Movement Mortgage LLC v. Summit Funding, Inc. et al

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
CASE NO. 3:23-CV-633-RJC-DCK
THIS MATTER IS BEFORE THE COURT on the partial “...Motion[s] To Dismiss”
(Document Nos. 61, 62, 63, 64, and 65) filed by Defendants Covett, Frye, Plymale, Schoolfield
and Shelton, and the “Partial Motions[s] For A Judgment On The Pleadings” (Document Nos. 73
and 74) filed by Defendants Pennington and Summit Funding. These motions have been referred
to the undersigned Magistrate Judge pursuant to 28 U.S.C. §636(b), and are now ripe for
disposition. Having carefully considered the arguments, the record, and applicable authority, the
undersigned will respectfully recommend that the motions be denied without prejudice.
I. BACKGROUND
Movement Mortgage, LLC (“Plaintiff” or “Movement”) initiated this action with the filing
of a “Complaint For Injunctive Relief And For Damages As To Certain Defendants” (Document
No. 1) on October 4, 2023. Plaintiff later filed an Amended Complaint and a Second Amended
Complaint. See (Document Nos. 2 and 40). Plaintiff then filed a “Third Verified Amended
Complaint For Injunctive Relief And For Damages As To Certain Defendants” (Document No.
MOVEMENT MORTGAGE LLC, )
)
Plaintiff, )
)
MEMORANDUM AND
RECOMMENDATION
v. )
)
SUMMIT FUNDING, INC., DERAN
PENNINGTON, CHRIS SHELTON,
MATT SCHOOLFIELD, LINDA
PLYMALE, HEATHER FRYE, and
JOSH COVETT,
)
)
)
)
)
)
Defendants. )
)
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45) (the “Complaint”) on December 19, 2023, which is the object of the pending motions
(Document Nos. 61-65, 73-74). The Complaint seeks “injunctive relief against all Defendants,
monetary damages against Deran Pennington and Summit Funding, Inc., and such other relief as
the Court deems appropriate.” (Document No. 45, p. 1).
According to the Complaint, Plaintiff Movement “operates as a provider of real estate
financing solutions, offering its customers a variety of mortgage products,” including home loans.
(Document No. 45, p. 4). The Complaint goes on to note that Defendants Deran Pennington
(“Pennington”), Matt Schoolfield (“Schoolfield”), Chris Shelton (“Shelton”), Linda Plymale
(“Plymale”), Heather Frye (“Frye”), and Josh Covett (“Covett”) entered into Confidentiality and
Non-Solicitation Agreements with Plaintiff which, inter alia, prohibited these employees of
Movement from soliciting or recruiting any other employee to leave Movement and/or identify
any Movement employee as a potential candidate for employment to any third party. (Document
No. 14, pp. 5-14) (citing Document Nos. 45-1 through 45-13).
The Complaint alleges that Pennington began engaging in conversations with Defendant
Summit Funding, Inc. (“Summit”) regarding employment with Summit in or about March 2023.
(Document No. 45, p. 14). On or about March 7, 2023, while still employed by Movement,
Pennington entered into a “Confidentiality Agreement” with Summit. Id. (citing Document No.
45-14). Pennington continued to be employed with Movement for approximately four (4) more
months after executing the “Confidentiality Agreement” with Summit. Id. The Complaint further
alleges that Pennington, while still employed with Movement, began soliciting and recruiting
Shelton and Schoolfield to leave Movement and to assist him in recruiting other employees to join
Summit. (Document No. 45, p. 15).
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Pennington, Schoolfield, and Shelton all resigned from Movement on or about July 1, 2023,
and Plymale resigned two (2) days later. (Document No. 45, p. 16). Plaintiff also alleges that
Schoolfield made false representations as part of a scheme to solicit other employees to leave
Movement, and that Plymale “began systematically accessing and copying Movement’s
confidential and proprietary information and trade secrets.” (Document No. 14, pp. 16-17).
Defendants Pennington, Schoolfield, and Shelton, with the knowledge of Summit, also
successfully persuaded Covett and Frye to resign from Movement and solicit other loan officers
to join them at Summit. (Document No. 45, pp. 25-26).
Based on the foregoing allegations and other allegedly impermissible conduct, Plaintiff
Movement’s Complaint asserts the following counts against Defendants: (1) Breach of Contract
(Pennington, Shelton, Schoolfield, Covett, Plymale, and Frye); (2) Breach of Fiduciary Duty
(Pennington, Shelton, Schoolfield, and Plymale); (3) Misappropriation of Trade Secrets in
Violation of the Defend Trade Secrets Act 18 U.S.C. § 1836 (Pennington, Shelton, Plymale, and
Summit); (4) Misappropriation of Trade Secrets in Violation of the North Carolina Trade Secrets
Protection Act (Shelton, Plymale, and Summit); (5) Tortious Interference with Contractual
Relations (Pennington and Summit); (6) Civil Conspiracy (all Defendants); (7) Violation of North
Carolina Unfair and Deceptive Trade Practices Act (all Defendants); (8) Tortious Interference
with Advantageous Business Relationships and Prospective Economic Advantage (Summit); and
(9) Violation of the Lanham Act, 15 U.S.C. 1125(a) (Summit). (Document No. 45, pp. 33-47).
In response to the Complaint, Summit filed an Answer (Document No. 49) and Pennington
filed an Answer and Counterclaims (Document No. 50) on January 2, 2024. Covett, Frye, Plymale,
Schoolfield, and Shelton (together, the “Restricted Employees”) then filed separate, but virtually
identical Motions To Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) on January 16, 2024. (Document
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Nos. 61-65). The motions are supported by a “Joint Memorandum...” (Document No. 61-1) and
only seek the dismissal of Count I for Breach of Contract and Count VI for Civil Conspiracy. Id.
On February 8, 2024, the Court issued a “Pretrial Order And Case Management Plan”
(Document No. 72). The “...Case Management Order” includes the following deadlines:
discovery completion – December 19, 2024; mediation report – December 19, 2024; dispositive
motions – January 25, 2025; and trial – May 5, 2025. (Document No. 72).
Defendants Pennington and Summit filed their pending “...Partial Motion[s] For A
Judgment On The Pleadings” (Document Nos. 73 and 74) pursuant to Fed.R.Civ.P. 12(c) on
February 15, 2024. By these motions, Pennington seeks dismissal of Count I for Breach of
Contract, Count V for Tortious Interference with Contractual Relations, and Count VI for Civil
Conspiracy; and Summit seeks dismissal of Count V for Tortious Interference with Contractual
Relations, and Count VI for Civil Conspiracy. (Document Nos. 73 and 74).
The pending motions have been briefed and are ripe for review and a recommended
disposition to the Honorable Robert J. Conrad, Jr.1
II. STANDARD OF REVIEW
A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) tests the “legal sufficiency of the
complaint” but “does not resolve contests surrounding the facts, the merits of a claim, or the
applicability of defenses.” Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992);
Eastern Shore Markets, Inc. v. J.D. Assoc. Ltd. Partnership, 213 F.3d 175, 180 (4th Cir. 2000). A
complaint attacked by a Rule 12(b)(6) motion to dismiss will survive if it contains “enough facts
to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
1 The undersigned notes that Defendants Pennington and Summit failed to file a reply brief in support of
their “...Partial Motion[s] For A Judgment On The Pleadings” (Document Nos. 73 and 74). See LCvR
7.1(e).
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(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also, Robinson v.
American Honda Motor Co., Inc., 551 F.3d 218, 222 (4th Cir. 2009). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements,
do not suffice.” Id.
