Donovan v. Huffman, September 2, 2009 (Diaz)(unpublished)

The Court granted the motion to dismiss of a member of an LLC in which the Plaintiff sought dissolution, ruling that “'[i]t is not necessary to join members as parties to a proceeding to dissolve a limited liability company unless relief is sought against them individually, however the court shall order that appropriate notice of the dissolution proceeding be given to all members by the party initiating the proceeding.'” N.C. Gen. Stat. § 57C-6-02.1(b) (2007). The law is also clear that '[a] member of a limited liability company is not a proper party to proceedings by or against a limited liability company, except where the object of the proceeding is to enforce a member’s right against or liability to the limited liability company.” N.C. Gen. Stat. § 57C-3-30(b) (2007).'"

The Court further ruled that to the extent the complaint asserted claims against the Defendant regarding his management of the LLC, those claims were derivative in nature and Plaintiff was not entitled to pursue them individually.

Full Opinion

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

Clemenzi v. Freer, April 23, 2009 (Diaz)(unpublished)

This case, which involved four related lawsuits between the shareholders of a closely held corporation, contains a discussion of when a claim is a compulsory counterclaim.  The Court said "Rule 13(a) of the North Carolina Rules of Civil Procedure provides that a party is required to plead as a counterclaim: (1) “any claim which at the time of serving the [responsive] pleading the pleader has against any opposing party”; (2) “if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim”; and (3) if it “does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.” N.C. R. Civ. P. 13(a) (2007)."

The Court dismissed some of the claims, finding that they should have been brought in an earlier action, and discussed also the distaste of North Carolina courts for claim splitting. It held "North Carolina law requires that all damages incurred as a result of a single injury, transaction, or occurrence be recovered in one lawsuit."

The Court also held that an individual shareholder was not entitled to maintain a derivative action on a pro se basis, ruling that "an individual non-attorney litigant may not proceed derivatively on behalf of a corporation without counsel."  This would presumably have been the unauthorized practice of law.  The Court said there was no authority in North Carolina on this point.

Full Opinion

 

Western Piedmont Anesthesia, P.A. v. Barnette, November 20, 2007 (Tennille)(unpublished)

The Court dismissed the derivative claim of a minority shareholder who alleged that the majority shareholders of the corporation had breached their fiduciary duty to the minority shareholders by failing to make distributions, failing to investigate allegations on that subject, and terminating the minority shareholder's employment. 

The Court held that this was not a proper derivative claim, because the shareholder had not alleged a cause of action belonging to the corporation or a remedy to which the corporation would be entitled.

The Court further found that even if the claim was derivative, that the minority shareholder did not fairly represent the corporation as required by North Carolina General Statute § 55-7-41(2).  The Court held:

The North Carolina Court of Appeals has applied the federal standard for determining when a shareholder “may fairly and adequately represent a corporation.” Robbins v. Tweetsie R.R., 126 N.C. App. 572, 579, 486 S.E.2d 453, 456, rev. denied, 347 N.C. 402, 494 S.E.2d 418 (1997). The federal standard uses a case by case analysis of whether a shareholder qualifies to represent the corporation. Id. (citations omitted). In Robbins, the court discussed the facts surrounding the plaintiff to conclude that plaintiff was not a suitable shareholder to bring a derivative suit. Id. at 579–80. Before the court addressed the facts of Robbins, it specifically set out that “a minority shareholder, who has uppermost a personal agenda rather than the best interests of the corporation, would [not] have standing to file and maintain a shareholder derivative action.” Id. at 578.

The Court held that the minority shareholder had a personal agenda that affected his ability to adequately represent the bests interests of the corporation. 

The Court also dismissed the shareholder's unfair and deceptive practices claim because the shareholder was a physician and the Court found the learned profession exception to applied.

