Static Control Components, Inc. v. Vogler, COA01-1077.

• Decision Date: 03 September 2002
• Docket Number: No. COA01-1077.,COA01-1077.
• Citation: 568 S.E.2d 305,152 NC App. 599
• Parties: STATIC CONTROL COMPONENTS, INC., Plaintiff-Appellant, v. William H. VOGLER, Jr., Defendant-Appellee.
• Court: North Carolina Court of Appeals

568 S.E.2d 305

152 NC App. 599

STATIC CONTROL COMPONENTS, INC., Plaintiff-Appellant, v. William H. VOGLER, Jr., Defendant-Appellee.

No. COA01-1077.

Court of Appeals of North Carolina.

September 3, 2002.

Static Control Components, Inc., by William L. London, III, for plaintiff-appellant.

Moore & Van Allen, P.L.L.C., by Andrew B. Cohen and John E. Slaughter, III, Durham, for plaintiff-appellant.

Staton, Perkinson, Doster, Post, and Silverman, P.A., by Jonathan Silverman and Charles M. Oldham, III, Sanford, for defendant-appellee.

BIGGS, Judge.

Plaintiff (Static Control Components, Inc.) appeals from an order imposing sanctions under N.C.G.S. § 1A-1, Rule 11. We affirm the trial court.

Plaintiff, a corporation with over 1000 employees, is engaged in the production and sale of components used in the remanufacture of toner cartridges for computer laser printers. Plaintiff sells certain constituent components used in the remanufacture process and has never sold finished remanufactured cartridges. Defendant was employed by plaintiff from 1995 to 2000. Shortly after he was hired, defendant signed an agreement promising not to reveal any information pertaining to "customers, suppliers, competitors, and manufacturing processes" of plaintiff's products, both those currently manufactured as well as "products in various stages of development." The agreement provided that it would remain in effect for three years after defendant quit working for plaintiff. In January, 2000, defendant left plaintiff's employ. Shortly thereafter, he and another former employee of plaintiff's, Walter Huffman, started a small remanufacturing business. The two men had no other employees, and their operation was confined to one 300 square foot shed. They sold only the finished cartridges, but not the remanufacturing components offered by plaintiff.

On 12 January 2000, plaintiff wrote to defendant stating that it considered defendant's remanufacture business to be in "direct competition" with plaintiff, and to constitute "a violation of the December 8th agreement." The letter asked defendant to reaffirm his intention to honor the agreement. Defendant replied through counsel that he would "honor the terms of his agreement with [plaintiff] to the extent that the agreement is enforceable." Plaintiff wrote defendant again, asking "whether it is [defendant's] position that the ... [agreement] is unenforceable, and whether he will abide by [plaintiff's] interpretation of the agreement[.]" Defendant did not respond to this letter.

On 6 March 2000, plaintiff filed suit against defendant, claiming unlawful misappropriation of trade secrets and breach of contract. The complaint sought compensatory and punitive damages and injunctive relief. Plaintiff alleged that defendant had "already begun to disclose [plaintiff's] trade secrets to others," and had "willfully and maliciously misappropriated, misused and/or disclosed [plaintiff's] technical and business trade secrets[.]" The complaint also alleged that defendant's remanufacture business violated the non-compete agreement and was "in competition with [plaintiff.]" The same day that the complaint was filed, plaintiff obtained an ex parte temporary restraining order which prohibited defendant from misappropriating or disseminating plaintiff's trade secrets. On 10 April 2000, plaintiff obtained a preliminary injunction that generally enjoined defendant from revealing plaintiff's non-public information, but expressly permitted defendant to continue remanufacturing cartridges, without prejudice to either party to argue the issue at trial.

In April, 2000, defendant deposed William J. Gander, plaintiff's operations manager. Gander testified that plaintiff did not sell remanufactured cartridges, but planned to sell them at some future date, although he acknowledged that this would put plaintiff in direct competition with its customers. In June, 2000, however, in response to customer concerns, plaintiff's website posted a notice stating that they were not planning to make remanufactured toner cartridges. Gander also testified that to the best of his knowledge, defendant had not disclosed any of plaintiff's trade secrets.

On 15 December, 2000, defendant deposed Edwin Swartz, plaintiff's president and CEO. Swartz testified that, although the possibility of plaintiff's selling remanufactured cartridges had been "discuss[ed]" from time to time," plaintiff had "no plans to remanufacture toner cartridges." He acknowledged that defendant was not competing with plaintiff, had not disclosed any trade secrets, and admitted that he had refused to sell components to defendant.