The Supreme Court has also opined that
Federal Rule of Civil Procedure 8(a)(2) requires only “a short
and plain statement of the claim showing that the pleader is entitled
to relief.” Specific facts are not necessary; the statement need only
“‘give the defendant fair notice of what the ... claim is and the
grounds upon which it rests.’” In addition, when ruling on a
defendant’s motion to dismiss, a judge must accept as true all of the
factual allegations contained in the complaint.
Erickson v. Pardus, 551 U.S. 89, 93-94 (2007) (quoting Twombly, 550 U.S. at 555-56).
“Although for the purposes of this motion to dismiss we must take all the factual allegations
in the complaint as true, we are not bound to accept as true a legal conclusion couched as a factual
allegation.” Papasan v. Allain, 478 U.S. 265, 286 (1986). The court “should view the complaint
in the light most favorable to the plaintiff.” Mylan Labs, Inc. v. Matkar, 7 F.3d 1130, 1134 (4th
Cir. 1993).
Rule 12(c) provides that “[a]fter the pleadings are closed – but early enough not to delay
trial – a party may move for judgment on the pleadings. Fed.R.Civ.P. 12(c). “A Rule 12(c) motion
tests only the sufficiency of the complaint and does not resolve the merits of the plaintiff's claims
or any disputes of fact.” Massey v. Ojaniit, 759 F.3d 343, 353 (4th Cir. 2014) (quoting Drager v.
PLIVA USA, Inc., 741 F.3d 470, 474 (4th Cir. 2014)). In resolving a motion for judgment on the
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pleadings, the court may consider the complaint, the answer, and any exhibits to those pleadings
or Rule 12(c) motions that are integral to the complaint and authentic. Massey, 759 F.3d at 347.
III. DISCUSSION
The undersigned will address the parties’ arguments by each claim Defendants seek to
dismiss.
A. Breach of Contract (Covett, Frye, Plymale, Schoolfield, Shelton, and Pennington)
The Complaint asserts that Covett, Frye, Plymale, Schoolfield, Shelton (together, the
“Restricted Employees”), and Pennington (all together, the “Individual Defendants”) “breached
their agreements by, inter alia, soliciting and/or attempting to solicit Movement employees to
terminate employment with Movement and by using, disclosing, and/or stealing Movement’s trade
secrets and confidential and proprietary information for Summit’s benefit.” (Document No. 45, p.
34); see also (Document No. 45, pp. 5-14) (citing Document Nos. 45-1 through 45-13). The
Restricted Employees’ agreements were limited to twelve (12) months after the termination of
employment with Movement, and Pennington’s agreement was limited to six (6) months after the
termination of employment with Movement. (Document No. 45, pp. 6-10, 12-14).
“Under North Carolina law, ‘[t]he elements of a claim for breach of contract are (1)
existence of a valid contract and (2) breach of the terms of that contract.’” Ospina v. Griesinger
Associates, Inc., No. 3:20-CV-089-RJC-DCK, 2022 WL 18739, at *3 (W.D.N.C. Jan. 3, 2022)
(quoting Poor v. Hill, 530 S.E.2d 838, 845 (N.C. Ct. App. 2000)). “A valid contract requires offer,
acceptance, consideration, and mutuality of assent of terms that are sufficiently definite to enable
a court to enforce them.” Id. (citing Triad Packaging, Inc. v. SupplyONE, Inc., 925 F. Supp. 2d
774, 789 (W.D.N.C. 2013)). “To state a claim for breach of contract, plaintiff must allege a
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contractual obligation that has not been fulfilled by defendant.” Id. (citing Tasz, Inc. v. Indus.
Thermo Polymers, Ltd., 80 F. Supp. 3d 671, 681 (W.D.N.C. 2015)).
The alleged breach here involves restrictive covenants in the form of non-solicitation
provisions and confidentiality provisions.
“Restrictive Covenants, although disfavored by courts, are enforceable if they serve a
legitimate employer interest and are no broader than necessary to protect that interest.” United
Healthcare Servs., Inc. v. Richards, 3:96-CV-215-RJC-DCK, 2010 WL 3895705, at *2 (W.D.N.C.
Sept. 30, 2010) (adopting recommendation that motion to dismiss be denied) (citing Ridgway, 670
S.E.2d at 327; Vital Images, Inc. v. Martel, 2007 WL 3095378, *3 (D.Minn. Oct.19, 2007)). The
Supreme Court of North Carolina has recognized that ”[w]hile the law frowns upon unreasonable
restrictions, it favors the enforcement of contracts intended to protect legitimate interests. It is as
much a matter of public concern to see that valid covenants are observed as it is to frustrate
oppressive ones.” United Laboratories, Inc. v. Kuykendall, 322 N.C. 643, 649, (1988) (quoting
Sonotone Corp. v. Baldwin, 227 N.C. 387, 390 (1947)).
“To be enforceable under North Carolina law, a non-competition
agreement must be: (1) in writing; (2) part of an employment
contract; (3) based on valuable consideration; (4) reasonable as to
time and territory; and (5) designed to protect a legitimate business
interest.” Med. Staffing Network, Inc. v. Ridgway, 194 N.C. App.
649, 655, 670 S.E.2d 321 (2009). Non-solicitation provisions
generally must satisfy the same elements to be enforceable.
Wells Fargo Ins. Servs. USA, Inc. v. Link, 2018 NCBC LEXIS 42,
at *27, 2018 WL 2123700 (N.C. Super. Ct. May 8, 2018) (“A
restriction on solicitation of employees generally is subject to the
same requirements as other restrictive covenants[ ]”), aff'd per
curiam, 372 N.C. 260, 827 S.E.2d 458 (2019).
Truist Fin. Corp. v. Rocco, 2024 NCBC 28, 2024 WL 1804720, at *6, (N.C. Super. Apr. 25, 2024)
(emphasis added). “Under North Carolina law, non-solicitation restrictions that extend no more
than two years after employment has ended are routinely enforced.” Id. at * 7 (citations omitted).
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An employer may choose to protect not only its employment
relationships but also its customer relationships, as well as its
confidential information, through the use of employee non-
solicitation agreements. Current Med. Servs., LLC v. Current
Dermatology, PLLC, 2020 NCBC LEXIS 138, at *9 (N.C. Super.
Ct. Nov. 2020) (typically, the purpose of a restriction against
soliciting employees is to protect the employer's customer
relationships and confidential information); Wells Fargo Ins. Servs.
USA v. Link, 2018 NCBC LEXIS 42, at *28 (N.C. Super. Ct. May
8, 2018) (covenants restricting the solicitation of employees “are
another means of protecting the former employer’s interest in the
good-will it has with its customers.”); Carlson Envtl. Consultants,
PC v. Slayton, 2017 U.S. Dist. LEXIS 154191, *25 (W.D.N.C.
2017) (protection of customer relationships and goodwill against
misappropriation by departing employees is well recognized as a
legitimate protectable interest of the employer). Moreover, the
employer’s investment in employee hiring, training and
retention may itself be a legitimate reason for it to use
agreements designed to tamp down efforts by disgruntled
former employees to recruit established employees.
McGriff Ins. Servs., Inc. v. Ryan Hudson & Digital Ins., LLC, 2023 NCBC 3, 2023 WL 197441,
at *8 (N.C. Super. Jan. 17, 2023) (emphasis added).
A departing employee who has seen what it is like to play for a
new team may well be able to convince a former teammate–even
one with whom he has not had previous personal interaction–to
make the switch, creating a talent drain for his former employer.
