow, Inc.

Vitaform, Inc. v. Aeroflow, Inc., 2021 NCBC 58.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
BUNCOMBE COUNTY 19 CVS 3707

VITAFORM, INC. d/b/a BODY
AFTER BABY,

Plaintiff,

v. ORDER AND OPINION
ON DEFENDANTS’
AEROFLOW, INC. and MOTIF MOTION FOR LEAVE
MEDICAL, LLC,
TO AMEND ANSWER
Defendants. TO FIRST AMENDED
COMPLAINT

1. THIS MATTER is before the Court upon Defendants Aeroflow, Inc. and

Motif Medical, LLC’s (“Defendants”) Motion for Leave to Amend Answer to Plaintiff’s

First Amended Complaint filed 21 July 2021 (the “Motion”). (ECF No. 82.)

2. Having considered the Motion, the briefs in support of and in opposition to

the Motion, the appropriate evidence of record, and the arguments of counsel at the

hearing on the Motion, the Court hereby GRANTS the Motion as set forth below.

Smith DeVoss, PLLC, by Jeffrey J. Smith and John R. DeVoss, and
Wimer & Snider, P.C., by Jake A. Snider, for Plaintiff Vitaform, Inc.
(d/b/a Body After Baby).

Ward and Smith, P.A., by Joseph A. Schouten and Haley R. Wells, for
Defendants Aeroflow, Inc. and Motif Medical, LLC.

Bledsoe, Chief Judge.

I.

FACTUAL & PROCEDURAL BACKGROUND

3. This case involves allegations that a national distributor of breast pumps

and maternity compression garments, Defendant Aeroflow, Inc. (“Aeroflow”), stole
the products, product designs, and business plan of its manufacturer, Plaintiff

Vitaform, Inc. (d/b/a Body After Baby) (“Plaintiff” or “BAB”), enabling Aeroflow to

copy, manufacture, and/or sell its own products through its wholly owned subsidiary,

Defendant Motif Medical, LLC, in direct competition with BAB. BAB contends that

its maternity compression garment business has suffered substantial injury as a

result of Defendants’ alleged misconduct, including the loss of its strategic position

as first to market with certain highly profitable products.

4. Defendants seek leave to amend their answer under Rule 15 of the North

Carolina Rules of Civil Procedure (the “Rule(s)”) to include three counterclaims—

defamation per se, tortious interference with prospective economic advantage, and

unfair and deceptive trade practices—and to add an affirmative defense asserting

that Plaintiff’s claim for breach of the implied covenant of good faith and fair dealing

is barred by the statute of frauds under N.C.G.S. § 25-2-201. (Mem. of Law in Supp.

of Mot. to Amend Answer to First Am. Compl. [hereinafter “Mem. of Law in Supp.”],

ECF No. 83.) Defendants contend that their newly asserted counterclaims are based

on information disclosed by BAB’s President, Don Francisco (“Francisco”), at his

deposition on 12 May 2021, which Defendants argue they confirmed in subsequent

third-party interviews.

5. BAB opposes the Motion, contending both that this Court lacks personal

jurisdiction over Plaintiff to adjudicate Defendants’ counterclaims and that

amendment under Rule 15 is improper on grounds of undue delay, futility, bad faith,
and unfair prejudice. (Pl.'s Resp. Br. to Defs.’ Mot. to Amend [hereinafter “Pl.’s Resp.

Br.], ECF No. 89.)

6. The Court convened a hearing on the Motion on 10 September 2021 (the

“Hearing”), at which all parties were represented by counsel. The Motion is now ripe

for resolution.

II.

ANALYSIS

A. Personal Jurisdiction

7. To begin, the Court turns to Plaintiff’s challenge to the Motion on personal

jurisdiction grounds. Our Supreme Court has instructed that “[i]n examining

whether a nonresident defendant is subject to personal jurisdiction in our courts,”

trial courts should engage in a “two-step analysis”: “First, jurisdiction over the

defendant must be authorized by N.C.G.S. § 1-75.4—North Carolina's long-arm

statute. Second, if the long-arm statute permits consideration of the action, exercise

of jurisdiction must not violate the Due Process Clause of the Fourteenth Amendment

to the U.S. Constitution.” Beem USA LLLP v. Grax Consulting, LLC, 373 N.C. 297,

302 (2020) (cleaned up). “[B]ecause North Carolina’s long-arm statute has been

interpreted to allow the exercise of personal jurisdiction to the fullest extent allowed

under the due process clause, the two-step analysis collapses into one inquiry[,]”

Worley v. Moore, 2017 NCBC LEXIS 15, at *19 (N.C. Super. Ct. Feb. 28, 2017),

namely, “whether [the] defendant has the minimum contacts with North Carolina
necessary to meet the requirements of due process[,]”Hiwassee Stables, Inc. v.

