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

State: north-carolina

Issuer: North Carolina Supreme Court

Document:

IN THE SUPREME COURT OF NORTH CAROLINA 
 
No. 279A19 
 
Filed 14 August 2020 
 
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 and owner 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, GFY INDUSTRIES LIMITED, GFY, LIMITADA 
de CAPITAL VARIABLE, GFY COOPERATIVE, U.A., 上海冠沣源贸易有限公司 a/k/a 
GFY SH, and FRESH INDUSTRIES, LTD.,  Defendants 
 
 
Appeal pursuant to N.C.G.S. § 7A-27(a)(3) from the order compelling discovery 
entered on 26 February 2019 by Judge Gregory P. McGuire, Special Superior Court 
Judge for Complex Business Cases, in Superior Court, Guilford County, after the case 
was designated a mandatory complex business case by the Chief Justice pursuant to 
N.C.G.S. § 7A-45.4(b). Heard in the Supreme Court on 16 June 2020. 
Hagan Barrett PLLC, by J. Alexander S. Barrett, Charles T. Hagan III, and 
Kurt. A. Seeber, and Akin Gump Strauss Hauer & Feld LLP, by Stanley E. 
Woodward, Jr., for plaintiff-appellant. 
Ellis & Winters LLP, by Jon Berkelhammer, Steven A. Scoggan, and Scottie 
Forbes Lee, for defendant-appellee Steven Graven, K&L Gates LLP, by A. Lee 
Hogewood III, John R. Gardner, and Matthew T. Houston, for defendant-
appellees Dolven Enterprises, Inc., Ryan Graven, and GFY Cooperative, U.A., 
James McElroy & Diehl, P.A., by Fred B. Monroe and Jennifer M. Houti, for 
defendant-appellees TDI Worldwide, LLC and Timothy Dolan, Morningstar 
Law Group, by Shannon R. Joseph and Jeffrey L. Roether, for defendant-
appellee Garrett Graven, and Brooks, Pierce, McLendon, Humphrey & Leonard 
LLP, by Eric M. David and Shepard D. O’Connell, for defendant-appellee 
GLOBAL TEXTILE ALLIANCE, INC. V. TDI WORLDWIDE, LLC, ET AL.  
 
Opinion of the Court 
 
James Dolan.  
NEWBY, Justice. 
This case is about whether a one-hundred percent shareholder of a corporation 
is that corporation’s alter ego for the purposes of privilege against discovery. 
Specifically, we must decide whether communications with someone who is an agent 
of the sole shareholder, but not of the corporation, fall under the corporation’s 
attorney-client privilege or the work-product doctrine. They do not. Once a corporate 
form of ownership is properly established, the corporation is an entity distinct from 
the shareholder, even a shareholder owning one-hundred percent of the stock. An 
agent of the shareholder is not automatically an agent of the corporation. We also 
must decide whether the Business Court should have conducted an exhaustive in 
camera review of all relevant communications, even though plaintiff invited the court 
to conduct a more limited review of a sample of documents. The Business Court’s 
limited review in this case was appropriate. Because the Business Court did not 
abuse its discretion either by ordering production of the relevant communications or 
by conducting a limited review of those communications, that court’s decision is 
affirmed. 
Global Textile Alliance, Inc. (GTA), the sole plaintiff, is a North Carolina 
corporation with its principal place of business in Reidsville, North Carolina. Luc 
Tack is GTA’s only shareholder. Remy Tack, Luc Tack’s son, is GTA’s Chief Executive 
Officer. As a corporation, GTA is governed by a board of directors. GTA filed this 
GLOBAL TEXTILE ALLIANCE, INC. V. TDI WORLDWIDE, LLC, ET AL.  
 
Opinion of the Court 
 
lawsuit in the Business Court against defendants, alleging that defendants engaged 
in several improper acts during the formation and operation of Dolven Enterprises, 
Inc. 
During discovery, defendants asked GTA to identify Stefaan Haspeslagh as a 
custodian required to provide electronically stored information (ESI). Haspeslagh is 
Luc Tack’s longtime friend, financial advisor, and advisor to some of Luc Tack’s 
businesses. GTA did not comply with defendants’ request, asserting that Haspeslagh 
is not an employee, officer, or director of GTA. Both Luc Tack and Remy Tack testified 
that Haspeslagh has no role with GTA and that Haspeslagh has not advised GTA 
about this lawsuit. 
On 24 July 2018 the Business Court heard oral argument on the custodial 
issue. GTA’s counsel argued that Haspeslagh was “a third-party consultant not 
retained by GTA, [but] retained by the Tacks.” Based on this assertion, the Business 
Court determined that Haspeslagh was not a custodian of GTA documents. Thus, it 
did not require GTA to name Haspeslagh as a custodian required to provide 
defendants with ESI during discovery. 
Months later, GTA produced a privilege log that identified categories of 
documents that GTA had withheld from defendants during discovery. One category 
of documents was described as “[c]onfidential correspondence between GTA and/or 
its outside counsel and Stefaan Haspeslagh conveying and/or summarizing legal 
advice regarding the matters giving rise to the instant litigation.” GTA claimed that 
GLOBAL TEXTILE ALLIANCE, INC. V. TDI WORLDWIDE, LLC, ET AL.  
 