Indeed, the employer’s protectible interest does not come from the
departing employee’s relationship with those employees he is
attempting to solicit. It arises from the solicited employees’
relationships with customers, their possession of confidential
information, or the cost to replace them. Even a loner can disrupt
those business interests by luring others to follow the breadcrumbs
of an exit path he has laid.
Id. at *9-10.
The undersigned will first address the alleged breach of non-solicitation agreements.
1. Non-Solicitation Provisions
In this case, the Restricted Employees argue that the breach of contract claim against them
must be dismissed because the Non-Solicitation Provisions at issue are “facially unenforceable”
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because they are unreasonable, broader than necessary, and vague. (Document No. 61-1, p. 11).
Restricted Employees’ “Joint Memorandum...” specifically identifies the following provision as
unenforceable.
The 2018 Schoolfield Agreement states the following regarding
solicitation:
Employee agrees that during Employee’s employment with the
Company and for a period of twelve (12) months after
termination of Employee’s employment with the Company for
any reason, Employee will not, for himself/herself or on behalf
of any person or entity or indirectly:
(a) solicit or recruit any Company employee to leave the
employ of the Company.
(Document No. 61-1, p. 6) (citing Document No. 45-5 at Section IV(G)(a)). Restricted Employees
then note that “[l]ike the Schoolfield Agreement,” the relevant Shelton, Plymale, Frye and Covett
2013 Employment Agreements “contain identical non-solicitation provisions” which state the
following:
Employee agrees that during Employee’s employment with the
Company and for a period of twelve (12) months after termination
of Employee’s employment with Employer for any reason,
Employee will not, for himself/herself or on behalf of any person or
entity:
(a) employ, solicit, recruit, contract with, induce, influence or
advise, or directly or indirectly cause the employment,
solicitation or recruitment of any Company employee for
any reason including but not limited to having said Company
employee work for or engage in a business substantially
similar to the business of, or in competition with the
Company.
(b) employ, solicit, recruit, contract with, induce, influence or
advise, or directly or indirectly cause the employment,
solicitation or recruitment of any consultatory agent who
works or has been employed by the Company within the 12-
month period immediately preceding the termination of
Employee’s employment with Company.
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(Document No. 61-1, p. 9) (citing Document Nos. 45-7, 45-9, 45-11, and 45-13 at Section
IV(G)(a)).
Restricted Employees argue that the “Non-Solicitation Provisions fail because they do not
protect any legitimate business interest.” (Document No. 61-1, p. 12). They contend that the Non-
Solicitation Provisions prevent them from “soliciting any ‘Company’ employees for any reason.”
Id. By way of example, Restricted Employees contend that the Non-Solicitation Provisions
prevent them “from contracting with a ‘Company’ employee or consultant to remodel their
bathrooms.” Id.
Next, Restricted Employees argue that the Non-Solicitation Provisions are “unreasonably
broad” because they restrict soliciting employees of Movement and its “predecessors, successors,
assigns, and subsidiaries.” Id. Restricted Employees contend that under the Non-Solicitation
Provisions they would be prevented “from soliciting employees from companies for which they
never worked and with which they had only tangential connections.” (Document No. 61-1, p. 13).
For this reason also, movants contend that the Non-Solicitation Provisions are “overly broad on
their face and unenforceable.” Id. (citing Relation Ins., Inc. v. Pilot Risk Management Consulting,
LLC, 2022 WL 3138156, at *13 (N.C. Super. June 28, 2022)).
Restricted Employees further argue that the Non-Solicitation Provisions are unenforceable
because they lack “geographical limitations” and instead “extend to ‘any Company employee.’”
(Document No. 61-1, p. 14). According to Restricted Employees, restrictions “cannot extend
beyond contacts made during the period of the employee’s employment.” Id. (quoting United
Healthcare Servs., 2010 WL 3895705 at *2 (additional citations omitted).
Finally, Restricted Employees argue that the Non-Solicitation Provisions are invalid and
unenforceable “because they are not limited to a similar job position with the hiring employer.”
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(Document No. 61-1, p. 16). The movants suggest that the provisions are too restrictive because
they “prohibit the solicitation of any ‘Company’ employees (janitor or otherwise), consultant, or
agent from coming to serve as a janitor at the hiring employer.” (Document No. 61-1, p. 16) (citing
Medical Staffing Network, Inc. v. Ridgeway, 194 N.C. App. 649, 656 (2009)).
In its “Memorandum In Opposition...” to the multiple motions to dismiss, Plaintiff argues
that it has a legitimate interest in restricting the solicitation of former employees.” (Document No.
69, p. 10). Plaintiff contends that the Non-Solicitation Provisions are enforceable. Plaintiff notes
that “[i]n this case, there is no restriction on the former employees’ right to compete, only a
restriction on their ability to solicit.” (Document No. 69, p. 9).
Plaintiff asserts that the “Individual Defendants exaggerate the Non-Solicitation Provision
to non-sensical extremes” by suggesting the provisions prevent them from inviting Company
employees to church, a football game, or service together on a non-profit board. (Document No.
69, p. 10). The response suggests Defendants’ argument involves “inapplicable extensions” that
are distracting from the provisions’ purpose “to protect—Movement’s business goodwill.” Id.
Plaintiff observes that courts have held that employees develop and improve customer
relationships, which establishes goodwill and is a valuable asset of the employer. Id. (citing
Kuykendall, 322 N.C. at 652).
To this end, “the protection of customer relations against
misappropriation by a departing employee is well recognized as a
legitimate interest of an employer.” Farr Associates, 138 N.C. App.
at 280. There can be no serious dispute that Movement has a
legitimate business interest in protecting its work force. See
generally, Hunter Grp., Inc. v. Smith, 9 F. App’x 215 (4th Cir.
2001).
(Document No. 69, p. 11).
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Next, Plaintiff argues that the Non-Solicitation Provision is “not only drafted to protect a
legitimate business interest, but it is also drafted no broader than necessary to protect that interest.”
(Document No. 69, p. 11) (citing Kuykendall, 322 N.C. at 652). Plaintiff notes that when
reviewing the reasonableness of time and territory, the court must consider each in determining
reasonableness of the other – “a longer period of time is acceptable where the geographic
restriction is relatively small, and vice versa.” Id. (quoting Farr Associates, 138 N.C. App. at 280).
Here, there is no issue with the time restriction since the Restricted Employees are only restricted
from soliciting other Movement employees for twelve (12) months [only six (6) months for
Pennington], which falls well within North Carolina’s five (5) year outer limit. Id. (citations
omitted).
Further addressing the Non-Solicitation Provisions, Plaintiff states:
Defendants Schoolfield, Shelton, Covett, and Frye were very high-
level Movement employees with managerial and leadership
responsibilities. These defendants had access and influence across
the entire business, including extensive contact with Movement’s
revenue generating employees and referral sources. Given the broad
scope of their authority, level of company knowledge, and intimate
knowledge of and access to employees’ salaries, profitability, and
performance, it is perfectly reasonable to restrict for just one year
their ability to raid their former employer’s workforce. Similarly, it
is reasonable to limit their contact with referral sources of the
company for a minimal time period to allow Movement to retain
new employees and business to recover from their operational drop-
off. Thus, as written, the Non-Solicitation Provision is reasonably
necessary to protect those relationships and should be upheld.
(Document No. 69, p. 13).
Plaintiff notes that “some of these employees actually began their employment
relationships when Movement was known by its prior name of New American Mortgage, LLC,
justifying the inclusion of predecessors and successor entities in this context.” (Document No. 69,
p. 14) (citing Document No. 45, ¶ 25).