Cunningham, 135 N.C. App. 24, 27 (1999)).

8. For a court to exercise personal jurisdiction, “there must be sufficient

minimum contacts between the nonresident defendant and our state such that the

maintenance of the suit does not offend traditional notions of fair play and substantial

justice.” Skinner v. Preferred Credit, 361 N.C. 114, 122 (2006) (quoting Int’l Shoe Co.

v. Washington, 326 U.S. 310, 316 (1945)) (internal quotation marks omitted). As our

Supreme Court explained in Beem:

Personal jurisdiction cannot exist based upon a defendant’s “random,
fortuitous, or attenuated” contacts with the forum state, Walden v.
Fiore, 571 U.S. 277, 286 (2014) (quoting [Burger King Corp. v.
Rudzewicz, 471 U.S. 462, 475 (1985)]), but rather must be the result of
“some act by which the defendant purposefully avails itself of the
privilege of conducting activities within the forum State, thus invoking
the benefits and protections of its laws,” Skinner, 361 N.C. at 133
(quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958)). As such, a
defendant’s contacts with the forum state must be such that a defendant
“should reasonably anticipate being haled into court there.” World-Wide
Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980); see also
Skinner, 361 N.C. at 133 (“A crucial factor is whether the defendant had
reason to expect that he might be subjected to litigation in the forum
state.”).

397 N.C. at 303.

9. The Court further summarized:

The United States Supreme Court has recognized two types of personal
jurisdiction that can exist with regard to a foreign defendant: general
(or “all-purpose”) jurisdiction and specific (or “case-based”) jurisdiction.
General jurisdiction is applicable in cases where the defendant's
affiliations with the State are so continuous and systematic as to render
them essentially at home in the forum State. Specific jurisdiction,
conversely, encompasses cases in which the suit arises out of or relates
to the defendant’s contacts with the forum.
Id. (cleaned up). See generally Ford Motor Co. v. Mont. Eighth Judicial Dist.

Court, 141 S. Ct. 1017, 1024–32 (2021).

10. Here, Plaintiff, a California corporation, challenges this Court’s exercise of

specific jurisdiction over it in North Carolina, contending that it did not do business

with Defendants or otherwise have minimum contacts with the State of North

Carolina at the time of the events giving rise to Defendants’ counterclaims. (Pl.’s

Resp. Br. 3.) In particular, Plaintiff contends that the communications on which the

counterclaims are based did not occur in North Carolina. (Pl.’s Resp. Br. 4.)

11. Plaintiff did, however, file this action in North Carolina, and the parties

dispute whether that act, standing alone, is sufficient to subject Plaintiff to the

jurisdiction of this Court to answer Defendants’ proposed counterclaims. Plaintiff

argues that it is not and relies solely on a law review article 1 and a Florida state court

decision 2 for its support. Defendants, in contrast, argue that Plaintiff’s initiation of

this action in North Carolina is sufficient to subject it to this Court’s jurisdiction and

rely on numerous federal decisions for their support. (Reply Br. in Supp. of Mot. to

Amend Answer to First Am. Compl. 2–3, ECF No. 91.)3

1 See Jon D. Bressler, Impermissive Counterclaims: Why NonResident Plaintiffs Can Contest

Personal Jurisdiction in Unrelated Countersuits, 65 American U. L. Rev. 641, 671 (2016).

