Wednesday, February 20, 2008, 7:26 AM

COA Holds Internal Affairs Not Jurisdictional, Etc. In Corporate Potpourri Case

In Bluebird Corp. v. Aubin, the COA addressed a potpourri of corporate, evidentiary and procedural issues.

Bluebird was a commercial real estate investment corp. owned by 2 shareholders, Susi and Aubin. Susi was the $$ shareholder, and Aubin the day-to-day manager and marketer shareholder. In 1998, Aubin found an investment opportunity, the Harborgate development. In 1999, at the Harborgate closing, Aubin was informed that not Bluebird but rather a new company, The Susi Corporation, was buying Harborgate. When Aubin later found out that neither she nor Bluebird had any interest in The Susi Corporation, she demanded a 50% interest, didn't get that, and sued. Years of litigation in NY and NC followed, during which, among other things, a receiver was appointed in NY and Bluebird properties in NY were sold.

In August 2004, Aubin's lawyer contacted Susi's and Bluebird's lawyer about an offer Aubin received on Harborgate. But Aubin's lawyer refused to disclose the potential buyer unless Aubin got a cut of the Harborgate deal. Susi and Bluebird sued Aubin for breach of fiduciary duty, constructive fraud, and other claims, and Aubin counterclaimed. The trial court dismissed the claims against Aubin but hit Susi with $1.175 million in damages for breach of fiduciary duty and constructive fraud. Susi appealed.

Susi first attacked the trial court's judgment by claiming that the NC trial court improperly overturned the NY trial court, and specifically the NY trial court's determination that the sale of NY property was fair. Susi claimed the NC court was barred by res judicata, collateral estoppel, and fair faith and credit. The COA disagreed, stating that there was no NY judgment in the appellate record indicating that the NY court had adjudicated on the merits the same claims and issues raised in Aubin's counterclaims. There was, therefore, no improper overturning.

The COA also held that Susi wrongly cast the corporate internal affairs doctrine as jurisdictional, and as barring an NC court from addressing a NY corporation's issues. The COA held that all the internal affairs doctrine does is require NC courts addressing corporate issues of NY companies to do so applying NY law.

Susi also protested on appeal Aubin's damages testimony, which in NC was higher than prior testimony by affidavit. The COA noted, among other things, that discrepant testimony is a credibility issue, not an admissibility issue, and that the trial court didn't abuse its discretion in admitting the evidence.

The COA then refused to reach issues surrounding the trial court's dismissal of the claims against Aubin due to Susi's failure to assign error to pertinent findings and conclusions. The COA reminded appellate counsel yet again to be hyper-vigilant as to what, and how, to assign error.


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