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Plaintiff also notes that North Carolina courts have recognized the importance of the fact
that at the time of the execution of an agreement, the parties regarded the restrictions as reasonable
and legitimate. Id. (citing Kuykendall, 322 N.C. at 649; and Sonotone Corp. v. Baldwin, 227 N.C.
387 (1947) (“While the law frowns upon unreasonable restrictions, it favors the enforcement of
contracts intended to protect legitimate interests.”)). Here, according to Plaintiff, all the Restricted
Employees were sophisticated business professionals who entered the underlying agreements
knowingly, and in several instances had over time agreed to multiple iterations of the non-
solicitation provisions. (Document No. 69, p. 15).
Next, Plaintiff persuasively argues that Restricted Employees’ assertion that the Non-
Solicitation Provisions fails for not being limited to similar job positions is not applicable here.
(Document No. 69, pp. 15-16). Plaintiff observes that unlike the cases relied upon by Restricted
Employees, the issue here is about prohibiting former employees from hiring away other
employees, not any limit on the work the former employee(s) may seek for herself or himself.
(Document No. 69, p. 16).
Finally, Plaintiff argues that even if there are unenforceable elements of the restrictive
covenants at issue, the Court should apply the “blue-pencil doctrine” and strike any portions that
are invalid or unenforceable. (Document No. 69, pp. 16-17) (citations omitted). See United
Healthcare, 2010 WL 3895705 at *3 (“the ‘blue pencil doctrine’ allows a court, at its discretion,
to modify an unreasonable non-compete agreement to make it enforceable when the contract is
separable and one part is reasonable. . . . Here, the reasonable provisions are separable from the
unreasonable provision, and so the Amended Complaint should not be dismissed in its entirety.”).
In reply, Restricted Employees first argue that Plaintiff cannot show that it has any
legitimate business interest in preventing the solicitation of any of its employees for any purpose.
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(Document No. 75, p. 6). Restricted Employees suggest that Plaintiff is asking this Court to assess
the validity of the non-solicitation provisions “based on an as-applied-in-this-instance standard,
rather than the breadth of the provisions on their faces.” (Document No. 75, p. 7). Restricted
Employees contend that Plaintiff Movement is “stuck with the overbroad, unenforceable non-
solicitation provisions it crafted.” (Document No. 75, p. 8).
Restricted Employees further argue that the Non-Solicitation Provisions are overly broad
because they restrict solicitation “to any of Movement’s employees without limitations in scope to
employees with whom any Individual Defendant had contact.” (Document No. 75, p. 10).
Restricted Employees also argue that the time limitations are unreasonable because they are not
for “just one year”; rather, the time limitation is for “well over a decade.” (Document No. 75, p.
11). Restricted Employees contend that this situation creates a “look back period” that effectively
creates an unenforceable restriction of over a decade. (Document No. 75, pp. 11-12).
Finally, Restricted Employees argue that the Non-Solicitation Provisions cannot be blue
penciled. (Document No. 75, pp. 12-13). They conclude that there is not “any distinctly separable
part of the provisions that this Court could ignore to render them enforceable.” (Document No.
75, p. 12).
Defendant Pennington raises very similar arguments for dismissal of the breach of contract
claim in support of his “...Partial Motion For A Judgment On The Pleadings.” (Document No. 73-
1). Pennington first notes that he signed employment agreements in 2008 and 2009 that included
the following identical non-solicitation provisions:
During your employment with New American Mortgage LLC, and
for a period of six (6) months thereafter, you agree to not solicit any
employee to leave his or her position with New American Mortgage
LLC or with any New American Corporation affiliate.
(Document No. 73-1, p. 2) (citing Document Nos. 45-1, p. 8 and 45-2, p. 7).
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Pennington argues that the foregoing agreement, which he acknowledges signing twice,
fails because “it prohibits solicitation of any employee of Movement or any ‘affiliate.’”
(Document No. 73-1, p. 4). Pennington, like the Restricted Employees, suggests that the inclusion
of “affiliate,” “predecessor,” “successor,” “subsidiary,” and/or “assignee” makes the provision
overly broad. (Document No. 73-1, pp. 4-5); see also (Document No. 61-1, pp. 12-13).
Next, Pennington contends that his non-solicitation provision is also overly broad because
it prevents him from “soliciting ‘any employee to leave his or her position.’” (Document No. 73-
1, p. 5). He argues there is “no plausible business interest” in such a provision and that it would
prevent him “from soliciting one of Movement’s janitors.” Id.
Finally, Pennington argues that the non-solicitation provision fails because it prevents him
from “soliciting Movement employees where no meaningful relationship existed.” (Document
No. 73-1, p. 6). Pennington contends that such a restriction is unreasonable. Id. (citations omitted).
In its brief in opposition to Pennington’s motion, Plaintiff “adopts and incorporates the
factual background and arguments set forth” in its opposition to the Restricted Employees motions
to dismiss. (Document No. 76, p. 9) (citing Document No. 69). As discussed above, Plaintiff
reasserts that the Individual Defendants, including Pennington, agreed to reasonable and
enforceable Non-Solicitation Provisions, and therefore, its breach of contract claim should survive.
(Document No. 76, pp. 10-16).
Plaintiff again notes that Pennington’s restrictive covenant is only applicable for six (6)
months, and this restriction falls “well within North Carolina’s five-year outer limit.” (Document
No. 76, p. 12) (citing Farr, 138 N.C.App. at 280). Plaintiff further notes that Defendant Pennington
entered into his employment agreement(s) “when Movement was known by its prior name New
American Mortgage, LLC, justifying the inclusion of predecessors and successor entities in this
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context.” (Document No. 76, p. 13) (citing Document No. 45, p. 6). Moreover, Plaintiff argues
that “Defendant Pennington is a sophisticated business professional who entered into this contract
with the Non-Solicitation Provision knowingly” and should be held to his commitment.
(Document No. 76, p. 14).
Next, Plaintiff argues that the cases Pennington relies on “for the proposition that the Non-
Solicitation Provision is overbroad by prohibiting solicitation of any employee” are not binding
on this Court and do not “address the factual pattern Defendant Pennington tries to set up—that
the provision would prohibit Defendant Pennington’s solicitation of any Movement employee
from coming to serve as a janitor at the hiring employer, i.e. at Summit.” (Document No. 76, p.
15).
Plaintiff also reasserts that the “Court should apply the ‘blue pencil doctrine to the extent
elements of the Non-Solicitation Provision are deemed unenforceable.” (Document No. 76, p. 16)
(citing Whittaker General Medical Corp. v. Daniel, 324 N.C. 523, 528 (1989) (“If the contract is
separable, however, and one part is reasonable, the courts will enforce the reasonable provision.”);
Superior Performers, Inc. v. Meaike, 2014 WL 1412434 at *11 (M.D.N.C. Apr. 11, 2014)
(“[a]lthough it is not separated off by number or in a different clause, the language can readily be
struck through and the rest of the restrictive covenant still makes sense and stands on its own.”);
Welcome Wagon Intern, Inc. v. Pender, 255 N.C. 244 (1961); Scholtz v. Ingram, 38 N.C.App.
422, 248 (1978); and McGriff Ins. Servs., Inc. v. Ryan Hudson & Digital Ins., LLC, 2023 WL
197441, at *13)).
As noted above, Defendant Pennington (and Defendant Summit) failed to file reply briefs,
or notices of their intent not to reply, as required by LCvR 7.1(e).