2 See Edwards v. Johnson, 569 So.2d 473, 474 (Fla. Dist. Ct. App. 1990).

3 Defendants do not contend that Plaintiff is subject to this Court’s general jurisdiction and

instead acknowledged at the Hearing that Plaintiff’s initiation of this action is the sole basis
on which they rest their contention that Plaintiff is subject to personal jurisdiction in this
Court to answer the proposed counterclaims.
12. While the North Carolina courts do not appear to have addressed the issue

before the Court, the federal decisions on which Defendants rely and other similar

federal decisions are well-reasoned and persuasive, and thus will supply the rule of

decision for the Court here. 4 These cases find their source in the United States

Supreme Court’s decisions in Leman v. Krentler-Arnold Hinge Last Co., 284 U.S. 448

(1932) and Adam v. Saenger, 303 U.S. 59 (1938). In Leman, a patent case, the Court

held that “[w]hen the [plaintiff] brought the suit in [federal district court], it

submitted itself to the jurisdiction of the court with respect to all the issues embraced

in the suit, including those pertaining to the counterclaim of the defendants.” Leman,

284 U.S. at 451. Similarly, in Adam, the Court concluded that a plaintiff becomes

subject to the trial court’s jurisdiction for purposes of a defendant’s counterclaims by

virtue of having initiated the action in the forum. The Court held in Adam:

The plaintiff having, by his voluntary act in demanding justice from the
defendant, submitted himself to the jurisdiction of the court, there is
nothing arbitrary or unreasonable in treating him as being there for all
purposes for which justice to the defendant requires his presence. It is
the price which the state may exact as the condition of opening its courts
to the plaintiff.

Adam, 303 U.S. at 67.

13. Federal courts since Adam have dutifully followed these holdings,

sometimes couching their decisions in terms of waiver, see, e.g., Grupke v. Linda Lori

Sportswear, 174 F.R.D. 15, 18–19 (E.D.N.Y. 1997) (“In the vast majority of cases a

plaintiff, by virtue of bringing suit, waives venue and personal jurisdiction objections

4 The Court may consult federal authority for guidance in resolving the Motion. See, e.g.,
Sutton v. Duke, 277 N.C. 94, 101 (1970); Turner v. Duke Univ., 325 N.C. 152, 164 (1989).
to a defendant’s counterclaims.”), and sometimes as consent, see, e.g., In re Schwinn

Bicycle Co., 182 B.R. 526, 531 (Bankr. N.D. Ill. 1995) (“[B]y filing a proof of claim in

a pending bankruptcy case, a creditor consents to personal jurisdiction in all possible

counterclaims brought by the estate.”). Regardless, these courts conclude that when

a plaintiff files its lawsuit in the forum, it “purposefully avails itself of the privilege

of conducting activities within the forum State,” Hanson, 357 U.S. at 253 (citing Int’l

Shoe, 326 U.S. at 319), subjecting it to the forum court’s jurisdiction. See, e.g., Trade

Well Int’l v. United Cent. Bank, 825 F.3d 854, 859 (7th Cir. 2016) (“By filing suit in

Wisconsin, Trade Well availed itself of the forum, whether by explicitly consenting to

jurisdiction, waiving any challenge to jurisdiction, or simply receiving the privileges

and benefits of the forum state.”); Gen. Contracting & Trading Co., LLC v. Interpole,

Inc., 940 F.2d 20, 23 (1st Cir. 1991) (“Whatever label one might place on Trastco’s

conduct, it seems pellucidly clear that, by bringing Suit No. 2, Trastco submitted itself

to the district court’s jurisdiction in Suit No. 1. Trastco elected to avail itself of the

benefits of the New Hampshire courts as a plaintiff, starting a suit against

Interpole.”); Saudi Basic Indus. Corp. v. Exxonmobil Corp., 194 F. Supp. 2d 378, 410

(D.N.J. 2002) (“SABIC also purposefully availed itself of the protection of the U.S.

laws by filing the NJ-I and Delaware actions.”).

14. Significantly, federal courts have exercised jurisdiction over plaintiffs to

adjudicate both compulsory and permissive counterclaims. See, e.g., Trade Well Int’l,

825 F.3d at 859 (“In general, when a defendant interposes a permissive counterclaim,

the plaintiff cannot object that the court lacks personal jurisdiction for purposes of
adjudicating the claim.”); Gen. Contracting & Trading Co., LLC, 940 F.2d at 23 (“[W]e

think it is inevitable that [by filing suit] Trastco surrendered any jurisdictional

objections to claims that Interpole wished to assert against it in consequence of the

same transaction or arising out of the same nucleus of operative facts . . . . [T]he

Supreme Court has long recognized the inequity that would result if a plaintiff could

raise jurisdictional objections to counterclaims filed by a defendant.”); Threlkeld v.