Opinion of the Court 
 
these communications were protected on the grounds of the attorney-client privilege 
and the work-product doctrine. GTA’s attorneys instructed witnesses not to answer 
questions about their discussions with Haspeslagh. 
Defendant Steven Graven filed a motion with the Business Court to compel 
GTA to produce the communications involving Haspeslagh and to instruct the 
witnesses to answer questions about their discussions with Haspeslagh. Defendant 
argued that GTA waived the attorney-client privilege by including Haspeslagh on 
communications with GTA’s counsel. 
GTA responded that its attorney-client privilege extends to communications 
involving Haspeslagh. It argued that Haspeslagh is GTA’s agent because Luc Tack is 
GTA’s sole shareholder and because Haspeslagh works for some of Luc Tack’s 
businesses. GTA also asserted privilege on two other special bases: (1) Haspeslagh is 
the functional equivalent of Luc Tack’s employee, and (2) communications with 
Haspeslagh are privileged under the Kovel doctrine. 
The motion to compel was submitted to a special discovery master. The special 
master heard oral argument on 5 February 2019, and on 7 February 2019 
recommended that the Business Court grant defendant’s motion to compel. 
The Business Court conducted a de novo review of the special master’s 
recommendation. As part of its review, the Business Court asked GTA to submit all 
disputed documents for in camera review. GTA responded that it would “gather the 
correspondence as requested and submit the documents.” When GTA failed to 
GLOBAL TEXTILE ALLIANCE, INC. V. TDI WORLDWIDE, LLC, ET AL.  
 
Opinion of the Court 
 
produce the documents promptly, the Business Court requested that GTA provide a 
timeframe for the documents’ production. GTA responded that it “hoped to review the 
[documents] before providing them to the Court” and that it wanted more time to do 
so. The Business Court accommodated GTA by instead allowing it to submit “a 
reasonable sampling of such communications.” GTA agreed and submitted twelve 
emails involving Haspeslagh for in camera review. After this review, GTA did not ask 
the Business Court to review additional documents. 
On 26 February 2019 the Business Court issued an order granting the motion 
to compel. GTA filed a motion for reconsideration with the Business Court. In its brief 
supporting the motion for reconsideration, GTA quoted selected portions from the 
allegedly privileged materials. After denial of its motion for reconsideration, GTA 
appealed to this Court. 
GTA raises three issues on appeal. First, GTA argues that the Business Court 
erred by determining that communications involving Haspeslagh are not protected 
by the attorney-client privilege. Second, it argues that the Business Court erred by 
determining that communications involving Haspeslagh are not protected under the 
work-product doctrine. Third, it argues that the Business Court erred by not 
conducting an exhaustive in camera review of all communications involving 
Haspeslagh. Because we conclude that the Business Court did not abuse its discretion 
regarding any of these issues, we affirm.  
First, the Business Court did not abuse its discretion by determining that 
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Opinion of the Court 
 
communications involving Haspeslagh are not privileged under the attorney-client 
privilege. This Court reviews a trial court’s application of the attorney-client privilege 
for abuse of discretion. Friday Invs., LLC v. Bally Total Fitness of the Mid-Atl., Inc., 
370 N.C. 235, 241, 805 S.E.2d 664, 669 (2017). As the party asserting the attorney-
client privilege, GTA has the burden of establishing that privilege. See State v. 
McNeill, 371 N.C. 198, 240, 813 S.E.2d 797, 824 (2018). Communications do not merit 
the attorney-client privilege when they are made in the presence of a third party. 
State v. Murvin, 304 N.C. 523, 531, 284 S.E.2d 289, 294 (1981). GTA has asserted 
several arguments that communications including Haspeslagh are protected under 
the attorney-client privilege. In essence, each of GTA’s arguments improperly treat 
Haspeslagh as an agent of GTA who merits protection under the attorney-client 
privilege for conversations with GTA’s attorneys. 
GTA argues that Luc Tack and GTA are the same entity for the purpose of 
establishing the applicability of the attorney-client privilege; in other words, that 
GTA is Tack’s alter ego. This argument ignores clearly established North Carolina 
corporate law. This Court has long acknowledged that “[a] corporation is an entity 
distinct from the shareholders which own it.” Bd. of Transp. v. Martin, 296 N.C. 20, 
28, 249 S.E.2d 390, 396 (1978) (citing Troy Lumber Co. v. Hunt, 251 N.C. 624, 627, 
112 S.E.2d 132, 134 (1960)). Even a corporation owned by a “single individual” is a 
distinct entity from its shareholder. Id. at 28–29, 249 S.E.2d at 396 (citing Huski-Bilt, 
Inc. v. Trust Co., 271 N.C. 662, 669–670, 157 S.E.2d 352, 358 (1967); Acceptance Corp. 
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Opinion of the Court 
 
