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Gea, Inc. v. Luxury Auctions Marketing, Inc.

Court of Appeals of North Carolina

May 15, 2018

GEA, INC., VALARIA DEVINE and LESLIE FARKAS, Plaintiffs,
v.
LUXURY AUCTIONS MARKETING, INC. and JEREMY LECLAIR, Defendants.

          Heard in the Court of Appeals 8 March 2018.

          Appeal by defendants from order entered 10 July 2017 by Judge Hugh B. Lewis in Mecklenburg County Superior Court, No. 16 CVS 19851

          No brief filed for plaintiffs-appellees.

          Law Offices of Paul Vancil, by Paul Vancil, for defendants-appellants.

          ZACHARY, JUDGE.

         Defendants Luxury Auctions Marketing, Inc. and Jeremy LeClair appeal from the trial court's order imposing sanctions against Luxury and LeClair (together, "Luxury") for failing to comply with a discovery order of the court. We affirm.

         Background

         The litigation at issue arose out of a business dispute between Luxury and plaintiffs GEA, Inc., Leslie Farkas, and Valaria DeVine (together, "GEA"). Ms. DeVine formed GEA and the company 4K&D roughly seventeen years ago as luxury residential auction companies. Ms. DeVine's companies were highly successful, in part due to (1) GEA's ownership of valuable trademarks, (2) GEA's ownership of 47 registered domain sites, and (3) a large customer database that GEA and Ms. DeVine had assembled over the years. In January 2016, Ms. DeVine hired Mr. LeClair as 4K&D's Director of Operations.

         On 25 April 2016, Ms. Devine's husband, Leslie Farkas, formed Luxury. Luxury was formed "to generate new listings for auction and to market the properties that were placed under contract for auction." Five days after Luxury was formed, 4K&D sold all of its tangible assets-specifically, equipment, furniture, and office fixtures-to Luxury.

         Shortly after his hire, Mr. LeClair became aware that Ms. DeVine and Mr. Farkas were interested in selling their businesses, and approached them about the possibility of purchasing the companies. The parties entered into a period of discussions and negotiations, culminating in the agreement of Ms. DeVine and Mr. Farkas to sell Luxury to Mr. LeClair. Ms. DeVine and Mr. Farkas retained ownership of GEA.

         The parties executed Luxury's sale on 8 August 2016. The sale took the form of a Stock Purchase Agreement, by which Mr. Farkas sold all of his shares in Luxury to Mr. LeClair. GEA then issued revocable, non-exclusive, ten-year licenses to Luxury in certain trademarks, software, and intellectual property. Pursuant to the licenses, Luxury could transact business under GEA's trademark, could use GEA's registered domain site, and could access GEA's valuable customer database. Ms. DeVine and Mr. Farkas agreed to allow Mr. LeClair to defer the entire purchase price by making annual payments over the ten-year term of the agreement. Among other payment provisions, Luxury "agreed to pay 10% of each gross commission received by [Luxury] for the first ten years of the agreement, . . . for [the] revocable, non-exclusive license Agreement."

         Conflict arose between the parties shortly after the purchase, which ultimately led to Luxury filing a complaint against GEA on 3 November 2016. GEA answered and asserted eleven counterclaims against Luxury. Luxury thereafter voluntarily dismissed its claims against GEA, leaving only GEA's counterclaims pending before the trial court.

         GEA's counterclaims set forth an array of complicated factual allegations against Mr. LeClair and Luxury and asserted causes of action for, inter alia, unpaid royalties and license fees, improper use and transfer of a software license and the customer database, conversion of computers and other GEA property, trademark infringement, conversion, and harassment.

         Much of the information pertaining to GEA's counterclaims, and the proof thereof, was alleged to be stored in the various company computers and individual computers used by Luxury's employees[1]. However, after LeClair acquired Luxury, LeClair moved Luxury's offices and, according to GEA, "took all the computer equipment, hard drives, printers, copiers, related equipment and numerous files containing business and personal information having nothing to do with [Luxury]." Accordingly, GEA served Luxury with a discovery request on 1 March 2017 for inspection of the computers and equipment.

         At Mr. LeClair's 8 May 2017 deposition, however, Luxury's counsel informed GEA that Mr. LeClair destroyed the computers after the litigation had commenced. Mr. LeClair testified to the following at his deposition:

Q. Do you recall Mr. Farkas making a demand for the return of his personal computer?
A. I do.
Q. Where is that computer today?
A. That computer has been discarded.
Q. Where was it discarded?
A. I believe the Mecklenburg recycling, whatever it's called, recycling, trash dump.
Q. Did you discard the computer?
A. I did.
Q. How many computers did you move from the [office]?
A. I don't have a specific number, but the majority of the computers, if not all.
Q. There was a server, correct?
A. Yes.
Q. What about the laptops used by [Luxury], where are those?
A. What about them? Those have been discarded as well.
Q. Have all of the computers transported from [the office] been discarded?
A. Yes.

         Mr. LeClair also testified that he knew that GEA sought "return of these computers as part of [the] claims in the litigation":

Q. You knew that they--that my clients were seeking this--the return of these ...

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