Worley v. Moore,
2017 NCBC 15.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF COLUMBUS 15 CVS 1316
DENNIS WORLEY, STERLING )
KOONCE, FLYING A LIMITED )
PARTNERSHIP L.P., JOSEPH W. )
FORBES, JR., KENNETH CLARK, )
JAMES BOGGESS, JOEL WEBB, )
JAIMIE LIVINGSTON, JAMES E. )
BENNETT, JR., DAVID MINER, )
RONALD ENGLISH, and MDF, LLC, )
)
Plaintiffs, )
)
v. )
OPINION AND ORDER ON
)
DEFENDANTS’ MOTIONS TO DISMISS
ROY J. MOORE, PIERCE J. )
ROBERTS, DAVID BROWN, )
MICHAEL ADAMS, CHRISTOPHER )
BAKER, JAMES KERR, FRANK )
MCCAMANT, NEIL KELLEN, GINI )
COYLE, JOSEPH MOWERY, )
TOSHIBA CORPORATION, ALAMO )
ACQUISITION CORP., and )
STEPHENS, INC., )
)
Defendants. )
)
THIS MATTER is before the Court on the following motions: (1) Motion to
Dismiss of Defendants Roy J. Moore and Pierce J. Roberts Pursuant to Rules 12(b)(1),
12(b)(2), and 12(b)(6) (“Moore and Roberts Motion”); (2) Motion to Dismiss of
Defendants Christopher Baker, David G. Brown, and Frank McCamant Pursuant to
Rules 12(b)(1), 12(b)(2), and 12(b)(6) (“Baker, Brown, and McCamant Motion”); (3)
Defendant Michael Adams’s Motion to Dismiss Pursuant to Rules 12(b)(1) and
12(b)(6) (“Adams Motion”); (4) Defendant James Kerr’s Motion to Dismiss Pursuant
to Rules 12(b)(1), 12(b)(2), and 12(b)(6) (“Kerr Motion”); (5) Defendant Neil Kellen’s
Motion to Dismiss Pursuant to Rules 12(b)(1), 12(b)(2), and 12(b)(6) (“Kellen Motion”);
(6) Motion to Dismiss of Defendants Joseph Mowery and Stephens, Inc. Pursuant to
Rules 12(b)(1), 12(b)(2), and 12(b)(6) (“Mowery and Stephens Motion”); and (7)
Defendant Alamo Acquisition Corp.’s Motion to Dismiss Pursuant to Rules 12(b)(2)
and 12(b)(6) (“Alamo Motion”) (collectively, “Motions”).
THE COURT, having considered the Motions, the affidavit evidence submitted
by Defendants, the briefs in support of and in opposition to the Motions, the oral
arguments of counsel at the hearing, and other appropriate matters of record,
concludes that the Moore and Roberts Motion, the Baker, Brown, and McCamant
Motion, the Kerr Motion, the Kellen Motion, the Mowery and Stephens Motion, and
the Alamo Motion should be GRANTED, and the Adams Motion should be GRANTED
in part and DENIED in part for the reasons set forth below.
Nexsen Pruet, PLLC, by R. Daniel Boyce and Thomas J. Ludlam, for
Plaintiffs.
RuyakCherian LLP, by Arthur T. Farrell, for Plaintiffs.
Kilpatrick Townsend & Stockton LLP, by Joel D. Bush, Jason M.
Wenker, Elizabeth Winters, Stephen E. Hudson, John Moye, and Adam
H. Charnes, for Defendants.
McGuire, Judge.
I. FACTUAL AND PROCEDURAL BACKGROUND
1. This action arises out of an Agreement and Plan of Merger (“Merger
Agreement”) executed on January 24, 2013 by Consert, Inc. (“Consert”), Defendant
Alamo Acquisition Corp. (“Alamo”), and Defendant Toshiba Corporation (“Toshiba”).
(FAC ¶ 2.)1 Pursuant to the Merger Agreement, Toshiba acquired Consert, and Alamo,
a wholly-owned subsidiary of Toshiba, was merged with and into Consert (the
“Merger”). The Merger closed on February 5, 2013. (FAC ¶ 2; Aff. Amy Mansfield Exh.
1 [hereinafter Mansfield Aff.].)
A. The Parties.
2. Plaintiffs are former shareholders of Consert, a Delaware corporation with
its headquarters in San Antonio, Texas. (FAC ¶ 2; Mansfield Aff. Exh. 1.) Before the
Merger, Plaintiffs collectively owned 36.5% of Consert’s common stock and 18% of all
classes of Consert’s stock. (FAC ¶¶ 2, 15.)
3. Toshiba is a Japanese corporation and was a party to the Merger Agreement.
(FAC ¶ 26.) Defendant Alamo was a Delaware corporation and a wholly-owned
subsidiary of Toshiba. (FAC ¶ 27.) Alamo was formed as a vehicle to facilitate the
Merger. (FAC ¶ 27.) Toshiba purchased all of the stock in, acquired, and merged
Consert into Alamo, after which time Consert became the surviving wholly-owned
subsidiary of Toshiba. (FAC ¶ 26.)
4. Defendants Roy J. Moore (“Moore”), Pierce J. Roberts (“Roberts”), David
Brown (“Brown”), Michael Adams (“Adams”), Christopher Baker (“Baker”), James
Kerr (“Kerr”), Frank McCamant (“McCamant”), and Neil Kellen (“Kellen”), are former
officers and/or directors of Consert (collectively, “O&D Defendants”). (FAC ¶¶ 17−24.)
1 Plaintiffs’ alleged facts are drawn from the First Amended Complaint filed on January 26,
2016. The First Amended Complaint is referred to herein by the acronym “FAC.”
5. Moore was Consert’s Chief Development Officer (“CDO”) from January 2008
until the Merger.2 (FAC ¶ 17; Aff. Roy J. Moore ¶ 3 [hereinafter Moore Aff.].) Moore
was also a director of Consert. Roberts was Chairman of Consert’s Board of Directors
(“Board”) and Consert’s CEO from January 2008 until the Merger in February 2013.
(FAC ¶ 16; Aff. Pierce J. Roberts, Jr. ¶ 3 [hereinafter Roberts Aff.].) Roberts and Moore
together held approximately 25% of all classes of Consert stock.
6. Brown, Adams, Baker, Kerr, and McCamant were members of the Board at
the time of the Merger in February 2013. (FAC ¶ 21; Aff. David G. Brown ¶ 5
[hereinafter Brown Aff.]; Aff. Chris Baker ¶ 6 [hereinafter Baker Aff.]; Aff. James Y.
Kerr, II ¶ 5 [hereinafter Kerr Aff.]; Aff. Frank McCamant ¶ 4 [hereinafter McCamant
Aff.].)
7. Kellen began working for Consert as a consultant in March 2012. (Aff. Neil
Kellen ¶ 3 [hereinafter Kellen Aff.].) From April 2012 until the Merger in February
2013, Kellen served as Consert’s Chief Financial Officer (“CFO”). (Kellen Aff. ¶ 3.)
8. Defendant Stephens, Inc. (“Stephens”) is the investment bank that
represented Consert in the Merger. (FAC ¶ 29.) Defendant Joseph Mowery (“Mowery”)
is the managing director of Stephens. (FAC ¶ 28.)
B. The “Scheme.”
9. Plaintiffs allege that:
Beginning on or about mid to late 2011, as part of the [O&D] Defendants’
decision to sell Consert, Defendants Roberts and Moore, acting
individually and in concert with other defendants, devised and executed
a scheme which included a number of activities and elements which had
2 Moore also claims to have served as Consert’s acting Chief Executive Officer (“CEO”) from
January 2013 to February 2013. (FAC ¶ 17; Moore Aff. ¶ 3.)
the purpose and effect of disenfranchising certain shareholders,
including Plaintiffs. Among other things, Defendants orchestrated the
timing of, the negotiations related to, the terms and conditions of, and
the actual sale of Consert to Toshiba in a manner and under
circumstances that maximized the monetary benefits of the sale to
themselves and which disregarded, compromised, and ultimately
precluded, monetary returns to Plaintiffs on their investments as
shareholders in Consert [(“Scheme”)].
(FAC ¶ 33.)
10. Plaintiffs allege that in furtherance of the Scheme:
a. Roberts and Moore orchestrated the removal of Plaintiff Joseph W. Forbes, Jr.
(“Forbes”) from his position as Chief Operating Officer and membership on the
Board, as well his termination from employment in the fall of 2011. Forbes was
a founder of Consert, Consert’s largest common shareholder, and was the
principal inventor of all but one of Consert’s twenty patents. Plaintiffs contend
that Defendants removed Forbes in order to conceal the Scheme from
Plaintiffs. (FAC ¶ 41.)
b. Roberts and Moore announced at a shareholders meeting on October 26, 2011
that Consert had entered into a significant contract with CPS Energy
Corporation (“CPS”) (“Consert/CPS Contract”). (FAC ¶ 42.) Plaintiffs allege
that, at this meeting, certain O&D Defendants represented to Plaintiffs that
the Consert/CPS Contract was a significant milestone in Consert’s success, but
the Consert/CPS Contract was never consummated and its non-consummation
was not disclosed to Plaintiffs prior to the Merger. (FAC ¶ 43.)
c. Plaintiffs allege that around the same time, “Defendants began the process of
relocating Consert’s [headquarters] from Raleigh, North Carolina to San
Antonio, Texas. (FAC ¶ 44.) Plaintiffs contend that relocation to Texas was
completed in the first quarter of 2012. (FAC ¶ 44.) Defendants have provided
evidence that the relocation of Consert’s offices from Raleigh to San Antonio
was completed in August 2011, and that Consert conducted its business
activities from Texas thereafter. (Mansfield Aff. Exhs. 2−3; Moore Aff. ¶ 5;
Roberts Aff. ¶¶ 5−6.)
d. Roberts and Moore increased their salaries and accrued those salaries on
Consert’s books in order to receive “preferential payments for themselves”
upon consummation of the Merger. (FAC ¶ 44.)
e. Roberts, Moore, and the other O&D Defendants made loans to Consert at
exorbitant interest rates. The loans were to be paid back from the proceeds of
the Merger. (FAC ¶ 45.)
f. In January 2013, “Defendants contrived and implemented an additional
‘bridge loan’ to Consert with egregious and usurious terms intended to insure
that Defendant Moore would be guaranteed to receive nearly all of the money
that he had invested in Consert common and Series A stock, in the form of a
preferential payment at the time of sale.” (FAC ¶ 46.)
11. Plaintiffs allege that “the O&D Defendants systematically and collusively
prevented Consert’s shareholders from receiving any information about the lucrative
preferences and other payments that the O&D Defendants had orchestrated for
themselves.” (FAC ¶ 49.)
12. In April 2012, Consert retained Stephens to find a potential buyer of
Consert. (FAC ¶ 51; Aff. Joseph S. Mowery ¶ 4 [hereinafter Mowery Aff.].)
13. The Merger of Consert attracted several interested parties. Toshiba,
General Electric, and Silver Spring Networks provided Defendants with written
proposals outlining the terms on which they would consider purchasing Consert. (FAC
¶ 52.)
14. At a Board meeting on January 23, 2013, Moore proposed that Consert
accept Toshiba’s terms, and O&D Defendants unanimously approved that Consert
limit further Merger negotiations to Toshiba. (FAC ¶ 53.)
15. On January 24, 2013, Consert, Alamo, and Toshiba executed the Merger
Agreement. (FAC ¶ 32.) Moore executed the Merger Agreement on behalf of Consert
in Texas. (Moore Aff. ¶ 8.) Plaintiffs allege that O&D Defendants chose to sell Consert
to Toshiba because it was the only potential purchaser that would agree to O&D
Defendants’ terms providing for undisclosed lump sum bonuses and preferential
payments to certain executives. (FAC ¶ 72.)
C. The Shareholders Meeting.
16. On January 25, 2013, the annual shareholders meeting was held at
Consert’s headquarters in San Antonio, Texas (“Shareholders Meeting”). (FAC ¶ 69.)
Consert Shareholders, including Plaintiffs, could attend in person or by phone. (FAC
¶ 69.) Plaintiff Dennis Worley attended the Shareholders Meeting in person. Moore
and Kellen attended in person. Plaintiffs allege that Mowery attended the
Shareholders Meeting in person, (FAC ¶ 69), but Mowery provided a sworn affidavit
stating that he attended by phone (Mowery Aff. ¶ 16). Moore presided over the
Shareholders Meeting. (FAC ¶ 69.)
17. At the Shareholders Meeting, Moore announced that certain Defendants had
executed a definite Merger Agreement to sell Consert to Toshiba, and that O&D
Defendants had approved the Merger Agreement. (FAC ¶ 70.) This was the first notice
Plaintiffs had received of the Merger of Consert. (FAC ¶¶ 63, 70.) The executed Merger
Agreement was not provided to the shareholders at the Shareholders Meeting. (FAC
¶ 70.)
18. Plaintiffs allege that at the Shareholders Meeting,
Defendants withheld critical information and made material
misrepresentations of fact, refused to respond to or answer [the]
shareholders’ written and oral questions, induced [the] shareholders to
approve the Merger Agreement, and expressed the position that
Plaintiffs’ approval of the sale was irrelevant since Defendants “already
had sufficient votes” to push the sale through and close it immediately.
(FAC ¶ 71.)
19. Plaintiffs allege that at the Shareholders Meeting, Moore made the following
misrepresentations that were designed to induce the shareholders to consent to the
Merger:
a. “Moore represented that although common shareholders would not receive any
of the cash proceeds from the sale, that they would receive substantial cash
proceeds from the ‘earn out’ provisions of the Merger Agreement, which he
fraudulently characterized as ‘most likely to occur’ and ‘absolutely achievable.’”
