Washburn v. Yadkin Valley Bank & Trust
| Decision Date | 06 May 2008 |
| Docket Number | No. COA07-613.,No. COA07-612.,COA07-612.,COA07-613. |
| Citation | 660 S.E.2d 577 |
| Court | North Carolina Court of Appeals |
| Parties | Robert E. WASHBURN, Plaintiff, v. YADKIN VALLEY BANK AND TRUST COMPANY, Defendant. Joseph E. Eller, Plaintiff, v. Yadkin Valley Bank and Trust Company, Defendant. |
Hagan Davis Mangum Barrett Langley & Hale PLLC, by Stuart C. Gauffreau and D. Beth Langley, Raleigh, for Plaintiffs-Appellees.
Williams Mullen Maupin Taylor, by Michael C. Lord and Heather E. Bridgers, Greensboro, for Defendant-Appellant.
Plaintiffs Robert E. Washburn ("Washburn") and Joseph E. Eller ("Eller") (collectively, "Plaintiffs") initiated separate actions seeking damages and declaratory relief upon allegations that Defendant Yadkin Valley Bank and Trust Company ("Yadkin") breached provisions of Plaintiffs' employment agreements. Yadkin denied the allegations and counterclaimed. The trial court: (1) granted Plaintiffs' motions for judgment on the pleadings as to their claims, (2) granted Plaintiffs' 12(b)(6) motions to dismiss Yadkin's misappropriation of trade secrets counterclaims, (3) granted Plaintiffs' motions for judgment on the pleadings as to Yadkin's remaining counterclaims, and (4) denied Yadkin's motions for judgment on the pleadings as to all claims. In both actions, Yadkin timely appealed. Because the facts and issues presented in these two cases are virtually identical, we consolidate Yadkin's appeals and render this single opinion on all issues.
On 3 August 2004, Plaintiffs filed verified complaints in Watauga County Superior Court. According to the complaints, High Country Bank hired Washburn and Eller in 1998 and 2001, respectively, as senior vice presidents, and Plaintiffs entered into employment agreements with High Country Bank upon accepting their positions. The employment agreements were identical in all pertinent respects and contained the following relevant provisions:
5. Non-Competition and Confidentiality.
. . . .
(b) Non-competition. In consideration of employment of the Officer, during the Term and any subsequent Payment Period (as defined below), the Officer agrees that he will not, within the North Carolina counties in which the Bank has banking offices during the Term (the "Market"), directly or indirectly, own, manage, operate, join, control or participate in the management, operation or control of, or be employed by or connected in any manner with, any Person who Competes with the Bank, without the prior written consent of the Board; provided, however, that the provisions of this Paragraph 5(b) shall not apply prospectively in the event this Agreement is terminated by the Bank without Cause (as defined below). . . .
. . . .
7. Termination and Termination Pay.
. . . .
(f) Unapproved Change in Control Termination. In the event of (i) the termination of this Agreement without Cause or (ii) the voluntary termination of this Agreement by the Officer, in each case in connection with, or within one (1) year after, any Change in Control (as defined below) which has not been approved in advance by a formal resolution of two-thirds (2/3) of the members of the Board who are not Affiliates of the Person effecting or proposing to effect the Change in Control ("Independent Directors"), the Officer shall be entitled at his election:
(A) to continue to receive his Base Salary and bonuses as provided in this Agreement for a period of three and ninety-nine one hundreths [sic] (3.99) years subsequent to the effective date of such termination; and
(B) to continue to participate in all Benefit Plans and Fringe Benefits, except qualified retirement plans or for the period of three and ninety-nine one hundreths [sic] (3.99) years.
Upon written notice by the Officer to the Bank, in lieu of paying the amount in item (A) above for a period of three and ninety-nine one hundredths (3.99) years in installments, the Officer shall be paid the Present Value of such Base Salary and bonuses in a lump sum within sixty (60) days of the termination of his employment. . . . The Officer shall also be entitled to a cash payment of an amount equal to the amount of any and all excise tax liability incurred by Officer pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended, in connection with the payments and benefits compensation in [ ] Paragraph 7. . . .