Tucker, 496 F.2d 1101, 1103 (9th Cir. 1974) (noting that when a plaintiff institutes

an action, he “submit[s] himself to the court’s jurisdiction not only as to his own cause

of action but also as to any counterclaim filed against him”); In re Schwinn Bicycle

Co., 182 B.R. at 531 (“A plaintiff may not object that the court lacks personal

jurisdiction for purposes of adjudicating any counterclaim, compulsory or permissive,

lodged against it by the defendant.”); see generally 6 Charles Alan Wright & Arthur

R. Miller, Federal Practice & Procedure: Civil § 1424, at nn.1 & 6–7 (3d ed. Apr. 2021

update) (collecting cases) (“[I]f defendant interposes a permissive counterclaim,

plaintiff cannot object that the court lacks personal jurisdiction or that venue is

improper for purposes of adjudicating the claim.”).

15. Reliance on these federal decisions is particularly appropriate here because

Defendants’ proposed counterclaims are related and closely connected to Plaintiff’s

affirmative claims in this action. Unlike the unrelated counterclaims at issue in the

Florida decision on which Plaintiff relies, see Edwards, 569 So.2d at 574, Plaintiff’s

opposition brief makes plain—despite Plaintiff’s protestations to the contrary—that

its defense to the counterclaims is grounded entirely in establishing Defendants’
liability on Plaintiff’s affirmative claims, inextricably tying the claims and proposed

counterclaims together, (Pl.’s Resp. Br. 12–13).

16. Based on the above, the Court concludes that it has personal jurisdiction

over Plaintiff to adjudicate Defendants’ proposed counterclaims in this action.

Plaintiff’s arguments to the contrary are without merit.

B. Rule 15

17. Having found that the Court has jurisdiction over Plaintiff, the Court next

considers the application of Rule 15. Rule 15(a) provides, in relevant part, as follows:

A party may amend his pleading once as a matter of course at any time
before a responsive pleading is served or, if the pleading is one to which
no responsive pleading is permitted and the action has not been placed
upon the trial calendar, he may so amend it at any time within 30 days
after it is served. Otherwise a party may amend his pleading only by
leave of court or by written consent of the adverse party; and leave shall
be freely given when justice so requires.

N.C. R. Civ. P. 15(a).

18. Although Rule 15 makes plain that “leave shall be freely given,” “the rules

still provide some protection for parties who may be prejudiced by liberal

amendment,” Henry v. Deen, 310 N.C. 75, 82 (1984), and amendment may be denied

for reasons of “undue delay, bad faith, dilatory motive, repeated failure to cure

deficiencies, undue prejudice, and futility of amendment,” Bartlett Milling Co. v.

Walnut Grove Auction and Realty Co., 192 N.C. App. 74, 89 (2008). Nevertheless, our

Supreme Court has made clear that “amendments should be freely allowed unless

some material prejudice to the other party is demonstrated.” Mauney v. Morris, 316
N.C. 67, 72 (1986). “The burden is upon the opposing party to establish that that

party would be prejudiced by the amendment.” Id.

19. “[A] motion to amend is addressed to the discretion of the court, and its

decision thereon is not subject to review except in case of manifest abuse.” Azure

Dolphin, LLC v. Barton, 371 N.C. 579, 603 (2018) (quotations omitted).

i. Undue Delay

20. Plaintiff argues that Defendants’ two-month delay between Francisco’s

deposition and the filing of the Motion constitutes undue delay. (Pl.’s Resp. Br. 7.)

Plaintiff also argues that Defendants have violated the Court’s Case Management

Order (“CMO”) by seeking amendment after the 4 January 2021 deadline for

amendments to pleadings in the CMO. (Case Management Order, ECF No. 64.) The

Court finds Plaintiff’s arguments to be without merit.

