Civil Conspiracy Cannot Exist Among Commonly-Owned Affiliates

Where an employee alleged his employer’s owner and other commonly-owned affiliates had devised a plan to prevent the employee from certain contractually-owed payments, North Carolina law would follow the Fourth Circuit and extend the intracorporate immunity doctrine to those affiliates.  Ehmann v. Medflow, Inc., 2022 NCBC 55 (J. Robinson).  As a result, the employee’s civil conspiracy claim against his employer and other commonly-owned affiliates would be dismissed.

Plaintiff entered into an employment agreement with Defendant Medflow, Inc. (“Company”) as its CEO.  As part of the agreement, Plaintiff was to receive a substantial payment in the event the Company experienced a change of control.  The Company’s obligations under the agreement were secured by a security interest in many of the Company’s assets.  Plaintiff ultimately perfected this security interest in the Company’s assets. All of the Company’s stock was subsequently acquired by Defendant Greg Lindberg, who attempted to renegotiate Plaintiff’s employment agreement.  Plaintiff refused and made a demand on the Company for the change of control payment.  Lindberg and the Company refused the payment, and thereafter Lindberg allegedly stripped the Company of substantially all of its assets, transferring them to other companies owned and/or controlled by Lindberg.  Plaintiff filed suit alleging a claim, inter alia, for breach of the employment agreement and a civil conspiracy among the Company, Lindberg and the commonly-owned affiliates related to the breach.  Defendants moved to dismiss the civil conspiracy claim, arguing that the “intracorporate immunity doctrine” precluded the claim.

The Business Court agreed.  Although civil conspiracy is not a stand alone claim under North Carolina law, the Business Court acknowledged that proof of a civil conspiracy can impose joint and several liability upon on all co-conspirators for damages arising from a valid underlying claim.  (Opinion, ¶66-67).  Nonetheless, North Carolina has adopted the intracorporate immunity doctrine , which holds that there can be no conspiracy between a corporation and its agents.  (Id., ¶69).  In response to Defendants’ assertion of the intracorporate immunity doctrine, Plaintiff argued the doctrine did not apply for three reasons: 1) an outsider was involved in the conspiracy; 2) Lindberg had an independent, personal stake in the conspiracy; and 3) the doctrine does not apply when commonly-owned affiliates are involved.  While confirming that the first two theories would, if supported by the facts in the complaint, preclude the doctrine from applying, the Business Court nonetheless held that the complaint failed to adequately allege an outsider was involved in the conspiracy (Id., ¶70) or that Lindberg’s stake in the conspiracy was sufficiently “separable” from the general benefit the Company would have received such that it could be said Lindberg’s stake was truly “personal.” (Id., ¶73).  On the question of the doctrine’s application to commonly-owned affiliates, the Business Court acknowledged that while North Carolina had applied the doctrine to officers, directors and wholly owned subsidiaries, it had not yet addressed whether to extend the doctrine to commonly-owned affiliates.  (Id., ¶71).  The Business Court followed the Fourth Circuit’s lead which had extended the doctrine to commonly-owned affiliates.  Id.  Finding that the doctrine did apply to commonly-owned affiliates, Plaintiff’s civil conspiracy theory was dismissed.

Based upon this decision, any business which is accused of any sort of conspiracy with and among other commonly-owned companies should consider whether the intracoporate immunity doctrine could preclude a conspiracy claim.

Additional Legal Points:

  • The alter-ego theory can extend beyond stockholders of a corporation. (Opinion, ¶59).
  • For purposes of the Wage and Hour Act, the “employer” can include commonly-owned affiliates if those affiliates directly or indirectly control various aspects of the employee’s working conditions. (Id., ¶83).
  • Even if the other commonly-owned affiliates are successor corporations and/or the alter egos of one company, the bad acts can still be “in and affecting commerce” such that a UDTP can be maintained against those companies. (Id., ¶111).  Note, this seems contrary to the Business Court’s decision in Lafayette Village Pub, LLC v. Burnham, 2022 NCBC 50, ¶¶19-31 (J. Davis).

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