Franco v. Liposcience, Inc.

Decision Date19 May 2009
Docket NumberNo. COA08-785.,COA08-785.
PartiesRichard A. FRANCO, Jr., Plaintiff, v. LIPOSCIENCE, INC., Defendant.
CourtNorth Carolina Court of Appeals

James, McElroy & Diehl, P.A., by Richard B. Fennell & Preston O. Odom, III, Charlotte, for plaintiff.

Ogletree, Deakins, Nash, Smoak & Stewart, P.C., by Gregory P. McGuire & Phillip J. Strach, Raleigh, for defendant.

WYNN, Judge.

North Carolina embraces a strong presumption of at-will employment unless the employment relationship fits within one of three recognized exceptions — the pertinent exception here being an alleged contractual relationship.1 In this appeal, Plaintiff Richard A. Franco, Jr. argues that the evidence established that he had a contract with Defendant Liposcience, Inc. that barred his termination as an at-will employee. Because the record shows there was insufficient consideration to form a binding contract, we affirm the trial court's grant of directed verdict in favor of Liposcience on Franco, Jr.'s breach of contract claim.

In September 2002, Liposcience, a manufacturer and marketer of medical technology products, hired Franco, Jr. to serve as Vice President of Marketing. At that time, Franco, Jr.'s fatherRichard A. Franco, Sr. — served as Chairman of Liposcience's Board of Directors. However, Liposcience's Board of Directors voted to remove Franco, Sr. as Chairman of the Board of Directors in October 2002. Thereafter, severance negotiations resulted in the drafting of three documents, each dated 13 December 2002.

First, a document titled "Severance and Release Agreement" was signed by Franco, Sr. and Dr. Charles A. Sanders, Liposcience's incoming Chairman of the Board of Directors. Under the Severance and Release Agreement, the parties agreed that Franco, Sr. would resign as Chairman of the Board of Directors, but would remain a voting member of the Board of Directors and a shareholder.

Second, Dr. Sanders signed a letter as "Chairman of the Board of Directors of Liposcience, Inc." that was addressed to Franco, Jr. and copied to Franco, Sr. ("Retaliation Letter"). The Retaliation Letter stated, in relevant part:

First of all, this letter will signify my commitment to you that there will be no retaliation against you by the Company in connection with your father's resignation. For the purposes of this letter, the term "retaliation" shall mean to take adverse employment action against you based upon your relationship with Richard Franco, Sr., and not for any legitimate business reason.

In addition, from and after the date of this letter and for a period of two years thereafter, no employment action will be taken by LipoScience that will have any material adverse effect on the terms and conditions of your employment without my prior express written approval, of which you will receive a copy. Such employment actions include any material reduction in your compensation and benefits; any material diminution of your title, role and responsibilities with the Company; and any material disciplinary action, up to and including the termination of your employment. Nothing in this letter agreement shall diminish any other rights that you may have relative to your employment with the Company.

Third, a letter addressed to Franco, Jr. (signed by Executive Vice President Lucy Martindale and Vice President, General Counsel, and Secretary Timothy J. Williams), stated that any Chairman of the Board of Directors succeeding Dr. Sanders would be bound to the conditions in the Retaliation Letter.

During 2003, Liposcience made a series of internal restructuring moves to make the company more efficient and to reduce payroll expenses. By February 2003, Liposcience had hired Richard Brajer as Chief Executive Officer, and shortly thereafter, hired Richard Pinnola as Chief Operating Officer. By December 2003, Mr. Brajer and Mr. Pinnola discussed eliminating the Vice President of Marketing and other lower-level positions to create a Vice President of Sales position, as Liposcience shifted its focus from marketing to product sales. That decision was finalized and executed on 24 February 2004, resulting in Franco, Jr.'s termination.

However, under Franco, Jr.'s version of the events leading to his termination, a "quid-pro-quo" pattern of retaliatory adverse employment actions corresponded to each conflict Franco, Sr. had with Liposcience executives. Specifically, Franco, Jr. alleged that before he was terminated, the following series of events occurred: 1) in March and April 2003, Franco, Sr. made several accountability requests of CEO Brajer; in response, Franco, Jr. received a critical voice message from CEO Brajer, and had his responsibilities and approved personal days reduced; 2) in June 2003, Franco, Sr. requested a full performance review of CEO Brajer; in response, Franco, Jr. received a critical performance review outside the normal review cycle; 3) in August 2003, Franco, Sr. criticized and requested a full performance review of CEO Brajer; in response, Franco, Jr.'s approved vacation time was reduced; 4) in September and October 2003, Franco, Sr. requested and was denied Liposcience sales information, was suspected of authoring an anonymous email criticizing shareholder communications, and ultimately resigned from the Board of Directors; in response, Franco, Jr.'s responsibilities were reduced further despite positive reviews.

