Today's North Carolina Supreme Court Decisions

Today, the North Carolina Supreme Court released 12 opinions. At first glance, none of the opinions seem to touch on issues relevant to this blog, but if there are any decisions of interest, we will be sure to post an update.

NC Court of Appeals Reiterates Requirements for Orders Denying Motions to Compel Arbitration

On Tuesday, the North Carolina Court of Appeals issued two opinions dealing with the requirements for orders on motions seeking to compel arbitration. In Griessel v. Temas Eye Center and United States Trust Company v. Stanford Group Company, the Court of Appeals reversed and remanded orders denying motions to compel arbitration because the trial courts failed to include certain findings of fact in their orders. The Court of Appeals reiterated the holding from its decision in Ellis-Don Construction v. HNTB Corp., 169 N.C. App. 630, 633, 610 S.E.2d 293, 296 (2005), that an order on a motion to compel arbitration must make specific findings of fact on (1) whether the parties had a valid agreement to arbitrate; and (2) whether the specific dispute falls within the substantive scope of that agreement.

Today's Court of Appeals Decisions

This morning the North Carolina Court of Appeals issued 29 opinions. We will try to get something up regarding any relevant cases later today.

Fourth Circuit Eliminates Balance of Hardships Test for Preliminary Injunctions

Until today's decision in The Real Truth About Obama, Inc. v. Federal Election Commission, parties seeking a preliminary injunction in the Fourth Circuit had to satisfy the balance-of-hardship test set out in Blackwelder Furniture Company of Statesville v. Selig Manufacturing. However, the Supreme Court's 2008 decision in Winter v. Natural Resources Defense Council modified the standard for preliminary injunctions and caused a number of courts to question the continued viability of Blackwelder.

The Fourth Circuit resolved the "fatal tension" between Blackwelder and Winter by holding that "the Blackwelder balance-of-hardships test may no longer be applied in granting or denying preliminary injunctions in the Fourth Circuit[.]" Instead, parties seeking a preliminary injunction must demonstrate that they are likely to succeed on the merits, that they are likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in their favor, and that an injunction is in the public interest.

The Fourth Circuit identified several ways in which the Winter test sets a higher bar for parties seeking a preliminary injunction. First, Winter replaces Blackwelder's standard that the plaintiff show a "grave or serious question for litigation" with a requirement that the plaintiff "clearly demonstrate that it will likely succeed on the merits." Second a plaintiff must now "make a clear showing that is likely to be irreparably harmed" absent a preliminary injunction. Courts can no longer weigh the possibility of irreparable injury against the probability of success. Third, Winter requires courts to pay "particular regard" to the public interest implicated by the injunction. Finally, Winter requires that each element be "satisfied as articulated" instead of allowing courts to disregard some elements if other elements weigh heavily in the plaintiff's favor.

Quick Notes on Today's NC Court of Appeals Decisions

Companies entering into contracts with governmental entities should double check to make sure that the contract contains all the statutorily required provisions or they may find themselves without a remedy for a breach of contract. In Crystal Transportation v. Wake County Board of Education, the Court of Appeals held that the trial court should have dismissed the plaintiff's breach of contract action because the omission of the preaudit certification required by North Carolina General Statutes Section 115C-441 from the parties' contract rendered the contract invalid and unenforceable. In reaching its decision, the Court relied heavily on an earlier decision, Data General Corp. v. County of Durham, that interpreted an almost identical statutory provision involving to contracts with local governments.

In Worthy v. The Ivy Community Center, the Court of Appeals held that lay witnesses are competent to testify regarding the cause of a fire when the witness was an eye witness to the fire. However, the Court expressly declined to address "whether expert testimony might be necessary [to establish the cause of a fire] in a case relying only upon circumstantial evidence[.]"

According to the majority opinion in Fussell v. North Carolina Farm Bureau, local governments breach their duty to use ordinary care in restoring water service to a residential property by turning the water on while no one is at home. According to the complaint, on June 24, 2004, an employee of the Town of Apex went to the plaintiffs' newly purchased property to restore their water service. The employee left the plaintiffs' property after restoring water service despite seeing the water meter turning - indicating that water was flowing into the house - and knowing that no one was at home. Unbeknownst to the employee, the faucet on an upstairs bathtub was open and the tub's drain was closed. The bathtub overflowed for several days causing severe damage to the plaintiffs' home. The majority held that the plaintiffs' complaint stated a claim for negligence against the Town. Judge Bryant dissented.

Today's Court of Appeals Decisions

The North Carolina Court of Appeals issued decisions in 25 cases this morning. Nine of the cases involve criminal law and three involve domestic issues. We will try to get something up on these cases later today.

Fourth Circuit Vacates Judgment in Favor of Defendants in PSLRA Case

On Friday, the Fourth Circuit Court of Appeals issued a lengthy opinion addressing whether a plaintiff adequately plead scienter under the Private Securities Litigation Reform Act's heightened pleading standard. The case is Matrix Capital Management Fund v. Bearing Point, Inc. While the majority of the panel agreed with the District Court's decision to dismiss the First Amended Complaint for failure to adequately plead scienter, the panel vacated the judgment in favor of Defendants because the District Court erred in denying the Plaintiffs' post-judgment motion to amend their complaint.

In the early part of this decade, BearingPoint underwent a rapid expansion across the globe. It had substantial difficulty integrating the companies it acquired into its existing operations. In the words of the Fourth Circuit, "[i]n short, BearingPoint lacked internal controls that were adequate to maintain reliable financial reporting and ensure compliance with applicable laws and regulations."

As a result of these difficulties, BearingPoint was required to revise a number of financial statements filed with the SEC between 2003 and 2005. The Plaintiffs alleged that the "financial statements were materially false and misleading because, among other things, they misstated BearingPoint's revenue, net income, earnings per share, and goodwill."

The question before the Fourth Circuit was whether the allegations in the First Amended Complaint gave rise to a "strong inference" of scienter. In order to withstand a motion to dismiss, the inference of scienter must be at least as likely as any plausible opposing inference.

After reviewing the allegations contained in the First Amended Complaint, the Court of Appeals found that it was as likely as not that the misstatements were the result of either insufficient information or "BearingPoint officials struggling to integrate recent worldwide acquisitions, manage thousands of employees, and account for billions in revenue." Therefore, the Court held that "[f]or each of the financial statements, plausible non-culpable inferences are at least as likely as an inference that any defendant acted knowingly or recklessly with respect to the misstatements."

However, the Court of Appeals vacated the judgment because it disagreed with the District Court's decision to deny the Plaintiffs' post-judgment motion seeking to file a second amended complaint. The Plaintiffs should have been allowed to file a second amended complaint because they did not act in bad faith, Defendants would not be prejudiced by the filing of a second amended complaint, and the allegations contained in the second amended complaint would have changed the analysis that ought to have been conducted by the District Court with respect to scienter.

Judge King concurred in judgment only. In Judge King's opinion, the First Amended Complaint contained sufficient allegations to establish a strong inference of scienter and should not have been dismissed.