(FAC ¶ 73.)
b. Moore “coerced Plaintiffs” to “consent to the sale without sufficient
information, review, and consideration of their rights.” (FAC ¶ 74.)
c. “Moore stated that ‘ . . . personally, from my personal investment, . . . the bulk
of our investment is in the common. I can assure you that I care about the
common shareholders[,]’” and that Moore did not disclose that he would receive
a significant return on his investment through preference payments at the
time of Merger. (FAC ¶ 75.)
d. Moore stated that “‘[w]e signed yesterday, we will close and fund and send
checks out on the 31st’ and ‘the reality is we . . . have enough votes to pass this
transaction and make it happen’, [sic] and ‘we believe that [the deal] is in the
best interest of all shareholders.’” (FAC ¶ 74.)
20. Plaintiffs also allege that Mowery made material misrepresentations at the
Shareholders Meeting designed to induce the shareholders to consent to the Merger:
“Mowery stated that ‘at the end of the day, the combination of the upfront cash and
earn out opportunity . . . that we were able to agree to is clearly the superior
opportunity to maximize the shareholder return opportunity.’” (FAC ¶ 72.)
21. Finally, Plaintiffs allege that Defendants’ counsel attended the
Shareholders Meeting, but at Defendants’ direction, refused to respond to Plaintiffs’
substantive questions. (FAC ¶ 76.) Plaintiffs allege that Defendants had a fiduciary
duty to so respond and their refusal to respond was a part of their Scheme. (FAC ¶
76.)
D. Shareholder Consent Documents.
22. On January 28, 2013, three days after the Shareholders Meeting, Consert
sent shareholders, including Plaintiffs, a Merger Information Statement (“MIS”) and
shareholder consent documents (collectively, “Consent Documents”). (FAC ¶ 77.)
Plaintiffs allege that the MIS made fraudulent representations, specifically that “[the
Board] has carefully considered whether the Merger would be in the respective best
interests of Consert and the Stockholders and have concluded that it is.” (FAC ¶ 78.)
The Consent Documents required that Plaintiffs sign the documents as a condition of
receiving any future proceeds from the earn-out provisions in the Merger Agreement,
and Plaintiffs were required to return the Consent Documents before January 31,
2013. (FAC ¶¶ 77, 79.) Each Plaintiff signed and returned the Consent Documents.
(FAC ¶ 79.)
23. Plaintiffs allege that, between the Shareholders Meeting and the closing of
the Merger, Mowery made phone calls to Plaintiffs and other shareholders, on behalf
of himself and Stephens, encouraging them to approve the Merger Agreement and
“misrepresenting that the Merger Agreement was a ‘good deal for all shareholders’
and in the ‘best interests of all.’” (FAC ¶ 80.)
24. The Merger closed on February 5, 2013 in the North Carolina offices of
Defendants’ counsel. (FAC ¶ 81.) Plaintiffs allege that:
Of the $30 million in cash merger consideration paid by Defendant
Toshiba at closing, approximately $2.2 million was paid to the O&D
Defendants and other Consert executives in the form of “change of
control” and bonus payments. An additional $2 million was paid to the
company’s advisors, including its attorneys, and Defendants Stephens
Bank and Mowery. An additional $14 million was used to repay
company obligations and loans, including substantial amounts to
Defendants Roberts and Moore and to certain strategic investors who
were represented on the Board of Directors by other O&D Defendants,
at usurious interest rates for “bridge loans” made by them to Consert.
The remaining approximately $9.8 million was paid to holders of
Consert Series A and Series B Preferred stock, including substantial
amounts to O&D Defendants and the companies they represented on the
Board of Directors. Plaintiffs did not receive a penny in exchange for
their shares of common stock and will not receive anything in the future
due to the sham earn out provisions of the Merger Agreement.
(FAC ¶ 81.)
E. The Terms of the Merger Agreement.
25. The Merger Agreement contained earn-out provisions by which the common
shareholders were to receive cash proceeds from two post-merger events (“Earn-
Outs”). (FAC ¶ 82.) The proceeds from two post-merger events would generate
payments into an independent entity (“Shareholders Fund”), and the Shareholders
Fund would distribute the earned funds to Plaintiffs and other shareholders. (FAC ¶
82.)
26. One of the post-merger events was the performance of a contract between
Toshiba and CPS that was to be executed post-merger for the installation of hardware
and software using Consert technology (“Toshiba/CPS Contract”). (FAC ¶ 83.) The
Shareholders Fund was to receive twenty-five dollars for each meter and/or instance
of monitoring software installed under the Toshiba/CPS Contract over a five-year
period, with the total amount received by the Shareholders Fund not to exceed $25
million. (FAC ¶ 84.)
27. The other post-merger event was the resolution of a lawsuit that had been
filed by Consert against Itron, Inc. (“Itron”). (FAC ¶ 85.) Based on a formula, the
Shareholders Fund was to receive a substantial portion of any recoveries received by
Consert pursuant to a settlement with Itron or entry of judgment. (FAC ¶ 85.) As
described in the Merger Agreement, the Earn-Outs had a total value of between $60
and $70 million. (FAC ¶ 86.)
28. The Earn-Outs, however, were contingent on a “trigger.” The trigger was a
requirement that (a) the Toshiba/CPS Contract had to be for the purchase of
hardware, software, and/or services with a minimum aggregate value of at least $100
million, and (b) the Toshiba/CPS Contract had to be fully executed within one year of
the closing of the Merger. (FAC ¶¶ 87−88.) Plaintiffs allege that the Earn-Outs were
“illusory and a sham” because “all Defendants knew, at the time the Merger
Agreement was executed and approved by the Board and at the time of the
[Shareholders Meeting],” that the trigger “would never occur.” (FAC ¶ 87.)3
29. Plaintiffs allege that Toshiba and CPS subsequently entered into an
agreement for less than $100 million, thereby failing to trigger the Earn-Outs. (FAC
¶ 94.) As a result, Plaintiffs allege that they have not and will not receive any proceeds
from the Earn-Outs. (FAC ¶ 98.)
30. Plaintiffs allege that Toshiba has made over 400,000 installations under the
Toshiba/CPS Contract, and the Itron lawsuit settled in February 2015, from which
Consert received approximately $60 million. Plaintiffs allege that these two events,
3 Plaintiffs seem to contradict the assertion that Defendants knew the trigger “would never
occur” by also alleging that Defendants knew only that “both earn out provisions
were . . . unlikely to occur.” (FAC ¶ 90.)
absent the trigger provision, would have resulted in at least $45 million being paid
out to Plaintiffs and other shareholders under the Earn-Outs. (FAC ¶¶ 95−96.)
F. The Lawsuit.
31. Plaintiffs filed their Complaint on November 9, 2015. On November 16,
2015, this case was designated a mandatory complex business case by order of the
Chief Justice of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. § 7A-
45.4(b) (hereinafter, references to the North Carolina General Statutes will be to
“G.S.”), and assigned to the undersigned Special Superior Court Judge for Complex
Business Cases by order of Chief Judge James L. Gale on November 18, 2015.
32. Plaintiffs filed the First Amended Complaint (“FAC”) on January 26, 2016.
The FAC asserts claims for breach of fiduciary duty; common law fraud; constructive
fraud; conspiracy to defraud; fraudulent inducement; violation of the North Carolina
Securities Act; unlawful taking, conversion, and unjust enrichment; and violation of
the North Carolina Unfair and Deceptive Trade Practices Act. (FAC 27−34.)
33. On February 3, 2016, Moore, Roberts, Brown, Baker, Kerr, McCamant,
Kellen, Mowery, Stephens, and Alamo filed their motions to dismiss. On February 8,
2016, Adams filed his motion to dismiss. On February 29 and March 1, 2016, Plaintiffs
filed their responses in opposition to the Motions, and the Moving Defendants
subsequently replied.
34. On February 11, 2016, Plaintiffs filed their Motion to Disqualify Certain
Defendants’ Counsel (“Motion to Disqualify”) seeking to disqualify Joel Bush and the
law firm of Kilpatrick Townsend & Stockton, LLC from representing the Moving
Defendants in this case. On March 7, 2016, Moving Defendants filed their response in
opposition to the Motion to Disqualify, and Plaintiffs subsequently replied.
35. On March 24, 2016, the Court issued a Notice of Hearing, setting the
Motions and the Motion to Disqualify for hearing on April 6, 2016. The Court heard
arguments of counsel on that date.4 At the hearing, the Court informed counsel that
regardless of the Court’s decision on the Motion to Disqualify, the Court would
consider and make a determination on the Motions as briefed and argued by then-
current counsel.
36. On May 13, 2016, the Court entered its Order on Motion to Disqualify
Counsel, granting the Motion to Disqualify.
37. On May 31, 2016, all named defendants in this action (“Defendants”) filed a
Notice of Appeal to the Supreme Court of North Carolina of the Court’s Order on
Motion to Disqualify Counsel (“Appeal”).
38. On June 1, 2016, Defendants filed a motion to stay the trial court
proceedings pending the Appeal, except with respect to the Court’s consideration of
the Motions. Defendants, however, indicated they did not oppose an exception to any
stay “insofar as the Court still intends to rule on the pending motions to dismiss during
the pendency of the appeal,” as indicated at the hearing on April 6, 2016. (Defs.’ Br.
Supp. Mot. Stay 4.)
4 The Court notes that Toshiba filed its motion to dismiss on March 24, 2016, and Defendant
Gini Coyle filed her motion to dismiss on April 13, 2016. Those motions were not heard at the
April 6, 2016 hearing and thus the Court does not consider them at this time.
39. On July 14, 2016, the Court entered a Stay Order granting Defendants’
motion to stay pending resolution of the Appeal. In its order, the Court noted that
Defendants did not oppose the Court ruling on the Motions. (Order Mot. Disqualify 2
n.2.)
II. ANALYSIS
40. Movants move for dismissal on three grounds: (1) pursuant to Rule 12(b)(2)
because the Court lacks personal jurisdiction over certain Defendants, (2) pursuant to
Rule 12(b)(1) for lack of subject matter jurisdiction, and (3) pursuant to Rule 12(b)(6)
for failure to state claims for which relief can be granted.
41. The Court will first address the motions to dismiss for lack of personal
jurisdiction. If the Court does not have personal jurisdiction over a Defendant, then
that Defendant must be dismissed.
A. Motions to Dismiss for Lack of Personal Jurisdiction.
42. “[T]he plaintiff bears the burden of proving, by a preponderance of the
evidence, grounds for exercising personal jurisdiction over a defendant. . . . [U]pon a
defendant’s motion to dismiss for lack of personal jurisdiction, the plaintiff bears the
burden of making out a prima facie case that jurisdiction exists.” Bauer v. Douglas
Aquatics, Inc., 207 N.C. App. 65, 68,
698 S.E.2d 757, 761 (2010) (citation omitted).
When a defendant supports his motion to dismiss for lack of personal jurisdiction with
affidavits, the plaintiff cannot rest on the unverified allegations in the complaint;
rather, the plaintiff must respond by affidavit or otherwise, setting forth specific facts
showing that the court has personal jurisdiction.
Id. at 68−69,
698 S.E.2d at 761; Banc
of Am. Sec. LLC v. Evergreen Int’l Aviation, Inc.,
169 N.C. App. 690, 693,
611 S.E.2d
179, 182 (2005); Weisman v. Blue Mountain Organics Distribution, LLC,
2014 NCBC
LEXIS 41, at *2 (N.C. Super. Ct. Sept. 5, 2014). “An unverified complaint is not an
affidavit or other evidence.” Hill v. Hill,
11 N.C. App. 1, 10,
180 S.E.2d 424, 430 (1971).
When a defendant supports his motion with affidavits and the plaintiff does not offer
opposing evidence, the court considers the uncontroverted allegations in the complaint
and all facts in the defendant’s affidavits in determining whether the court has
personal jurisdiction. Banc of Am. Sec. LLC, 169 N.C. App. at 693−94, 611 S.E.2d at
182−83; see also Weisman,
2014 NCBC LEXIS 41, at *2 (noting that “allegations in a
complaint uncontroverted by an affidavit are still taken as true”).
43. To determine whether personal jurisdiction over a defendant exists, the
Court conducts a two-step analysis: first, personal jurisdiction must exist under the
North Carolina long-arm statute; second, the exercise of personal jurisdiction must
not violate the due process clause of the Fourteenth Amendment of the United States
Constitution. Bauer,
207 N.C. App. at 67,
698 S.E.2d at 760; Banc of Am. Sec. LLC,
169 N.C. App. at 693,
611 S.E.2d at 182. However, because North Carolina’s long-arm
statute has been interpreted to allow the exercise of personal jurisdiction to the fullest
extent allowed under the due process clause, the two-step analysis collapses into one
inquiry. Dillon v. Numismatic Funding Corp.,
291 N.C. 674, 676,
231 S.E.2d 629,
630−31 (1977); Brown v. Refuel Am., Inc.,
186 N.C. App. 631, 633,
652 S.E.2d 389, 391
(2007).5
5 Plaintiffs contend that the long-arm statute provides a basis for personal jurisdiction over
Defendants pursuant to G.S. §§ 1-75.4(1)(d), 1-75.4(3), 1-75.4(5)(c), and 1-75.4(6)(b) and (c).