v. Spencer, 268 N.C. 1, 8–9, 149 S.E.2d 570, 575–576 (1966)).  This rule ensures that 
a shareholder who forms a corporation “to secure its advantages” cannot “disregard 
the existence of the corporate entity” to avoid its disadvantages. Martin, 296 N.C. at 
29, 249 S.E.2d at 396.  We decline to overturn this long-established precedent, which 
has informed North Carolina corporate law for over half a century. And GTA has not 
shown that circumstances exist which would require a court to disregard the 
corporate form. Accordingly, at best, Haspeslagh is Luc Tack’s agent as to some of 
Tack’s personal affairs, but Haspeslagh is not GTA’s agent. The corporation could 
have made Haspeslagh its agent, but it did not do so. Regarding the custodian issue, 
GTA had specifically argued to the trial court that Haspeslagh had no role with 
respect to GTA. Because Haspeslagh is not GTA’s agent, the Business Court did not 
abuse its discretion by concluding that GTA does not merit the attorney-client 
privilege for conversations which included Haspeslagh.  
GTA’s argument for specialized applications of the attorney-client privilege 
likewise fails because Haspeslagh is not GTA’s agent. GTA claims that 
communications involving Haspeslagh are entitled to protection under the 
“functional[-]equivalent” test or, in the alternative, the Kovel doctrine. See In re Bieter 
Co., 16 F.3d 929, 939 (8th Cir. 1994) (establishing the functional-equivalent test for 
federal courts in the Eighth Circuit); United States v. Kovel, 296 F.2d 918, 921–22 (2d 
Cir. 1961) (establishing the Kovel doctrine for federal courts in the Second Circuit). 
Neither of these specialized applications has been recognized under North Carolina 
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law. See, e.g., Technetics Grp. Daytona, Inc. v. N2 Biomedical, LLC, No. 17 CVS 
22738, 2018 WL 5892737, *3–5 (N.C. Bus. Ct. Nov. 8, 2018). 
Yet, even if these specialized attorney-client privilege applications were 
recognized under North Carolina law, the Business Court did not abuse its discretion 
by determining that these specialized applications do not apply in this case.  Under 
the functional-equivalent test, an individual is the functional equivalent of a 
company’s employee when his communications with counsel “fell within the scope of 
his duties” for the company. In re Bieter Co., 16 F.3d at 940. This specialized 
application does not apply because Haspeslagh lacks any sort of agency relationship 
with GTA and thus cannot have “duties” at GTA.  
Under the Kovel doctrine, communications involving a third party are 
privileged when the communications are “necessary, or at least highly useful, for the 
effective consultation between the client and the lawyer which the privilege is 
designed to permit.” Kovel, 296 F.2d at 922. GTA does not argue that Haspeslagh’s 
presence was necessary for GTA to communicate with its attorneys; rather, GTA 
argues that Haspeslagh’s presence was highly useful for Luc Tack to communicate 
with GTA’s attorneys. This argument, again, improperly assumes that Tack and GTA 
are the same entity. Therefore, communications involving Haspeslagh are not 
protected under either specialized application GTA requests. 
Because GTA would not merit privilege even if these specialized applications 
of the attorney-client privilege were recognized under North Carolina law, this Court 
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Opinion of the Court 
 
need not and does not address whether these specialized applications should be 
recognized under North Carolina law. Therefore, the Business Court did not abuse 
its discretion by determining that GTA does not merit a specialized application of the 
attorney-client privilege under the functional-equivalent test or Kovel doctrine.1 
Next, the Business Court did not abuse its discretion by determining that 
communications involving Haspeslagh are not protected under the work-product 
doctrine. The work-product doctrine only protects communications when they are 
“prepared in anticipation of litigation” by a person acting as a company’s “consultant 
. . . or agent.” N.C.G.S. § 1A-1, Rule 26(b)(3) (2019); see also Willis v. Duke Power Co., 
291 N.C. 19, 35–36, 229 S.E.2d 191, 201 (1976). Here, Haspeslagh has no role at GTA 
and has not been retained by GTA to work on this lawsuit. Indeed, Luc and Remy 
Tack both testified that Haspeslagh did not advise GTA about this lawsuit at all. 
Communications involving Haspeslagh therefore cannot be said to have been 
“prepared in anticipation of litigation” by Haspeslagh acting as GTA’s consultant or 
agent. The Business Court did not abuse its discretion by determining that GTA does 
not merit protection under the work-product doctrine for the communications 
involving Haspeslagh. 
Finally, the Business Court did not abuse its discretion by not conducting an 
exhaustive in camera review of all communications involving Haspeslagh for which 
                                            
