Morris v. Scenera Research, LLC

IN THE SUPREME COURT OF NORTH CAROLINA

No. 429PA13

Filed 10 June 2016

ROBERT PAUL MORRIS

v.
SCENERA RESEARCH, LLC and RYAN C. FRY

On discretionary review pursuant to N.C.G.S. § 7A-31 of a unanimous decision

of the Court of Appeals, 229 N.C. App. 31, 747 S.E.2d 362 (2013), finding no error in

part, affirming in part, and reversing in part a memorandum opinion entered on 4

January 2012, a judgment entered on 14 May 2012, and an order entered on 27 June

2012, all by Judge James L. Gale in Superior Court, Wake County, and remanding in

part for further judgment. On 18 December 2014, the Supreme Court allowed

plaintiff’s conditional petition for discretionary review as to additional issues. Heard

in the Supreme Court on 18 May 2015.

Young Moore and Henderson P.A., by Walter E. Brock, Jr., Andrew P. Flynt,
and Patrick M. Aul, for plaintiff-appellee/appellant.

Parker Poe Adams & Bernstein LLP, by Catharine B. Arrowood, Scott E.
Bayzle, and Catherine R.L. Lawson, for defendant-appellants/appellees.

Smith Moore Leatherwood LLP, by Richard A. Coughlin and Matthew Nis
Leerberg, for North Carolina Chamber of Commerce, North Carolina
Association of Defense Attorneys, and North Carolina State University, amici
curiae.

Robinson, Bradshaw & Hinson, P.A., by John R. Wester and Thomas
Holderness, for Qualcomm Incorporated, Qualcomm Technologies,
Incorporated, Cisco Systems, Inc., Microsoft Corp., and Cree, Inc., amici curiae.
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Opinion of the Court

BEASLEY, Justice.

This appeal arises out of a compensation and intellectual property dispute

between Robert Paul Morris (“plaintiff”) and his former employer Scenera Research,

LLC and its CEO Ryan Fry (collectively, “defendants”). In 2004, Stanley Fry,

defendant Ryan Fry’s father, hired plaintiff as Scenera’s first employee. The parties

did not sign a written employment agreement. They did, however, have several

discussions concerning the details of plaintiff’s employment. Plaintiff expressed

interest in inventing, but testified at trial that he had no obligation to invent.

According to plaintiff, inventing was not part of his regular job duties for which he

received a base salary.

Plaintiff participated in Scenera’s patent bonus program (the “bonus

program”), under which he received $5000 for every patent application submitted to

the United States Patent and Trademark Office (“PTO”) and another $5000 if and

when the patent issued. Defendant Ryan Fry became concerned with the bonus

program’s viability and suspended Scenera’s bonus program for all employees

effective 1 January 2008. Plaintiff testified that Scenera owed him $210,000 in

patent bonuses at this time. Plaintiff voluntarily suspended receipt of payments

beginning in January 2008, believing that defendant Fry had promised to reinstate

the original bonus program if Scenera did not create a new compensation plan and,

thereafter, provide plaintiff a written employment contract.

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Opinion of the Court

As of 2009, the parties had not been able to agree on a new compensation plan

and plaintiff still had no written contract. Frustrated with this lack of progress,

plaintiff hired a lawyer and threatened to sue under the North Carolina Wage and

Hour Act (“WHA”) for the $210,000 in bonuses owed. The parties dispute the events

that followed. Plaintiff claimed that Scenera fired him in retaliation for his

threatening to bring a lawsuit, thereby violating the North Carolina Retaliatory

Employment Discrimination Act (“REDA”). Defendants countered that plaintiff

clearly intended to leave the company and that his lawyer indicated the only option

was to negotiate a severance package—thus, plaintiff “effectively resigned” and

defendants merely accepted the resignation. Defendants tendered plaintiff a check

for $210,000 on the condition that he acknowledge Scenera’s ownership of patent

applications filed and patents issued between 1 January 2008 and 17 June 2009.

Plaintiff did not accept defendants’ offer.

