No Claim of Conversion for Intellectual Property or LLC Membership

Where a former member of an LLC brought conversion claims related to various intangible interests, the Business Court recognized that such claims do not exist under North Carolina law.  McFee v. Presley, 2022 NCBC 33 (J. Conrad).  As a result, the member could not maintain conversion claims related to her intellectual property or loss of membership in the LLC.

 Plaintiff is a former employee and member of CPP International, LLC (“CPP”). An artist, Plaintiff designed numerous products for the LLC to sell, which were an immediate success.  CCP’s president, Defendant Presley, rewarded Plaintiff with membership in CPP and an agreement that CPP would assign Plaintiff all intellectual property related to her designs when CPP had stopped using them.  Presley later convinced Plaintiff to abandon her membership interest, contending that CPP was worthless and that doing so would help it survive.  In reality, CPP was financially healthy, in large part because of the intellectual property related to Plaintiff’s designs. Thereafter, the work environment allegedly became hostile and Presley eventually fired Plaintiff.  Plaintiff sued CPP for breach of contract and obtained a judgment which awarded her damages and assigned to her the intellectual property.  In the interim, Presley sold off CPP’s assets and did not distribute anything to Plaintiff.  Plaintiff eventually sued Presley asserting claims, inter alia, for conversion of her intellectual property, her membership in CPP and proceeds from the sale of CPP’s assets.  Presley moved to dismiss the conversion claims, contending they do not state claims upon which relief can be granted.

The Business Court agreed.  After recognizing that North Carolina does not recognize a claim for conversion of “intangible interests,” (Opinion, ­¶29), the Business Court recognized that intellectual property and membership in an LLC are “intangible interest” for which no conversion claim can lie. (Id., ¶31, 32).   Additionally, while money may be the subject of a claim in some circumstances (i.e., where it is readily traceable), the Business Court recognized that such circumstances did not exist here. The Business Court then summarized all of these claims as “deprivation of a contingent, intangible expectancy interest” which derived primarily from a contract but that such claims are not conversion claims.  (Id., ¶33).

Additional Legal Points:

A claim for unfair and deceptive trade practices does not exist either for claims “solely within a single business” or certain “extraordinary events beyond the regular, day-to-day activities of a business.”  (Opinion, ¶36, 37)

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