44. For a court to exercise personal jurisdiction over a non-resident defendant,
due process requires that the defendant “have certain minimum contacts with [the
forum state] such that the maintenance of the suit does not offend traditional notions
of fair play and substantial justice.” Int’l Shoe Co. v. Washington, 326 U.S. 310, 316
(1945) (internal quotations omitted). The defendant must purposefully avail himself
of the privilege of conducting activities in the forum state, thereby invoking the
benefits and protections of the forum state’s laws. Tom Togs, Inc. v. Ben Elias Indus.
Corp.,
318 N.C. 361, 365,
348 S.E.2d 782, 786 (1986). The “relationship between the
defendant and the forum must be ‘such that he should reasonably anticipate being
haled into court there.’”
Id. at 365−66,
348 S.E.2d at 786 (quoting World-Wide
Volkswagen Corp. v. Woodson,
444 U.S. 286, 297 (1980)). Unilateral activity within
the forum state by others who have some relationship with a non-resident defendant
is insufficient. Banc of Am. Sec. LLC,
169 N.C. App. at 695,
611 S.E.2d at 184. “Each
defendant’s contacts with the forum State must be assessed individually.” Brown,
186
N.C. App. at 638,
652 S.E.2d at 394 (quoting Calder v. Jones,
465 U.S. 783, 790 (1984)).
45. In determining whether a defendant has sufficient minimum contacts,
North Carolina courts consider “(1) the quantity of the contacts, (2) the nature and
quality of the contacts, (3) the source and connection of the cause of action to the
contacts, (4) the interest of the forum state, and (5) the convenience to the parties.”
Banc of Am. Sec. LLC,
169 N.C. App. at 696,
611 S.E.2d at 184.
For purposes of determining the existence of personal jurisdiction over the PJ Movants, the
Court will assume that one or more of the provisions of the long-arm statute applies.
46. There are two types of personal jurisdiction: specific jurisdiction and general
jurisdiction. Id. Specific jurisdiction exists when a defendant purposefully directed his
activities toward the forum and the cause of action arises out of or relates to such
activities. Stetser v. TAP Pharm. Prods. Inc.,
162 N.C. App. 518, 521,
591 S.E.2d 572,
575 (2004). The essential foundation of specific jurisdiction is the relationship among
the defendant, the forum state, and the cause of action. Tom Togs, Inc.,
318 N.C. at
366,
348 S.E.2d at 786. The cause of action must arise out of activities defendant
purposefully directed toward the forum state. Stetser,
162 N.C. App. at 521,
591
S.E.2d at 575. A defendant can reasonably anticipate that he may be sued in a state
for injuries arising from activities that he purposefully directed toward that state. Tom
Togs, Inc.,
318 N.C. at 366,
348 S.E.2d at 786.
47. General jurisdiction exists when the defendant has continuous and
systematic contacts with the forum state, even though those contacts may be
unrelated to the cause of action. Stetser,
162 N.C. App. at 521,
591 S.E.2d at 575. In
assessing whether a non-resident defendant has continuous and systematic contacts
so as to support general jurisdiction, a court examines all contacts with the forum that
occurred during the relevant time period. Sea-Roy Corp. v. Parts R Parts, Inc.,
1:94CV00059,
1995 U.S. Dist. LEXIS 21859, at *34−35 (M.D.N.C. Aug. 16, 1995). The
level of minimum contacts required to support general jurisdiction is significantly
higher than that required to support specific jurisdiction. Cambridge Homes of N.C.
L.P. v. Hyundai Constr., Inc.,
194 N.C. App. 407, 412,
670 S.E.2d 290, 295 (2008);
Stetser,
162 N.C. App. at 521,
591 S.E.2d at 575. A determination of whether a
defendant has such continuous and systematic contacts so as to support general
jurisdiction is based on the totality of the circumstances and depends on the facts of
each case. Stetser, 162 N.C. App. at 522−23,
591 S.E.2d at 576.
48. Moore, Roberts, Brown, Baker, Kerr, McCamant, Kellen, Mowery, Stephens,
and Alamo (collectively, “PJ Movants”) have moved to dismiss Plaintiffs’ claims
pursuant to Rule 12(b)(2) on the grounds that the Court lacks personal jurisdiction
over them, and have filed sworn affidavits in support of their motions. Plaintiffs did
not respond by affidavit or otherwise offer evidence in opposition to Defendants’
affidavits. PJ Movants contend that the unrebutted facts in the affidavits and the
uncontroverted allegations of the FAC establish that the Court lacks personal
jurisdiction over each of them because (a) they were not residents of North Carolina
at the time this lawsuit was filed, (b) they did not have continuous and systematic
contacts with North Carolina that would subject them to general personal jurisdiction,
and (c) they did not purposefully direct conduct towards North Carolina out of which
the claims in this lawsuit arose.
49. Plaintiffs rely exclusively on the allegations in the FAC in support of their
position that the Court has personal jurisdiction over Defendants. In the FAC,
Plaintiffs allege, in relevant part, as follows:
Personal jurisdiction exists over each of the Defendants in this case
under the laws of North Carolina. Defendants Coyle, Kerr and Adams
are residents of the State of North Carolina. Defendant Stephens Bank
has a place of business and does significant business in the State of
North Carolina. Consert, of which Defendants Roberts and Moore were
officers and directors, and Defendants Adams, Baker, McCamant,
Kellen, Kerr and Brown were directors, was headquartered and
operated substantially all of its business from North Carolina from its
inception in 2007 until early 2012 when the headquarters were moved
to San Antonio, Texas. During the period 2007 through early 2012,
Defendants Roberts and Moore, operated and managed the company
from Consert’s North Carolina Headquarters. The activities complained
of either took place in North Carolina or directly affected the financial
and other interests of shareholder Plaintiffs who reside in North
Carolina. . . . Defendants Stephens Bank and Mowery had significant
contacts with Plaintiffs who reside in North Carolina and engaged in
activities within North Carolina in an attempt to induce them to approve
the sale of Consert. All of the Defendants have sufficient contacts with
the State of North Carolina to provide this Court’s personal jurisdiction
over each of them.
(FAC ¶ 30.)6
50. Plaintiffs contend that the Court should not consider whether each
individual PJ Movant engaged in conduct or activities that subject the party to
personal jurisdiction in North Carolina, but instead should consider the conduct of
Defendants collectively. More particularly, Plaintiffs contend that:
a. “[F]rom 2007 through 2011,” while Consert was headquartered in
Raleigh, Moore, Roberts, Brown, McCamant, Adams, and Kerr
“developed a collusive scheme to defraud Plaintiffs” that included taking
steps to oust Forbes from Consert. (Pls.’ Omnibus Opp’n to Certain Defs.’
Mots. Dismiss Counts I-V & on Basis of Lack of Personal Jurisdiction 14
[hereinafter “Pls.’ Omnibus Opp’n Mots. Dismiss on PJ”].) Plaintiffs
contend this conduct constituted “continuous and systematic” contacts
6 The Court notes that PJ Movants have provided evidence that Consert’s relocation was
completed in August 2011 and Consert operated its business from Texas after that time.
Plaintiffs have not come forward with any opposing evidence, and therefore, for purposes of
its personal jurisdiction analysis, the Court finds that Consert completed its relocation to
Texas in August 2011 and operated its business from Texas thereafter.
with North Carolina that confer general personal jurisdiction over the
PJ Movants (Id.);
b. “After Consert moved from North Carolina, O&D
Defendants . . . engaged in additional acts directed at NC Resident
Plaintiffs . . . to deprive NC Resident Plaintiffs of the value of their
ownership of shares in Consert by: (1) creating a series of loans with
usurious interest rates and preference terms, (ii) [sic] increasing their
salaries which were accrued as debt on Consert’s books, and (iii) [sic]
unreasonably delaying the 2012 shareholder’s meeting to conceal their
activities” (Id. 15); and
c. Moore, Mowery and “the O&D Defendants” communicated fraudulent
statements to “NC Resident Plaintiffs” and engaged in other acts and
omissions that “induced” them “to consent to the merger and forfeit their
shareholdings in Consert” (Id. 16−18). Plaintiffs argue that “[b]y
inference, all such actions were approved by, communicated by, . . . or
made on behalf of the Moving Defendants.” (Id. 16.)
51. The Court will first address Plaintiffs’ arguments that the activities of
Defendants should be considered collectively, or the activities or conduct of one
Defendant attributed to another, for purposes of establishing personal jurisdiction,
before considering the facts regarding each of the PJ Movants individually.
52. First, to the extent Plaintiffs contend that the Court has personal
jurisdiction over O&D Defendants merely because they were directors and/or officers
of Consert, which was headquartered in North Carolina until August 2011, that
contention fails. It is well-established that “[t]o base personal jurisdiction on the bare
fact of a defendant’s status as, e.g., corporate officer or agent, would violate his due
process rights.” Saft Am., Inc. v. Plainview Batteries, Inc., 189 N.C. App. 579, 595,
659
S.E.2d 39, 49 (2008) (Arrowood, J., dissenting), adopted by
363 N.C. 5,
673 S.E.2d 864
(2009) (per curiam); Lulla v. Effective Minds, LLC,
184 N.C. App. 274, 280,
646 S.E.2d
129, 134 (2007); Robbins v. Ingham,
179 N.C. App. 764, 771,
635 S.E.2d 610, 615
(2006). “[P]ersonal jurisdiction over an individual officer or employee of a corporation
may not be predicated merely upon the corporate contacts with the forum.” Robbins,
179 N.C. App. at 771,
635 S.E.2d at 615. For a court to assert personal jurisdiction
over a corporate agent, he must have committed some affirmative act in his individual,
official capacity. Lulla,
184 N.C. App. at 280,
646 S.E.2d at 134; Robbins,
179 N.C.
App. at 769,
635 S.E.2d at 614.
53. In their brief, Plaintiffs appear to argue that (a) the acts of individual
Defendants may be imputed to other Defendants for purposes of establishing personal
jurisdiction, or (b) that this Court should recognize a “conspiracy” theory of personal
jurisdiction. (Pls.’ Omnibus Opp’n Mots. Dismiss on PJ 13−18.) Under a conspiracy
theory of jurisdiction, a court may have personal jurisdiction over a conspirator who
has few contacts with the forum “if substantial acts in furtherance of the conspiracy
were performed in the state and the conspirator knew or should have known that these
acts would be performed.” Stetser,
162 N.C. App. at 521,
591 S.E.2d at 575 (quoting
Hanes Cos. v. Ronson,
712 F. Supp. 1223, 1229 (M.D.N.C. 1988)). North Carolina,
however, has not adopted a conspiracy theory of personal jurisdiction. Id.; Weisman,
2014 NCBC LEXIS 41, at *18. The acts of one alleged conspirator-defendant cannot
be imputed to his alleged co-conspirator defendants to establish sufficient minimum
contacts of the latter.
54. The Court also rejects Plaintiffs’ argument that the statements, acts, or
omissions of one individual Defendant may be imputed to the other individual
Defendants to establish minimum contacts. While a corporate officer or director may
be considered an agent of the corporation, there is no basis for concluding that any of
the O&D Defendants were acting as agents for one another so as to impute actions
and statements by one to another for purposes of establishing sufficient minimum
contacts of the latter. See Godwin v. Walls,
118 N.C. App. 341, 348,
455 S.E.2d 473,
479 (1995) (“While a corporate entity is liable for any wrongful act or omission of an
agent acting with proper authority, it does not follow an agent may be held liable
under the jurisdiction of our courts for acts or omissions allegedly committed by the
corporation. . . . A corporation can only act through its agents; therefore, plaintiffs may
not assert jurisdiction over a corporate agent without some affirmative act committed
in his individual official capacity.” (citation omitted)); Robbins,
179 N.C. App. at 771,
635 S.E.2d at 615−16 (rejecting plaintiffs’ argument that acts of corporate agents
should be imputed to another corporate agent for purposes of establishing sufficient
minimum contacts because the former’s acts benefitted the latter as a director and
shareholder).
55. Therefore, in assessing whether Plaintiffs have met their burden to
establish grounds to support the exercise of personal jurisdiction over each Defendant,
the Court will not impute the actions and statements of one defendant to the other
individual Defendants, nor will the Court consider the non-individualized, sweeping
allegations regarding Defendants’ and O&D Defendants’ activities; rather, the Court
will address below only those allegations pertaining to, and contacts of, the particular
Defendant at issue.
1. Plaintiffs have not established by a preponderance of the evidence that the
Court has personal jurisdiction over Kellen.
56. Plaintiffs do not specify whether they contend the Court has general or
specific personal jurisdiction over Kellen. Kellen has resided in Texas for over ten
years. (Kellen Aff. ¶ 2.) Kellen has never resided in North Carolina, owned property
in North Carolina, paid income taxes in North Carolina, or had a bank account in
North Carolina. (Kellen Aff. ¶¶ 6−9.) Kellen has not traveled to North Carolina in at
least twenty years. (Kellen Aff. ¶ 10.) Kellen began working for Consert as a
consultant in March 2012, after Consert relocated its offices to Texas, and served as
Consert’s CFO from April 2012 until the Merger in February 2013. (Kellen Aff. ¶ 3.)
Kellen did not travel to North Carolina in connection with the Merger. (Kellen Aff. ¶
5.)
57. The Complaint does not allege any specific act, statement, or omission by
Kellen, except that he attended the Shareholders Meeting. (FAC ¶ 69.) There is no
allegation or evidence that any communications or interactions took place between
Kellen and Plaintiffs at the Shareholders Meeting or at any other time. Kellen’s mere
attendance at the Shareholders Meeting in Texas was not activity purposefully
directed at North Carolina.
58. The Court concludes that Kellen does not have sufficient minimum contacts
with North Carolina to satisfy due process, and he must be dismissed for lack of
personal jurisdiction. The Kellen Motion to dismiss Kellen for lack of personal
jurisdiction should be GRANTED.