Plaintiff filed a complaint against defendants alleging breach of contract,

fraudulent inducement, unjust enrichment, and WHA and REDA violations. On 1

April 2011, the Chief Justice designated this action as a complex business case and

assigned it to the North Carolina Business Court. Defendants asserted a

counterclaim for declaratory judgment that (1) Scenera owns all inventions plaintiff

developed during his employment, and (2) plaintiff was not entitled to bonuses for

patent applications filed or patents issued any time after January 2008. Defendants

also sought damages for breach of fiduciary duty and for plaintiff’s failure to support

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prosecution of patent applications to the PTO.

Both parties moved for summary judgment. The trial court granted

defendants’ motion in part, concluding that plaintiff was “hired to invent,” and that

ownership of the patents presumptively rested with Scenera, with the onus on

plaintiff to prove that an agreement between the parties vested ownership with him.

The trial court also granted defendants’ summary judgment on plaintiff’s claims for

fraudulent inducement and unjust enrichment. The trial court denied the remainder

of plaintiff’s and defendants’ motions for summary judgment.

Trial began on 30 January 2012. At the close of the evidence, the trial court

granted defendants’ motion for a directed verdict with respect to the issue of patent

ownership, but denied defendants’ motion for a directed verdict on the WHA and

REDA claims. The trial court submitted the rest of the issues to the jury, and the

jury awarded plaintiff (1) $210,000 in patent bonuses under the WHA for applications

filed or patents issued between 1 January 2008 and 17 June 2009, (2) $675,000 under

the WHA in patent issuance bonuses for patent applications pending as of 17 June

2009, (3) and $390,000 for REDA violations.

Plaintiff then requested liquidated damages and attorneys’ fees under the

WHA, and treble damages and attorneys’ fees under REDA. The trial court denied

plaintiff’s request to treble damages, awarded $450,000 in attorneys’ fees, and

awarded $210,000 in liquidated damages for patents that have already issued. The

trial court denied plaintiff’s request for liquidated damages under the WHA for

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Opinion of the Court

patents that had not yet issued. The trial court further ruled that Scenera owned all

of the inventions, patents, and patent applications listed in plaintiff’s complaint,

required plaintiff to assign any unassigned patent applications to Scenera, and ruled

that Scenera could not recover damages under its counterclaims. Defendants moved

for judgment notwithstanding the verdict (JNOV), and the trial court denied the

motion. All parties appealed.

The Court of Appeals affirmed the trial court’s ruling on the motions for

directed verdict and JNOV, liquidated damages, WHA damages, and REDA damages.

The court reversed, however, the trial court’s ruling that plaintiff could not pursue

rescission. Morris v. Scenera Research LLC, 229 N.C. App. 31, 747 S.E.2d 362 (2013).

All parties appealed.

I

A

Defendants contend that the trial court should have granted their motions for

directed verdict and JNOV as to whether plaintiff was entitled to patent issuance

bonuses for patents still pending when his employment with Scenera ended. To

survive a motion for directed verdict or JNOV, the non-movant must present “more

than a scintilla of evidence” to support its claim. Stark v. Ford Motor Co., 365 N.C.

468, 480, 723 S.E.2d 753, 761 (2012) (citation omitted). While a scintilla is “very

slight evidence,” State v. Hawkins, 155 N.C. 466, 470, 71 S.E. 326, 328 (1911)

(quoting State v. White, 89 N.C. 462, 464-65 (1883)), the non-movant’s evidence must

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still “do more than raise a suspicion, conjecture, guess, surmise, or speculation as to

the pertinent facts in order to justify its submission to the jury,” Jenrette Transp. Co.

v. Atl. Fire Ins. Co., 236 N.C. 534, 539, 73 S.E.2d 481, 485 (1952) (citation omitted).

The trial court must construe the evidence in the light most favorable to the non-

movant and resolve all evidentiary conflicts in the non-movant’s favor. Smith v.

Price, 315 N.C. 523, 527, 340 S.E.2d 408, 411 (1986) (citations omitted). We review

this question of law de novo. Green v. Freeman, 367 N.C. 136, 141, 749 S.E.2d 262,

267 (2013) (citations omitted).