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The undersigned finds Plaintiff’s arguments most persuasive and is not convinced that the
Non-Solicitation Provisions are unenforceable. The Complaint, viewed in the light most favorable
to Plaintiff, contains “enough facts to state a claim to relief that is plausible on its face.” Iqbal,
556 U.S. at 678.
Courts in North Carolina have recognized that reasonable
restrictions on a former employee’s right to solicit an employer’s
current employees are enforceable. Kennedy v. Kennedy, 160 N.C.
App. 1, 11–12, 584 S.E.2d 328, 335 (2003) (“[T]he covenant
prohibiting Carroll from soliciting and hiring plaintiff's former
employees for the three-year period does not violate public
policy.”); Superior Performers, Inc., 2014 U.S. Dist. LEXIS 50302,
at *30, 2014 WL 1412434 (finding a two year restriction on
soliciting former employer’s current employees reasonable). A
restriction on solicitation of employees generally is subject to the
same requirements as other restrictive covenants. Sandhills Home
Care, L.L.C., 2016 NCBC LEXIS 61, at *36, 2016 WL 4164460.
Wells Fargo Ins. Servs. USA, Inc. v. Link, 2018 NCBC 40, 2018 WL 2123700, at *9 (N.C. Super.
May 8, 2018), aff'd, 372 N.C. 260 (2019).
Here, it appears that Plaintiff has adequately alleged the violation of reasonable restrictions
preventing Individual Defendants, for one (1) year or less, from soliciting or recruiting Plaintiff’s
employees to leave Plaintiff’s employment. See (Document No. 45). Put another way, Plaintiff’s
Non-Solicitation Provisions appear to address a protectable business interest and to be no broader
than necessary to protect that interest. See Wells Fargo Ins. Servs., 2018 WL 2123700 at *9.
Although the undersigned is not convinced that the Non-Solicitation Provisions are overly
broad, if necessary, the undersigned finds that the “blue-pencil doctrine” could be applied to the
wording that Individual Defendants seem to find most objectionable. For example, the Shelton,
Plymale, Frye and Covett provisions seem to include the broadest terms and might be modified as
follows.
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Employee agrees that during Employee’s employment with the
Company and for a period of twelve (12) months after termination
of Employee’s employment with Employer for any reason,
Employee will not, for himself/herself or on behalf of any person or
entity:
(c) employ, solicit, recruit, contract with, induce, influence or
advise, or directly or indirectly cause the employment,
solicitation or recruitment of any Company employee for
any reason including but not limited to having said Company
employee work for or engage in a business substantially
similar to the business of, or in competition with the
Company.
(Document Nos. 45-7, 45-9, 45-11, and 45-13 at Section IV(G)(a)).
The undersigned respectfully suggests that applying the “blue-pencil doctrine” to the
highlighted language above makes the restriction somewhat narrower, and more consistent with
the Schoolfield and Pennington agreements. At least based on the record and authority before the
Court at this time, the undersigned is not persuaded that a restriction applying to the solicitation of
“any Company employee” for twelve (12) months (or less), is unreasonable. A similar restriction
in the context of a non-compete agreement might be too broad; but in this case, addressing a
restriction on recruiting former co-workers of a company – not restricting one’s own ability to seek
employment – the provision seems reasonable.
Applying the five requirements of valid restrictive covenants cited above, the undersigned
first finds that the provisions in dispute are in writing and part of employment contracts. See
McGriff Ins. Servs., 2023 WL 197441 at *6 (quoting Med. Staffing Network, 195 N.C.App at
655). Restricted Employees argue that the Schoolfield and Covett agreements are not based on
valuable consideration, but accepting Plaintiff’s factual allegations as true, the undersigned is
persuaded at this point that there was adequate consideration to support the agreements. See
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McGriff, 2023 WL 197441, at *7-8 (“the employment relationship itself, unbroken by the parties,
constitutes adequate consideration for the non-solicitation obligations”).
Noting, as discussed above, that the time and territory restrictions are viewed together, the
undersigned finds that the relatively short time restrictions of one (1) year for the Restricted
Employees and six (6) months for Pennington, support a finding that the provisions are reasonable.
Although the Individual Defendants contend that the Non-Solicitation Provisions are overly broad
in their inclusion of Movement’s predecessors, successors, assigns, and subsidiaries, they have not
persuasively shown how that language unnecessarily expands the scope of the agreements.
Discovery may shed more light on how extensive that restriction really is.
Finally, the undersigned is persuaded that the Non-Solicitation Provisions protect a
legitimate business interest. See Carlson Envtl. Consultants, PC v. Slayton, 3:17-CV-149-FDW-
DCK, 2017 WL 4225993, at *9 (W.D.N.C. Sept. 21, 2017) (“North Carolina courts have held that
‘protection of customer relationships and goodwill against misappropriation by departing
employees is well recognized as a legitimate protectable interest of the employer.’”) and McGriff,
2023 WL 197441, at *8 (“employer’s investment in employee hiring, training and retention may
itself be a legitimate reason for it to use agreements designed to tamp down efforts by disgruntled
former employees to recruit established employees”). It appears to the undersigned that Plaintiff
Movement had a legitimate business interest, as argued in its brief, in preventing its employees
and/or recently departed employees from recruiting other Movement employees to also leave.
Based on the foregoing, as well as Plaintiff’s other arguments and legal authority, the
undersigned is persuaded that Plaintiff has adequately alleged that the Non-Solicitation Provisions
are valid and enforceable and were breached by Individual Defendants.
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2. Confidentiality Provisions
Next, Individual Defendants contend that the Confidentiality Provisions included in the
underlying employment agreements are “facially unenforceable because they would operate as
non-competition agreements that would last forever and apply to the entire world.” (Document
No. 61-1, p. 5). Individual Defendants describe the Confidential Provisions as follows.
In addition to non-solicitation provisions, each of the Individual
Defendants’ employment agreements contain confidentiality
provisions. Section IV(A) of each employment agreement (the
“Confidentiality Provision”) provides that the employee “will be
entrusted with Company’s confidential information, and both during
his/her employment and after any termination thereof, Employee
will use such information solely for Company’s benefit, and
maintain as secret and will not disclose any of the Confidential
Information to any third party (except as Employee’s duties may
require) without express written authorization.” See Compl.
Exhibits E, G, I, K, M at Section IV(A). The term “Confidential
Information” is defined as:
among other things, the Company’s business
methods, leads, loan programs, advertising
programs, referral sources, marketing strategies,
software, computer programs and software
(including source codes, object codes, screen
displays, features, performance, and underlying
methods of operation), computer databases, account
information, customer or potential customer
information of any sort, product or service pricing
and cost information, negotiation strategies,
processes and procedures, third party provider and
contract terms, passwords and access codes, research
and development projects, merger and acquisition
strategies, employee compensation data, employee
names and lists, investor lists, and employer’s
documentation (the “Confidential Information”)
(Document No. 61-1, pp. 9-10) (citing Document Nos. 45-5, 45-7, 45-9, 45-11, and 45-13 at
Section IV(A)).
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The Restricted Employees argue that the Confidentiality Provisions “do not serve a
legitimate purpose of preventing disclosure of confidential information and should be scrutinized
as a noncompete agreement.” (Document No. 61-1, pp.16-17). Restricted Employees contend
that “Section IV(A) of the respective employment agreements (the “Confidentiality Provision”)
would forever prohibit the use and disclosure of all information related to Movement” – including
“the brand of paper towels stocked in the bathroom.” (Document No. 61-1, p. 17).
