Lendingtree, LLC v. Anderson

Lendingtree, LLC v. Anderson, 2012 NCBC 21.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF

JUSTICE

MECKLENBURG COUNTY SUPERIOR COURT DIVISION

08 CVS 9108

LENDINGTREE, LLC, )

)

Plaintiff, )

)

vs. )

) AMENDED ORDER & OPINION

DAVID N. ANDERSON, )

)

Defendant. )

)

)

K&L Gates, LLP by John H. Culver, III and Glenn E. Ketner, III for Plaintiff.

Bishop Capitano & Moss, P.A. by J. Daniel Bishop for Defendant.

Murphy, Judge.

{1} THIS MATTER is before the Court upon Plaintiff LendingTree, LLC’s

(“Plaintiff”) Motion to Amend Complaint (“Motion to Amend”) and Defendant David

N. Anderson’s (“Defendant”) Application for Determination of Improper Venue and

Defective Claim Defenses and Objection to Plaintiff’s Motion to Amend pursuant to

Rule 12(d) of the North Carolina Rules of Civil Procedure (“Application for Improper

Venue”). After considering the Complaint, the parties’ motions and briefs, and the

arguments and contentions of counsel at the Court’s October 24, 2011, hearing, the

Court GRANTS Plaintiff’s Motion to Amend, and DENIES Defendant’s Application

for Improper Venue.

I.

PROCEDURAL HISTORY

{2} In April 2008, Plaintiff brought this suit alleging that Defendant was

involved in a scheme to steal information from Plaintiff’s confidential computer

system. (Compl. ¶¶ 35–38.) Pursuant to Business Court Rule 17, the parties

conducted a Case Management Conference (“CMC”) on June 18, 2008, where both

Plaintiff and Defendant were represented by counsel. (Jt. Case Mgmt. Report 1.)

The resulting Joint Case Management Report (“CMR”) was submitted by the

parties on June 20, 2008, and this Court entered a Case Management Order

(“CMO”) on June 26, 2008. (Jt. Case Mgmt. Report 10; Case Mgmt. Order 7.)

{3} On July 21, 2008, Defendant filed his Answer with the Court and soon

afterwards began seeking discovery and noticing depositions for Plaintiff’s

employees. (Pl.’s Resp. Def.’s Mot. Dismiss 3.) Prompted by pending criminal

charges against co-defendant Jarrod Beddingfield (“Beddingfield”), the Court issued

an order on August 4, 2008, staying all discovery in the case. (Pl.’s Resp. Def.’s Mot.

Dismiss 3.)

{4} The case remained stayed until September 2010, and on December 16,

2010, Plaintiff dismissed its claims against Defendant Beddingfield. (Pl.’s Notice of

Dismissal 1.) Plaintiff filed its Motion to Amend on February 2, 2011, and

Defendant responded with his Application for Improper Venue on March 10, 2011.

(Def.’s Appl. Improper Venue 2.) Defendant’s Application for Improper Venue

included a Motion to Dismiss pursuant to Rule 12(b)(3) and Rule 12(b)(6) of the

North Carolina Rules of Civil Procedure. The Court held a hearing on the parties’

motions on October 24, 2011.

II.

STATEMENT OF FACTS

{5} While ordinarily the Court does not make findings of fact in connection

with motions to dismiss, as such motions do “not present the merits, but only

[determine] whether the merits may be reached,” Concrete Serv. Corp. v. Investors

Group, Inc., 79 N.C. App. 678, 681, 340 S.E.2d 755, 758 (1986), for purposes of this

Order and Opinion’s Rule 12(b)(6) analysis, the Court recites those facts from the

pleadings that are relevant to the Court’s legal determinations.

{6} Plaintiff is a limited liability company organized under the laws of the

State of Delaware, and headquartered in Charlotte, North Carolina. (Compl. ¶ 2.)

{7} Defendant Anderson is a resident of Waxhaw, Union County, North

Carolina, and until June, 2006, was Senior Vice-President of New Business

Development for Plaintiff in Charlotte, North Carolina. (Compl. ¶¶ 4, 30.)

{8} Plaintiff’s claims revolve around alleged acts taken by Defendant to

steal passwords and other confidential information from Plaintiff’s proprietary

computer system in violation of the parties’ Employment Agreement, and the

Computer Fraud and Abuse Act (“CFAA”). (Compl. ¶¶ 31–33, 53–58.) Plaintiff

alleges that the Defendant’s violations of the CFAA required Plaintiff’s employees to

“spen[d] a significant period of time working on the investigation into the

intrusion,” and resulted in damages in excess of $10,000. (Pl.’s Resp. Def.’s Mot.