2. Plaintiffs have not established by a preponderance of the evidence that the
Court has personal jurisdiction over Baker.
59. Plaintiffs did not make any arguments in support of the Court’s exercise of
personal jurisdiction over Baker and do not specify whether they contend the Court
has general of specific personal jurisdiction over Baker. Baker resides in Georgia and
has resided there for over ten years; he has not resided in North Carolina in the last
twenty years. (Baker Aff. ¶¶ 2, 8.) Baker has never owned property in North Carolina
or had a bank account in North Carolina. (Baker Aff. ¶¶ 9−10.) Baker was a director
of Consert from April 2012 until the Merger in February 2013. (Baker Aff. ¶ 6.) Baker
attended Board meetings in person in Texas or by phone from Georgia. (Baker Aff. ¶
7.) Baker did not travel to North Carolina in connection with his role as a director.
(Baker Aff. ¶ 7.)
60. The Complaint does not allege any specific act, statement, or omission by
Baker in furtherance of the Scheme. Plaintiffs do not allege that Baker attended the
Shareholders Meeting.
61. The Court concludes that Baker does not have sufficient minimum contacts
with North Carolina to satisfy due process, and he must be dismissed for lack of
personal jurisdiction. The Baker, Brown, and McCamant Motion to dismiss Baker for
lack of personal jurisdiction should be GRANTED.
3. Plaintiffs have not established by a preponderance of the evidence that the
Court has personal jurisdiction over McCamant.
62. Plaintiffs did not make any arguments in support of the Court’s exercise of
personal jurisdiction over McCamant and do not specify whether they contend the
Court has general or specific personal jurisdiction over McCamant. McCamant resides
in Texas and has resided there for over fifty-five years; he has never resided in North
Carolina. (McCamant Aff. ¶¶ 2, 6.) McCamant has never owned property in North
Carolina or had a bank account in North Carolina. (McCamant Aff. ¶¶ 7, 9.)
McCamant was a director of Consert from October 2011 until the Merger in February
2013. (McCamant Aff. ¶ 4.) McCamant attended Board meetings in person in Texas.
(McCamant Aff. ¶ 5.) McCamant did not travel to North Carolina in connection with
his role as a director. (McCamant Aff. ¶ 5.)
63. The Complaint does not allege any specific act, statement, or omission by
McCamant in furtherance of the Scheme. Plaintiffs do not allege that McCamant
attended the Shareholders Meeting.
64. The Court concludes that McCamant does not have sufficient minimum
contacts with North Carolina to satisfy due process, and he must be dismissed for lack
of personal jurisdiction. The Baker, Brown, and McCamant Motion to dismiss
McCamant for lack of personal jurisdiction should be GRANTED.
4. Plaintiffs have not established by a preponderance of the evidence that the
Court has personal jurisdiction over Kerr.
65. Plaintiffs allege that the Court has personal jurisdiction over Kerr because
he resides in North Carolina. (FAC ¶ 30.) Kerr, however, filed with the Court a sworn
affidavit stating that he has resided in Georgia since March 2014. (Kerr Aff. ¶ 2.) Kerr
concedes that he resided in North Carolina from 2008 until 2014. (Br. in Supp. Mot.
Dismiss of Def. Kerr 23.) For purposes of its personal jurisdiction analysis, the Court
finds that Kerr resided in North Carolina from 2008 until he moved to Georgia in
March 2014. The Court also finds that the paradigm forum for Kerr is Georgia since
he is domiciled there, and was domiciled in Georgia when this lawsuit was filed.
Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 924 (2011) (“For an
individual, the paradigm forum for the exercise of general jurisdiction is the
individual’s domicile . . . .”).
66. Kerr was a director of Consert from 2009 until the Merger in February 2013.
(Kerr Aff. ¶¶ 4−5.) Plaintiffs do not allege any specific act, statement, or omission by
Kerr in furtherance of the Scheme. There are no allegations regarding Kerr’s
involvement with Consert during his time as a director or his role in the Merger.
Plaintiffs have failed to establish that Kerr had purposeful contacts with North
Carolina from which this action arose or to which this action relates so as to justify
the exercise of specific jurisdiction. Accordingly, the Court must examine whether
Kerr had sufficient contacts with North Carolina to support the exercise of general
personal jurisdiction.
67. There are few cases that address the time period during which a defendant
must have continuous and systematic contacts with the forum state, but the cases that
have addressed the issue have concluded that “[t]he relevant time at which to assess
whether a defendant’s contacts satisfy the continuous and systematic standard is over
a period that is reasonable under the circumstances, up to and including the date the
suit was filed.” Young v. Hair, 7:02-cv-212-F1, 2004 U.S. Dist. LEXIS 6551, at *10
(E.D.N.C. Jan. 26, 2004) (internal quotations omitted) (citing Metropolitan Life Ins.
Co. v. Robertson-Ceco Corp.,
84 F.3d 560, 569−70 (2d Cir. 1996)); Harlow v. Children's
Hosp.,
432 F.3d 50, 65 (1st Cir. 2005) (same); Access Telecom, Inc. v. MCI Telecomms.
Corp.,
197 F.3d 694, 717 (5th Cir. 1999) (same).
68. The Court must determine the relevant time for assessing Kerr’s contacts
with North Carolina under the circumstances involved in this lawsuit. Defendants
began the process of the Merger in April 2012 when Consert hired Stephens to explore
a Merger of Consert. The Merger closed on February 5, 2013. This action was filed on
November 9, 2015. Keeping in mind that whether a defendant has continuous and
systematic contacts is to be based on the totality of the circumstances, rather than a
mechanical formula, the Court finds that the relevant time period for assessing Kerr’s
contacts with North Carolina is from April 2012 to November 9, 2015.
69. Kerr had continuous and systematic contacts with North Carolina during
the relevant period from April 2012 until March 2014 when he lived in the State. Kerr
ceased having continuous contacts when he moved to Georgia roughly 19 months
before this lawsuit was filed. Plaintiff has not shown that Kerr has had any contacts
with North Carolina after March 2014, and Kerr was a resident of Georgia at the time
this action was filed.
70. The Court finds that Kerr’s contacts with North Carolina ceased in March
2014, and Kerr did not have any contacts with North Carolina thereafter. Accordingly,
Kerr’s contacts with North Carolina were not “continuous” throughout the relevant
period. While Kerr lived in North Carolina when the Merger was negotiated and
closed, Kerr’s contacts with North Carolina during the relevant time period did not
remain continuous and systematic so as to justify the exercise of general jurisdiction
over him. Therefore, Kerr must be dismissed for lack of personal jurisdiction. The Kerr
Motion to dismiss Kerr for lack of personal jurisdiction should be GRANTED.
5. Plaintiffs have not established by a preponderance of the evidence that the
Court has personal jurisdiction over Brown.
71. Plaintiffs did not make any arguments in support of the Court’s exercise of
personal jurisdiction over Brown, and do not specify whether they contend the Court
has general or specific personal jurisdiction over Brown. Brown has resided in
Wyoming since January 2015, and before that resided in California for over twenty
years. (Brown Aff. ¶¶ 2−3.) Brown never owned property in North Carolina or had a
bank account in North Carolina. (Brown Aff. ¶¶ 11−12.) From 2008 to 2014, Brown
traveled to North Carolina from time to time to visit his children who were enrolled
at Duke University. (Brown Aff. ¶ 7.) In addition, Brown is an investor in a Texas-
based limited partnership that owns data centers in North Carolina. (Brown Aff. ¶
13.) In 2013, Brown’s share of the partnership’s North Carolina income was $218, and
he paid taxes on that amount to the State of North Carolina. (Brown Aff. ¶ 13.)
72. Brown was a director of Consert from 2008 until the Merger in February
2013. (Brown Aff. ¶ 5.) From 2008 to 2011, Brown attended Board meetings in Raleigh
in person or by telephone phone from California. (Brown Aff. ¶ 6.) There are no facts
that show Brown had any contacts with North Carolina in connection with his role as
a director after Consert relocated to Texas in August 2011.
73. In the FAC, Plaintiffs do not allege any specific act, statement, or omission
by Brown in furtherance of the Scheme. There are no allegations regarding Brown’s
involvement with Consert during his time as a director or his role in the Merger.
Brown did not travel to North Carolina in connection with the Merger. (Brown Aff. ¶
9.) The Court concludes that Brown had no purposeful contacts with North Carolina
from which this action arises or to which this action relates so as to justify the exercise
of specific jurisdiction.
74. The Court also concludes that, based on the totality of the circumstances,
Brown’s contacts with North Carolina during the relevant time period were not so
continuous and systematic so as to satisfy the higher level of minimum contacts
required to support the exercise of general jurisdiction. Therefore, Brown must be
dismissed for lack of personal jurisdiction. The Baker, Brown, and McCamant Motion
to dismiss Brown for lack of personal jurisdiction should be GRANTED.
6. Plaintiffs have not established by a preponderance of the evidence that the
Court has personal jurisdiction over Moore.
75. Plaintiffs contend that the Court has general jurisdiction over Moore based
on his participation in developing the Scheme and removing Forbes as COO and a
director of Consert while Consert was still headquartered in North Carolina in the
“Summer and Fall of 2011.” (Pls.’ Omnibus Opp’n Mots. Dismiss on PJ 14.) Plaintiffs
have not alleged that Moore was ever present in, or traveled to, North Carolina after
Consert relocated to Texas in 2011.
76. Moore, on the other hand, provided evidence that he has resided in Florida
since 2000. (Moore Aff. ¶ 2.) Moore is registered to vote in Florida and has a Florida
driver’s license. (Moore Aff. ¶ 2.) Moore has never resided in North Carolina, owned
property in North Carolina, paid income taxes in North Carolina, or had a bank
account in North Carolina. (Moore Aff. ¶¶ 9−12.) Moore did not travel to North
Carolina in connection with the Merger. (Moore Aff. ¶¶ 6−7.)
77. The Court finds that Moore’s alleged activities in the fall of 2011 related to
developing the Scheme and removing Forbes from Consert were not continuous and
systematic contacts with North Carolina sufficient to establish general personal
jurisdiction over Moore. Thus, the Court does not have general personal jurisdiction
over Moore.
78. Plaintiffs also apparently contend that the Court has personal jurisdiction
over Moore because of his role in the Merger, and particularly in securing the
shareholders’ approval of the Merger. Plaintiffs allege Moore made
misrepresentations to Plaintiffs, including Plaintiffs who lived in North Carolina,
during the Shareholders Meeting. (Pls.’ Omnibus Opp’n Mots. Dismiss on PJ 16.)
Plaintiffs contend that these communications to North Carolina Plaintiffs amounted
to purposeful contacts with North Carolina so as to establish sufficient minimum
contacts. (Id. 16−18.)
79. Here, there is nothing that connects Moore’s statements at the Shareholders
Meeting to North Carolina other than the seven shareholder-plaintiffs who resided in
North Carolina. The Shareholders Meeting was held in Texas and multiple
shareholders from various different locations attended the meeting in person or by
phone.7 Plaintiffs in this case are residents of North Carolina, Tennessee, Illinois,
Texas, Florida, and Oklahoma. The statements Moore made at the Shareholders
Meeting were not statements directed at North Carolina; rather, they were statements
directed to shareholders, including Plaintiffs, seven of whom are residents of North
Carolina and five of whom are residents of five other states. To conclude that Moore’s
statements at the Shareholders Meeting constitute activity purposefully directed at
North Carolina would require the corresponding conclusion that such statements also
constitute activity purposefully directed at Tennessee, Illinois, Florida, Oklahoma,
and any other state in which a shareholder who attended the Shareholders Meeting
resided. See Bank of Am., N.A. v. Corporex Cos., LLC, 3:13-cv-691-RJC, 2014 U.S.
Dist. LEXIS 102670, at *13 (W.D.N.C. July 28, 2014) (“[T]he fact that Defendants
directed their actions against a party in North Carolina is not sufficient, standing
alone, to confer jurisdiction over the parties where no other facts exist to support such.
To rule otherwise would be to risk exercising personal jurisdiction for torts wherever
a plaintiff happened to be located because that is where the injury would be felt most
strongly.”).
7 Plaintiffs have alleged that “the [Shareholders Meeting] was available for shareholders,
including Plaintiffs, to attend in person or by telephone,” but do not allege that any of the
Plaintiffs other than Worley attended the meeting or actually heard Moore’s alleged
statements. (FAC ¶¶ 69, 76.)
80. Plaintiffs also argue that after Consert moved out of North Carolina, Moore
and the other O&D Defendants “engaged in additional acts directed at NC Resident
Plaintiffs . . . to deprive NC Resident Plaintiffs of the value of their ownership of shares
in Consert” including making usurious loans to Consert, increasing their salaries and
accruing the salaries as debt, and delaying the 2012 shareholders meeting. (Pls.’
Omnibus Opp’n Mots. Dismiss on PJ 15.) Plaintiffs claim that at the time they took
these actions, “O&D Defendants knew that most of Consert’s shareholders resided in
North Carolina.” (Id.) Such knowledge, however, does not make Moore’s activities
purposeful contacts directed at North Carolina. See Burger King Corp. v. Rudzewicz,
471 U.S. 462, 474−75 (1985) (“Although it has been argued that foreseeability of
causing injury in another State should be sufficient to establish such contacts there
when policy considerations so require, the Court has consistently held that this kind
of foreseeability is not a “sufficient benchmark” for exercising personal jurisdiction.”).