The Restricted Employees also argue that because the definition of “Confidential
Information” begins with “among other things,” it has no limits. Id. According to the Restricted
Employees, the definition is so broad it encompasses every Movement document and “is similar
to a provision this Court characterized as a non-compete and ultimately found unenforceable.”
(Document No. 61-1, p. 18) (citing Software Pricing Partners, LLC v. Geisman, 3:19-CV-195-
RJC-DCK, 2020 WL 3249984 (W.D.N.C. June 16, 2020)). They argue that “[a]s in Software
Pricing, the Confidentiality Provision serves no legitimate business interest to protect confidential
information, but instead acts as a non-competition covenant.” Id.
In addition, the Restricted Employees fault the Confidentiality Provisions for lacking any
time or territory restrictions. Id. They argue that “[b]ecause they should be scrutinized as non-
compete agreements, Movement’s confidentiality provisions must include time and territory
limitations.” Id. Restricted Employees further assert that “the confidentiality provisions are
overly broad because ‘Employer’ and ‘Company’ are defined as Movement and its ‘predecessors,
successors, assigns and subsidiaries.’” (Document No. 61-1, p. 19).
Not surprisingly, Plaintiff asserts that the confidentiality agreements are valid and
enforceable. (Document No. 69, p. 17). Plaintiff cites the following legal authority in support of
its position.
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Confidentiality agreements that seek to prevent the disclosure or use
of confidential information are enforceable so long as they are
supported by consideration and protect legitimate business interests
of the employer. See ChemiMetals Processing v. McEneny, 124
N.C. App. 194, 197 (1996). “Such agreements may, therefore, be
upheld even though the agreement is unlimited as to time and area.”
Id. “A covenant is reasonably necessary for the protection of a
legitimate business interest ‘if the nature of the employment is such
as will ... enable [the employee] to acquire valuable information as
to the nature and character of the business and the ... requirements
of the patrons or customers.’” Ridgway, 194 N.C. App. at 656
(quoting A.E.P. Indus. v. McClure, 308 N.C. 393, 408 (1983)). This
has long been recognized as applicable to the mortgage industry
where such clauses in employment contracts are routine and
sensitive information is regularly entrusted to employees that can be
of substantial value to competitors. “Protection of customer
relationships and goodwill against misappropriation by departing
employees is well recognized as a legitimate protectable interest of
the employer.” Kuykendall, 322 N.C. at 651.
(Document No. 69, pp. 17-18).
Plaintiff asserts that “Individual Defendants hope that by reimagining the confidentiality
agreement as a noncompetition agreement, they can better attack the provision and excuse their
blatant violations thereof.” (Document No. 69, p. 19). Plaintiff further suggests that the Restricted
Employees’ cases are distinguishable, and that the Confidentiality Provisions are not as broad as
suggested. (Document No. 69, pp. 19-20).
Plaintiff contends that there is no question that the information misappropriated in this case
is covered by the parties’ agreements, and by any definition of confidential information.
(Document No. 69, p. 20).
This information included reports and data about Movement
employees, their productivity, performance, compensation, and
recent loan origination activities, as well as private contact
information. (See Compl. at ¶¶ 18, 20). And, in a number of
instances, the stolen information rises to the level of trade secrets.
Further, Individual Defendants took a plethora of guidelines,
checklists, formulas, and internal practices that provide greater
detail on how to copy Movement’s game-changing system that
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substantially decreased the time needed to obtain a mortgage and
avoid problems during closing. (See id.). All of this information
would provide a competitor with a significant advantage in
recruiting and soliciting Movement employees to leave the company
and in copying Movement’s business model. (Id.). Indeed, with the
Confidential Information that Individual Defendants
misappropriated, they could copy many of Movement’s processes—
processes that have taken Movement years to develop and perfect—
and apply them at Summit or another competitor.
(Document No. 69, p. 21).
Plaintiff also argues, as it did regarding the Non-Solicitation Provisions, that if the Court
finds the language in the Confidentiality Provisions overly broad, it “could be readily struck from
the clause without rendering the Confidentiality Provision any less applicable to this case or as
appropriately protective of Movement’s business purposes.” (Document No. 69, pp. 21-22).
In reply, Restricted Employees suggest that the Confidentiality Provisions are invalid and
unenforceable because Plaintiff has failed to show they are not intended to act as non-competition
agreements. (Document No. 75, p. 13). Restricted Employees note that this Court’s decision in
Software Pricing Partners, LLC v. Geisman, considered two confidentiality provisions. Id.
As the reply brief explains, this Court held that one provision “prohibited the defendant
from disclosing ‘all proprietary and confidential information relating to the assets and business of’
the plaintiff” and was not a restraint on trade. Id. (quoting Software Pricing, 2020 WL 3249984
at *8). However, there was another provision regarding “Company Intellectual Property” that
“prohibited the disclosure of ‘all inventions, improvements, frameworks, structures, work product,
spreadsheets, methodologies, ideas, designs, discoveries, innovations, know-how, technology,
contacts, relationships, studies, research, information, content, and software, whether or not
patentable, trademarkable or copyrightable, used or otherwise related to the business.’”
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(Document No. 75, pp. 13-14) (quoting Software Pricing, 2020 WL 3249984 at *8). This Court
found the “Company Intellectual Property” to be an impermissible restraint on trade. Id.
The Restrictive Employees reject Plaintiff’s argument that the Confidentiality Provisions
in this case can also be blue-penciled. (Document No. 75, p. 15). They note that Plaintiff again
declines to specifically show how the disputed provisions could/should be blue-penciled. Id.
The undersigned finds that this question presents a close call. As such, further examination
of this Court’s Software Pricing Partners v. Geisman case may be helpful. In that case, the Court
stated in pertinent part:
“When an agreement ‘seeks to prevent the disclosure or use of
confidential information’ and ‘does not seek to prevent a party from
engaging in a similar business in competition with the [promisee],’
it is ‘not in restraint of trade.’” Creative Snacks Co., LLC v. Hello
Delicious Brands LLC, No. 1:17cv50, 2017 WL 4043564, at *4,
2017 U.S. Dist. LEXIS 146993, at *12 (M.D.N.C. Sept. 12, 2017)
(quoting Chemimetals Processing, Inc. v. McEneny, 124 N.C.App.
194, 476 S.E.2d 374, 376 (N.C. Ct. App. 1996)). Such an agreement
“may, therefore, be upheld even though the agreement is unlimited
as to time and area, upon a showing that it protects a legitimate
business interest of the promisee.” Chemimetals Processing, 476
S.E.2d at 377 (citation omitted).
Software Pricing Partners, 2020 WL 3249984, at *7.
This Court determined that the “Company Intellectual Property Provision” at issue went
beyond the disclosure of confidential information because it prohibited “disclosure or use of all
ideas, know-how, technology, contacts, relationships, and information related to [plaintiff’s]
business, regardless of whether such items are confidential.” Id. at *8 (emphasis added).
Moreover this Court found that the “Company Intellectual Property Provision” prevented
defendant Geisman “from teaching, writing a paper or article, and participating in a conference .
. . even if the paper consists entirely of public information in which [plaintiff] has no protectable
interest.” Id.
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This Court then found that the parties’ “Confidentiality Provision” was valid and
enforceable because, unlike the Company Intellectual Property Provision, the confidentiality
provision sought to prevent disclosure and use of “all proprietary and confidential information
relating to the assets and business of [plaintiff]” Id.