21. To start, Defendants’ counterclaims are based entirely on information

Francisco disclosed for the first time in this litigation at his deposition on 12 May

2021. Rather than immediately seek leave to amend, Defendants quite reasonably

investigated Francisco’s disclosures through third-party interviews over the following

two months. Defendants offer evidence that those interviews appear to have

confirmed the basis for the newly asserted counterclaims. Defendants’ resulting

motion in mid-July was filed following the completion of this brief but necessary and

seemingly fruitful investigation. The Court cannot find undue delay on these facts.

Indeed, North Carolina courts typically find undue delay in situations involving far

more alleged delay than is present here. See, e.g., Wilkerson v. Duke Univ., 229 N.C.
App. 670, 679 (2013) (thirteen months); Carmayer, LLC v. Koury Aviation, Inc., 2017

NCBC LEXIS 82, at *21 (N.C. Super. Ct. Sept. 11, 2017) (seventeen months); see also

Alkemal Sing. PTE Ltd. v. DEW Global Fin., LLC, 2017 NCBC LEXIS 112, at *31

(N.C. Super. Ct. Dec. 12, 2017) (collecting cases to similar effect). Plaintiff’s objection

based on undue delay is therefore without merit.

22. As for Defendants’ purported failure to comply with the CMO, it is

undisputed that the information giving rise to Defendants’ counterclaims was

disclosed by Francisco five months after the deadline for amendment. In such

circumstances, the Court will not permit the CMO to preclude Defendants from

timely asserting claims based on previously unknown facts that Defendants could not

have discovered earlier with reasonable diligence. See, e.g., Belcher v. W.C. English,

125 F. Supp. 3d 544, 549 (M.D.N.C. 2015) (“Good cause may be shown if the plaintiff

uncovered previously unknown facts during discovery that would support an

additional cause of action, or if despite the exercise of reasonable diligence, the

evidence supporting the proposed amendment would not have been discovered until

after the amendment deadline had passed.”) (cleaned up). 5

ii. Futility

23. Plaintiff next objects on grounds of futility, contending that the proposed

counterclaims fail to state a claim under Rule 12(b)(6). (Pl.’s Resp. Br. 11.) The Court

5 Plaintiff also objects on grounds of undue delay to Defendants’ motion to add an affirmative

defense based on the statute of frauds. (Pl.’s Resp. Br. 9.) As discussed later in the opinion,
however, because the Court concludes that permitting the assertion of this defense will not
unfairly prejudice Plaintiff, the Court further concludes that any delay in moving to amend
to add the defense is not a sufficient basis to deny amendment under Rule 15.
again finds Plaintiff’s argument wholly without merit. Plaintiff’s argument on this

score is essentially an assertion that BAB will prevail on the contested issues raised

by the counterclaims and ignores entirely the standard for dismissal under Rule

12(b)(6). (Pl.’s Resp. Br. 11–13.) Plaintiff nowhere grapples with the sufficiency of

the specific allegations Defendants have advanced to support their claims.

24. As this Court has previously held, “[t]he futility standard under Rule 15 is

essentially the same standard used in reviewing a motion to dismiss under Rule

12(b)(6)[.]” Simply the Best Movers, LLC v. Marrins' Moving Sys., 2016 NCBC LEXIS

28, *5–6 (N.C. Super. Ct. 2016). When considering a motion to dismiss under Rule

12(b)(6), the Court views the allegations in the pleading at issue “in the light most

favorable to the non-moving party[,]” Christenbury Eye Ctr., P.A. v. Medflow, Inc.,

370 N.C. 1, 5 (2017) (quoting Kirby v. N.C. Dep’t of Transp., 368 N.C. 847, 852 (2016)),

and determines “whether the allegations of the complaint, if treated as true, are

sufficient to state a claim upon which relief may be granted under some legal

theory[,]” Corwin v. British Am. Tobacco PLC, 371 N.C. 605, 615 (2018) (quoting

CommScope Credit Union v. Butler & Burke, LLP, 369 N.C. 48, 51 (2016)).

25. “[T]he [pleading] is to be liberally construed, and the trial court should not

dismiss the [pleading] unless it appears beyond doubt that [the] [pleader] could prove

no set of facts in support of his claim which would entitle him to relief.” State ex rel.

Cooper v. Ridgeway Brands Mfg., LLC, 362 N.C. 431, 444 (2008) (quoting Meyer v.