Dismiss 13; Compl. ¶ 58.)

{9} The Employment Agreement entered into by the parties included a

forum and venue selection clause that contained the following provision:

This Agreement and the legal relations thus created between the

parties hereto shall be governed by and construed under and in

accordance with the laws of the State of Delaware without reference to

the principles of conflicts of laws. Any and all disputes between the

parties which may arise pursuant to this Agreement will be heard and

determined solely before an appropriate federal court in Delaware, or,

if not maintainable therein, then in an appropriate Delaware state

court.

(Compl. Ex. B 3–4.)

{10} At the CMC conducted pursuant to Business Court Rule 17 of the

General Rules of Practice and Procedure for the North Carolina Business Court,

both parties were represented by counsel who participated in the drafting of the

parties’ CMR. (Jt. Case Mgmt. Report 1.)

{11} Neither party indicated in the CMR that they would be challenging

venue. (Jt. Case Mgmt. Report 4.) To the contrary, the language included in the

CMR was clear: “[t]he parties stipulate that venue is proper in this action.” (Jt.

Case Mgmt. Report 4.)

{12} Based upon the parties’ stipulation, the Court entered a CMO finding

that “[v]enue [was] proper in this action” (Case Mgmt. Order 3) and, neither party

objected to the finding.

{13} After the CMO was entered, Defendant filed his Answer which, for the

first time, asserted a defense of improper venue. (Answer 11.) From the time

Defendant filed his Answer until March 10, 2011, Defendant made no attempt to

have a hearing scheduled to address his challenge to venue nor did he move to

dismiss this action because of the Employment Contract’s forum selection clause.

III.

STANDARD OF REVIEW

{14} In North Carolina, the proper procedure for seeking enforcement of a

contractual forum or venue selection clause is a motion to dismiss for improper

venue pursuant to Rule 12(b)(3). See Hickox v. R&G Group Int’l, Inc., 161 N.C.

App. 510, 511, 588 S.E.2d 566, 567 (2003) (citing Corbin Russwin, Inc. v.

Alexander’s HDWE, Inc., 147 N.C. App. 722, 726, 556 S.E.2d 592, 596 (2001)).

{15} Upon a motion made pursuant to Rule 12(b)(3), North Carolina courts

will generally enforce a contractual forum selection clause if that clause is

mandatory. Mark Group Int’l, Inc., 151 N.C. App. at 568, 566 S.E.2d at 162.

“[M]andatory forum selection clauses recognized by our appellate courts have

contained words such as ‘exclusive’ or ‘sole’ or ‘only’ which indicate that the

contracting parties intended to make jurisdiction exclusive.” Id.

{16} On a motion to dismiss pursuant to Rule 12(b)(6) of the North Carolina

Rules of Civil Procedure, the question for the court is “‘whether, as a matter of law,

the allegations of the complaint, treated as true, are sufficient to state a claim upon

which relief may be granted under some legal theory.’” Block v. County of Person,

141 N.C. App. 273, 277, 540 S.E.2d 415, 419 (2000) (quoting Harris v. NCNB Nat’l

Bank, 85 N.C. App. 669, 670, 355 S.E.2d 838, 840 (1987)).

{17} “The complaint must be liberally construed, and the court should not

dismiss the complaint unless it appears beyond a doubt that the plaintiff could not

prove any set of facts to support his claim which would entitle him to relief.” Id. at

277–78, 540 S.E.2d at 419.

{18} In considering a motion to dismiss for failure to state a claim upon

which relief can be granted, “‘the well-pleaded material allegations of the complaint

are taken as admitted; but conclusions of law or unwarranted deductions of fact are

not admitted.’” Pinewood Homes, Inc. v. Harris, 184 N.C. App. 597, 613, 646 S.E.2d

826, 837 (2007) (quoting Sutton v. Duke, 277 N.C. 94, 98, 176 S.E.2d 161, 163

(1970)).

IV.

ANALYSIS

A.

IMPROPER VENUE

{19} Defendant asks the Court to dismiss this action because the defense of

improper venue was included in his Answer filed July 21, 2008. (Def.’s Br. Supp.

Mot. Dismiss 6; Answer 11.) Plaintiff argues that Defendant waived the defense by

failing to pursue it for almost three years. North Carolina’s courts have found that

a defendant can waive his defense of improper venue when it is made by motion.