(g) Approved Change in Control Termination. Upon ten (10) days prior written notice, the Officer may declare this Agreement to have been terminated without Cause by the Bank, upon the occurrence of any of the following events, which have not been consented to in advance by the Officer in writing, following a Change in Control, approved in advance by a formal resolution of at least two-thirds (2/3) of the Independent Directors: (i) if the Officer is required to move his personal residence or perform his principal executive functions more than twenty (20) miles from the city limits of Boone, North Carolina; (ii) if the Bank should fail to maintain Benefit Plans and Fringe Benefits providing to him at least substantially the same level of benefits afforded the Officer as of the date of the change in Control; or (iii) if in the Officer's sole discretion, his responsibilities or authority in the capacity described in Paragraph 1 have been diminished materially.
Upon such termination, or upon any other termination of this Agreement without Cause by the Bank within one (1) year following an approved Change in Control, the Officer shall be entitled to receive the compensation and benefit continuation when and as provided in Paragraph 7(f) above.
The complaints alleged that on 1 January 2004, Yadkin acquired and merged with High Country Financial Corporation, the parent company of High Country Bank. As a result of the merger, Plaintiffs became employees of Yadkin, and Yadkin assumed Plaintiffs' employment agreements. The complaints further alleged that on 3 May 2004, Washburn and Eller provided written notices to Yadkin declaring that, in their discretion, their job responsibilities and authority had been diminished as a result of the merger, and that, therefore, their employment agreements were terminated without cause pursuant to Paragraph 7(g). Furthermore, Plaintiffs informed Yadkin that, pursuant to Paragraph 5(b), they did not consider themselves bound by the agreements' non-competition provisions because their agreements had been terminated without cause. Finally, the complaints alleged that Plaintiffs were entitled to severance payments and benefits as provided for in Paragraph 7(f), but that Yadkin did not provide the payments and benefits to which Plaintiffs claimed entitlement. Plaintiffs advanced breach of contract claims and claims based on violations of North Carolina's Wage and Hour Act, and sought declaratory relief that they were not bound by the agreements' non-competition provisions.
On 2 September 2004, Yadkin filed notices that it had removed the actions to the United States District Court for the Western District of North Carolina. In its notices of removal filed with the federal court, Yadkin asserted that the provision of severance payments and benefits under the employment agreements constituted employee benefit plans and that, therefore, Plaintiffs' claims were completely preempted by the Employee Retirement Income Security Act of 1974 ("ERISA").
On 1 November 2004, AF Financial Group ("AF Financial"), a holding company whose subsidiary conducted banking activities in and around the same geographic area as Yadkin, hired Washburn as its President and Chief Executive Officer. Subsequently, AF Financial hired Eller to work with its subsidiary, AF Bank. On 17 August 2005, Yadkin filed a complaint in Surry County Superior Court advancing five claims against AF Financial, including tortious interference with contract and misappropriation of trade secrets. On 23 March 2006, Judge Richard L. Doughton entered a partial summary judgment order dismissing Yadkin's tortious interference claim and its other claims to the extent those claims were based on the tortious interference claim. Judge Doughton did not address Yadkin's misappropriation of trade secrets claim or its other claims to the extent those claims were based on the misappropriation claim. Yadkin and AF Financial proceeded to conduct discovery on the surviving claims.
On 3 August 2006, federal district court Judge Richard L. Voorhees remanded Plaintiffs' actions to Watauga County Superior Court, concluding that Plaintiffs' claims were not preempted by ERISA. Accordingly, on 12 October 2006, Yadkin filed answers to Plaintiffs' complaints. Yadkin generally denied Plaintiffs' allegations and advanced nine affirmative defenses. Yadkin's fifth affirmative defense in each action was that Plaintiffs' breach of contract and Wage and Hour Act claims were preempted by ERISA. In its answers, Yadkin also advanced counterclaims against both Washburn and Eller. As to both Plaintiffs, Yadkin advanced claims of breach of contract, misappropriation of trade secrets, and unfair competition. As to Washburn, Yadkin advanced the additional claim of interference with contractual relations. In support of this claim, Yadkin alleged that Washburn caused AF Financial to hire Eller. Plaintiffs filed replies to Yadkin's counterclaims on or about 8 December 2006.
In the Surry County action, on 16 November 2006 Yadkin voluntarily dismissed without prejudice all of its remaining claims against AF Financial. Thereafter, Yadkin timely filed notice of appeal from Judge Doughton's partial summary judgment order. After Yadkin filed its notice of appeal, AF Financial filed a motion for Rule 11 sanctions, asserting that Yadkin's claims were not well grounded in fact, were not warranted by existing law or a good faith...
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