81. The above activities were not purposefully directed at North Carolina so as
to confer personal jurisdiction over Moore in this Court. At the time of all of the above
acts, Consert was a Delaware corporation headquartered in Texas. The fact that seven
North Carolina plaintiffs contend that they were affected in North Carolina by these
activities does not transform Moore’s activities into ones purposefully directed at
North Carolina. The Supreme Court recently addressed the nature of the contacts
required to exercise specific jurisdiction over a non-resident defendant in Walden v.
Fiore, 134 S. Ct. 1115, 1121 (2014). The Court explained that “however significant the
plaintiff’s contacts with the forum may be, those contacts cannot be ‘decisive in
determining whether the defendant’s due process rights are violated.’ . . . [O]ur
‘minimum contacts’ analysis looks to the defendant’s contacts with the forum State
itself.”
Id. at 1122. With regard to whether injury to a plaintiff within the forum state
was sufficient to establish a defendant’s minimum contacts, the Court held:
Calder [v. Jones, 465 U.S. 783 (1984)] made clear that mere injury to a
forum resident is not a sufficient connection to the forum. Regardless of
where a plaintiff lives or works, an injury is jurisdictionally relevant
only insofar as it shows that the defendant has formed a contact with
the forum State. The proper question is not where the plaintiff
experienced a particular injury or effect but whether the defendant’s
conduct connects him to the forum in a meaningful way.
Id. at 1125. Moore’s conduct connected to the Merger, even if it impacted certain
Plaintiffs who live in North Carolina, was not purposefully directed at this State.
82. In light of the foregoing, the Court concludes that Plaintiffs have failed to
establish Moore has sufficient minimum contacts with North Carolina to satisfy due
process, and he must be dismissed for lack of personal jurisdiction. The Moore and
Roberts Motion to dismiss Moore for lack of personal jurisdiction should be
GRANTED.
7. Plaintiffs have not established by a preponderance of the evidence that the
Court has personal jurisdiction over Roberts.
83. Plaintiffs contend that the Court has general jurisdiction over Roberts based
on his participation in developing the Scheme and removing Forbes as COO, and as a
director of Consert while Consert was still headquartered in North Carolina in the
“Summer and Fall of 2011.” (Pls.’ Omnibus Opp’n Mots. Dismiss on PJ 14.) Roberts
did not travel to North Carolina in connection with the Merger. (Roberts Aff. ¶¶ 8−9.)
Roberts admits he traveled to North Carolina for one day in January 2012 to close
Consert’s Raleigh office. (Roberts Aff. ¶ 7.) Plaintiffs do not allege that Roberts was
present in North Carolina at any time after January 2012.
84. Roberts filed an affidavit establishing that he has resided in Florida since
1998. (Roberts Aff. ¶ 2.) Roberts has never resided in North Carolina, paid income
taxes in North Carolina, or had a bank account in North Carolina. (Roberts Aff. ¶¶ 11,
13−14.) Roberts also owns approximately two acres of undeveloped land in Burnsville,
North Carolina. (Roberts Aff. ¶ 12.)
85. It is clear that Roberts is domiciled in Florida and Florida is the paradigm
forum with general jurisdiction over Roberts. The Court finds that Robert’s alleged
activities in the fall of 2011 related to developing the Scheme and removing Forbes
from Consert were not continuous and systematic contacts with North Carolina
sufficient to establish general personal jurisdiction over Moore.
86. The Court also finds that Roberts’s ownership of a piece of undeveloped land
in North Carolina, without more, is insufficient for the Court to conclude that Roberts
has purposefully availed himself of the privilege of conducting activities in North
Carolina. The nature and quality of the contact created by the ownership of a single
piece of undeveloped property are not sufficient to confer general jurisdiction over
Roberts. Banc of Am. Sec. LLC, 169 N.C. App. at 696,
611 S.E.2d at 184. In addition,
there is no connection between the cause of action in this lawsuit and the piece of
property. A finding that mere ownership of land subjects a non-resident defendant to
jurisdiction with respect to any and all claims asserted against him is contrary to the
courts’ disfavor of broad constructions of general jurisdiction. Daimler AG v. Bauman,
134 S. Ct. 746, 753, 757−58 (2014) (discussing the strict territorial approach to
personal jurisdiction taken in Pennoyer v. Neff,
95 U.S. 714 (1878) and noting that
“[s]pecific jurisdiction has been cut loose from Pennoyer’s sway, but [the Court] ha[s]
declined to stretch general jurisdiction beyond limits traditionally recognized”). The
Court concludes that it does not have general personal jurisdiction over Roberts based
on his alleged activities in the fall of 2011 and his ownership of undeveloped land.
87. With respect to specific jurisdiction, Plaintiffs do not allege Roberts had any
contacts with North Carolina from which this action arises or to which this action
relates.8 Based on the record, Roberts’s only contact with North Carolina that was
related to his role as a director was his one day-trip to Raleigh in January 2012, to
close Consert’s office, which was unrelated to Plaintiffs’ claims in this case. The FAC
does not allege any other act, statement, or omission by Roberts.
88. The Court concludes that Plaintiffs have failed to establish Roberts has
sufficient minimum contacts with North Carolina to satisfy due process, and he must
be dismissed for lack of personal jurisdiction. The Moore and Roberts Motion to
dismiss Roberts for lack of personal jurisdiction should be GRANTED.
8. Plaintiffs have not established by a preponderance of the evidence that the
Court has personal jurisdiction over Mowery.
89. Plaintiffs do not specify whether they contend the Court has general or
specific personal jurisdiction over Mowery. Mowery has resided in Arkansas for
twenty-five years. (Mowery Aff. ¶ 2.) Mowery has never resided in North Carolina and
8 Plaintiffs allege that Roberts doubled his salary in April 2012, and accrued the increased
salary on Consert’s books to create preferential payments upon completion of the Merger.
(FAC ¶ 44.) This conduct admittedly occurred in Texas. (Id.)
does not own property in North Carolina. (Mowery Aff. ¶¶ 18−19.) There is no
allegation or evidence that Mowery has ever visited North Carolina.
90. Mowery is the managing director of Stephens, which is headquartered in
Little Rock, Arkansas. (Mowery Aff. ¶ 3.) In April 2012, after Consert had relocated
its headquarters to San Antonio, Texas, Consert engaged Stephens to provide
investment banking services in connection with attempting to find a buyer for Consert.
(Mowery ¶¶ 4−5.) Mowery directly supervised and managed Stephens’s engagement
with Consert and was Consert’s primary contact at Stephens. (Mowery Aff. ¶ 6.)
Mowery did not travel to North Carolina in connection with Stephens’s engagement
with Consert. (Mowery Aff. ¶ 21.) Mowery attended, in person and by phone, meetings
held in Texas with representatives of Consert and Toshiba to discuss potential terms
of a proposed transaction and the terms of the Merger. (Mowery Aff. ¶¶ 10, 12.)
Mowery attended Board meetings conducted in Texas on July 25, 2012, October 24,
2012, November 27, 2012, and January 15, 2013, in person and by phone, to update
the Board on the status of the Merger. (Mowery Aff. ¶ 11.)
91. Mowery attended the Shareholders Meeting. Plaintiffs contend that at the
Shareholders Meeting, Mowery made misstatements of fact designed to induce the
shareholders to consent to the Merger. For the same reasons Moore’s statements
during the Shareholders Meeting do not constitute activity purposefully directed at
North Carolina, Mowery’s statements during the Shareholders Meeting do not
constitute such purposefully directed activity for purposes of establishing sufficient
minimum contacts.
92. Plaintiffs also allege that between the Shareholders Meeting and the close
of the Merger, Mowery “made calls to Plaintiffs and other shareholders encouraging
them to approve the Merger Agreement” and “misrepresenting that the Merger
Agreement was a ‘good deal for all shareholders’ and in the ‘best interests of all.’” (FAC
¶ 80.) Plaintiffs, however, do not allege to which Plaintiffs or other shareholders
Mowery made phone calls, or whether any of those phone calls were made to residents
of North Carolina. In his affidavit, Mowery states that “[o]n or about January 29, 2013,
I spoke by telephone with Plaintiff Joseph Forbes about the terms of the Merger. I
participated in the call from my office in Little Rock, Arkansas. To the best of my
recollection, the call with Mr. Forbes lasted roughly thirty minutes.” (Mowery Aff. ¶
17.) Plaintiffs allege that Forbes is a resident of North Carolina, and for purposes of
its personal jurisdiction analysis, the Court will assume Mowery called Forbes while
Forbes was in North Carolina. Plaintiff has not established that Mowery made any
other phone calls to North Carolina or to North Carolina residents. Bauer v. Douglas
Aquatics, Inc., 207 N.C. App. 65, 68,
698 S.E.2d 757, 761 (2010) (“[T]he plaintiff bears
the burden of proving, by a preponderance of the evidence, grounds for exercising
personal jurisdiction over a defendant.”).
93. Even construing Plaintiffs’ allegation in the light most favorable to
Plaintiffs, Mowery’s phone call to Forbes does not establish sufficient contacts with
North Carolina for this Court to exercise personal jurisdiction over Mowery.
Generally, personal jurisdiction may not be based solely on an individual’s phone calls
to a party located in the forum state. Alacrity Renovation Servs., LLC v. Long, No.
3:16-cv-00206-FDW-DSC, 2016 U.S. Dist. LEXIS 101735, at *21 (W.D.N.C. Aug. 3,
2016) (phone calls to plaintiff in North Carolina do not constitute sufficient minimum
contacts with North Carolina “unless the parties had an extensive, substantive, or
continuing relationship that tied their behavior to the forum state”); Protocol, LLC v.
Henderson,
18 F. Supp. 3d 689, 701 (M.D.N.C. 2014) (noting that communications to
a party in the forum state are generally not purposeful contact with the forum state
and placing limited weight on the phone calls between defendant and North Carolina
plaintiff); Springs v. Ally Fin., Inc., No. 3:10-CV-311-RJC-DCK,
2010 U.S. Dist. LEXIS
123233, at *27−28 (W.D.N.C. Oct. 14, 2010) (stating that phone calls do not provide a
basis for personal jurisdiction because they are not tantamount to physical presence);
WLC, LLC, 454 F. Supp. 2d at 436−37 (referring to defendants’ e-mails and phone
calls to North Carolina plaintiff and stating “that an exchange of communications
between two parties, one of whom is located in the forum state, in furtherance of a
contract, will not generally constitute purposeful contact with the forum state for
purposes of jurisdiction”); Miller v. Szilagyi,
221 N.C. App. 79, 92−93,
726 S.E.2d 873,
883 (2012) (“[P]hone calls, like contracts, do not automatically establish the necessary
minimum contacts with this State for the establishment of personal
jurisdiction. . . . Plaintiff has not demonstrated how the correspondences from the
[defendants] to Plaintiff in North Carolina constituted a purposeful availment by the
[defendants] of the privilege of conducting activities within the forum State, thus
invoking the benefits and protection of its laws.” (internal quotations omitted)).
94. Moreover, Mowery did not purposefully direct his activity at North Carolina.
“Due process requires that a defendant be haled into court in a forum State based on
his own affiliation with the State, not based on the random, fortuitous, or attenuated
contacts he makes by interacting with other persons affiliated with the State.”
Walden, 134 S. Ct. at 1123. Mowery contacted Plaintiffs because of their status as
shareholders of Consert, a Delaware corporation with its principal place of business
in Texas. Seven shareholder-plaintiffs happened to be North Carolina residents, but
the other five shareholder-plaintiffs are located in five different states. See Alacrity
Renovation Servs., LLC,
2016 U.S. Dist. LEXIS 101735, at *22 (concluding
communications between defendant and plaintiff in North Carolina are insufficient to
establish minimum contacts because such communications are contacts with persons
who reside in North Carolina, not contacts with North Carolina itself); Protocol, LLC,
18 F. Supp. 3d at 701 (noting that defendant’s communications to plaintiff “were
directed at North Carolina only because [plaintiff] happened to be located there”);
WLC, LLC, 454 F. Supp. 2d at 438 (“[I]t appears that the contacts between Defendants
and North Carolina arose merely because Plaintiff is located in North Carolina and
not because Defendants purposely directed their activities towards the State of North
Carolina.”); Sea-Roy Corp.,
1995 U.S. Dist. LEXIS 21859, at *32 (“[I]t is necessary to
distinguish between a defendant’s acts which are aimed at a plaintiff who is located
in a forum and those which are aimed at the forum itself: only those acts in the second
category constitute purposeful and deliberate contact with the forum which makes it
fair and reasonable for the forum to exercise personal jurisdiction.” (internal
quotations omitted)).
95. Mowery has never resided in North Carolina and his participation in the
Merger took place entirely outside of North Carolina. On similar facts, North Carolina
courts have declined to exercise specific jurisdiction over a defendant. See Curvcraft,
Inc. v. J.C.F. & Assocs., Inc., 84 N.C. App. 450, 452,
352 S.E.2d 848, 849 (1987) (no
specific jurisdiction when defendant resided outside of the state and “never traveled
to North Carolina in connection with th[e] contract” that was the focus of the
complaint); see also WLC, LLC, 454 F. Supp. 2d at 432 (no specific jurisdiction when
the vast majority of the work on the consulting agreement at issue had taken place in
Mississippi and other states, not North Carolina); Weisman v. Blue Mt. Organics
Distrib., LLC,
2014 NCBC LEXIS 41, *16 (N.C. Super. Ct. 2014) (declining to exercise
specific jurisdiction when all activity related to relevant transaction “occurred entirely
in Virginia”); Cameron-Brown Co. v. Daves,
83 N.C. App. 281, 285−87,
350 S.E.2d 111,
114−16 (1986) (no specific jurisdiction over defendant when negotiations over contract
at issue occurred in South Carolina; defendant was a South Carolina resident; and
defendant’s only contact with North Carolina was mailing payments to North Carolina
office pursuant to the contract).