However, our courts have not determined whether the defense of improper venue

can be waived if asserted in the defendant’s answer. This question must be resolved

before the Court can determine whether the forum selection clause in the parties’

Employment Contract is enforceable.

{20} The North Carolina Rules of Civil Procedure require that “[e]very

defense, in law or fact, to a claim for relief in any pleading, . . . be asserted in the

responsive pleading thereto if one is required, except that the following defenses

may at the option of the pleader be made by motion: . . . [i]mproper venue . . . .”

N.C.R. Civ. P. 12(b)–(b)(3). Because “venue is not jurisdictional it may be waived by

express or implied consent, . . . and a defendant’s failure to press his motion to

remove has been found to be a waiver.” Miller v. Miller, 38 N.C. App. 95, 97, 247

S.E.2d 278, 279 (1978) (citing Jones v. Brinson, 238 N.C. 506, 78 S.E.2d 334 (1953);

Oettinger v. Hill Live Stock Co., 170 N.C. 152, 86 S.E. 957 (1915)).

{21} “The North Carolina Rules of Civil Procedure are modeled after the

federal rules. In most instances they are verbatim copies with the same

enumerations.” Sutton, 277 N.C. at 99, 176 S.E.2d at 164 (citations omitted).

“‘Decisions under the federal rules are thus pertinent for guidance and

enlightenment in developing the philosophy of the North Carolina rules.’” Brooks v.

Giesey, 334 N.C. 303, 317, 432 S.E.2d 339, 347 (1993) (quoting Turner v. Duke

Univ., 325 N.C. 152, 164, 381 S.E.2d 706, 713 (1989)).

{22} “[T]he locality of a law suit – the place where judicial authority may be

exercised – though defined by legislation [or contract] relates to the convenience of

litigants and as such is subject to their disposition.” Neirbo Co. v. Bethlehem

Shipbuilding Corp., 308 U.S. 165, 168 (1939). A statute or forum selection clause

“‘accords to the defendant a personal privilege respecting the venue, or place of suit,

which he may assert, or may waive, at his election.’” Id. (quoting Commercial Ins.

Co. v. Stone Co., 278 U.S. 177, 179 (1929)). “Being a privilege, it may be lost. It may

be lost by failure to assert it seasonably, by formal submission in a cause, or by

submission through conduct.” Id. Accordingly, personal jurisdiction and venue are

both privileges that may be waived. Id. (stating that venue may be waived); United

States ex rel. Combustion Sys. Sales, Inc. v. E. Metal Prod. & Fabricators, Inc., 112

F.R.D. 685, 687 (M.D.N.C. 1986) (stating that “[p]ersonal defenses, such as lack of

jurisdiction, may be deemed waived for failure to timely raise the defense, by

formally submitting oneself to the jurisdiction of the court, or by ‘submission

through conduct.’” (quoting Neirbo Co., 308 U.S. at 168)).

{23} Rule 12(b) is virtually identical to its federal counterpart and both

rules share the common language that “[n]o defense or objection is waived by being

joined with one or more other defenses or objections in a responsive pleading or

motion.” N.C.R. Civ. P. 12(b); Fed. R. Civ. P. 12(b). Defendant argues that this

language clearly establishes that when the defense of improper venue is asserted in

an answer, the defense is preserved and cannot be waived by inaction. (Def.’s Br.

Supp Mot. Dismiss 1–3.) Because North Carolina Court’s have not considered

whether a defense asserted in an answer, as opposed to a motion, can be waived by

inaction, this Court has looked to federal cases for direction on this point.

{24} In Yeldell v. Tutt, 913 F.2d 533 (8th Cir. 1990), the United States

Eighth Circuit Court of Appeals was faced with a similar set of facts as in the

present case. In Yeldell, the defendants challenged personal jurisdiction in their

answer but then “participated in discovery, filed various motions, participated in a

five-day trial, and filed post-trial motions, all without raising the issue of personal

jurisdiction or requesting a ruling on [their personal jurisdiction defense].” Yeldell

v. Tutt, 913 F.2d 533, 539 (1990). It was not until the defendant’s appeal that a

request was made for a determination of their defense of lack of personal

jurisdiction. Id.