The WHA provides:

Employees whose employment is discontinued for
any reason shall be paid all wages due on or before the next
regular payday either through the regular pay channels or
by mail if requested by the employee. Wages based on
bonuses, commissions or other forms of calculation shall be
paid on the first regular payday after the amount becomes
calculable when a separation occurs.

N.C.G.S. § 95-25.7 (2015).

At trial, plaintiff testified that he, like other Scenera employees, had a unique

bonus plan, and that he was never informed that continued employment with Scenera

was a prerequisite for receiving patent issuance bonuses. Plaintiff confirmed in his

testimony that “the issuance bonus . . . was earned at the time the patent application

was filed.” He further testified that after a patent was filed and he assigned the

corresponding rights to Scenera, “I was entitled to $5,000. . . . There was nothing as

far as work with respect to the patent that I needed to do in order to earn that bonus.”

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Opinion of the Court

Moreover, Mona Singh, an inventor and witness for Scenera, confirmed that

“whatever bonuses applied to [her] agreement became earned and due at the time the

patent was filed.” Singh also testified that she had received five or six issuance

bonuses after leaving Scenera.

We hold that plaintiff has carried his minimal burden of presenting more than

a scintilla of evidence supporting his WHA claim. While defendants cite conflicting

evidence (some of which we discuss below), in the context of a directed verdict and

JNOV, the trial court must resolve these conflicts in plaintiff’s favor. Accordingly, we

affirm the Court of Appeals’ holding that the trial court properly submitted the

question of whether plaintiff was entitled to the issuance bonuses to the jury and

properly denied defendants’ directed verdict and JNOV motions.

B

Defendants further argue that the Court of Appeals erred in construing the

term “calculable” under the WHA to mean capable of being estimated. As a

preliminary matter, we address the Court of Appeals’ holding that the question of

whether a wage is “calculable” under the WHA is one of fact, not law, and that

therefore the trial court could properly submit the question to the jury. The Court of

Appeals explained that determining whether a wage is calculable “requires a

weighing of the evidence and, thus, falls in a jury trial within the exclusive purview

of the jury.” Morris, 229 N.C. App. at 44, 747 S.E.2d at 370 (citations omitted). As

we have explained, it is for the trial court “to determine whether the evidence . . . is

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sufficient to permit a legitimate inference of the facts essential to recovery; and it is

the province of the jury to weigh the evidence and to determine what it proves or fails

to prove.” Sneed v. Lions Club of Murphy, N.C., Inc., 273 N.C. 98, 101, 159 S.E.2d

770, 772 (1968) (citations omitted). “It is still for the jury if reasonable [minds] may

differ as to its truth or if conflicting inferences may reasonably be drawn from” the

evidence. Cutts v. Casey, 278 N.C. 390, 421, 180 S.E.2d 297, 314 (1971) (citations

omitted). Because determining whether a wage is calculable involves a weighing of

the evidence, we affirm the Court of Appeals’ holding that this issue presents a

question of fact.

At trial, plaintiff argued that the value of the patent issuance bonuses for

patent applications still pending with the PTO could be calculated using the following

formula: 150 outstanding patents x $5,000 for each successfully issued patent x 90%

patent issuance success rate = $675,000. The trial court instructed the jury to

determine whether it could calculate the issuance bonuses owed, and if so, to compute

that amount. The Court of Appeals first noted that neither the WHA nor case law

define the term “calculable.” The court therefore consulted the American Heritage

College Dictionary, which defined calculable as “ ‘[t]hat [which] can be calculated or

estimated.’ ” Morris, 229 N.C. App. at 45, 747 S.E.2d at 371 (quoting The American

Heritage College Dictionary 198 (3d ed. 1997) (emphasis added)). The court concluded

that plaintiff’s proffered formula “was at least one reasonable way to calculate” the

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bonuses and therefore held that the trial court did not err in submitting this question

to the jury. Id. at 45, 747 S.E.2d at 371.

Defendants again argue that “calculable” does not mean capable of being

estimated because this interpretation would allow impermissible speculation as to

future wages. Defendants cite the rule that “the party seeking damages must show

that the amount of damages is based upon a standard that will allow the finder of

fact to calculate the amount of damages with reasonable certainty.” Olivetti Corp. v.

