To Determine Governing Law for Misappropriation Claims, Look to Where the Last Act Occurred

When trying to determine which law to apply in a misappropriation case, North Carolina will look to the law of the State where the last “bad act” occurred to make the defendant liable (i.e., lex loci). Environmental Holdings Group, LLC v. Finch, 2022 NCBC 25 (J. Davis).  As a result, where the employee executed his final “bad act” of misappropriation while in Virginia, the Business Court held Virginia law applied and the claim based solely on North Carolina-specific causes of action (the North Carolina’s Trade Secrets Act (“NCTSA”) and North Carolina’s Unfair and Deceptive Trade Practices Act (“UDTP”)) must be dismissed.

Plaintiff employed Defendant as a Senior Project Manager whose job was to prepare bids to submit to general contractors. Defendant was a resident of Virginia and did not work within North Carolina but instead worked remotely from his home.  Toward the end of his employment, Defendant allegedly used Plaintiff’s trade secrets and other confidential information to increase Plaintiff’s bid on a project by nearly $150,000.  Plaintiff ultimately lost the project to the competitor for whom Defendant went to work, in part because Plaintiff’s bid was too high.  Plaintiff filed suit against Defendant asserting, inter alia, claims for UDTP, violations of the NCTSA and other claims.  Defendant moved to dismiss, contending that claims based upon North Carolina statutes did not exist under Virginia law.

The Business Court agreed.  Recognizing that the North Carolina Supreme Court had recently applied the lex loci analysis to claims for violations of the NCTSA, the Business Court held that Virginia law applied to Plaintiff’s misappropriation claim because Defendant’s last purported bad act for which he would be liable occurred while he was in Virginia.  (Opinion, ¶28, 29).  Turning to Plaintiff’s UDTP claim, the Business Court recognized that the Supreme Court has not yet determined whether to apply lex loci or the “significant relationship test” for a UDTP claim (Id., ¶31). The Business Court decided that it need not decide the applicable test because, under either test, the law of Virginia should apply (Id., ¶34).  As a result, the Business Court dismissed both of these claims.

Additional Legal Points

The “internal affairs doctrine” will govern a breach of fiduciary duty claim only if the party was an officer, director or shareholder. (Opinion, ¶40)

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