{25} The Yeldell court held that while the Federal Rules of Civil Procedure

“provide[] that the defense of lack of personal jurisdiction is waived if not made by

motion or included in a responsive pleading[,] . . . ‘this rule sets only the outer limits

of waiver[ and] does not preclude waiver by implication.’” Id. (quoting Marquest

Medical Prods. v. EMDE Corp., 496 F. Supp. 1242, 1245 n.1 (D. Col. 1980)). The

court went on to say that “[a]sserting a jurisdictional defect in an answer d[oes] ‘not

preserve the defense in perpetuity,’” id. (quoting Burton v. Northern Duchess Hosp.,

106 F.R.D. 477, 481 (S.D.N.Y. 1985)), and “[w]hile the [defendants] literally

complied with Rule 12(h) by including the jurisdictional issue in their answer, they

did not comply with the spirit of the rule, which is ‘to expedite and simplify

proceedings in the Federal Courts.’” Id. (quoting 5A CHARLES ALAN WRIGHT,

ARTHUR R. MILLER & EDWARD H. COOPER, FEDERAL PRACTICE AND PROCEDURE §

1342, at 162 (2d ed. 1990)). As a result, “‘a delay in challenging personal

jurisdiction by motion to dismiss has resulted in waiver, even where, as here, the

defense was asserted in a timely answer.’” Id. (quoting Datskow v. Teledyne, Inc.,

Continental Products Division, 899 F.2d 1298, 1303 (2d Cir. 1990)) (emphasis

added); Continental Bank, N.A. v. Meyer, 10 F.3d 1293, 1297 (7th Cir. 1993)

(holding that while defendants pled lack of jurisdiction in their answer, defendants

had waived the defense by “fully participa[ting] in litigation of the merits for over

two-and-a-half years without actively contesting personal jurisdiction.”); see

Spearman v. Sterling S.S. Co., 171 F. Supp. 287, 289 (E.D.Pa. 1959) (holding that

defendant waived its defense of improper venue because defendant waited to file its

answer asserting the defense for more than a year after the statute of limitations

had passed on plaintiff’s claims).

{26} Here, Defendant timely raised the defense of improper venue in his

Answer, but failed to pursue the defense for almost three years. While this Court

stayed discovery in the case on August 4, 2008, the stay did not prevent Defendant

from bringing and prosecuting his Application for Improper Venue. In addition, as

was the case in Spearman, Defendant did not pursue his defense until the statute of

limitations had passed on Plaintiff’s claims in the forum Defendant argues is

appropriate. As previously noted, “[a]sserting a jurisdictional defect in an answer

d[oes] ‘not preserve the defense in perpetuity,’” Yeldell, 913 F.2d at 539 (citation

omitted). Based upon the facts of this case, the Court finds that Defendant waived

his defense by not pursuing it in a timely manner.

{27} Even if Defendant’s inaction was insufficient to waive his venue

defense, the Court finds that Defendant otherwise waived the defense by his

conduct. Defendant stipulated in the CMR that “venue [was] proper in this action.”

(Jt. Case Mgmt. Report 4.) While the CMR contains the following qualifying

language: “[n]othing in this Report is intended to waive any of the objections or

defenses Defendant may raise,” should the court give credence and value to this

qualification, it would tacitly condone Defendant speaking out of both sides of his

mouth by simultaneously consenting to venue while reserving the right to challenge

it at a later date. The reason this Court requires a Case Management Conference

and Report is to expedite and simplify proceedings before it by forcing the parties to

narrow the relevant issues within a case and bring to the Court’s attention any

preliminary issues that may serve as procedural barriers. Business Court Rule

17.1(m) specifically requires “an identification of any disputes concerning . . .

personal jurisdiction, subject matter jurisdiction, or venue.” BCR 17.1(m). If the

parties do not have any jurisdictional or venue disputes, they must “stipulat[e] that

no such controversies exist at the time of the Case Management Conference.” Id.

Allowing contradictory representations to the Court concerning venue would defeat

the purpose of this Court’s CMR requirements.

{28} Despite Defendant’s attempted qualification in the CMR, his waiver

was confirmed by the Court’s entry of a CMO finding that venue was proper. (Case

Mgmt. Order 3.) Defendant never objected to the Court’s finding regarding venue;

instead he proceeded to defend the case in this forum and issued no further

challenges to venue until March 10, 2011, when he filed his Application for

Improper Venue.

{29} In addition, after the Court entered its CMO, Defendant sought

discovery by serving interrogatories and notices of deposition for both Dean Conant,

a former LendingTree employee, and LendingTree, LLC. (Pl.’s Resp. Def.’s Appl.

Improper Venue 3.)

{30} Therefore, the Court finds that Defendant waived his defense of

improper venue by: (a) failing to pursue it for almost three years, (b) stipulation in

the parties’ CMR, and (c) Defendant’s subsequent litigation of this action through

service of interrogatories and noticing of depositions. Defendant’s Application for

Improper Venue is, therefore, DENIED.