Ames Bus. Sys., Inc., 319 N.C. 534, 547-48, 356 S.E.2d 578, 586 (1987) (citation

omitted). Plaintiff’s formula, they contend, does not allow for the reasonably certain

determination of issuance bonuses associated with pending patent applications.

We disagree. In other contexts in which a party seeks to recover lost profits,

that party must show “both the amount and [the] cause of his loss. Absolute

certainty, however, is not required, but both the cause and the amount of the loss

must be shown with reasonable certainty.” Cary v. Harris, 178 N.C. 624, 628, 101

S.E. 486, 488 (1919) (quoting Nance v. W. Union Tel. Co., 177 N.C. 314, 317, 98 S.E.

838, 840 (1919)). The evidence indicated that plaintiff had completed all the work

required for the patents to issue. An employer must pay “those wages and benefits

due when the employee has actually performed the work required to earn them.”

Kornegay v. Aspen Asset Grp., 204 N.C. App. 213, 229, 693 S.E.2d 723, 735 (2010)

(quoting Narron v. Hardee’s Food Sys., Inc., 75 N.C. App. 579, 583, 331 S.E.2d 205,

208 (emphasis added), disc. rev. denied, 314 N.C. 542, 335 S.E.2d 316 (1985)).

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We further note that defendants presented no evidence at trial challenging the

adequacy of plaintiff’s formula. Because defendants offered no other formula, this

Court need only be concerned that the result reached, based on the evidence

presented, is reasonable. See Jenrette Transp. Co., 236 N.C. at 539-40, 73 S.E.2d at

485. We therefore affirm the Court of Appeals’ holding that determining calculability

of wages under the WHA is a question of fact to be submitted to a jury.

II

We next address plaintiff’s argument that the Court of Appeals erred in

affirming the trial court’s decision to refrain from awarding plaintiff liquidated

damages on the jury’s award of issuance bonuses associated with unissued patents.

First, we must determine the appropriate standard of review. Plaintiff contends that

de novo review applies, while defendants contend that we should apply a three-tiered

standard as used by federal courts addressing claims under the Fair Labor Standards

Act (“FLSA”).

In Kornegay v. Aspen Asset Group, LLC, the Court of Appeals adopted the

latter approach.

[T]he traditional standard of review that applies to a trial
court’s factual findings—in federal court, the “clearly
erroneous” standard and in North Carolina, the “competent
evidence” standard—applies to findings of fact made by a
trial court in addressing a claim for liquidated damages. In
reviewing the trial court’s conclusions of law, the courts
have held that review is de novo, including on the issue
whether the findings of fact support the conclusions of law.

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204 N.C. App. at 245, 693 S.E.2d at 745. The trial court’s final decision to award or

refrain from awarding liquidated damages is then reviewed for abuse of discretion.

Id. at 244, 693 S.E.2d at 744. We adopt the Court of Appeals’ reasoning in Kornegay

and review the trial court’s decision to not award plaintiff liquidated damages for an

abuse of discretion.

We hold that the trial court did not abuse its discretion in concluding that

plaintiff was not entitled to liquidated damages.

The WHA provides:

In addition to the amounts awarded pursuant to
subsection (a) of this section, the court shall award
liquidated damages in an amount equal to the amount
found to be due as provided in subsection (a) of this section,
provided that if the employer shows to the satisfaction of
the court that the act or omission constituting the violation
was in good faith and that the employer had reasonable
grounds for believing that the act or omission was not a
violation of this Article, the court may, in its discretion,
award no liquidated damages or may award any amount of
liquidated damages not exceeding the amount found due as
provided in subsection (a) of this section.

N.C.G.S. § 95-25.22(a1)(2015).

Plaintiff argues that defendants committed a per se WHA violation that was

unreasonable as a matter of law when they did not notify him that he would not

receive the issuance bonuses when his employment ended. The trial court held,

however, that defendants had reasonable grounds for believing that their act or

omission was not a violation of the WHA. We agree with the trial court. In

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considering the evidence, defendants had reason to believe that they did not owe

plaintiff issuance bonuses. Therefore, we hold that defendants acted reasonably in

not notifying defendant that he would not receive those bonuses.