Full Opinion

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

 

Piedmont Venture Partners, L.P. v. Deloitte & Touche, L.L.P., March 5, 2007 (Diaz)(unpublished)

The person elected as liquidator to oversee the liquidation of the assets of two general partnerships was not entitled to limit his responsibility to the pursuit of a derivative action lawsuit against the auditor for the partnerships, as opposed to the general winding up of the affairs of the partnerships.  The Court held:

the substantive problem with Ray’s election as liquidator is that he is unwilling to accept the full mantle of responsibilities that attend to the post. Liquidation is a process for the winding up of a dissolved partnership’s affairs by collecting and providing for an orderly distribution of all of the partnership’s assets, first to creditors, if any, and then to the partners. See generally N.C.G.S. §§ 59-803 to -804 (2006); Del. Code Ann. tit. 6, §§ 17-803 to -804 (2006).

In the Court’s view, one who seeks to serve as a liquidator may not pick and choose among the assets of the partnership that he will supervise, but instead must be willing to accept responsibility for the full and complete winding up of the partnership’s affairs within this State.

The Court's remedy was to exercise its "inherent equitable power" to appoint a receiver for the partnerships.  That person would determine, as a part of the receivership, whether the derivative action should be pursued.

Full Opinion

Regions Bank v. Regional Property Development Corp., 2008 NCBC 8 (N.C. Super. Ct. April 21, 2008)(Diaz)

A counterclaim by a member of a North Carolina LLC against the LLC's lender for aiding and abetting a breach of fiduciary duty was derivative, not direct.

The Court relied on “[t]he well-established general rule . . . that shareholders cannot pursue individual causes of action against third parties for wrongs or injuries to the corporation that result in the diminution or destruction of the value of their stock.”   That principle applies "equally to suits brought by members of a limited liability company."

The claim that the lender's actions had resulted in an unlawful distribution to other members of the LLC was "just another way of saying that the Individual Members wrongfully diverted Company assets."  That was a derivative claim belonging to the Company, not to its members.  The Motion to Dismiss the Counterclaim was therefore granted.

The Court did not resolve a parallel ground for the Motion to Dismiss: whether North Carolina still recognizes a claim for aiding and abetting a breach of fiduciary duty in light of the United States Supreme Court's decision in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994).  That question has come before the Business Court a number of times in recent years, but has not been resolved by North Carolina's appellate courts.

Full Opinion

Brief In Support Of Motion To Dismiss

Brief In Opposition To Motion To Dismiss

Supplemental Brief In Support Of Motion To Dismiss

Supplemental Brief In Opposition To Motion To Dismiss

Fliehr v. Storick, December 3, 2007 (Diaz)(unpublished)

A manager of an limited liability company may not, as a condition of the payment of consideration from a merger of the LLC, require that the member receiving the consideration execute a general release exonerating the manager and insiders from any misconduct.  Holding the consideration "hostage" in exchange for such a release might amount to willful and wanton conduct warranting punitive damages.

An LLC member pursuing a derivative claim must be a member of the LLC at the time the suit is filed.  Where the LLC no longer existed at the time the lawsuit was filed, Plaintiffs lacked standing to bring their claim.  Plaintiff's claim for mismanagement was a "classic derivative claim," which was also barred by their lack of standing. 

The Court also dismissed Plaintiffs' unfair and deceptive practices claim, because "misconduct arising from a merger of business entities is not the type of 'regular, day-to-day' business activity that is the principal focus of North Carolina's Unfair and Deceptive Trade Practices Act."

Full Opinion

Braun v. Earthworks Lawn & Landscape, Inc., June 2007 (Diaz)(unpublished)

The Court denied Defendant's motion to dismiss Plaintiff's unfair and deceptive practices claim.  It rejected the argument that the matter before the Court was simply a private dispute which did not implicate the consuming public or the general marketplace, and was therefore not "in commerce."

The Court held that the statute reaches "derivative claims arising out of fraudulent activities relating to the manner in which a business conducts its “regular, day-to-day activities, or affairs . . . .” It further held that plaintiff, in its derivative action, had alleged fraud and various breaches of the duties of good faith, loyalty, and due care, stating "North Carolina courts have consistently held that allegations of fraud or a breach of fiduciary duty will support a separate claim for unfair or deceptive trade practices."

