North Carolina Business Litigation Lawyer & Attorney : Mack Sperling : Brooks Pierce Law Firm : Greensboro, Raleigh, Winston-Salem, Charlotte

Defendant, who was a director, shareholder and former employee of the corporate plaintiff, moved to disqualify the corporate plaintiff's counsel. He argued that he reasonably believed that the law firm had represented him with regard to the agreements at issue and a guaranty agreement. He also argued that disqualification was appropriate because the corporation's lawyers had "responsibilities" to him as a shareholder and director of the company.

The Court denied the motion. It found that although the law firm had represented defendant with regard to the guaranty agreement, the former representation was not substantially related to the claims before the Court so as to warrant disqualification under Rule 1.9 of the Rules of Professional Conduct. The Court also found that the law firm had not obtained any information in the course of that representation that would advance its defense of the corporation in the case before it.

Considering multiple factors, it determined that defendant could not have reasonably believed that the law firm was representing him in his individual capacity. On the argument regarding "responsibilities," the Court held that a corporation can be represented by its regular corporate counsel when the corporation is adverse to one of its constituents.

The Court dismissed the defendant's counterclaim that the Stockholders Agreement requiring him to tender his shares back to the corporation was unconscionable, finding that the claim failed under either North Carolina or Delaware law.

Before reaching this issue, the Court expressed doubt about whether the choice of law provision specifying North Carolina law in the Agreement was enforceable, given that the corporation was a Delaware corporation and in consideration of the internal affairs doctrine.

The Court expressly refused to apply North Carolina law to plaintiff's claim for dissolution, "because a claim for judicial dissolution goes to the very core of a corporation's internal affairs [so] it is properly governed by the law of the state of incorporation." If North Carolina law had been applicable, however, the Court held that dissolution would not be appropriate.

Defendant's claim that he had reasonable expectations of continued employment was belied by the terms of his employment agreement, which provided for termination at any time after twelve months, without cause.

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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.

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The plaintiffs in this case sought the dissolution of a closely held corporation pursuant to N.C.G.S. §55-14-30(2)(ii) on the ground that the business of the corporation was being conducted to the unfair advantage of the majority shareholder. The Court found that dissolution was appropriate because the reasonable expectations of the majority shareholders were not being met.

Since the dissolution statute gives the corporation the opportunity to avoid dissolution by paying the oppressed shareholders the "fair value" of their shares, the Court moved on to a discussion of that concept. As it had in the Royals case, the Court considered market value, equitable considerations, practical considerations and changes in condition of the company from the market valuation date. It determined that it would be inappropriate to apply discounts for lack of control and lack of marketability. The Court also ruled that the purchase price could be paid over a period of 36 months.

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Plaintiffs had established their right to involuntary dissolution of the closely held corporation in which they were shareholders because their reasonable expectations had not been met, and the business of the corporation was being conducted to the unfair advantage of the minority.

The corporation was entitled to avoid dissolution by paying the oppressed shareholder the "fair value" of his shares. Fair market value is not the same as "fair value," but is a determinant in that consideration.

Discounts for lack of control and lack of marketability do not apply when minority shareholders are compelled to sell their shares.

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