After his termination, Franco, Jr. brought this action asserting claims for breach of contract, wrongful discharge in violation of North Carolina public policy, unfair and deceptive trade practices, and punitive damages. In response, Liposcience answered denying liability and moved for summary judgment which Superior Court Judge Howard E. Manning granted on the wrongful discharge claim but denied on the breach of contract claim.

Following Franco, Jr.'s voluntary dismissal of his unfair and deceptive trade practices and punitive damages claims, a jury trial commenced on the breach of contract claim before Superior Court Judge Allen Baddour. However, at the close of all the evidence during the trial, Judge Baddour directed a verdict for Liposcience concluding that "[p]laintiff did not present any evidence at trial of consideration supplied by him to support the alleged contract at issue." Thereafter, Franco, Jr. learned that Judge Baddour's father and Dr. Sanders were once commonly affiliated with the University of North Carolina, and therefore filed motions for new trial and recusal. Judge Baddour denied those motions.

On appeal, Franco, Jr. argues the trial court erred by (I) granting a directed verdict for Liposcience on his breach of contract claim; and (II) denying his motion to recuse Judge Baddour.

I.

Franco, Jr. acknowledges that Liposcience originally hired him as an at-will employee. In this appeal, however, he contends that the promises in the Retaliation Letter formed a contract precluding Liposcience's right to terminate his employment in retaliation for Franco, Sr.'s actions. Because there was no consideration to form a contract, we disagree.

North Carolina embraces a strong presumption of at-will employment unless the employment relationship fits within an exception, one being a contract specifying a definite period of employment. See Kurtzman v. Applied Analytical Indus., Inc., 347 N.C. 329, 331-32, 493 S.E.2d 420, 422 (1997). Moreover, we have held that an "employment-at-will contract may be supplemented by additional agreements which are enforceable." Martin v. Vance, 133 N.C.App. 116, 121, 514 S.E.2d 306, 309 (1999) (citing Walker v. Westinghouse Elec. Corp., 77 N.C.App. 253, 261, 335 S.E.2d 79, 84 (1985)). Like any other contract, however, such additional agreements must be supported by consideration. See id.; Watson Electrical Constr. Co. v. Summit Cos., LLC, 160 N.C.App. 647, 655, 587 S.E.2d 87, 94 (2003) ("Consideration is the glue that binds parties together, and a mere promise, without more, is unenforceable.") (citation and quotation marks omitted).

The Retaliation Letter's two distinct promises — that Liposcience would not retaliate against Franco, Jr. for Franco, Sr.'s actions and that the Chairman of the Board of Directors would provide express written approval of any material adverse employment action — constitute additional obligations on the part of Liposcience. Indeed, when Franco, Jr. received the Retaliation Letter, he was already employed. The Retaliation Letter did not increase or diminish his pay, duties, rights, or anything else that could be deemed consideration flowing from Franco, Jr. to Liposcience. As the trial court noted, mere continued employment by the employee is insufficient. See Howard v. Oakwood Homes Corp., 134 N.C.App. 116, 121-22, 516 S.E.2d 879, 882-83 ("the prospect of continued employment is insufficient to support a covenant not to compete where the employee receives no change in compensation, commission, duties, nature of employment or other consideration in exchange for signing the agreement"), disc. review denied, 350 N.C. 832, 539 S.E.2d 288 (1999).

Nonetheless, Franco, Jr. contends that consideration to support the Retaliation Letter was supplied by Franco, Sr. He argues that because Franco, Sr. negotiated for the Retaliation Letter in connection with the Severance Agreement, Franco, Jr. is entitled to enforce the Retaliation Letter as a third-party beneficiary.

Neither party disputes the validity of the Severance Agreement, and there is evidence showing that Franco, Sr. negotiated for the Retaliation Letter for Franco, Jr.'s benefit. However, the Retaliation Letter is not referenced in the Severance Agreement, which contains a merger clause. Therefore, the promises in the Retaliation Letter were not incorporated and made binding in the Severance Agreement. Accordingly, Franco, Jr....

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