96. Based on the foregoing, Mowery did not have sufficient minimum contacts
with North Carolina to confer personal jurisdiction over him in this Court. The
Mowery and Stephens Motion to dismiss Mowery for lack of personal jurisdiction
should be GRANTED.
9. Plaintiffs have not established by a preponderance of the evidence that the
Court has personal jurisdiction over Stephens.
97. Plaintiffs appear to contend that the Court has both specific and general
personal jurisdiction over Stephens. Plaintiffs allege that Stephens “is a corporation
having its principal place of business in Little Rock, Arkansas and an office at 101 S.
Stratford Road, Winston-Salem, North Carolina.” (FAC ¶ 29.) Plaintiffs allege that
Stephens “had significant contacts with Plaintiffs who reside in North Carolina and
engaged in activities within North Carolina in an attempt to induce them to approve
the [S]ale[,]” but the only specific activity attributed to Stephens are Mowery’s alleged
phone calls to unnamed “Plaintiffs and other shareholders.” (FAC ¶¶ 30, 80.)
98. Defendants submitted affidavit evidence that Stephens is an Arkansas
corporation headquartered in Little Rock. (Mowery Aff. ¶ 3.) During the engagement
by Consert, Mowery “supervised a team of investment bankers and analysts within
Stephens who were working on the merger transaction.” (Mowery Aff. ¶ 13.) All of the
Stephens employees who worked on the Merger were based in Little Rock, Arkansas.
(Id.) No one on Stephens’s investment banking team traveled to North Carolina in
connection with Stephens’s engagement with Consert. (Mowery Aff. ¶ 21.)
99. Stephens has retail branch offices in Winston-Salem and Charlotte, North
Carolina, which provide wealth management services. (Mowery Aff. ¶ 14.) Stephens
does not employ corporate finance investment bankers who perform the type of
services provided during the Consert engagement in North Carolina. (Mowery Aff. ¶
14.) None of Stephens’s North Carolina employees worked on the Merger. (Mowery
Aff. ¶¶ 13−14.)
100. Stephens’s only contacts with North Carolina related the Merger were
Mowery’s. The Court already has determined that Mowery did not have sufficient
minimum contacts with North Carolina to satisfy due process. Therefore, the Court
concludes that Stephens does not have sufficient minimum contacts with North
Carolina from which this action arises or to which this action relates to support the
exercise of specific jurisdiction.
101. General jurisdiction requires a “significantly higher” level of contacts with
the forum state than specific jurisdiction. Cambridge Homes of N.C. L.P. v. Hyundai
Constr., Inc., 194 N.C. App. 407, 412,
670 S.E.2d 290, 295 (2008). General jurisdiction
over a foreign corporation exists “when [its] affiliations with the State are so
continuous and systematic as to render [it] essentially at home in the forum State.”
Daimler AG,
134 S. Ct. at 754 (internal quotations omitted) (quoting Goodyear Dunlop
Tires Operations, S.A.,
564 U.S. at 919). The paradigm forums for the exercise of
general jurisdiction over a corporation are the corporation’s place of incorporation and
principal place of business. Id. at 760. Only in an exceptional case may a corporation’s
contacts with another state be so continuous and systematic so as to render it
essentially at home there. Id. at 761 n.19; Brown v. Lockheed Martin Corp.,
814 F.3d
619, 627 (2d Cir. 2016) (stating that “Daimler established that, except in a truly
exceptional case, a corporate defendant may be treated as essentially at home only
where it is incorporated or maintains its principal place of business” and noting that
at least three other circuits agree with such interpretation); Hutton v. Hydra-Tech,
Inc., 1:14-cv-888,
2016 U.S. Dist. LEXIS 135497, at *10 (M.D.N.C. Sept. 30, 2016);
Ricks v. Armstrong Int’l, Inc., No. 4:14-CV-37-BO,
2014 U.S. Dist. LEXIS 86600, at *6
(E.D.N.C. June 24, 2014).
102. The “textbook case” for exercising general jurisdiction over a foreign
corporation is Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437 (1952). The
defendant in Perkins was a Philippine mining company. The company’s president
ceased mining operations due to World War II and “moved to Ohio, where he kept an
office, maintained the company’s files, and oversaw the company’s activities.”
Id. at
756 (citing Perkins,
342 U.S. at 448). The Supreme Court held that Ohio courts had
general jurisdiction over defendant “because ‘Ohio was the corporation’s principal, if
temporary, place of business.’”
Id. (quoting Keeton v. Hustler Magazine, Inc.,
465 U.S.
770, 780, n.11 (1984)).
103. Here, Stephens is an Arkansas corporation with its principal place of
business in Little Rock, Arkansas, and Arkansas is the paradigm forum with general
jurisdiction over Stephens. Nevertheless, Plaintiffs appear to contend that the Court
has personal jurisdiction over Stephens because it “has a place of business and does
significant business in the State of North Carolina.” (FAC ¶ 30.) Plaintiffs, however,
have not provided evidence, argued, or even alleged that the nature or amount of
business Stephens conducts in North Carolina would render Stephens “essentially at
home” in this State for purposes of asserting general personal jurisdiction. Weisman,
2014 NCBC LEXIS 41, at *12 (evidence that defendant-company “received only 3.6%
of its total sales volume from North Carolina” was “insufficient to support general
jurisdiction over [it]”); Occidental Fire & Cas. Co. v. Cont’l Ill. Nat’l Bank & Tr.
Co.,
689 F. Supp. 564, 568 & n.1 (E.D.N.C. 1988) (finding no general jurisdiction
existed when the defendant’s loan activity in the forum state exceeded $100
million); Ash v. Burnham Corp.,
80 N.C. App. 459, 461−62,
343 S.E.2d 2, 3−4
(1986) (holding that the defendant’s sales to North Carolina customers, comprising
0.5% of its total annual sales, was insufficient to support jurisdiction).
104. Even considering that Stephens has two retail offices in North Carolina,
Plaintiffs have failed to show that Stephens’s contacts with North Carolina satisfy the
demanding standard for exercising general jurisdiction over a foreign corporation. See
Brown, 814 F.3d at 628−29 (concluding that defendant’s contacts with the forum state
did not render it essentially at home there where defendant leased the same building
in the state for over fifteen years and ran operations at three other leased locations in
the state); Cutcher v. Midland Funding, LLC, No. ELH-13-3733, 2014 U.S. Dist.
LEXIS 68768, at *21 (D. Md. May 19, 2014) (concluding that plaintiff failed to make a
prima facie showing that defendants’ contacts with Maryland are so continuous and
systematic such that defendants are essentially at home in Maryland where plaintiff
merely alleged that defendants maintain a place of business in Maryland and conduct
business in Maryland).
105. The Court concludes that Plaintiffs have failed to establish Stephens’s
contacts with North Carolina are so continuous and systematic that it is essentially
at home in North Carolina. The Mowery and Stephens Motion to dismiss Stephens for
lack of personal jurisdiction should be GRANTED.
9. Plaintiffs have not established by a preponderance of the evidence that the
Court has personal jurisdiction over Alamo.
106. Plaintiffs make no specific argument regarding this Court’s personal
jurisdiction over Alamo. The FAC does not allege that Alamo had any corporate
existence beyond acting as a temporary vehicle for completing the Merger, does not
allege that Alamo had any employees or agents, and does not allege that Alamo
engaged in any specific act, statement, or omission in furtherance of the Scheme.
107. Alamo contends that it “was merged ‘with and into’ Consert and
‘disappeared’ as a separate legal entity on February 1, 2013. Given that Alamo no
longer has a corporate existence, it must be dismissed pursuant to N.C. R. Civ. P.
12(b)(2).” (Alamo’s Br. Supp. Mot. Dismiss 5.) Alamo provided evidence that it was
merged with and into Consert, and that Consert was the surviving corporation.
(Mansfield Aff. Exh. 1; Pellissier Aff. ¶ 4.) Plaintiffs allege that Consert was merged
into Alamo, but concede that Consert was the surviving corporation. (FAC ¶¶ 2, 26.)
Plaintiffs, however, have not presented evidence to rebut Alamo’s evidence that it no
longer has a corporate existence, and Plaintiffs made no specific argument regarding
Alamo’s current corporate status in its brief opposing the Alamo Motion.
108. Delaware law applies to the question of whether Alamo, a Delaware
corporation, continues to have a legal existence. Bluebird Corp. v. Aubin, 188 N.C.
App. 671, 680,
657 S.E.2d 55, 63 (2008) (“States normally look to the State of a
business’ incorporation for the law that provides the relevant corporate governance
general standard of care.”); Akande v. Transamerica Airlines, Inc., No. 1039-VCP,
2007 Del. Ch. LEXIS 68, at *63 (Del. Ch. May 25, 2007) (“[T]he existence or
nonexistence of a Delaware corporation is governed by Delaware law.”); Beals v. Wash.
Int’l, Inc.,
386 A.2d 1156, 1161 (Del. Ch. 1978) (“In resolving questions centering on
corporate existence . . . , it should be kept in mind that corporations exist only by
legislative act.”).
109. Under Delaware law, two Delaware corporations may be merged into a
single corporation, which may be one of the constituent corporations. Del. Code Ann.
tit. 8, § 251(a); Cigna Health & Life Ins. Co. v. Audax Health Sols., Inc.,
107 A.3d 1082,
1097 n.57 (Del. Ch. 2014). When two corporations merge, the merged corporation’s
identity is merged into the surviving corporation and the merged corporation ceases
to exist; only the surviving corporation maintains its corporate existence.
Del. Code
Ann. tit. 8, § 259(a); Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH,
62 A.3d
62, 86 (Del. Ch. 2013) (“[U]nder section 259, the corporation that was merged into the
second corporation cease[d] to exist.” (internal quotations omitted) (second alteration
in original)); Beals,
386 A.2d at 1161 (“Since by statute, corporate existence is
terminated on the date of merger, a corporation ceases to exist on merger for all
purposes . . . .” (citation omitted)); Argenbright v. Phx. Fin. Co.,
187 A. 124, 126 (Del.
Ch. 1936) (“When a . . . merger has taken place under the statute, the old corporations
have their identity absorbed into that of the new corporation or the one into which
they were merged.”).
110. As a result, when a merger becomes effective upon the filing of the merger
agreement or a certificate of merger with the Secretary of State, the merged
corporation lacks the capacity to sue or be sued. Nat’l Union Fire Ins. Co. v. Stauffer
Chem. Co., C.A. No. 87C-SE-11, 1991 Del. Super. LEXIS 269, at *7−8 (Del. Sup. Ct.
July 15, 1991) (dismissing a corporate defendant who had merged into another
corporation at the time the action was filed because the merged corporation lacked the
capacity to be sued); see
Del. Code Ann. tit. 8, § 251(c).
111. Here, Alamo was formed in Delaware on January 23, 2013 and merged into
Consert pursuant to Del. Code Ann. tit. 8, § 251. (Mansfield Aff. Exh. 1.) A certificate
of merger was filed with the Delaware Secretary of State on February 1, 2013. (Id.)
Once the certificate of merger was filed, Alamo ceased to exist.
112. This action was filed on November 9, 2015, which was after Alamo’s
existence ended. Alamo lacks the capacity to be sued and must be dismissed. Rankin
v. Food Lion, 210 N.C. App. 213, 216−17,
706 S.E.2d 310, 313 (2011) (affirming
summary judgment where the defendants submitted an affidavit establishing, inter
alia, that two of the corporate defendants no longer existed and a third was “not a
legal entity”); Deal v. Cape Fear Valley Hosp., No. 5:09-CT-3066-D,
2011 U.S. Dist.
LEXIS 10375, at *10−11 (E.D.N.C. Feb. 2, 2011) (dismissing claims on Rule 12(b)(2)
grounds where defendant’s affidavit established that the entity sued by plaintiff did
not exist); Thomas v. Kerr Drug Stores, Inc., No. 74-36-CIV-8,
1975 U.S. Dist. LEXIS
16872, at *2 n.1 (E.D.N.C. June 10, 1975) (“Defendant Kerr Wholesale, Inc. . . . no
longer exists as a corporate entity, its full functions having been absorbed by Kerr
Drugs Stores, Inc. The case must therefore be dismissed as to the former party.”).
113. The Court concludes that at the time this lawsuit was filed, Alamo did not
have a legal existence as a corporation and could not be sued. The Alamo Motion to
dismiss Alamo for lack of personal jurisdiction should be GRANTED.9
B. Adams Motion.
114. In the FAC, Plaintiffs make claims against Adams for: (1) breach of fiduciary
duty; (2) common law fraud; (3) constructive fraud; (4) conspiracy to defraud; (5)
fraudulent inducement; and (6) unfair and deceptive trade practices. (FAC 27−31, 34.)
Plaintiffs, however, have not made any specific allegations regarding Adams in the
FAC other than the allegations identifying him as a Defendant. (FAC ¶ 21.)
115. Adams is a resident of North Carolina and accordingly has not moved to
dismiss for lack of personal jurisdiction. Instead, Adams moves to dismiss under Rule
12(b)(1) for lack of subject matter jurisdiction, contending that all of Plaintiffs’ claims
are derivative claims of Consert and Plaintiffs lack standing to bring direct claims
against Adams.
116. Alternatively, Adams moves to dismiss under Rule 12(b)(6) for failure to
state a claim upon which relief can be granted.
1. Plaintiffs’ claims are not derivative and the Court has subject matter
jurisdiction over the claims.