DENIED Because the Court finds that Defendant

waived his defense of improper venue, the Court does not reach the question of

whether the Employment Contract’s forum selection clause is enforceable.

B.

PLAINTIFF’S CLAIMS UNDER THE COMPUTER FRAUD AND ABUSE ACT

{31} The Computer Fraud and Abuse Act (“CFAA”) provides a private cause

of action against anyone who “intentionally accesses a computer without

authorization or exceeds authorized access, and . . . obtains . . . information from

any protected computer if the conduct involved an interstate or foreign

communication.” 18 U.S.C. §§ 1030(a)(2)–(a)(2)(c) (2007).

{32} Private actions brought under section 1030(g) of CFAA can be

sustained only if “the conduct involves [one] of the factors set forth in clause (i), (ii),

(iii), (iv), or (v) of subsection (a)(5)(B).” 18 U.S.C. § 1030(g). The only factor under

subsection (a)(5)(B) applicable in this case is satisfied when a defendant causes “loss

to 1 or more persons during any 1-year period . . . aggregating [in] at least $5,000 in

value.” 18 U.S.C. § 1030(a)(5)(B)(i). Loss is defined as “any reasonable cost to any

victim, including the cost of responding to an offense, conducting a damage

assessment, and restoring the data, program, system, or information to its condition

prior to the offense, and any revenue lost, cost incurred, or other consequential

damages incurred because of interruption of service . . . .” 18 U.S.C. § 1030(e)(11).

{33} Unlike the Federal Rules of Civil Procedure, North Carolina’s Rule

12(b)(6) only requires notice pleading. This simply means that the “allegations of

the complaint, . . . [must be] sufficient to state a claim upon which relief may be

granted under some legal theory. . . .” Harris, 85 N.C. App. at 670, 355 S.E.2d at

840.

{34} In its Compliant, Plaintiff alleged that Defendants accessed their

protected computer information without authorization, that Defendants accessed

and/or downloaded passwords and customer information from locations in North

Carolina, that Defendants then sold or transferred passwords to lenders in

California, and that as a result, Plaintiff suffered damages in excess of $10,000

from, among other things, loss of revenue and employee time spent investigating

the invasion. (Compl. ¶¶ 36–38, 42, 53–58.) Accordingly, Plaintiff has met its

burden by sufficiently pleading its claim under the CFAA. Therefore, Defendant’s

Motion to Dismiss pursuant to Rule 12(b)(6) is DENIED.

DENIED

V.

PLAINTIFF’S MOTION TO AMEND

{35} After the time has passed for a party to amend his pleading as a

matter of right, “‘a party may amend his pleading only by leave of court or by

written consent of the adverse party; and leave shall be freely given when justice so

requires.’” House of Raeford Farms, Inc. v. Raeford, 104 N.C. App. 280, 282, 408

S.E.2d 885, 887 (1991) (quoting N.C. GEN. STAT. § 1A–1, Rule 15(a) (1990)). “A

motion to amend is addressed to the sound discretion of the trial judge.” Id. “‘A

ruling committed to a trial court’s discretion is to be accorded great deference and

will be upset only upon a showing that it was so arbitrary that it could not have

been the result of a reasoned decision.’” Id. (quoting White v. White, 312 N.C. 770,

777, 324 S.E.2d 829, 833 (1985)). “The trial judge is not required to set forth

specific reasons for denial of a motion to amend.” Id. (citing Chicopee, Inc. v. Sims

Metal Works, 98 N.C. App. 423, 430, 391 S.E.2d 211, 216, (1990)).

{36} In the exercise of its discretion, The Court finds that it would be in the

interest of justice to allow Plaintiff to amend its Complaint. Therefore, Plaintiff’s

Motion to Amend is GRANTED,

GRANTED as is consistent with Plaintiff’s Partial Withdrawal

of its Motion for Leave to Amend Complaint.

VI.

CONCLUSION

{37} WHEREFORE,

WHEREFORE Defendant’s Application for Improper Venue pursuant

to Rule 12(b)(3) is DENIED,

DENIED Defendant’s Motion to Dismiss pursuant to Rule

12(b)(6) for failure to state a claim for relief under the CFAA is DENIED,

DENIED and

Plaintiff’s Motion for Leave to Amend Compliant is GRANTED.

GRANTED

SO ORDERED,

ORDERED this the 11th day of April, 2012.