Global Textile Alliance, Inc. v. TDI Worldwide, LLC

2017 NCBC 106

GLOBAL TEXTILE ALLIANCE, INC., Plaintiff, v. TDI WORLDWIDE, LLC; DOLVEN ENTERPRISES, INC.; TIMOTHY DOLAN, individually and in his capacity as an officer, shareholder and director of Dolven Enterprises, Inc. and an officer of TDI Worldwide, LLC; JAMES DOLAN, individually and in his capacity as an officer, shareholder and director of Dolven Enterprises, Inc.; STEVEN GRAVEN, individually and in his capacity as an officer, shareholder and director of Dolven Enterprises, Inc.; RYAN GRAVEN, individually and in his capacity as an officer, shareholder and director of Dolven Enterprises, Inc.; GARRETT GRAVEN, individually; GUANGFAYNAN, LTD.; GUANGFAYNAN, LTDA; GUANGFAYNAN COOP; GUANGFAYNAN SHANGHAI; and FRESH INDUSTRIES, INC., Defendants.

No. 17 CVS 7304

Superior Court of North Carolina, Guilford

November 21, 2017

Hagan Barrett & Langley PLLC, by J. Alexander S. Barrett, Esq. and Kurt A. Seeber, Esq. for Plaintiff Global Textile Alliance, Inc.

James McElroy & Diehl, P.A., by Fred B. Monroe, Esq. and Carl M. Short III, Esq. for Defendants TDI Worldwide, LLC and Timothy Dolan.

K&L Gates LLP, by A. Lee Hogewood III, Esq., John R Gardner, Esq., and Matthew T. Houston, Esq. for Defendants Dolven Enterprises, Inc. and Ryan Graven.

Brooks, Pierce, McLendon, Humphrey & Leonard, LLP, by Eric M. David, Esq., Brian C. Fork, Esq., and Shepard D. O'Connell, Esq. for Defendant James Dolan.

Ellis & Winters LLP, by Jonathan A. Berkelhammer, Esq., Steven A. Scoggan, Esq., and Scottie Forbes Lee, Esq. for Defendant Steven Graven.

Morningstar Law Group, by Shannon R. Joseph, Esq. and Jeffrey L. Roether, Esq. for Defendant Garrett Graven.

ORDER ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION AND DEFENDANTS' MOTION TO STRIKE

GREGORY P. MCGUIRE SPECIAL SUPERIOR COURT JUDGE

THIS MATTER comes before the Court on Plaintiff Global Textile Alliance, Inc.'s Motion for Preliminary Injunction (ECF No. 6) and Defendants' Motion to Strike Reply Affidavits and Reply Brief (ECF No. 88; collectively, the "Motions").

THE COURT, having considered the Motions, the briefs in support of and in opposition to the Motions, the affidavits and other supporting documents filed by the parties, and the arguments of counsel at the hearing, concludes that the Motion to Strike should be GRANTED in part, and DENIED in part, and the Motion for Preliminary Injunction should be DENIED, for the reasons set forth below.

FACTUAL AND PROCEDURAL BACKGROUND

1. Plaintiff Global Textile Alliance, Inc. ("GTA") is a North Carolina corporation formed in 2001 and headquartered in Reidsville, North Carolina. Luc Tack ("Tack"), a Belgian national, is the sole shareholder of GTA. Tack is a member of GTA's Board of Directors.

2. GTA is in the business of manufacturing and sourcing fabrics mattress ticking, covers, and other textiles to the bedding, upholstery, and home furnishings industries. GTA does business in the United States, Europe, Asia, and South America, and its customers include the world's largest manufacturers of bedding components and foam mattresses. GTA designs and develops colors for the fabric it sells. GTA manufactures its fabric designs itself and also sources some manufacturing of its fabric designs to contract manufacturers in China.

3. Defendant Timothy Dolan ("Timothy") was GTA's President and CEO from GTA's formation until he was removed from those positions on or around August 21, 2015. He remained an employee of GTA until he was terminated on or around September 21, 2016. He was also a member of GTA's Board of Directors until he resigned on or around September 22, 2016.

4. Defendant Steven Graven ("Steven") joined GTA shortly after its formation. He was a member of GTA's Board of Directors and was GTA's Vice President until his resignation from both positions in August 2017. At all relevant times, Tack, Timothy, and Steven were the only members of GTA's Board of Directors.

5. Ryan Graven ("Ryan") is Steven's son and was hired by GTA in 2005 to oversee GTA's sourcing of fabrics in China. In this position, Ryan reported to Timothy. In October 2010, GTA formed GTA-Asia, a wholly owned subsidiary of GTA. Ryan was the head of GTA-Asia's operations until 2012, at which time GTA hired Steven's son and Ryan's brother, Garrett Graven ("Garrett"), as director of GTA-Asia. Garrett was supervised in this role by Timothy and Ryan.

6. GTA did not have non-competition agreements with Timothy, Steven, Ryan, or Garrett. Steven and Garrett signed confidentiality agreements with GTA in September 2016.

