Computer Design & Integration, LLC v. Brown
| Decision Date | 10 December 2018 |
| Docket Number | 16 CVS 11847 |
| Citation | 2018 NCBC 128 |
| Court | Superior Court of North Carolina |
| Parties | COMPUTER DESIGN & INTEGRATION, LLC and COMPUTER DESIGN & INTEGRATION SOUTHEAST, LLC, Plaintiffs, v. DAVID A. BROWN; MARCUS JACOBY; and ROVE, LLC, Defendants, DAVID A. BROWN and MARCUS JACOBY, Third-Party Plaintiffs, v. ERIC BAKKER and BRIAN T. REID, CPA, Third-Party Defendants, v. COMPUTER DESIGN & INTEGRATION SOUTHEAST, LLC, derivatively through DAVID A. BROWN, Derivative Plaintiff, v. ERIC BAKKER; BRIAN T. REID, CPA (individually); ACCOUNTING OFFICES OF BRIAN T. REID, CPA; and NIGRO & REID, Derivative Third-Party Defendants. |
Bell Davis and Pitt, P.A., by Edward B. Davis and Joshua B Durham, for Plaintiffs Computer Design & Integration, LLC and Computer Design & Integration Southeast, LLC Third-Party Defendants Brian T. Reid and Eric Bakker, and Derivative Defendants Accounting Offices of Brian T. Reid CPA and Nigro & Reid.
Alexander Ricks, PLLC, by Mary K. Mandeville, Alice C. Richey, and Meredith S. Jeffries, for Defendants David Brown, Marcus Jacoby, and Rove, LLC.
ORDER AND OPINION ON CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT [1]
Louis A. Bledsoe, III Chief Business Court Judge.
1. THIS MATTER is before the Court upon the following motions in the above-captioned case: (i) Plaintiffs Computer Design & Integration, LLC ("CDI") and Computer Design & Integration Southeast, LLC ("CDISE") (collectively, "Plaintiffs") and Third-Party Defendants Eric Bakker ("Bakker"), Brian T. Reid ("Reid"), Accounting Offices of Brian T. Reid, CPA ("Reid Accounting"), and Nigro & Reid's ("N&R") (collectively, "Third-Party Defendants") Motion for Partial Summary Judgment (the "Plaintiffs' Motion")[2] and (ii) Defendants David Brown ("Brown"), Marcus Jacoby ("Jacoby"), and Rove, LLC's ("Rove") (collectively, "Defendants") Motion for Partial Summary Judgment (the "Defendants' Motion"), (together with the Plaintiffs' Motion, the "Motions").
2. Having considered the Motions, the parties' briefs, exhibits, and affidavits in support of and in opposition to the Motions, the pleadings, the arguments of counsel at the March 1, 2018 hearing on the Motions, and other appropriate matters of record, the Court hereby GRANTS in part and DENIES in part each of the parties' Motions.
3. The Court does not make findings of fact on motions for summary judgment. See Hyde Ins. Agency, Inc. v. Dixie Leasing Corp., 26 N.C.App. 138, 142, 215 S.E.2d 162, 165 (1975). Instead, the Court summarizes the facts before it, noting undisputed and contested facts, to provide context for the claims and its ruling on the Motions. Id.
4. CDI and Brown are the two members of CDISE. This action arises out of Brown's failed buyout of CDI's interest in CDISE. In anticipation of the buyout, Brown created Rove to operate the CDISE business. During negotiations, Brown began preparations to launch Rove, including by contacting CDISE's customers, employees, and vendors and advising that CDISE was or would soon become Rove. After the buyout failed, Brown left CDISE's employment and began competing with CDISE through Rove in a number of ways, including by calling on CDISE's customers and hiring a number of CDISE employees. CDI and CDISE subsequently initiated this action asserting claims against Brown, Rove, and CDISE's former employee, Jacoby. Brown and others responded with counterclaims, third-party claims, and derivative third-party claims. Through the Motions, all parties seek partial summary judgment.
5. CDI is a New York limited liability company ("LLC") with its principal place of business in Bergen County, New Jersey. CDI designs, deploys, and manages multiplatform hybrid IT solutions for businesses and often partners with technology companies in order to address the needs of its customers. (Compl. ¶ 6.) In particular, CDI is a "Value Added Reseller," or "VAR." (Ryan Aff. ¶ 3, ECF No. 77.) VARs resell hardware from technology manufacturers but include additional services with the sale, such as design, installation, and maintenance services. (Ryan Aff. ¶ 4.)
6. CDI organized CDISE as a North Carolina LLC with Brown's assistance in the fall of 2010 to expand CDI's business into the southeastern United States. (Compl. ¶¶ 2, 8-10.) Brown is a citizen and resident of Mecklenburg County, North Carolina, (Compl. ¶ 3), and CDISE maintains its principal place of business in Mecklenburg County, (Compl. ¶ 2).