117. A court shall dismiss the action when it appears that the court lacks subject
matter jurisdiction. N.C. Gen. Stat. § 1A-1, Rule 12(h)(3). A defect in subject matter
jurisdiction may be raised by a party or by the court sua sponte. Conner Bros. Mach.
9 In addition, even if Alamo had the capacity to be sued, Plaintiffs have alleged no facts and
provided no evidence that Alamo had contacts with North Carolina that would establish that
this Court has personal jurisdiction over Alamo. Dismissal is also mandated on that basis.
Co. v. Rogers, 177 N.C. App. 560, 561,
629 S.E.2d 344, 345 (2006). “A motion to dismiss
for lack of subject matter jurisdiction is not viewed in the same manner as a motion to
dismiss for failure to state a claim upon which relief can be granted.” Tart v. Walker,
38 N.C. App. 500, 502,
248 S.E.2d 736, 737 (1978). A court may consider matters
outside the pleadings in determining whether subject matter jurisdiction exists. Keith
v. Wallerich,
201 N.C. App. 550, 554,
687 S.E.2d 299, 302 (2009); Tart,
38 N.C. App.
at 502,
248 S.E.2d at 737.
118. Adams contends that all of Plaintiffs’ claims against him are derivative
claims belonging to Consert and can only be asserted by or on behalf of Consert. (Br.
Supp. Adams’s Mot. to Dismiss 6.)
119. Adams concedes that “[g]iven that Consert is a Delaware corporation, the
substantive laws and requirements of Delaware regarding derivative claims apply to
Plaintiffs’ action.” (Br. in Supp. Adams’s Mot. to Dismiss 6 n.6); see also Scott v.
Lackey,
2012 NCBC LEXIS 60, at *14 (N.C. Super. Ct. Dec. 3, 2012) (“North Carolina
courts look to the laws of the state in which the company is incorporated to determine
the procedural prerequisites and whether the claim is derivative or individual.”
(internal quotations omitted)). Adams incorrectly contends, however, that Plaintiffs’
claims are derivative because “both Delaware and North Carolina apply the same
standard for derivative claims and their procedural prerequisites.” (Br. in Supp.
Adams’s Mot. to Dismiss 6 n.6.) Based on this erroneous position, Adams contends
that in order for Plaintiffs to maintain direct claims against him, they must fit within
the “special duty” or “separate and distinct injury” exceptions under Barger v. McCoy
Hillard & Parks,
346 N.C. 650,
488 S.E.2d 215 (1997).
120. Delaware law is different from North Carolina law and recognizes an
individual shareholder’s right to bring direct claims against directors and officers
under certain circumstances. Under controlling Delaware law, whether a claim is
direct or derivative turns on two questions: “(1) who suffered the alleged harm (the
corporation or the suing stockholders, individually); and (2) who would receive the
benefit of any recovery or other remedy (the corporation or the stockholders,
individually)?” Tooley v. Donaldson, Lufkin, & Jenrette, Inc.,
845 A.2d 1031, 1033
(Del. 2004).
121. Under Delaware law, it is well-settled that “[a] stockholder who directly
attacks the fairness or validity of a merger alleges an injury to the stockholders, not
the corporation, and may pursue such a claim even after the merger at issue has been
consummated.” Parnes v. Bally Entm’t Corp.,
722 A.2d 1243, 1245 (Del. 1999); N.J.
Carpenters Pension Fund v. infoGROUP, Inc., C.A. No. 5334-VCN,
2011 Del. Ch.
LEXIS 147, at *41 & n.69 (Del. Ch. Sept. 30, 2011) (citing Parnes,
722 A.2d at 1245).
Parnes, a Delaware Supreme Court decision finding that Plaintiffs’ allegations
constituted an actionable direct claim on similar facts, is instructive. In Parnes, a
shareholder alleged that the corporation’s directors breached their fiduciary duties by
entering into a merger that allegedly was the result of unfair dealing and resulted in
an unfair price. Parnes,
722 A.2d at 1244. The Supreme Court of Delaware reversed
the Court of Chancery’s dismissal, finding that the alleged unfairness of the merger
terms, a result of alleged self-dealing, was a direct claim.
Id. at 1246; see also In re
Ply Gem Indus., Inc., C.A. No. 15779-NC,
2001 Del. Ch. LEXIS 84, at *16 (Del. Ch.
June 26, 2001) (“The attack on [the CEO]’s conduct during the course of the merger
negotiations, and the board’s acquiescence in it, is a challenge by Plaintiffs to the
fairness of the merger process. Accordingly, Parnes dictates that Plaintiffs’ claims
must be treated as individual claims and not as derivative claims.”).
122. Here, Plaintiffs allege that O&D Defendants engaged in conduct that was
designed to ensure that they received benefits from the Merger, but that Plaintiffs did
not. Plaintiffs allege that O&D Defendants misrepresented and omitted material facts
to Plaintiffs to induce them to agree to the Merger. Plaintiffs allege that O&D
Defendants’ misconduct resulted in O&D Defendants receiving substantial benefits
from the Merger, while Plaintiffs received nothing.
123. Under Parnes and its progeny, the allegations of the FAC are a challenge by
Plaintiffs to the fairness of the merger process that render Plaintiffs’ claims direct
claims, rather than derivative claims. The Adams Motion to dismiss for lack of subject
matter jurisdiction should be DENIED.
2. Adams’s Rule 12(b)(6) Motions to Dismiss.
124. In ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court reviews
the allegations of the complaint in the light most favorable to the plaintiff. The Court’s
inquiry is “whether, as a matter of law, the allegations of the complaint, treated as
true, are sufficient to state a claim upon which relief may be granted under some legal
theory.” Harris v. NCNB Nat’l Bank of N.C., 85 N.C. App. 669, 670,
355 S.E.2d 838,
840 (1987). The Court construes the complaint liberally and accepts all allegations as
true. Laster v. Francis,
199 N.C. App. 572, 577,
681 S.E.2d 858, 862 (2009).
125. Dismissal of a claim pursuant to Rule 12(b)(6) is proper “(1) when the
complaint on its face reveals that no law supports [the] claim; (2) when the complaint
reveals on its face the absence of fact sufficient to make a good claim; [or] (3) when
some fact disclosed in the complaint necessarily defeats the . . . claim.” Oates v. JAG,
Inc.,
314 N.C. 276, 278,
333 S.E.2d 222, 224 (1985); see also Jackson v. Bumgardner,
318 N.C. 172, 175,
347 S.E.2d 743, 745 (1986). Otherwise, “a complaint should not be
dismissed for insufficiency unless it appears to a certainty that plaintiff is entitled to
no relief under any state of facts which could be proved in support of the claim.” Sutton
v. Duke,
277 N.C. 94, 103,
176 S.E.2d 161, 166 (1970) (emphasis omitted).
126. The Court is not required “to accept as true allegations that are merely
conclusory, unwarranted deductions of fact, or unreasonable inferences.” Good Hope
Hosp., Inc. v. N.C. Dep’t of Health & Human Servs.,
174 N.C. App. 266, 274,
620 S.E.2d
873, 880 (2005). A “trial court can reject allegations that are contradicted by the
documents attached, specifically referred to, or incorporated by reference in the
complaint.” Laster,
199 N.C. App. at 577,
681 S.E.2d at 862. The Court can also ignore
a party’s legal conclusions set forth in its pleading. McCrann v. Pinehurst, LLC,
225
N.C. App. 368, 377,
737 S.E.2d 771, 777 (2013).
a. Breach of Fiduciary Duty/Constructive Fraud.
127. Plaintiffs make claims for breach of fiduciary duty and constructive fraud
against all O&D Defendants, including Adams. In their briefs, Plaintiffs and Adams
argued and applied North Carolina law; however, under the internal affairs doctrine,
Delaware law applies to Plaintiffs’ claims against Adams for breach of fiduciary duty
and constructive fraud. Bluebird Corp. v. Aubin, 188 N.C. App. 671, 680,
657 S.E.2d
55, 63 (2008); Tong v. Dunn,
2016 NCBC LEXIS 52, at *2 (N.C. Super. Ct. July 8,
2016) (applying Delaware law to former shareholders’ breach of fiduciary duty claim
against former directors).
128. In order to establish a claim for breach of fiduciary duty under Delaware
law, a plaintiff must show that (1) a fiduciary duty exists, and (2) the fiduciary
breached that duty. Estate of Eller v. Bartron,
31 A.3d 895, 897 (Del. 2011).
129. Here, the allegations of the FAC are sufficient to state a claim for breach of
fiduciary duty against Adams. There is no question that Adams, as a director of
Consert, owed fiduciary duties to Plaintiffs as shareholders of Consert. In re Nine Sys.
Corp., C.A. No. 3940-VCN,
2014 Del. Ch. LEXIS 171, at *87 (Del. Ch. Sept. 4, 2014)
(“Directors of Delaware corporations owe fiduciary duties of care and loyalty to the
corporation and its stockholders.”). Plaintiffs have alleged facts that, taken as true,
are sufficient to show Adams breached his fiduciary duties. The duty of loyalty
requires that a director act in the best interests of the corporation and its
shareholders.
Id. A director must put the interests of the shareholders above his own
self-interest. Id. at *88. Plaintiffs allege that O&D Defendants, including Adams, put
their financial and pecuniary interests above those of Plaintiffs in order to maximize
O&D Defendants’ return on the Merger. The Adams Motion to dismiss the breach of
fiduciary duty claim should be DENIED.
130. Under Delaware law, “[c]onstructive fraud is simply a term applied to a
great variety of transactions, having little resemblance either in form or nature, which
equity regards as wrongful, to which it attributes the same or similar effects as those
which follow from actual fraud[.]” In re Wayport, Inc., 76 A.3d 296, 327 (Del. Ch. 2013).
Constructive fraud exists to prevent wrongdoing by someone in a special position of
confidence or trust, such as a fiduciary. Carsanaro v. Bloodhound Techs., Inc.,
65 A.3d
618, 643 (Del. Ch. 2013). “[Delaware] corporate case law has thrown this concept [of
constructive fraud] around in a not particularly precise way, but always in a context
in which the court is examining whether directors have complied with their fiduciary
duties.”
Id. (quoting Parfi Holding AB v. Mirror Image Internet, Inc.,
794 A.2d 1211,
1236 (Del. Ch. 2001), rev’d on other grounds,
817 A.2d 149 (Del. 2002)).
131. As the Court has concluded that the allegations of the FAC are sufficient to
state a claim for breach of fiduciary duty, it follows that the allegations are also
sufficient to state a claim for constructive fraud at the 12(b)(6) stage. The Adams
Motion to dismiss Plaintiffs’ constructive fraud claim should be DENIED.
b. Common Law Fraud/Fraudulent Inducement.
132. Plaintiffs allege claims for fraud and fraudulent inducement against all
Defendants, including Adams. Plaintiffs allege that “Defendants made numerous false
statements of material fact, misrepresentations of material fact and concealed
material facts from Plaintiffs” with “the intent and purpose of inducing Plaintiffs to
forego their lawful rights as shareholders in Consert and consent to the sale and
redemption of their stock in Consert.” (FAC ¶¶ 109, 126.) Adams contends that
Plaintiffs have not alleged the fraud claims with sufficient particularity as required
by Rule 9(b). Adams also contends that Plaintiffs’ fraud claims should be dismissed
because Plaintiffs have failed to allege that they relied on, and could not have
reasonably relied on, Defendants’ misrepresentations.
133. The parties have not discussed which state’s substantive law applies to the
fraud claims, but make their arguments based on North Carolina. Generally, North
Carolina applies a lex loci to determine the law that governs tort claims such as fraud.
Harco Nat’l Ins. Co. v. Grant Thornton LLP, 206 N.C. App. 687, 692,
698 S.E.2d 719,
722–23 (2010) (“Our traditional conflict of laws rule is that matters affecting the
substantial rights of the parties are determined by lex loci, the law of the situs of the
claim . . . . For actions sounding in tort, the state where the injury occurred is
considered the situs of the claim.” (quoting Boudreau v. Baughman,
322 N.C. 331, 335,
368 S.E.2d 849, 853−54 (1988))); Camacho v. McCallum,
2016 NCBC LEXIS 81, at *17
(N.C. Super. Ct. Oct. 25, 2016) (“The place of the injury is the state where the injury
or harm was sustained or suffered—the state where the last event necessary to make
the actor liable or the last event required to constitute the tort takes place, and the
substantive law of that state applies.”). Here, Plaintiffs make no allegation of any
specific misrepresentation or concealment by Adams. Instead, the fraud claims are
based primarily on misrepresentations and omissions made by Moore and Mowery at
the Shareholders Meeting in Texas. Plaintiffs do not allege that Adams attended or
participated in the Shareholders Meeting, and allege that only Worley out of the North
Carolina-resident Plaintiffs attended the Shareholders Meeting. (FAC ¶ 76.)
Nevertheless, Plaintiffs argue that injury to the interests of North Carolina-resident
Plaintiffs from Moore and Mowery’s misrepresentations occurred in North Carolina.
Accordingly, the Court will apply North Carolina law to Plaintiffs’ fraud claims.
134. In North Carolina, “[t]o allege a claim for fraud, a plaintiff must plead: (1)
[a] [f]alse representation or concealment of a material fact, (2) reasonably calculated
to deceive, (3) made with intent to deceive, (4) which does in fact deceive, (5) resulting
in damage to the injured party.” Birtha v. Stonemor, N.C., LLC,
220 N.C. App. 286,
296,
727 S.E.2d 1, 9 (2012) (internal quotations omitted).10
135. Under North Carolina conflict of laws rules, procedural rights are
determined by lex fori, the law of the forum. Boudreau,
322 N.C. at 335, 368 S.E.2d at
853−54. Accordingly, Rule 9(b) applies to Plaintiffs’ claims for common law fraud and
fraudulent inducement.