Walls, 347 N.C. 97, 111–12 (1997)). Dismissal of a [pleading] under Rule 12(b)(6) is

proper only: “(1) when the [pleading] on its face reveals that no law supports [the]
claim; (2) when the [pleading] reveals on its face the absence of fact sufficient to make

a good claim; [or] (3) when some fact disclosed in the [pleading] necessarily defeats

the . . . claim.” Oates v. JAG, Inc., 314 N.C. 276, 278 (1985).

26. The Court has carefully reviewed Defendants’ proposed counterclaims

under the foregoing rules and concludes that each counterclaim is plainly and

succinctly stated with supporting allegations of fact tied to the elements of each claim.

As such, Plaintiff’s contention that Defendants’ motion should be denied on futility

grounds must be rejected.

iii. Bad Faith

27. Next, Plaintiff contends that Defendants have brought the Motion in bad

faith. (Pl.’s Resp. Br. 9.) Again, the Court disagrees. Defendants’ allegations stem

from Francisco’s deposition admissions and a sworn affidavit from a third party.

(Mem. of Law in Supp. 2.) Although Plaintiff vigorously contends that its view of the

disputed facts will prevail and that Defendants’ allegations are meritless, courts have

recognized that “conjecture about the merits of litigation should not enter into the

decision whether to allow amendment.” Falls v. Goldman Sachs Trust Co., N.A., No.

5:16-CV-7409-FL, 2017 U.S. Dist. LEXIS 207007, *35 (E.D.N.C. 2017) (quoting Davis

v. Piper Aircraft Corp., 615 F.2d 606, 613 (4th Cir. 1980)). More specifically, Plaintiff

has failed to offer any evidence that Defendants’ Motion is driven by an improper

motive or purpose, is abusive, or is otherwise offered in bad faith. Plaintiff’s bad faith

challenge is therefore meritless. See, e.g., Bundy v. Com. Credit Co., 202 N.C. 604,

607 (1932) (noting that “bad faith . . . implies a false motive or a false purpose and
hence . . . is a species of fraudulent conduct”); Laber v. Harvey, 438 F.3d 404, 427 (4th

Cir. 2006) (holding that “[d]elay alone . . . is an insufficient reason to deny the

plaintiff’s motion to amend”); GSS Props., Inc. v. Kendale Shopping Ctr., Inc., 119

F.R.D. 379, 381 (M.D.N.C. 1988) (“Bad faith amendments are those which may be

abusive or made in order to secure some ulterior tactical advantage.”).

iv. Unfair Prejudice

28. Finally, Plaintiff argues that permitting the assertion of new counterclaims

at or after the end of the fact discovery period on 5 August 2021, as Defendants seek

to do here, will be unfairly prejudicial. (Pl.’s Resp. Br. 10.) The period for all

discovery, however, does not expire until 15 November 2021, and the Court will

permit additional fact discovery limited to Defendants’ counterclaims and additional

affirmative defense to alleviate any potential prejudice caused by the timing of

Defendants’ amendment. Indeed, our courts have recognized that “the fact that

additional discovery may be required [does not] amount to prejudice or make the

delay ‘undue’ ” under Rule 15. See N. River Ins. Co. v. Young, 117 N.C. App. 663, 671

(1995) (citing Coffey v. Coffey, 94 N.C. App. 717, 723 (1989)). Thus, this objection, too,

is without merit.

III.

CONCLUSION

29. WHEREFORE, for the reasons set forth above, the Court, in the exercise

of its discretion, hereby ORDERS as follows:
a. Defendants’ Motion for Leave to Amend Answer to Plaintiff’s First

Amended Complaint is hereby GRANTED. Defendants shall file their

Amended Answer to First Amended Complaint substantially in the form

as attached as Exhibit A to Defendants’ Motion within three (3) business

days after the entry of this Order; and

b. Counsel for Plaintiff and Defendants shall meet, confer, and file a

recommended discovery and case management schedule to implement

the Court’s ruling no later than ten (10) days after the entry of this

Order.

SO ORDERED, this the 16th day of September, 2021.

/s/ Louis A. Bledsoe, III
Louis A. Bledsoe, III
Chief Business Court Judge