Although the parties’ agreement in Software Pricing Partners defined “Company
Intellectual Property,” it does not appear to define “proprietary and confidential information.” See
Software Pricing Partners, 3:19-CV-195-RJC-DCK (Document No. 1-2, p. 9). Notably, the
“Company Intellectual Property” provision that this Court found to be overbroad and
unenforceable covered “ideas, designs, discoveries, innovations, know-how, technology, contacts,
relationships, studies, research, information, content, and software, whether or not patentable,
trademarkable or copyrightable, used or otherwise related to the business of the Company.”
Id. (Emphasis added).
The Confidentiality Provisions in this case, unlike the “Company Intellectual Property”
provision in Software Pricing Partners, expressly address “Confidential Information and
proprietary information and trade secrets of the Company . . . the Company’s business methods . .
. the Company’s documentation . . . [and] any Confidential Information of the Company….” See
(Document Nos. 45-5, 45-7, 45-9, 45-11, and 45-13 at Section IV(A)). The Confidentiality
Provisions here then state that “[t]he foregoing provisions regarding confidential information
encompass trade secrets and are subject to the following notice regarding the Defend Trade Secrets
Act of 2016.” Id.
Unlike the unenforceable restrictions in Software Pricing Partners, the Confidentiality
Provisions here do not seem to preclude the Restricted Employees from writing an article or paper
consisting “entirely of public information” in which Movement has no protectable interest. Instead
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the Confidentiality Provisions seem to be properly “limited to information that [Restricted
Employees were] given access to during the course of [their] employment.” United Healthcare
Servs., 2010 WL 3895705 at *3.
Based on the foregoing, it appears that Restricted Employees have misapplied Software
Pricing Partners, and that the Confidentiality Provisions in this case, at least at this stage of the
litigation, should be upheld as this Court upheld the confidentiality provision in Software Pricing
Partners. Software Pricing Partners, 2020 WL 3249984, at *8.
Defendant Pennington again presents similar arguments in his “…Partial Motion For a
Judgment On The Pleadings.” (Document No. 73). Pennington notes that his applicable
confidentiality provision provides as follows:
You understand that during the course of your employment with
New American Mortgage LLC you will be given access to
confidential and proprietary information and trade secrets of New
American Mortgage LLC, the Managing Member, New American
Mortgage, and the Bank (“Confidential Information”) including, but
not limited to, mortgage loans, mortgage loan payments, mortgage
loan applications, customers, customer lists, customer files,
mortgage loan pipeline reports, sales manual, policy and procedure
manual, and other internal reports, data, information, and
documentation. You agree that you will not disclose and will not
reproduce or produce any compilations of Confidential Information.
. . . Your obligation under this Section VII shall survive termination
of your employment with New American Mortgage LLC for any
reason.
(Document No. 73-1, p. 2) (quoting Document Nos. 45-1, pp. 6-7 and 45-2, pp. 6-7).
Pennington contends that this provision is unenforceable because it “truly functions to
prevent Pennington from engaging in similar business in competition with Movement.”
(Document No. 73-1, p. 7).
In opposition to Pennington’s motion, Plaintiff argues that “[t]he confidentiality provisions
in Movement’s contracts are designed to protect its proprietary information and its trade secrets,
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including personal customer information that is highly sensitive and valuable to competitors.”
(Document No. 76, p. 17). “An employee, having such confidential information, is in a position
to misappropriate and misuse this information upon employment termination to convert his former
employer's business to his own—the precise situation that the employer sought to avoid when it
entered into the covenant with the employee.” Id. (quoting Kuykendall, 322 N.C. at 370).
Plaintiff rejects Pennington’s argument that the confidentiality provision is overly broad.
(Document No. 76, pp. 19-20). Plaintiff asserts that it:
undeniably derives economic value from the processes, strategies
and customer information obtained in the documents stolen by
Defendant Pennington. (See Compl. at ¶94). Movement took
significant and appropriate efforts to secure this confidential
information using limited access controls consistent with the
Confidentiality Provision. (See id. at ¶ 62). Since obtaining the
misappropriated information, Summit has utilized it in targeted
solicitations of Movement employees. This utilization of the
protected material with great effect confirms the justification for
inclusion of the Confidentiality clause in the Agreements and the
business purpose it serves.
Movement has well-founded business interests in protecting its
confidential company information indefinitely and without
limitation to location.
(Document No. 76, p. 20).
Plaintiff concludes based on the foregoing, as well as in the interest of enforcing an
agreement made by sophisticated parties, that this “Court should deny Defendant Pennington’s
Motion related to the breach of contract.” (Documents No. 76. p. 21). As previously noted,
Pennington declined to file a reply brief addressing Plaintiff’s arguments.
The undersigned again finds Plaintiff’s arguments most persuasive. It appears that Plaintiff
has adequately alleged the breach of enforceable Confidentiality Provisions.
After careful consideration of all the parties’ arguments, the undersigned will respectfully
recommend that Individual Defendants motions to dismiss Plaintiff’s breach of contract claim be
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denied at this stage of the litigation. In short, the undersigned is persuaded that Plaintiff’s Non-
Solicitation and Confidentiality Provisions are reasonable and enforceable. There appears to be
little, if any, dispute that the underlying agreements were executed by sophisticated parties. As
such, the argument that they should be bound to their commitments is compelling. Moreover, even
if a portion of some of the provisions is overly broad, such language may be excised pursuant to
the “blue pencil doctrine.”
To the extent further development of the record through discovery and/or the revelation of
other persuasive legal authority might impact the analysis of this claim, the undersigned will
recommend that the motions to dismiss the breach of contract claim be denied without prejudice.
See Thomas Rutherfood, Inc. v. Cooley, 3:07-CV-180-RJC-CH, 2008 WL 544848, at *7
(W.D.N.C. Feb. 26, 2008) (denying motion to dismiss without prejudice “recognizing that
discovery may lead to the development of evidence to the contrary, taking the allegations of the
First Amended Complaint as true, the Plaintiff has alleged sufficient facts to support the
enforcement of the non-solicitation clause”).
B. Tortious Interference with Contractual Relations (Pennington and Summit)
Plaintiff alleges that Defendants Pennington and Summit knew that the Restricted
Employees, as well as other employees, had entered into restrictive covenants and confidentiality
agreements, and nevertheless, Pennington and Summit facilitated the breach of those employment
agreements. (Document No. 45, pp. 40-41).
Pennington and Summit both seek the dismissal of the Complaint’s Count V claim for
tortious interference with contractual relations. (Document No. 73-1, pp. 10-11, and Document
No. 74-1, pp. 3-4); see also (Document No. 45, pp. 40-41).
To have a tortious interference with contract claim in North Carolina
the following five elements must be satisfied: (1) there must be a
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valid contract between the plaintiff and a third party that gives the
plaintiff a contract right against the third party, (2) the defendant
must know of the contract; (3) the defendant must intentionally
induce the third party not to perform under the contract; (4) the
defendant must have acted without justification; and (5) the plaintiff
must suffer actual damages as a result. See, e.g., Area Landscaping,
L.L.C. v. Glaxo-Wellcome, Inc., 160 N.C. App. 520, 523, 586
S.E.2d 507, 510 (2003).
Herman v. Lackey, No. 3:06-CV-251-GCM, 2007 WL 9735415, at *4 (W.D.N.C. June 7, 2007),
aff’d, 309 Fed. Appx. 778 (4th Cir. 2009).
