Battleground Veterinary Hospital, P.C. v. McGeough

• Decision Date: 19 October 2007
• Docket Number: 05 CVS 18918
• Citation: 2007 NCBC 33
• Court: Superior Court of North Carolina
• Parties: BATTLEGROUND VETERINARY HOSPITAL, P.C. and VETCOR PROFESSIONAL PRACTICES, LLC, Plaintiffs, v. MARK MCGEOUGH and SARAH MCGEOUGH, Defendants.

2007 NCBC 33

BATTLEGROUND VETERINARY HOSPITAL, P.C. and VETCOR PROFESSIONAL PRACTICES, LLC, Plaintiffs, v. MARK MCGEOUGH and SARAH MCGEOUGH, Defendants.

No. 05 CVS 18918

Superior Court of North Carolina, Mecklenburg

October 19, 2007

Jackson Lewis, LLP by Paul H. Derrick and Kimberly A. Doyle for Plaintiffs Battleground Veterinary Hospital, P.C and VetCor Professional Practices, LLC.

Law Office of Jacqueline M. Druar, PLLC by Jacqueline M. Druar and Law Offices of Robert M. Axelrod by Robert M. Axelrod for Defendants Mark McGeough and Sarah McGeough.

ORDER

Diaz, Judge.

I. STATEMENT OF THE CASE

{1} Plaintiffs in this case contend Defendants (both of whom are veterinarians) breached certain covenants not to compete after they resigned as employees of Plaintiff Battleground Veterinary Hospital, P.C. ("Battleground").

{2} Plaintiffs allege claims for (1) breach of contract, (2) breach of fiduciary duty of loyalty, (3) aiding and abetting breach of fiduciary duty of loyalty, (4) unfair and deceptive trade practices, (5) misappropriation of trade secrets, (6) tortious interference with contract, and (7) civil conspiracy. (Compl. ¶¶ 37–77.)

{3} Before the Court are the parties' cross-motions for summary judgment.

II. CONTENTIONS OF THE PARTIES

{4} According to Plaintiffs, Defendants are former employees who, despite executing covenants not to compete, operate Birkdale Animal Hospital ("Birkdale"), a veterinary practice that competes directly with Battleground's clinics.

{5} Plaintiffs also allege Defendants encouraged each other to ignore their covenants and breached their fiduciary duties to Plaintiffs by, among other things, co-opting resources and time that should have been devoted to promoting Battleground's interests and using them instead to establish Birkdale. Additionally, Plaintiffs accuse Defendants of misappropriating Plaintiffs' trade secrets to facilitate the development of their new practice and wrongfully soliciting Battleground's clients and employees.

{6} Between 12 May 2003 and 23 July 2005, Mark McGeough served as Battleground's sole shareholder, officer, and director. Mark McGeough contends that during this time period, he "nullified" the covenants not to compete that purported to bind Defendants, and that he had full authority to do so by virtue of his sole control of Battleground.

{7} Alternatively, Defendants argue the restrictive covenants by their terms apply only when an employee is terminated. Because they both resigned, Defendants contend they are not bound by the covenants.

{8} As for the tort claims alleged in Plaintiffs' Complaint, Defendants assert that, as Battleground's sole shareholder, officer, and director during the time of the acts that form the basis of Plaintiffs' claims, Mark McGeough could do as he wished with Battleground's assets, and therefore neither he nor his co-defendant may be held liable in tort.

III. SUMMARY OF DECISION

{9} The Court GRANTS Defendants' motion for summary judgment as to all claims alleged by Battleground.

{10} The Court GRANTS Defendants' motion for summary judgment as to the Second and Third Causes of Action asserted by VetCor Professional Practices, LLC ("VetCor") for breach of fiduciary duty and aiding and abetting the same.

{11} The Court GRANTS Defendants' motion for summary judgment as to VetCor's Fifth Cause of Action alleging misappropriation of trade secrets.

{12} In all other respects, however, the parties' cross-motions for summary judgment are DENIED.

IV. PROCEDURAL HISTORY

{13} Battleground filed its Complaint on 19 October 2005.

{14} Defendants filed their answer on 28 December 2005.

{15} On 19 May 2006, Superior Court Judge Forrest D. Bridges denied Battleground's motion for a preliminary injunction, although he required Defendants to (1) return a customer list taken from Battleground, (2) refrain from soliciting those customers on the list, (3) return certain customer records to Battleground, (4) make any future requests for records in the same manner as is customary in the veterinary community, and (5) advise those customers whose records were returned to Battleground of the Court's order.

{16} On 30 May 2006, VetCor moved to intervene as a party plaintiff.

{17} On 1 June 2006, the matter was transferred to the North Carolina Business Court as a complex business case and assigned to me.

{18} Defendants filed an amended answer on 16 August 2006. {19} On 19 October 2006, the Court entered a consent order granting VetCor's motion to intervene.

{20} On 7 May 2007, Defendants moved for summary judgment as to all claims and filed a supporting brief.

{21} On 31 May 2007, Plaintiffs also moved for summary judgment as to all claims and filed a supporting brief.

{22} On 20 June 2007, both sides filed briefs in opposition to the cross-motions for summary judgment.