On 19 December 2000, four days after Swartz's deposition, plaintiff voluntarily dismissed its lawsuit, pursuant to N.C.G.S. § 1A-1, Rule 41(b). On 9 January 2001, defendant, through counsel, wrote to plaintiff, seeking a settlement of the matter. Defendant stated that the lawsuit had "no basis in fact"; that plaintiff had not "been able to offer any evidence of any ... disclosure of trade secrets and ... no evidence of any competition by [defendant]; and that "this lawsuit was simply a vindictive act." Defendant informed plaintiff that he believed defendant was entitled to sanctions under N.C.G.S. § 1A-1, Rule 11. He expressed a willingness to (1) accept a cash settlement "to compensate [defendant] for the expense and trouble" of "defending this frivolous law action[,]" and to (2) execute an agreement not to disclose plaintiff's pricing practices or suppliers. Plaintiff did not respond to defendant's settlement offer, and on 25 April 2001, defendant filed a motion for Rule 11 sanctions against defendant. The motion was heard in May, 2001, and the trial court entered an order 31 May 2001, concluding that "the verified pleading filed by [plaintiff] in this action was not based upon a reasonable inquiry and was not well grounded in fact[, and] ... was filed for the improper purpose of harassing the defendant[.]" The trial court awarded defendant $5918.00 in sanctions, the amount of his documented expenses in the case. Plaintiff appeals from this order.

N.C.G.S. § 1A-1, Rule 11 (2001) provides in pertinent part:

... Every pleading ... shall be signed by at least one attorney of record ... [which] constitutes a certificate by him that he has read the pleading, ... [and] that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law ... and that it is not interposed for any improper purpose[.] ... If a pleading ... is signed in violation of this rule, the court ... shall impose upon the person who signed it, a represented party, or both, an appropriate sanction....

N.C.G.S. § 1A-1, Rule 11(a). "There are three parts to a Rule 11 analysis: (1) factual sufficiency, (2) legal sufficiency, and (3) improper purpose.... A violation of any one of these requirements mandates the imposition of sanctions under Rule 11." Dodd v. Steele, 114 N.C.App. 632, 635, 442 S.E.2d 363, 365, (citing Bryson v. Sullivan, 330 N.C. 644, 655, 412 S.E.2d 327, 332 (1992)), disc. review denied, 337 N.C. 691, 448 S.E.2d 521 (1994). On appeal, the trial court's decision whether to impose sanctions for a violation of Rule 11 is "reviewable de novo as a legal issue." Turner v. Duke University, 325 N.C. 152, 165, 381 S.E.2d 706, 714 (1989), disc. review denied, 329 N.C. 505, 407 S.E.2d 552 (1991). If this Court determines that (1) the trial court's findings of fact are supported by sufficient evidence; (2) these findings support the court's conclusions of law; and (3) the conclusions of law support the judgment, it "must uphold the trial court's decision to impose or deny the imposition of mandatory sanctions[.]" Polygenex Intern., Inc. v. Polyzen, Inc., 133 N.C.App. 245, 249, 515 S.E.2d 457, 460 (1999).

The trial court's findings of fact are conclusive on appeal if supported by competent evidence, even when the record includes other evidence that might support contrary findings. Institution Food House v. Circus Hall of Cream, 107 N.C.App. 552, 556, 421 S.E.2d 370, 372 (1992). Further, findings of fact to which plaintiff has not assigned error and argued in his brief are conclusively established on appeal. Inspirational Network, Inc. v. Combs, 131 N.C.App. 231, 235, 506 S.E.2d 754, 758 (1998).

In the instant case, although plaintiff assigned error to findings of fact numbers 13, 22, 23, 25, and 28, because defendant does not argue in his brief "that these findings of fact are not supported by ... evidence in the record, this Court is bound by the trial court's findings of fact." In re Pope, 144 N.C.App. 32, 36 n. 3, 547 S.E.2d 153, 156 n. 3, aff'd, 354 N.C. 359, 554 S.E.2d 644 (2001).

I.

Plaintiff argues first that the trial court erred by concluding that the verified complaint filed in this action was not well grounded in fact, or based upon a reasonable inquiry. We disagree.

Analysis of the factual sufficiency of a complaint requires the court to determine "(1) whether the plaintiff undertook a reasonable inquiry into the facts and (2) whether the plaintiff, after reviewing the results of his inquiry, reasonably believed that his position was well grounded in fact." Page v. Roscoe, LLC, 128 N.C.App. 678, 681-682, 497 S.E.2d 422, 425 (1998). An inquiry is reasonable if "given the knowledge and information which can be imputed to a party, a reasonable person under the same or similar circumstances would have terminated his or her inquiry and formed the belief that the claim was warranted under existing law[.]" Bryson v. Sullivan, 330 N.C. 644, 661-662, 412 S.E.2d 327, 336 (1992). The order entered in the case sub judice included the following pertinent findings of fact:

...

13. The Complaint is not phrased in terms of [plaintiff] admitting that it had no evidence or information that [defendant] had misappropriated any trade secrets or had competed with it or that it merely had a

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