Pennington and Summit present identical arguments that because the restrictive covenants
discussed above are unenforceable, and the breach of contract claim should be dismissed, the claim
for tortious interference with contract should also be dismissed. (Document No. 73-1, pp. 10-11,
and Document No. 74-1, pp. 3-4) (citing Beverage Sys. Of the Carolinas, LLC v. Associated
Beverage Repair, LLC, 368 N.C. 693, 700 (2016) (A claim for tortious interference with contract
cannot survive when there is no contract).
Defendant Summit also seems to suggest that its interference had a “legitimate business
purpose” and/or that Plaintiff has failed to plead Summit’s actions were motivated by malice.
(Document No. 74-1, pp. 3-4) (citations omitted).
In response, Plaintiff first argues that its breach of contract claim should survive, and
therefore, its tortious interference with contract claim should also survive. (Document No. 76, p.
25). Plaintiff then argues that the issue of whether there was a “legitimate business interest” for
the alleged interference highlights the need to deny the pending motions at this stage. Id.
Plaintiff further argues:
“Because whether the act was justified or in good faith depends upon
the circumstances surrounding the interference, the actor’s motive
or conduct, the interests sought to be advanced, the social interest in
protecting the freedom of action of the actor, and the contractual
interests of the other party, the question is often one of fact that
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cannot be resolved on a motion to dismiss.” Albright v. Charlotte-
Mecklenburg Bd. of Educ., No. 317CV00461FDWDSC, 2017 WL
6028362, at *5 (W.D.N.C. Dec. 5, 2017) (internal citations and
quotation marks omitted). The issue of motive or intent is usually
factual and is for the jury, particularly when there is a disputed claim
of justification for interference with a contract. Fitzgerald v. Wolf,
40 N.C. App. 197, 201, 252 S.E.2d 523, 525 (1979). (emphasis
added). Allegations of facts demonstrating that Defendants’ actions
were not prompted by legitimate business purposes are sufficient at
the pleading stage.
(Document No. 75, pp. 25-26).
Based on Plaintiff’s arguments, and the undersigned’s recommendation that the breach of
contract claim not be dismissed, the undersigned will also recommend that dismissal of the tortious
interference with contract claim be denied.
C. Civil Conspiracy (all Defendants)
In Count VI, the Complaint asserts a claim for Civil Conspiracy alleging that all Defendants
conspired to take “tortuous actions” against Plaintiff “for the primary purpose of soliciting
Movement employees and customers, thereby usurping the business opportunities of Movement
for the benefit of Summit.” (Document No. 45, p. 41). Plaintiff contends that it has “suffered and
continues to suffer substantial economic impact and monetary damages.” Id.
Defendants present identical arguments for dismissal as follows:
No claim exists under North Carolina law for civil conspiracy.
Eastwood Constr., LLC v. McAlpine Group, LLC (In re McAlpine
Group, LLC), 2013 U.S. Dist. LEXIS 22182 at *23 (W.D.N.C.
2013). Instead, a claimant may seek damages for wrongful acts
committed in the course of a civil conspiracy in North Carolina. Id.
However, when an underlying claim for wrongful conduct is
dismissed, a civil conspiracy claim must be dismissed as it cannot
be brought on its own. Precision Components, Inc. v. C.W. Bearing
USA, Inc., 630 F. Supp. 2d 635 (W.D.N.C. 2008).
(Document No. 61-1, p. 22; Document No. 73-1, p. 11; Document No. 74-1, p. 4). Defendants
then all conclude that because the Court should dismiss the breach of contract and/or tortious
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interference with contract claims, it should also dismiss the civil conspiracy claim. (Document
No. 61-1, p. 23; Document No. 73-1, p. 11; Document No. 74-1, p. 5).
In opposition to dismissal of this claim, Plaintiff argues that it has stated “a valid claim of
civil conspiracy.” (Document No. 69, p. 28; Document No. 76, p. 26). Plaintiff further argues
that the Complaint states sufficient facts showing that Defendants “agreed to commit unlawful
acts, including breaches of contract, which caused damages to Movement constituting a valid claim
for civil conspiracy.” (Document No. 69, p. 28; Document No. 76, pp. 26-27).
Although the Restricted Employees did file a “Joint Memorandum In Reply…” (Document
No. 75) in support of their motions to dismiss, they did not further address why the civil conspiracy
claim should be dismissed.
The undersigned finds a previous decision by this Court to be instructive.
With respect to Plaintiff’s standalone claim for civil conspiracy,
such a claim “requires more than merely conclusory allegations that
the [D]efendants conspired and agreed. Rather, the claim must
include specific allegations that a defendant was aware of and
complicit in wrongful conduct or that the defendant directly engaged
in such wrongful conduct.” Trudell Medical Int’l v. D R Burton
Healthcare LLC, 2020 WL 4372133, at *2 (E.D.N.C. Mar. 23,
2020). The elements of a civil conspiracy claim (which, notably,
“cannot be brought independent of properly-alleged claims for the
underlying wrongdoing”) include: (1) “an agreement between two
or more persons to commit a wrongful act”; (2) “an act in
furtherance of the agreement”; and (3) “damage to the plaintiff as a
result of the wrongful act.” Suntrust Mortg., Inc. v. Busby, 651
F.Supp.2d 472, 488 (W.D.N.C. 2009).
Ospina v. Griesinger Associates, Inc., 3:20-CV-089-RJC-DCK, 2021 WL 510627, at *6
(W.D.N.C. Feb. 11, 2021), adopted by, 2022 WL 18739 (W.D.N.C. Jan. 3, 2022).
In Ospina, the plaintiff “failed to satisfy the basic requirements to prove civil conspiracy.”
Id. at *7. However, in this case, it appears that Plaintiff’s allegations include the required elements,
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are plausible, and should survive at least until there is further development of the record through
discovery. As such, the undersigned will also recommend that dismissal of this claim be denied.
IV. RECOMMENDATION
FOR THE FOREGOING REASONS, the undersigned respectfully recommends that
Defendants Covett, Frye, Plymale, Schoolfield, and Shelton’s partial “...Motion[s] To Dismiss”
(Document Nos. 61, 62, 63, 64, and 65) be DENIED WITHOUT PREJUDICE.
IT IS FURTHER RECOMMENDED that Defendant Deran Pennington and Summit
Funding, Inc.’s “Partial Motions[s] For A Judgment On The Pleadings” (Document Nos. 73 and
74) be DENIED WITHOUT PREJUDICE.
V. TIME FOR OBJECTIONS
The parties are hereby advised that pursuant to 28 U.S.C. § 636(b)(1)(C), and Rule 72 of
the Federal Rules of Civil Procedure, written objections to the proposed findings of fact,
conclusions of law, and recommendation contained herein may be filed within fourteen (14) days
of service of same. Responses to objections may be filed within fourteen (14) days after service
of the objections. Fed.R.Civ.P. 72(b)(2). Failure to file objections to this Memorandum and
Recommendation with the District Court constitutes a waiver of the right to de novo review by the
District Court. Diamond v. Colonial Life, 416 F.3d 310, 315-16 (4th Cir. 2005); United States v.
Benton, 523 F.3d 424, 428 (4th Cir. 2008). Moreover, failure to file timely objections will preclude
the parties from raising such objections on appeal. Id. “In order ‘to preserve for appeal an issue
in a magistrate judge’s report, a party must object to the finding or recommendation on that issue
with sufficient specificity so as reasonably to alert the district court of the true ground for the
objection.’” Martin v. Duffy, 858 F.3d 239, 245 (4th Cir. 2017) (quoting United States v. Midgette,
478 F.3d 616, 622 (4th Cir. 2007)).
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IT IS SO RECOMMENDED.
Signed: September 27, 2024
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