1 Because we hold that no privilege exists protecting the disputed documents from 
discovery, we need not address defendants’ argument that GTA waived its right to assert 
such a privilege. 
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Opinion of the Court 
 
GTA sought protection. GTA cannot assert any argument for exhaustive in camera 
review because it failed to promptly provide all documents necessary for a full review, 
and because it welcomed a more limited one. When the appellant fails to raise an 
argument at the trial court level, the appellant “may not . . . await the outcome of the 
[trial court’s] decision, and, if it is unfavorable, then attack it on the ground of 
asserted procedural defects not called to the [trial court’s] attention.” Nantz v. Emp’t 
Sec. Comm’n, 28 N.C. App. 626, 630, 222 S.E.2d 474, 477, aff’d, 290 N.C. 473, 484, 
226 S.E.2d 340, 347 (1976).  
Here GTA challenges the Business Court’s decision to adopt a limited in 
camera review procedure instead of an exhaustive in camera review procedure, 
apparently because the Business Court’s ruling that came after that limited review 
is unfavorable to GTA. Significantly, the Business Court adopted this limited review 
to accommodate GTA. The court initially proposed an exhaustive in camera review, 
but GTA indicated that it needed more time for an internal review before it would 
comply. The Business Court then permitted GTA to submit a “reasonable sampling” 
of the documents for a limited in camera review as an accommodation to GTA. GTA 
agreed to this procedure and submitted twelve emails for review. After the limited 
review, GTA did not ask the Business Court for a more exhaustive review. Because 
GTA did not promptly comply with the court’s request as necessary for an exhaustive 
review, and because the Business Court’s limited review was an accommodation 
which GTA welcomed, GTA cannot now claim that the Business Court’s 
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Opinion of the Court 
 
accommodation constitutes reversible error. 
Even if GTA could properly raise an in camera review argument, the Business 
Court did not abuse its discretion by conducting a limited in camera review. A trial 
court acting in its discretion may require an in camera review of documents to assist 
in ascertaining whether certain materials are entitled to privileged status. Duke 
Power Co., 291 N.C. at 36, 229 S.E.2d at 201; see also In re Miller, 357 N.C. 316, 336–
37, 584 S.E.2d 772, 787 (2003). Though this Court has not directly addressed the issue 
of limited in camera reviews, courts in this state and around the nation have 
consistently permitted limited in camera reviews as a substitute for exhaustive in 
camera reviews. See, e.g., In re Vioxx Prods. Liab. Litig., Nos. 06-30378, 06-30379, 
2006 WL 1726675, at *3 (5th Cir. May 26, 2006); Wachovia Bank, National Ass’n v. 
Clean River Corp., 178 N.C. App. 528, 531–32, 631 S.E.2d 879, 882 (2006).  In Clean 
River Corporation, our own Court of Appeals rejected an argument claiming that the 
trial court had abused its discretion because the “[a]ppellants could have, but chose 
not to, produce the documents for in camera inspection.” 178 N.C. App. at 532, 631 
S.E.2d at 882. We find that court’s reasoning persuasive here because GTA asserts 
that the Business Court erred by accommodating GTA with a limited in camera 
review instead of an exhaustive review, which the Business Court originally intended 
to conduct. Both limited and exhaustive reviews were thus within the Business 
Court’s discretion. 
Furthermore, the fundamental issue presented to the Business Court was 
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Opinion of the Court 
 
whether communications which included Haspeslagh were privileged. The Business 
Court properly considered the twelve emails GTA selected for its consideration as 
well as the other evidence. It determined, as previously discussed, that no privilege 
exists. Therefore, the court had no need to review additional emails. 
In sum, we hold that the Business Court did not abuse its discretion by 
determining that GTA’s conversations in which Haspeslagh participated do not merit 
protection under the attorney-client privilege or the work-product doctrine. Nor did 
the Business Court abuse its discretion by conducting a limited in camera review of 
the contested communications. The decision of the Business Court is affirmed. 
AFFIRMED.