In the Business Court, Consider it Pole Vaulting

A familiar Business Court journey – former employees and alleged trade secret misappropriation – took a detour in Lowder Construction, Inc. v. Ronald Phillips, et al., 2020 NCBC 1, 2019 WL 91867 (N.C. Super. Ct. Jan. 8, 2020). See Order and Opinion. A departed employee counter-claimed under Chapter 75 that the lawsuit against him was merely an effort to interfere with his new gig, and new employer. The Court considered whether the Noerr-Pennington doctrine – which affords immunity from antitrust liability for the filing of lawsuit’s like Lowder’s – could withstand a challenge that its complaint was merely a thinly veiled “sham” for anti-competitive aims.

Defendant Phillips’ departure from Lowder Construction prompted a wide-ranging lawsuit against him – and another ex-employee and their new employer – centered on trade secret misappropriation, conversion and tortious interference with prospective economic advantage. The allegations were keyed to Lowder’s allegedly proprietary model that generated three-dimensional structural project renderings, and related confidential customer and business information. Id. ¶ 4. The Phillips counterclaim spawned the Court’s Noerr-Pennington analysis because it alleged Lowder’s lawsuit was merely a vehicle designed to disrupt the ability of Phillips and his new employer to compete. Id. ¶¶ 5, 17.

Takeaways:

• Noerr-Pennington immunity remains a stalwart protection in North Carolina courts, and finding a complaint “utterly baseless” is a very tough standard.

• A rare, successful challenge to Noerr-Pennington protection would need to establish that all of the claims of a plaintiff’s complaint are not “reasonably calculated to elicit a favorable outcome.”

The Business Court has a well-settled interpretation of Noerr-Pennington “that a party who seeks redress by filing a lawsuit is immune from claims that are based solely on the pursuit of that lawsuit.” Id. ¶ 17 (citing Velocity Solutions, Inc. v. BSG Fin., 2016 WL 698506, at *6). (For a deeper dive on how North Carolina appellate courts have assessed the doctrine over the last 20 years, check out the Court of Appeals’ recent opinion in Cheryl Lloyd Humphrey Land Investment Company, LLC v. Resco Products, Inc., 831 S.E.2d 395 (2019)). Lowder presented a fact-pattern rich with law school exam issue-spotting opportunities because it offered a template presentation of whether a plaintiff’s claims against a former employee retained Noerr-Pennington immunity when the integrity of the complaint’s claims, and motivations, got close scrutiny. The question for the Court was whether Lowder’s immunity to file its suit could be lost under the sham-litigation exception to the Noerr-Pennington doctrine:

“The institution of a lawsuit may be the basis for an unfair trade practice 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.”

Id. ¶ 18. The sham-litigation exception required the Court to determine whether Lowder’s complaint was “objectively meritless,” and if it was, whether its subjective motivation was direct interference in Phillips’ business activities. The initial objective component is an extremely high bar under North Carolina law, in that the suit must be “objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits.” Id. ¶ 21.

The Court had an objectivity measuring stick handy, as it had analyzed the substance of Lowder’s claims in a recent ruling on Phillips’ motion for judgment on the pleadings. 2019 NCBC 82, 2019 WL 7500408 (N.C. Super. Ct. Dec. 30, 2019). See Order and Opinion. In its earlier order, the Court determined Lowder had pled its trade secret misappropriation claim sufficiently to survive a pleadings challenge. While the Court conceded that Phillips retained challenges to whether Lowder’s model actually amounted to a trade secret, and if he had actually misappropriated it, surviving a thorough Rule 12(c) analysis was a valuable indicator that Lowder’s claim was “reasonably calculated to elicit a favorable outcome.” 2020 NCBC 1, ¶ 23.

Judge McGuire also concluded that Phillips’ counterclaim was, in the end, too narrow to meet the high standard for proving up the “sham litigation” exception. The counterclaim alleged that Lowder’s model was not a trade secret, and that its suit was therefore baseless. But, in order to prevail, Phillips had to show Lowder’s entire complaint was “utterly baseless.” Id. ¶ 24. The Court held that Phillips’ counterclaim had not sufficiently alleged that Lowder’s additional misappropriation and tortious interference claims similarly lacked a proper basis. Thus, the complaint also was immunized under Noerr-Pennington because Phillips did not establish that all of the claims in Lowder’s suit were utterly baseless. Id. ¶¶ 24-25.

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