Full Opinion

Webb v. Royal American Company, LLC, March 17, 2008 (unpublished)

Claims against the lender which had financed an acquisition gone awry were barred by the exculpatory provisions of a subordination agreement.  Georgia law applied, and Georgia law permits one contracting party to waive all recourse in the event of breach by the other.  The exculpatory provision was valid and an absolute defense to plaintiffs' claims, and the Court granted the Defendant's Motion to Dismiss.

Plaintiffs did not have a claims for the breach of the duty of good faith and fair dealing, because the assertion of valid rights under an enforceable agreement does not give rise to such a claim just because the assertion of those rights adversely impacts the parties against whom the rights are asserted. 

The tortious interference with contract claim made the the Plaintiffs was also dismissed.  Although Plaintiffs had plead all of the elements of that claim, the face of the complaint demonstrated that there was a valid business justification for the Defendant's actions.  A lender exercising its rights to collateral under a standard commercial financing arrangement ordinarily has justification for its actions, and the plaintiff make something more than conclusory allegations about justification. 

The Court also rejected a facilitation of fraud claim, holding "[t]o the extent Plaintiffs’ theory is that a commercial lender would agree to defraud a seller of a business by making a loan to the purchaser which the lender agreed in advance would be put in default and that the purchasers of the business would pledge their own assets and provide personal guarantees of the loan knowing it was going into default, such a theory is simply not sustainable."

Plaintiff were also not entitled to proceed on their claim for marshalling of assets, because such a claim is inapplicable where a superior creditor has a right to certain assets.

There was no fiduciary duty under the loan agreement.  The lender had not stepped into the shoes of the majority shareholders by exercising its rights under the loan agreement. 

The Court granted leave to the Plaintiffs, however to make derivative claims against the lender.  It permitted Plaintiffs to assert these claims because a receiver had been appointed for the corporation and he had stated that he would not pursue claims for economic reasons.

Full Opinion

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

Whitney v. Winston, June 20, 2007 (Jolly)(unpublished)

Plaintiff sought to enjoin a merger. He alleged that the defendants, directors of the company to be acquired, had breached their fiduciary duties by failing to disclose pertinent information to the shareholders, failing to maximize shareholder value, and agreeing to a coercive and unreasonable termination fee.

The Court noted that it was uncertain whether plaintiff was entitled to make direct claims, as directors of a corporation owe their fiduciary duties to the company, as opposed to the shareholders, and a claim for breach of those duties belong to the corporation. North Carolina does not impose Revlon duties on directors.

It held that the directors here were entitled to rely on their advice of their counsel and their investment advisors, as provided for in N.C.G.S. §55-8-30, and denied the Motion.

Full Opinion

 

York v. York, February 2007 (Tennille)(unpublished)

Plaintiffs were not entitled to pursue a derivative action, because they were not shareholders of the company at the time of the acts complained of. One of the defendants was a trust, to which a shareholder of the company had transferred shares. The Court held that the trust, as transferee, could not maintain the action because it had not become a shareholder through operation of law. A voluntary transfer is not a transfer through operation of law. Also, the trust had never made a demand, which barred its claim.

In a related case, the Court held that a diminution in value of a shareholder's shares is an injury to stockholders generally, and therefore a derivative claim. It further held that a derivative claim could not be maintained against directors who had not been mentioned in the shareholder's demand letter.

Full Opinion

Gaskin v. The J.S. Proctor Co., LLC, January 2008 (Diaz)(unpublished)

Claims of limited partners against general partner were derivative, not direct.  Limited partners cannot bring an individual action against a general partner in the absence of an injury to the limited partner that is "separate and distinct" to him or that arose from a breach of a "special duty" owed to the limited partner by the general partner.