{23} On 27 June 2007, Plaintiffs filed a reply in support of their motion for summary judgment. {24} On 28 June 2007, Defendants filed a reply in support of their motion for summary judgment.

{25} The Court heard oral arguments on the motions on 30 July 2007.

V. SUMMARY OF THE FACTS^1[]

A. THE PARTIES

{26} Battleground is a North Carolina corporation with its principal place of business in Mecklenburg County, North Carolina. (Compl. ¶ 1.) It operates several veterinary clinics throughout North Carolina. (Compl. ¶ 2.)^2[] {27} VetCor is a Delaware limited liability company. (Defs. Mot. Summ. J. Ex. Q.) {28} VetCor and Battleground are affiliated companies. (Pls. Mot. Summ. J. Exs. 2–3.)

{29} VetCor serves as Manager of Battleground's clinics pursuant to an Administrative Services Agreement (the "ASA") between it and Battleground. (Pls. Mot. Summ. J. Ex. 1.)

{30} The ASA (and its various amendments) allocates responsibility for Battleground's operation between the provision of professional and administrative services.^3[] Responsibility for the former is vested solely in Battleground and its professional personnel, while control of the latter resides exclusively with VetCor. (Pls. Mot. Summ. J. Ex. 1; Defs. Mot. Summ. J. Ex. Q.)

{31} As Manager, VetCor's duties under the ASA include (1) hiring and training all administrative personnel, (2) establishing guidelines for hiring all professional personnel, (3) preparing budgets, maintaining records, and managing patient billings, (4) purchasing equipment and supplies (with VetCor retaining ownership of said property), and (5) locating and maintaining appropriate facilities for the practice. (Pls. Mot. Summ. J. Ex. 1.)

{32} In exchange for providing these services, VetCor is paid an annual fee and is entitled to reimbursement of certain expenses. (Pls. Mot. Summ. J. Ex. 1.)

{33} Defendants are veterinarians who practice in North Carolina. (Compl. ¶¶ 16–17.)

{34} Defendants are married. (Compl. ¶ 3.)

B. THE CLAIMS

1. SARAH MCGEOUGH'S COVENANT

{35} On 8 January 2001, Sarah McGeough began work as an associate veterinarian in Battleground's Charlotte, North Carolina clinic. (Compl. ¶ 17; Sarah McGeough Aff. ¶ 4.)

{36} Plaintiffs allege Sarah McGeough signed a covenant on her first day of employment that, among other things, prevented her, for twelve (12) months from the date of termination of her employment, from (1) engaging in a competitive veterinary practice anywhere within a ten (10) mile radius of Battleground's Charlotte clinic, ^4[] (2) soliciting clients or employees of Battleground, either for her own benefit or that of any other person or entity, or (3) taking any action that would, directly or indirectly, be detrimental to Battleground or would benefit a competitor of Battleground. (Compl. ¶¶ 17–18; Pls. Mot. Summ. J. Ex 3.)

{37} Sarah McGeough also agreed in her covenant to keep Battleground's confidential and proprietary information "in confidence and trust" and to not disclose it either during her employment or after her termination. (Pls. Mot. Summ. J. Ex. 3.)

{38} Sarah McGeough's covenant states that her employer for purposes of the covenant shall be deemed to include Battleground and "its direct or indirect subsidiaries and affiliates." (Pls. Mot. Summ. J. Ex. 3.)

{39} Sarah McGeough contends the covenant formed no part of her initial employment negotiations with Battleground. (Sarah McGeough Aff. ¶ 5.)

{40} She further alleges that (1) Battleground did not present her with the covenant until sometime in February 2001, (2) she was offered no additional consideration for signing it, and (3) although the covenant's signature block is dated 8 January 2001, she did not sign the document until 12 March 2001, the same day she signed a separate offer of employment detailing her compensation and fringe benefits package. (Pls. Mot. Summ. J. Ex. 7; Sarah McGeough Aff. ¶ 5.)^5[]

{41} Sarah McGeough was promoted to Chief of Staff of the Battleground Charlotte clinic in or around September 2001. (Sarah McGeough Dep. 72:19–73:1.)

2. MARK MCGEOUGH'S COVENANT

{42} Plaintiffs allege Mark McGeough began working for Battleground as Chief of Staff of Battleground's Concord, North Carolina facility on or about 1 February 2001, and that he executed a covenant not to compete that same day. (Compl. ¶ 16.)

{43} Mark McGeough's covenant prevented him, for twelve (12) months from the date of termination of his employment, from (1) engaging in a competitive veterinary business anywhere within a nine (9) mile radius of Battleground's Concord clinic, ^6[] (2) soliciting clients or employees of Battleground, either for his own benefit or that of any other person or entity, or (3) taking any action that would, directly or indirectly, be detrimental to Battleground or would benefit a competitor of Battleground. (Pls. Mot. Summ. J. Ex 2.)

{44} Mark McGeough further agreed to keep Battleground's confidential and proprietary information "in confidence and trust" and to not disclose it either during his employment or after his termination. (Pls. Mot. Summ. J. Ex. 2.)

{45} Mark McGeough's covenant states that...