Plaintiff’s own testimony and complaint strongly support the conclusion that

defendants acted reasonably. At his deposition, plaintiff stated that he was entitled

to receive the issuance bonus “when the patent issued from the U.S. Patent Office.”

When asked at trial if “Scenera’s obligated to pay an issuance bonus only if the patent

issues,” plaintiff responded, “Under the agreement that I had, yes.” Plaintiff also

testified that “[t]he issuance bonus was due when the patent issued.” Finally,

plaintiff’s complaint alleged that the issuance bonus became due “when a patent

issued.”

We thus affirm the Court of Appeals’ holding that the trial court properly

denied plaintiff’s request for liquidated damages on the jury’s award of patent

issuance bonuses.

III

We next address whether the Court of Appeals erred by affirming the trial

court’s decision not to treble the jury’s award of REDA damages. The REDA provides

that if “the court finds that the employee was injured by a willful violation of [the

section prohibiting discriminatory or retaliatory action by an employer], the court

shall treble the amount awarded.” N.C.G.S. § 95-243(c) (2015). But REDA does not

define the term “willful,” and we have not addressed the term in this context. The

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Court of Appeals adopted the standard used by federal courts in addressing the Fair

Labor Standards Act (FLSA), holding that a willful FLSA violation is “one in which

the employer ‘either knew or showed reckless disregard for the matter of whether its

conduct was prohibited by [the] statute.’ ” Morris, 229 N.C. App. at 51, 747 S.E.2d at

375 (quoting McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133, 100 L. Ed. 2d 115,

123 (1988)). Again looking to federal law for guidance, the Court of Appeals held that

the determination of willfulness is a question of fact, id. at 52, 747 S.E.2d at 375

(citing Formby v. Farmers & Merchs. Bank, 904 F.2d 627, 632 (11th Cir. 1990) (per

curiam) (determination of willfulness under Age Discrimination in Employment Act

is a question of fact)), and adopted the competent evidence standard used in bench

trials, id. at 52, 747 S.E.2d at 375 (citing In re Estate of Archibald, 183 N.C. App. 274,

276, 644 S.E.2d 264, 266 (2007)). Finally, the Court of Appeals held that a

determination of “willfulness” under REDA is “for the jury to decide, not for the

judge.” Id. at 52, 747 S.E.2d at 375.1

We agree with the Court of Appeals’ definition of “willfulness,” as well as its

determination that whether defendants’ violation of REDA was willful is one of fact.

But, we disagree with its decision that the determination of willfulness is one for the

jury. The statute clearly establishes that damages shall be trebled under REDA if

1 Nonetheless, the court recognized that a party can waive its right to have a jury
determine questions of fact and that plaintiff did so here by “explicitly concur[ring] with the
business court’s suggestions that . . . Scenera’s ‘willfulness’ under REDA was for the court
to decide.” Id. at 52, 747 S.E.2d at 375.

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“the court finds that the employee was injured by a willful violation.” N.C.G.S. § 95-

243(c) (emphasis added). Thus, the trial court must make the finding of willfulness,

and a reviewing court must uphold the trial court’s finding of willfulness if there is

competent evidence to support that finding.

The record supports the trial court’s finding that defendants did not willfully

violate REDA. Plaintiff was the first party to suggest that he and Scenera “part ways”

and “negotiate a termination agreement.” Plaintiff speculates that defendants’

retention of counsel is evidence that defendants attempted to conceal their REDA

violations; however, plaintiff cites no specific evidence indicating the existence of a

cover-up, and the record shows none. Defendants’ retention of counsel may simply

demonstrate that they wished to comply with REDA.

We thus hold that proving a willful violation of N.C.G.S. § 95-241 requires a

showing of the accused party’s knowledge or reckless disregard of whether an action

violated the statute and affirm the Court of Appeals’ holding that competent evidence

supported the trial court’s decision to not treble plaintiff’s REDA award.