 Full Opinion

Egelhof v. Szulik, 2008 NCBC 2 (N.C. Super. Ct. Feb. 4, 2008)(Tennille)

The Court found that plaintiff was an inadequate representative to lead a derivative action.  A derivative action plaintiff has fiduciary obligations to the company on whose behalf he brings a suit.  This plaintiff had no experience in litigation, no involvement in the suit, and only a small stake in the company.  On the point of plaintiff's minimal stock ownership, the Court held that "[w]hile the size of ownership is not determinative of standing, a potential plaintiff's lack of a real financial stake in the litigation is a warning sign that he or she may not be willing or able to devote the time necessary to fulfill the fiduciary obligations imposed by law on a shareholder derivative plaintiff."

The plaintiff was sanctioned by the Court, as were his lawyers, for violating Rule 1.4 of the Rules of Professional Conduct by failing to properly inform their client. The Court also found that the firm had failed in its "duty to know its client" and to "have confidence in the client's knowledge and ability to fulfill his or her fiduciary duties." Instead, the firm had "borrowed" the plaintiff's name, "treated the lawsuit as its own," and made all litigation decisions without input from their supposed client.  The lawyers had also failed to obtain pro hac admission from the Business Court before arguing the motion for sanctions.

The Court also noted the obligations of local counsel in representing a derivative action plaintiff.  It held that "the Court does not believe that it is the primary duty of local counsel to know and communicate with a client who has an established relationship with out-of-state counsel to the same extent as the primary counsel. The local lawyer's role is more limited, and local counsel should be able to rely on primary out-of-state counsel to communicate with the client. Where local counsel signs pleadings and briefs, they are representing to the Court that the positions taken therein have merit and that Rule 11 has been followed. Local counsel would be well advised to consider as a practical matter some of the things a court might consider in reviewing the pleadings. Is there a real plaintiff capable of fulfilling his or her fiduciary duties? Is the complaint being filed in a race to the courthouse? Are the allegations based on known facts or media stories? Has there been any effort to review the books and records of the company to support demand futility claims? Are the claims meritorious, and are there allegations that would support a finding that red flags existed to warrant board action in a derivative case? Is there clear precedent supporting or contrary to the positions taken?"

Full Opinion

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

Piedmont Venture Partners, L.P. v. Deloitte & Touche, L.L.P., 2007 NCBC 6 (N.C. Super. Mar. 5, 2007)(Diaz)

This was round two in this derivative action, in which the Court had previously held that the involvency of the general partners of a North Carolina partnership and a Delaware partnership did not excuse the need for a plaintiff to make a demand before filing a derivative action. The former derivative plaintiff then took steps to become the "liquidator" of the partnerships, and undertook a renewed pursuit of the lawsuit.

The defendants challenged whether the self-styled liquidator had been properly elected, and also challenged his position that he had no responsibility for the winding up of the affairs of the partnerships other than prosecuting the claims in litigation.

The Court rejected the challenge to the validity of the liquidator's election. To the extent that it was founded on insufficient notice of the meeting at which the election had occurred, no limited partner had objected to the notice, and those objections were therefore waived under both North Carolina and Delaware law. Nor was there any deficiency in the voting due to a limited partners' purchase of additional shares prior to the meeting at which the election had been held.

The Court held, however, that the liquidator could not "pick and choose" his responsibilities, but that he instead had responsibility for the full and complete winding up of the partnerships' affairs. Given the liquidator's unwillingness to undertake these responsibilities, the Court exercised its inherent power to appoint a receiver for the partnerships. The powers of the receiver was plenary with regard to the North Carolina partnership, but limited to the assets of the Delaware partnership physically within the State of North Carolina.

Full Opinion

Ray v. Deloitte & Touche, L.L.P., 2006 NCBC 5 (N.C. Super. Ct. Apr. 21, 2006)(Diaz)

This case concerned the right of a limited partner to bring a derivative action against two partnerships. As one partnership was a North Carolina entity, and the other a Delaware entity, the Court considered the law of both states. The law of both states excuses demand in the event of futility in the case of a partnership.