7. CDI and Brown entered into a written operating agreement for CDISE dated November 5, 2010 (the "Operating Agreement"). The Operating Agreement provided that Brown and CDI each held a fifty-percent membership interest in CDISE. (Operating Agreement A-1.) Under the Operating Agreement, Brown agreed to serve as President and handle the day-to-day management of CDISE, and Bakker, a citizen and resident of New York, , was appointed as CDISE's Vice President, (Operating Agreement §§ 6.3.2-6.3.3).[4]
8. Under the Operating Agreement, CDI became the Managing Member of CDISE, a position defined in the Operating Agreement as follows:
[T]he Managing Member shall have full, complete and exclusive authority, power and discretion to direct, manage and control the business, affairs and assets of [CDISE], to exercise any of the powers of [CDISE], to make all decisions regarding those matters, and to perform any and all other acts or activities it deems necessary, appropriate, proper, advisable or convenient with respect thereto.
(Operating Agreement § 6.1.1.)
9. The Operating Agreement further provided that CDI would assume the role of "Tax Matters Partner" for CDISE, which required CDI to represent CDISE "in connection with all examinations of [CDISE]'s affairs by tax authorities, including any resulting judicial and administrative proceedings, and to expend [CDISE] funds for professional services and costs associated therewith." (Operating Agreement § 11.5.) CDI also assumed accounting responsibilities that included "caus[ing] the books and records of [CDISE] to be maintained in accordance with the accrual basis of accounting." (Operating Agreement § 11.2.)
10. Reid is a citizen and resident of Bergen County, New Jersey, (Countercls. ¶ 7), and the Chief Financial Officer of CDI, (Reid Aff. ¶ 2, ECF No. 149). Reid is also a principal of Reid Accounting, an accounting firm located and operating in New Jersey, , and was formerly an owner of N&R, an accounting firm also located in New Jersey, (Am. Countercls. ¶ 170). By virtue of his position, and acting through either Reid Accounting or N&R, Reid assists CDI in fulfilling its duties under CDISE's Operating Agreement, which includes handling certain accounting, tax, and financial matters. (Derivative Third-Party Defs.' Answer ¶ 174, ECF No. 96.)
11. Jacoby is a citizen and resident of Rowan County, North Carolina, (Defs.' Answer ¶ 4, ECF No. 22), who started working for CDISE in February 2011, (Jacoby Aff. ¶ 3, ECF No. 63). He eventually became CDISE's Vice President of Sales. (Jacoby Aff. ¶ 3.) Jacoby held this position until his resignation from CDISE on June 22, 2016. (Jacoby Aff. ¶ 3.)
12. On October 27, 2015, Jacoby signed a standard confidentiality agreement with CDISE (the "Confidentiality Agreement"). (Bakker Aff. ¶ 9, ECF No. 40.) Jacoby and certain other CDISE employees signed Confidentiality Agreements, which were required of CDISE employees by new, larger customers as a condition of working with those accounts. (Exs. Reid Aff. 7-8, ECF No. 151.) Certain CDISE employees also signed covenants not to compete with the company. Neither Brown nor Jacoby entered non-competition, customer non-solicitation, or employee non-solicitation agreements with CDISE. (Defs.' Mot. Summ. J., Ex. 3, at 132:8-17 [hereinafter "CDI Dep. I"], ECF No. 116.4; Jacoby Aff. ¶ 21.)
13. CDISE's revenues grew from $1.2 million in 2011 to over $50 million by 2015. (Exs. Pls.' Mot. Summ. J. - Dep. Trs., Brown Dep. Ex., at 27:11-34:11 [hereinafter "Brown Dep. I"], ECF No. 110.) During that time, CDISE failed to remit sales and use taxes to proper taxing authorities-including the North and South Carolina Departments of Revenue-until October 2015, even though CDISE's sales taxes were required to be paid either quarterly or monthly.
14. On November 29, 2017, Brown was notified by the South Carolina Department of Revenue Collection that CDISE was delinquent on its quarterly employee withholding tax for the fourth quarter in 2014 and the third quarter in 2015.
15. Reid, as CFO of CDI, was responsible for handling remittance of CDISE's sales taxes and fulfilling CDISE's state tax reporting requirements. (CDI Dep. II, at 39:21-25, 221:7-222:24.) Reid was also responsible for preparing and providing accurate financial statements to the members of CDISE, including Brown, on a quarterly and annual basis. (CDI Dep. II, at 23:1-25:13, 56:8-57:4.)
16. Brown received one such statement, an annual balance sheet for the year 2014, sometime in March 2015. (2nd Brown Aff ¶¶ 8, 10.) The balance sheet Brown received omitted a sales tax payable in the amount of $945,...
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