IV

Finally, we address defendants’ argument that plaintiff is not entitled to

rescission. Defendants argue that plaintiff is not entitled to rescission because

monetary damages provide plaintiff with an adequate remedy, and because rescission

would return plaintiff to a status quo that never existed. We agree.

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Rescission is an equitable contract remedy that differs from its legal

counterparts. While legal remedies generally compensate the non-breaching party

as if there were no breach, rescission treats both parties as if there were no contract.

Brannock v. Fletcher, 271 N.C. 65, 73–74, 155 S.E.2d 532, 541 (1967). “Rescission is

not merely a termination of contractual obligation. It is abrogation or undoing of it

from the beginning.” Id. at 74, 155 S.E.2d at 542 (citing Dooley v. Stillson, 46 R.I.

332, 335, 128 A. 217, 218 (1925)). As with all equitable remedies, rescission “will not

lend its aid in any case where the party seeking it has a full and complete remedy at

law.” Jefferson Standard Life Ins. Co. v. Guilford County, 225 N.C. 293, 300, 34 S.E.2d

430, 434 (1945) (citations omitted). A party may pursue rescission only if “there is a

material breach of the contract going to the very heart of the instrument.” Wilson v.

Wilson, 261 N.C. 40, 43, 134 S.E.2d 240, 242, 243 (1964).

The Court of Appeals incorrectly applied the test for rescission. The court held

that Scenera’s failure to pay plaintiff his patent bonuses was prima facie evidence of

a material breach, and, because defendants breached the contract materially,

plaintiff could pursue rescission. But, rescission cannot be the remedy for every

material breach. A party may pursue rescission only when a material breach occurs

and all legal remedies falls short of compensating the injured party for its loss. Id.

at 43, 134 S.E.2d at 243, see Jefferson Standard Life Ins. Co., 225 N.C. at 300, 34

S.E.2d at 434.

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Here, although defendants materially breached their contract with plaintiff,

monetary damages sufficiently compensate plaintiff for his loss. Plaintiff’s entire

claim is that defendants owe him $5,000 to $10,000 for each patent he created while

employed at Scenera. Defendants owed plaintiff no other obligation under the

contract, and monetary damages provide plaintiff with a full and complete remedy.

To hold otherwise would seriously undermine the rationale of the hired-to-

invent doctrine.2 As this Court explained in Speck, an employer takes a risk when

hiring an employee to invent, because the employer has no guarantee of a return on

its investment. 311 N.C. at 686, 319 S.E.2d at 143 (in which this Court adopted the

hired-to-invent doctrine, holding that if the employee succeeds in inventing, “then the

invention belongs to the employer even though the terms of employment contain no

express provision dealing with the ownership of whatever inventions may be

developed.” (quoting Nat’l Dev. Co. v. Gray, 316 Mass. 240, 247, 55 N.E.2d 783, 787

(1944)). If an employee is hired to invent but could later rescind that agreement and

claim ownership of inventions made during his or her employment, the employee

would end up in a far better position, and the employer in a far worse position, than

when the parties reached their original bargain. The employer’s risk would increase

exponentially, thereby discouraging businesses and universities from undertaking

2 The trial court concluded that plaintiff was “hired to invent.” However, the Court
of Appeals stated that this conclusion by the trial court was “inapposite” to the issue of
rescission. Morris, 229 N.C. App. at 62, 747 S.E.2d at 381. We assume, without deciding,
that plaintiff was hired to invent.

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valuable research efforts that could benefit our State and Nation.

For these reasons, the Court of Appeals’ holding that plaintiff may pursue

rescission is reversed.

V

In conclusion, we affirm the Court of Appeals’ holding that the trial court

properly submitted the issue of whether plaintiff was entitled to the issuance bonuses

to the jury and properly denied defendants’ directed verdict and JNOV motions. We

likewise affirm the Court of Appeals’ holding that determining calculability of wages

under the WHA is a question of fact to be submitted to a jury. We also affirm the

Court of Appeals’ holdings that plaintiff is not entitled to liquidated damages based

on the WHA or treble damages based on REDA. Finally, we reverse the Court of

Appeals’ holding that plaintiff may pursue rescission.

AFFIRMED IN PART; REVERSED IN PART.

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