Corporate management is entitled to the opportunity to pursue alternative remedies and to avoid unnecessary litigation. The reasons that demand would be futile must be alleged with particularity. The argument by the plaintiffs was that there was no general partner on which to make a demand, because the general partner had filed for bankruptcy.

The Court held, however, that the plaintiffs were required to invoke the provisions of the partnership agreement to have new management appointed, and to then make demand on that new management. The Court dismissed the case without prejudice.

Full Opinion

Egelhof v. Szulik, 2006 NCBC 4 (N.C. Super. Ct. Mar. 13, 2006)(Tennille)

The Court considered yet another derivative action plaintiff who had failed to make the demand required under Delaware law. The Court held that the plaintiff had failed to establish demand futility based on his claim that the outside directors were insufficiently disinterested to have properly considered a demand.

Plaintiff's claim that one of the outside directors had engaged in insider trading did not establish that the director faced a "substantial likelihood" of liability. Membership on the company's audit committee did not impair the ability of other directors to consider a derivative claim. The disinterest of the directors was also not impeached by their receipt of compensation from the company. The Court also rejected claims that the directors were interested because they had approved, permitted, or participated in the alleged wrongs" as well as other arguments which it rejected in its opinion in the Pozen case.

The Court ended its opinion by chastizing the plaintiff for not making a books and records inspection request before filing his complaint.

Full Opinion

In re Pozen Shareholders Litigation, 2005 NCBC 7 (N.C. Super. Ct. Nov. 10, 2005)(Tennille)

The Court dismissed a series of shareholder derivative actions due to plaintiffs' failure to make the required demand under Delaware law. Since the shareholders did not attack a specific action of the board, the Court undertook to determine "whether any of the directors were rendered 'interested' by any of the conduct alleged and, if so, whether the disinterested directors were nonetheless capable of acting independently from those interested directors." (If a specific action of the board had been under attack, the Court would have analyzed whether there was a "a reasonable doubt that either: (1) a majority of the directors [was] incapable of acting in a disinterested and independent manner or (2) the transaction was not a result of a valid exercise of business judgment.").

The Court rejected the argument that four of the directors of the company were "interested" because of their service on the company's audit committee. The Court held that "[a]udit committees of publicly traded companies are required to have independent and disinterested directors comprise the committee. It makes no sense to require audit committees to be made up of independent and disinterested directors and then find them not to be independent and disinterested because they are on the audit committee."

The Court also rejected what it referred to as "blanket allegations" that the directors participated in or approved the alleged misconduct. The directors were entitled to rely upon management's assessment of the safety and efficacy of the company's products" in the absence of specific language to the contrary.

The Court also ran through, and rejected, a series of arguments in support of futility that had been rejected by the Delaware Courts, including (a) that the directors would be forced to sue themselves, (b) that the directors would not sue themselves because this would open them up to further litigation, (c) that the directors had an interest in the suit being derivative because they would have no insurance coverage for a direct claim, and (d) that the directors were interested because they had stock options.

The Court also considered the independence of the directors. It held that allegations that some of the directors were beholden to members of the compensation committee, which determined whether they would be compensated for their service, were insufficient. It held that allegations of business, professional, and personal relationships would not affect independence, in the absence of facts showing that "'the non-interested director would be more willing to risk his or her reputation' than to jeopardize his relationship with the person with whom he is allegedly entangled."

In a footnote, the Court once again referenced its belief that shareholders should make books and records inspection requests before filing such actions. It quoted Beam v. Stewart, 833 A.2d 961, 981 (Del. Ch. September 30, 2003) for the propositiong that “it is troubling to this Court that, notwithstanding repeated suggestions, encouragement, and downright admonitions over the years both by this Court and by the Delaware Supreme Court, litigants continue to bring derivative complaints pleading demand futility on the basis of precious little investigation beyond perusal of the morning newspapers”.