7. Ryan's primary responsibilities were to locate and "vet" Chinese fabric manufacturers who could produce fabrics that GTA designed, manage the quality of the fabric produced by these manufacturers, ensure delivery to GTA's customers, and provide customer service to GTA's customers relating to GTA's operations in China. (Ryan Graven Aff., ECF No. 61.1 at ¶ 3.) Ryan had no prior experience in, or knowledge of, the textile industry prior to being employed by GTA.

8. The fabric manufactured and sourced by GTA must be further processed into final products for GTA's customers using "cut-and-sew" operations. The parties dispute the extent to which GTA was involved in cut-and-sew operations. Defendants contend that GTA was not interested in being involved in cut-and-sew operations because it was too labor intensive and expensive and, therefore, mostly performed by offshore operators. (Steven Graven Aff., ECF No. 60.1 at ¶ 9.) GTA does not clearly explain its involvement in cut-and-sew operations in China and Asia but claims that it was involved in "sourcing" cut-and-sew operations in China since as early as 2009. (Luc Tack Reply Aff., ECF No. 83.2 at ¶ 14.)

9. Nevertheless, it is undisputed that GTA had a cut-and-sew plant at its Reidsville facility from 2011 through 2014. Defendants contend that GTA did cut-and-sew work only for a few specifically identified customers. (ECF No. 60.1 at ¶ 10.) GTA, however, contends that the cut-and-sew operations in Reidsville served a substantial customer base. (ECF No. 83.2 at ¶ 14.)

10. Defendants contend that GTA's customers typically made their own arrangements for any cut-and-sew work on the fabrics that the customers purchased from GTA, either by contracting with cut-and-sew vendors that the customer had identified, or by asking GTA to introduce them to a cut-and-sew vendor in China. Defendants argue that this arrangement led to problems for GTA, including: (1) after performing cut-and-sew work on GTA's fabrics, the Chinese cut-and-sew operators would subsequently buy the same or similar fabric from another manufacturer and sell directly to GTA's customer, cutting GTA out of the process and reducing the "life cycle" of GTA's fabrics; and (2) GTA sometimes was blamed for poor quality work performed by vendors that GTA had introduced to its customers. (ECF No. 61.1 at ¶¶ 6-7; ECF 60.1 at ¶ 13.)

11. In or around 2009, Ryan approached Timothy and Steven with a proposal to form a company that would directly manage the cut-and-sew operations and supply chain in China to ensure that GTA was not cut out of the process. Timothy and Steven claim that GTA was not interested in managing cut-and-sew operations in China and that they did not believe the proposed business was competitive with GTA's business. Timothy and Steven approved Ryan's proposal to form the business. (ECF No. 60.1 at ¶ 16.) Timothy, Steven, and Ryan did not share Ryan's proposal or the creation of the proposed business with Tack.

12. In 2009, Ryan formed Defendant Guangfaynan Ltd ("GFY"). Ryan subsequently formed Defendants Guangfaynan Ltda, Guangfaynan Coop, Guangfaynan Shanghai, and Fresh Industries, Inc. as businesses related to GFY (hereinafter, Guangfaynan Ltd, Guangfaynan Ltda, Guangfaynan Coop, Guangfaynan Shanghai, and Fresh Industries, Inc. are referred to collectively as "GFY"). It is not clear from the record evidence whether Timothy or Steven initially had an ownership interest in GFY.

13. In August 2013, Ryan, Timothy, Steven, and Timothy's brother, Defendant James Dolan ("James")^[1] formed Defendant Dolven Enterprises, Inc. ("Dolven"). Each of the four owned 25% of Dolven. Timothy and Steven were directors of Dolven. Dolven owns and controls GFY, and it effectively has stepped into the shoes of GFY with regard to GFY's business relationship with GTA. As with GFY, Timothy, Steven, and Ryan did not disclose their ownership interest in Dolven to Tack.

14. GTA, through Timothy, subsequently entered into business relationships and transactions with GFY and Dolven to manage the sourcing of fabric manufacturers and cut-and-sew operations for GTA in China. GFY and Dolven became the primary contacts with GTA's customers in China. Since Ryan, Timothy, and Steven conducted business for GFY and Dolven, GTA's customers were allegedly led to believe that GFY and Dolven were part of GTA. (Verified Compl., ECF No. 4 at ¶ 39.) It is undisputed that GFY and Dolven did at least tens of millions of dollars of business with GTA from 2009 through 2017.

15. In April 2015, during a meeting of GTA's board of directors, Tack first learned that Dolven was owned by Timothy, Steven, and Ryan. Dolven subsequently provided GTA with its books and records and cooperated in an investigation of Dolven's business by GTA. In an August 2015 meeting of GTA's board of directors, Tack told Timothy and Steven that the relationship between GTA and Dolven was "not acceptable." (Timothy Dolan Aff., ECF No. 65.1 at ¶ 40.)

16. In August 2015, Tack removed Timothy as President and CEO of GTA, but Timothy remained an employee of GTA until September 21, 2016, when GTA terminated Timothy's employment. Steven resigned his employment with GTA on August 11, 2017.

17. Timothy remained on GTA's Board of...