North Carolina Lawyers Weekly
If the plaintiff-limited liability company’s allegations are true and one of its managers used company resources to secretly develop a competing product, this would be akin to looting, and the manager’s actions would not be absolved by an operating agreement clause that says managers are not limited from engaging in “any business venture or activity.”
The parties’ cross-motions for partial summary judgment are granted in part and denied in part.
Third-party defendants Carr and Pye were members of plaintiff Kixsports, LLC, and invited defendants Munn and Vaughan to invest and become members. Munn and Vaughan eventually took over operation of Kixsports, which sold soccer-related products.
Among other allegations of wrongdoing among the parties, Carr and Pye contend that Munn and Vaughan used Kixsports resources to develop a goalie glove, which they then sold through a separate company.
Breach of Fiduciary Duty
Kixsports alleges that Munn and Vaughan breached their fiduciary duty to Kixsports. However, Vaughan was only a member, not a manager of Kixsports. As such, he owed no fiduciary duties to the company. Although Kixsports’ allegations might be sufficient to hold Vaughan liable as a conspirator, no evidence tends to show that he owed or breached duties of his own.
Munn, who was both a member and a manager of Kixsports, points out that § 6.6 of Kixsports’ operating agreement says, “Nothing contained in this Agreement shall be construed to limit in any manner a Manager, solely by reason of being a Manager, from engaging or investing in any business venture or activity.” Nonetheless, the claims against Munn are not simply that he pursued other business ventures or competed against Kixsports. Rather, Kixsports offers evidence that Munn secretly developed the new goalie glove on company time and using its resources and business relationships. This, if true, is akin to looting and is not absolved by § 6.6.
The claims against Munn arise from the statutory duties that he owed as manager. Those duties were not eliminated by § 6.6, and they are separate and distinct from any duties he may or may not have owed as a member under the operating agreement. The economic loss rule does not bar Kixsports’ breach of fiduciary duty claims against Munn.
However, there is evidence that Munn used his own resources to develop the new goalie glove, planned to pitch the glove to Carr and Pye, and intended to use the new product to benefit Kixsports. A jury must decide whether to credit this evidence and whether Munn acted in good faith and in the best interests of the company. Neither party is entitled to summary judgment on Kixsports’ breach of fiduciary claim against Munn.
Conversion
When Carr and Pye found out about the new goalie glove, Pye notified Vaughan and Munn that they would no longer play day-to-day roles in the company and requested that they hand over any Kixsports-related passwords, emails and operational materials. Kixsports has offered evidence that, after Pye demanded access to Kixsports’ Amazon account, Munn refused and waited two days before returning the account. Assuming Munn rightfully came into possession of the account in the first place, there is sufficient evidence of demand and refusal to create a jury question on Kixsports’ conversion claim.
Although Munn argues that Kixsports has no evidence of damages, actual damages are not an essential element of a conversion claim.
Tortious Interference
Defendants contend that Carr and Pye brought this lawsuit and moved for a preliminary injunction for the purpose of keeping Vaughan and Munn’s company, defendant Miro Group, from selling products on Amazon. Defendants offer evidence that Miro Group delayed making a contract with Amazon while the motion for injunctive relief was pending.
At best, this evidence shows that Kixsports, Carr, and Pye caused Miro Group not to pursue a contract with Amazon, not the other way around. Defendants have not offered any evidence of purposeful conduct directed toward Amazon. Nor have they offered evidence that Kixsports, Carr, or Pye influenced Amazon not to contract with defendants. Accordingly, the court grants summary judgment in favor of Kixsports, Carr, and Pye as to defendants’ tortious interference claims.
Motions granted in part, denied in part.
Kixsports, LLC v. Munn (Lawyers Weekly No. 020-023-21, 43 pp.) (Adam Conrad, J.) Fed Wood, Evan Sauda and Ariel Roberson for plaintiff and third-party defendants; Todd Sprinkle and Eric Frick for defendants. 2021 NCBC 23