Full Opinion

Maurer v. Slickedit, Inc., 2005 NCBC 1 (N.C. Super. Ct. May 15, 2005)(Tennille)

Plaintiff, a significant (42.5%) minority shareholder of the corporate defendant, filed a derivative action against the corporate defendant. The Court characterized the case as "a domestic case disguised as a derivative action." The Court looked to the law of Virginia, the place of the incorporation of the company, to determine the appropriate prerequisites.

The claims by plaintiff against the directors of the company were for breach of fiduciary duty, and they were therefore derivative claims belonging to the corporation. It ruled that the plaintiff had failed to make a demand, and her derivative claims were dismissed.

The Court also dismissed plaintiff's unfair and deceptive practices claims concerning the termination of her employment with the company, holding that these claims related to the internal corporate affairs of the company as opposed to being "in commerce," as required by the unfair and deceptive practices statute.

Although Virginia does not recognize Meiselman-type claims, the Court that if it did that plaintiff would not have stated a claim for termination of her employment due to her execution of a written agreement providing that she could be terminated at any time. The Court also dismissed the conspiracy claim against the defendants, holding that they were entitled to intracorporate immunity because "alleging that a corporation is conspiring with its agents, officers or employees is accusing a corporation of conspiring with itself.” Although there is an exception of the officers were acting on behalf of an "indpendent personal stake," that is a narrow exception which is not triggered by an officer's interest in the corporation's profitability.

Full Opinion

Marcoux v. Prim, 2004 NCBC 5 (N.C. Super. Ct. Apr. 16, 2004)(Tennille)

This action sought to enjoin a merger involving a publicly traded company. The Court addressed whether the action was derivative or direct under Delaware law. If it was derivative, the Court held that the complaint suffered from three flaws: it was not verified, the corporation had not been joined as a party, and there were no allegations with respect to demand futility as required by North Carolina law.

The Court held, under Delaware precedent, that a shareholder claiming that the merger price is the product of a breach of the directors' duty of loyalty, as a result of the directors being conflicted or acting in bad faith, is entitled to make a direct claim. The Court further held that a Revlon claim is a direct claim, because the injury results from the diminished value that a shareholder receives in the merger process. As the Court put it, "the treasury of the shareholder is depleted, not the treasury of the corporation."

The Court discussed the analysis to be followed when a shareholder seeks to enjoin a merger. It held that if there is no competing offer, the shareholder must make "a particularly strong showing on the merits" in order to obtain the injunction because of the potential loss of the merger premium.

Plaintiff contended that the Special Committee of the company's board, which had approved the merger, was not independent because the members of the board sat on the boards of each others' companies, and that they vacationed together. The Court found that these challenges to directorial independence were merely personal and business relationships. One director had served as outside counsel to the company, and had been paid legal fees. The Court held that "the receipt of legal fees by a director's law firm does not, by itself, demonstrate that director's lack of independence."

The Court further found that the board was not required to conduct an auction. It had conducted a market check. Nor were the directors required to disclose the benefit of merger synergies or to obtain a study which quantified the synergies. Nor were the directors required to disclose the existence of derivative lawsuits pending against the company in the merger proxy, and that those claims would be extinguished as a result of the merger. There furthermore was no diversion of the merger consideration to the company's president, who sold property to the buyer and obtained a new employment contract as a result of the merger.

The Court noted that the plaintiff had failed to make a statutory inspection request under Delaware law before filing its complaint, and that he had not waited for the merger proxy to be filed before he filed suit.

Full Opinion

In re Wachovia Shareholders Litigation, 2003 NCBC 10 (N.C. Super. Ct. Dec. 19, 2003)(Tennille)

The Court considered an award of attorneys fees following its determination that certain termination provisions of a merger agreement were invalid. This opinion was issued in tandem with opinion in In re Quintiles Transnational Shareholders Litigation.