136. Rule 9(b) requires a party pleading fraud to allege the “time, place and
content of the fraudulent representation, identity of the person making the
representation and what was obtained as a result of the fraudulent acts or
representations.” Terry v. Terry,
302 N.C. 77, 85,
273 S.E.2d 674, 678 (1981). “Mere
generalities and conclusory allegations of fraud will not suffice.” Sharp v. Teague, 113
10 The elements of a claim for common law fraud are essentially identical under the laws of
Texas and North Carolina. Burleson State Bank v. Plunkett,
27 S.W.3d 605, 612 (Tex. App.
2000) (“To prevail on a common-law fraud claim, a plaintiff must establish (1) the defendant
made a material representation, (2) the representation was false, (3) the defendant either
knew the representation was false when made or made it recklessly without any knowledge
of its truth and as a positive assertion, (4) the defendant made the representation with the
intention that it be acted upon, (5) the representation was in fact relied upon, and (6) damage
to the plaintiff resulted.”).
N.C. App. 589, 597,
439 S.E.2d 792, 797 (1994) (quoting Moore v. Wachovia Bank &
Tr. Co.,
30 N.C. App. 390, 391,
226 S.E.2d 833, 835 (1976)).
137. Regardless of which state’s substantive law applies, Plaintiffs have failed to
satisfy the pleading requirements of Rule 9(b). The FAC does not allege the time,
place, or content of any misrepresentation or omission by Adams. Instead, Plaintiffs
only allege specific misrepresentations by Moore and Mowery. Otherwise, Plaintiffs
generally allege that Defendants made misrepresentations.
138. Plaintiffs cannot rely on allegations of fraudulent misrepresentations by a
group of defendants to support their fraud claims. Julian v. Wells Fargo Bank, N.A.,
2012 NCBC LEXIS 32, at *22 (N.C. Super. Ct. May 22, 2012). In Julian, the court
held:
Plaintiffs’ allegations do not support claims of fraud or fraudulent
inducement against Wells Fargo for several reasons. First, Plaintiffs’
pleading of these claims does not conform to the specificity requirements
of Rule 9(b). The Complaint does not allege the identity of an individual
officer, employee, or agent of the bank who made any deceptive or
misleading representation to Plaintiffs. In fact, Plaintiffs’ allegations of
fraud and fraud in inducement fail to specifically name Wachovia.
Rather, Plaintiffs seek to incorporate Wells Fargo as a defendant in
these claims through vague, general references to “Defendants’
[collective] fraudulent misrepresentations . . . [and] inducements.”
These conclusory allegations do not meet the particularity requirements
of Rule 9(b).
Id. at *21−22.
139. Plaintiffs instead argue that because Adams was a member of the Board,
which they allege acted in concert with each other and the other defendants, the
allegations that Moore and Mowery made fraudulent misrepresentations should be
sufficient to satisfy the particularity requirements of Rule 9(b) with respect to Adams.
(Pls.’ Omnibus Opp’n Mots. to Dismiss Counts I−V 21−22.) Plaintiffs cite Phillips and
Jordan, Inc. v. Bostic,
2009 NCBC LEXIS 3 (N.C. Super. Ct. June 2, 2009) in support,
which states
a plaintiff “must identify the particular individuals who dealt with him
when he alleges that he was defrauded by a group or association of
persons.” In particular, even if a plaintiff “may not be privy to the
workings of a group of defendants who have acted in concert to defraud
him, . . . [it] can at least identify the particular defendants who allegedly
dealt directly with him,” and it can also “designate the occasions on
which affirmative misstatements were made to [it]—and by whom[.]”
Id. at *14−15 (alterations in original) (citation omitted) (first quoting Coley v. N.C.
Nat’l Bank,
41 N.C. App. 121, 125,
254 S.E.2d 217, 219 (1979); then quoting Trussell
v. United Underwriters, Ltd.,
228 F. Supp. 757, 774 (D. Colo. 1964)).
140. To the extent that Phillips and Jordan, Inc. can be read to support the
proposition that plaintiff satisfies the particularity requirements of Rule 9(b) and
states a claim for fraud against an individual member of a group, such as a corporate
director, by simply alleging that another member of the group made specific
misrepresentations, the Court declines to extend such reasoning to the facts of this
case. Here, Plaintiffs have not made any specific allegations regarding Adams—
Plaintiffs have simply alleged that Adams was a member of the Board at the relevant
time. The FAC does not allege that Adams took any specific actions as a director in
support of the alleged fraudulent misrepresentations by Moore or Mowery. In fact,
Plaintiffs do not even allege that Adams was present at or participated in the
Shareholders Meeting at which Moore and Mowery allegedly made the
misrepresentations.
141. The Court concludes that the allegations of the FAC do not satisfy the
particularity requirements of Rule 9(b). The Adams Motion to dismiss the fraud claims
should be GRANTED.
c. Unfair and Deceptive Trade Practices.
142. Plaintiffs allege a claim against all Defendants, including Adams, for
violation of the North Carolina Unfair and Deceptive Trade Practices Act (“Act”).
Again, Plaintiffs have not alleged any specific conduct by Adams individually that
constituted an unfair or deceptive act.
143. To state a claim under the Act, “plaintiff must show: (1) defendant
committed an unfair or deceptive act or practice, (2) the action in question was in or
affecting commerce, and (3) the act proximately caused injury to the plaintiff.” Dalton
v. Camp, 353 N.C. 647, 656,
548 S.E.2d 704, 711 (2001).
144. Adams contends that Plaintiffs’ claim should be dismissed because it is
based exclusively on activity that occurred within Consert, and not activities involving
other market participants. In White v. Thompson,
364 N.C. 47, 53,
691 S.E.2d 676,
680 (2010), the North Carolina Supreme Court held:
Our prior decisions have determined that the General Assembly did not
intend for the Act’s protections to extend to a business’s internal
operations. . . . [T]he Act is not focused on the internal conduct of
individuals within a single market participant, that is, within a single
business. To the contrary, . . . the General Assembly intended the Act’s
provisions to apply to interactions between market participants. As a
result, any unfair or deceptive conduct contained solely within a single
business is not covered by the Act.
Accord Alexander v. Alexander, 792 S.E.2d 901, 904 (N.C. Ct. App. 2016) (quoting
White,
364 N.C. at 52,
691 S.E.2d at 679); Powell v. Dunn,
2014 NCBC LEXIS 3, at *8
(N.C. Super. Ct. Jan. 28, 2014).
145. The facts in Powell are similar to the facts of this case. In Powell, plaintiffs
were former common shareholders and defendants were former directors and
preferred shareholders. Powell,
2014 NCBC LEXIS 3, at *2. The corporation merged
with another corporation, and plaintiffs filed suit alleging that defendants breached
their fiduciary duties to plaintiffs by structuring the merger to the preferred
shareholders’ benefit and to the common shareholders’ detriment.
146. The court in Powell held that defendants’ alleged unfair or deceptive conduct
was not in or affecting commerce; “[r]ather, the alleged breaches of fiduciary duty owed
to the common shareholders and the misrepresentations complained of were matters
internal to [the company] and did not concern the company’s interaction with other
market participants in its regular, day-to-day activities.” Id. at *11. The indirect
involvement of an investment bank and other potential purchasers did not provide a
basis for the Court to conclude the conduct was in or affecting commerce. Id. at *10.
147. Here, Plaintiffs allege that Defendants’ conduct was unfair and deceptive
because they structured the Merger to benefit themselves and to the Plaintiffs’
detriment. Such conduct is wholly within Consert, a single business, and is not in or
affecting commerce. The Adams Motion to dismiss Plaintiffs’ claim for violation of the
Act should be GRANTED.
d. Conspiracy to Defraud.
148. As a fourth count, Plaintiffs allege that “Defendants agreed, colluded and
conspired among themselves, and each intentionally performed one or more actions in
furtherance of an illegal scheme to defraud Plaintiffs, which scheme or artifice
included fraudulent inducement, constructive fraud, and common law fraud.” (FAC ¶
121.)
149. The Court will apply North Carolina law to Plaintiffs’ claim for conspiracy
to defraud. Stetser v. TAP Pharm. Prods. Inc., 165 N.C. App. 1, 16,
598 S.E.2d 570,
581 (2004) (“[T]he substantive law of the state where the injury occurred would be
applied to the plaintiffs’ claims for . . . civil conspiracy and tortious concert of action.”).
150. It is well-settled that there is no independent cause of action for conspiracy.
Toomer v. Garrett,
155 N.C. App. 462, 483,
574 S.E.2d 76, 92 (2002). “[O]ur law
nevertheless permits one defrauded to recover from anyone who facilitated the fraud
by agreeing for it to be accomplished.” Neugent v. Beroth Oil Co.,
149 N.C. App. 38,
53,
560 S.E.2d 829, 838−39 (2002) (citing Nye v. Oates,
96 N.C. App. 343, 346−47,
385
S.E.2d 529, 531 (1989)). “The elements of facilitating fraud are: (1) that the defendants
agreed to defraud plaintiff; (2) that defendants committed an overt tortious act in
furtherance of the agreement; and (3) that plaintiff suffered damages from that act.”
Id. To state a claim for civil conspiracy, “[t]he pleader must . . . allege the facts from
which the alleged conspiracy may be inferred and the alleged unlawful acts agreed
upon.” Thomas & Howard Co. v. Am. Mut. Liability Ins. Co.,
241 N.C. 109, 115,
84
S.E.2d 337, 341 (1954). “[A]llegations that the plaintiff sustained a loss ‘by the
dishonesty and/or fraud’ of one or more of its defendant employees, and that the
individual defendants acted ‘in collusion and/or conspiracy’ with each other are mere
conclusions, and not sufficient.” Id.; Kirby v. Reynolds,
212 N.C. 271, 284,
193 S.E.
412, 420 (1937) (“There is no direct or circumstantial allegation in the complaint to
show any conspiracy between [defendants] to injure plaintiff. The allegations in the
pleadings, ‘their wanton, willful, malicious, and unlawful combine, conspiracy,
confederation, and agreement to injure this plaintiff,’ etc., are not borne out by the
long details of the pleadings, and were merely conclusions of the pleader and not
considered on a demurrer.”).
151. The FAC alleges that Defendants “agreed, colluded and conspired among
themselves . . . to defraud Plaintiffs, which scheme or artifice included fraudulent
inducement, constructive fraud, and common law fraud” (FAC ¶ 121), but does not
allege any facts explaining how Adams was involved in the conspiracy or that Adams
entered into an agreement with the other Defendants. The FAC generally states that
“Defendants Roberts and Moore, acting individually and in concert with other
defendants, devised and executed a scheme . . . which had the purpose and effect of
disenfranchising certain shareholders, including Plaintiffs.” (FAC ¶ 33.) In addition,
under the heading “Defendants’ Illegal and Fraudulent Scheme,” the FAC alleges that
“Defendants Roberts and Moore . . . devised a scheme to sell Consert to a third party
in a manner that would illegally maximize the returns on their personal investments
in Consert, and the investments of certain other officers, directors, and investors” to
Plaintiffs’ detriment. (FAC ¶ 40.) There are no allegations that Adams took any action
in furtherance of the Scheme, or that Adams received any benefit from the Scheme,
from which the Court can infer a meeting of the minds between Adams and any other
Defendants.
152. Plaintiffs allegation that “Defendants agreed, colluded and conspired among
themselves . . . to defraud Plaintiffs” is a legal conclusion and, with regard to Adams,
is not supported by any facts that show his agreement to the alleged conspiracy.
Jackson v. Blue Dolphin Commc’ns of N.C., L.L.C.,
226 F. Supp. 2d 785, 791 (W.D.N.C.
2002) (“[T]he Plaintiff has failed to allege any facts that support an agreement among
the Defendants. Her allegation that Defendants “conspired” is conclusory and relies
only upon suspicion and conjecture. Because of the conclusory nature of the allegation,
the Plaintiff has failed to state a claim upon which relief may be granted.”). The Adams
Motion to dismiss Plaintiffs’ civil conspiracy claim should be GRANTED.
III. CONCLUSION
153. For the foregoing reasons, the Court hereby ORDERS as follows:
a. The Court GRANTS the Kellen Motion and DISMISSES Defendant
Kellen for lack of personal jurisdiction.
b. The Court GRANTS the Baker, Brown, and McCamant Motion and
DISMISSES Defendants Baker, Brown, and McCamant for lack of
personal jurisdiction.
c. The Court GRANTS the Kerr Motion and DISMISSES Defendant Kerr
for lack of personal jurisdiction.
d. The Court GRANTS the Moore and Roberts Motion and DISMISSES
Defendants Moore and Roberts for lack of personal jurisdiction.
e. The Court GRANTS the Mowery and Stephens Motion and DISMISSES
Defendants Mowery and Stephens for lack of personal jurisdiction.
f. The Court GRANTS the Alamo Motion and DISMISSES Defendant
Alamo for lack of personal jurisdiction.
g. The Court GRANTS in part and DENIES in part the Adams Motion.
The Court DISMISSES Plaintiffs’ claims against Defendant Adams for
common law fraud, fraudulent inducement, unfair and deceptive trade
practices, and conspiracy to defraud with prejudice. The Court DENIES
the Adams Motion as to Plaintiffs’ claims against Defendant Adams for
breach of fiduciary duty and constructive fraud.
This the 28th day of February, 2017.
/s/ Gregory P. McGuire
Gregory P. McGuire
Special Superior Court Judge for
Complex Business Cases