Fee applications were made by attorneys representing a class of shareholders, as well as attorneys representing a derivative plaintiff. The Court observed that the derivative action did not fit well in the "fast paced" context of litigation over a merger. It stated that such claims were more suited to being litigated as shareholder rights claims as opposed to corporate (derivative) claims for breach of fiduciary duty.

The Court refused to award attorneys fees in the derivative action, observing that it "was filed solely to get a piece of the litigation fee pie." It was also critical of the failure of the derivative plaintiff to seek a shortening of the statutory 90 day waiting period. Finally, the derivative action was moot, as the merger it sought to challenge had already occurred.

The Court observed, in dicta, that "the hourly rate claimed by New York counsel is astonishingly out of line with market rates."

On the class action claims, the Court determined that it could award fees, even though the litigation had not created a common fund. It then analyzed the fee request and discussed the level of specificity it expected in fee applications.

Full Opinion

Winters v. First Union Corp., 2001 NCBC 8 (N.C. Super. Ct. July 13, 2001)(Tennille)

Plaintiff was not entitled to proceed on its derivative action seeking to enjoin a merger because it had not waited for the 90 day period required by N.C.G.S. §55-7-42. Plaintiff failed to sufficiently plead irreparable harm, which might have excused it from waiting the 90 day period.

It was not irreparable harm that the company's shareholders would be called upon to vote on the merger transaction before the expiration of the 90 day period, because there was an absolute statutory right to vote on the merger absent a showing of breach of fiduciary duty by the company's directors, and plaintiff could present its position through a proxy fight if it desired.

Plaintiff's rote allegations regarding a breach of fiduciary duty were insufficient to survive a motion to dismiss or to overcome the presumption of the business judgment rule.

Full Opinion

Garlock v. Hilliard, 2000 NCBC 11 (N.C. Super. Ct. Aug. 22, 2000)(Tennille)

The Court found that a demand made simultaneously with the filing of a complaint was insufficient to satisfy the derivative action demand requirement of N.C. Gen. Stat. §55-7-42. The purpose of this statutory scheme is to give a Board of Directors the opportunity "to fulfill its duties before the corporation incurs legal expenses or the litigation escalates into counterclaims and crossclaims."

The Court also discussed the plaintiff's conspiracy claim. It focused on the doctrine of intracorporate immunity, which says that a corporation cannot conspire with itself or with its agents, officers, or employees. It found that plaintiff could not state a claim for conspiracy, notwithstanding its allegation that the company's majority shareholder had an "independent personal stake in achieving the corporation's illegal objective."

Full Opinion

Greene v. Shoemaker, 1998 NCBC 4 (N.C. Super. Ct. Sept. 24, 1998)(Tennille)

The Court discussed the sufficiency of and underlying reasons for a demand by a derivative action plaintiff, and found that its demand was insufficient. Among other things, "the demand requirement reinforces the basic norms of corporate governance by protecting the ability of the directors to make a business judgment about what is in the best interest of the corporation and all of its shareholders."

Although plaintiff had made a written demand, it made claims in its complaint which were not asserted in its demand letter and it had not waited for the statutory period before filing.

North Carolina's Legislature has eliminated the futility exception to the demand requirement.

Full Opinion

Scott v. Sokolov, 1996 NCBC 2 (N.C. Super. Ct. Dec. 2, 1996)(Tennille)

North Carolina law applied to the procedure for approval of a settlement of a derivative action involving a Delaware corporation.

The Court found that it was required to "balance (1) any legitimate corporate claims as brought forward in the derivative shareholder suit against (2) the corporation’s best interests . . . . Factors to be considered in this . . . process include: costs to the corporation of litigating the suit (including attorneys’ fees, out-of-pocket expenses related to the litigation, time spent by corporate personnel preparing for and participating in litigation, and indemnification) and the benefits to the corporation in continuing the suit."

The Court found that the settlement was reasonable after considering the relevant circumstances, and that notice to the shareholders of the defendant, a publicly traded company, was not required.

Full Opinion