Worley v. Moore

 Worley v. Moore, 

.


 STATE OF NORTH CAROLINA                   IN THE GENERAL COURT OF JUSTICE
 COUNTY OF COLUMBUS                            SUPERIOR COURT DIVISION
                                                      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,
                                                ORDER AND OPINION ON
            v.                                   DEFENDANT TOSHIBA
                                               CORPORATION’S MOTION TO
 ROY J. MOORE; PIERCE J.                              DISMISS
 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 comes before the Court on Defendant Toshiba Corporation’s

(“Toshiba”) Motion to Dismiss Pursuant to Rule 12(b)(6). (“Motion”, ECF No. 124.)

Toshiba moves to dismiss all of the six claims asserted against it in the Second

Amended Complaint (“SAC”). (Sec. Am. Compl., ECF No. 123.)1

      THE COURT, having considered the Motion, the briefs filed in support of and

in opposition to the Motion, the arguments of counsel at the hearing, and other




1 The SAC raises claims only against Michael Adams and Toshiba.
appropriate matters of record, CONCLUDES that the Motion should be GRANTED,

in part, and DENIED, in part, in the manner and for the reasons set forth below.


            Nexsen Pruet, PLLC, by R. Daniel Boyce for Plaintiffs.

            RuyakCherian LLP, by Robert F. Ruyak, Richard A. Ripley (pro hac
            vice), and Arthur T. Farrell for Plaintiffs.

            Kilpatrick Townsend & Stockton LLP, by Jason M. Wenker, John M.
            Moye, Elizabeth L Winters, Joel D. Bush (pro hac vice) and Stephen E.
            Hudson (pro hac vice) for Defendants Michael Adams and Toshiba
            Corporation.

McGuire, Judge.

                     I.     RELEVANT PROCEDURAL FACTS

      1.    On February 28, 2017, this Court entered its Opinion and Order on

Defendants’ Motions to Dismiss (the “First Dismissal Order”). Worley v. Moore, 

 (N.C. Super. Ct. Feb. 28, 2017). (ECF No. 99.) In the First Dismissal

Order, the Court dismissed all of the Defendants except for Michael Adams (“Adams”)

Gini Coyle, and Toshiba based on the allegations in the First Amended Complaint

(“FAC”). (First Am. Compl., ECF No. 18.) Worley, 

, at *79–80.

      2.    On April 18, 2018, Plaintiffs filed the SAC. The factual allegations in

the SAC are virtually identical to the allegations in the FAC, but the SAC makes

claims only against Adams and Toshiba. In the SAC, Plaintiffs allege claims against

Toshiba for common law fraud (Count II), conspiracy to defraud (Count IV),

fraudulent inducement (Count V), violation of the North Carolina Securities Act

(“NCSA”) (Count VI), unlawful taking, conversion, and unjust enrichment (Count
VII), and violation of the North Carolina Unfair and Deceptive Trade Practices Act

(“UDTPA”) (Count VIII).

       3.     On May 21, 2018, Toshiba filed the Motion to Dismiss and accompanying

brief in support. (Br. Supp. Toshiba MTD, ECF No. 125.) Plaintiffs filed their brief

in opposition on June 11, 2018. (Pls.’ Br. Opp. Def. MTD, ECF No. 127.) Toshiba

filed a reply on June 25, 2018. (ECF No. 128.) The Court held a hearing on the

Motion.     Plaintiffs subsequently sought leave to file additional legal authority

responding to questions raised by the Court at the hearing, and the Court granted

leave. (Mot. for Leave, ECF No. 139; Order, ECF No. 143.) The Motion it is now ripe

for disposition.

                   II.   FACTS AND PROCEDURAL BACKGROUND

       4.     The Court does not make findings of fact on motions to dismiss under

Rule 12(b)(6) of the North Carolina Rules of Civil Procedure ( “Rule(s)”), but only

recites those facts included in the complaint that are relevant to the Court’s

determination of the Motion. See e.g., Concrete Serv. Corp. v. Inv’rs Grp., Inc., 

, 

, 758 (1986).         The full factual background

underlying Plaintiffs’ claims is set out in the First Dismissal Motion. Worley, 

, at *2–18. The Court recites here only those facts necessary to the

disposition of the Motion.

       5.     Plaintiffs are former holders of the common stock of Consert, Inc.

(“Consert”). (ECF No. 123, at ¶¶ 3–14.)

       6.     Defendant Toshiba is a Japanese corporation. (Id. at ¶ 16.)
      7.     Defendant Adams is a former director of Consert.          (Id. at ¶ 17.)

(Collectively, Toshiba and Adams are referred to as “Defendants”).

      8.     Roy J. Moore (“Moore”), Pierce J. Roberts (“Roberts”), David Brown,

Christopher Baker, James Kerr, Frank McCamant, and Neil Kellen, are former

officers and/or directors of Consert (collectively, “Former Directors”). (Id. at ¶¶ 18–

25.) The Former Directors are alleged to be “co-conspirators” in the unlawful acts

alleged in the SAC. (Id.)

      9.     Alamo Acquisition Corp. (“Alamo”) was a wholly-owned subsidiary of

Toshiba. Alamo is alleged to be a “co-conspirator” in the unlawful acts alleged in the

SAC. (Id. at ¶ 27.)

      10.    Stephens, Inc. (“Stephens Bank”) was retained and employed as an

investment bank by Consert, and Joseph S. Mowery (“Mowery”) was a Managing

Director of Stephens Bank. (Id. at ¶¶ 29–30.) Stephens Bank and Mowery are alleged

to be “co-conspirators” in the unlawful acts alleged in the SAC (collectively, the

Alamo, Stephens Bank, and Mowery are referred to as “co-conspirators”). (Id.)

      11.    On January 24, 2013, following negotiations between Consert’s board of

directors and Toshiba, Consert and Toshiba entered into an Agreement and Plan of

Merger (“Merger Agreement”) under which Toshiba acquired all of the stock of

Consert and then merged Consert into Alamo. The Merger closed on February 5,

2013 (“the Merger”). (Id. at ¶ 36.)

      12.    In the SAC, Plaintiffs allege that Defendants and co-conspirators

             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.

(ECF No. 123, at ¶ 38.) The Former Directors allegedly maximized the monetary

benefits from the Merger to themselves by:

                 substantially increas[ing] and accru[ing] their salaries,
                 bonuses, special ‘change of control payments’ and other
                 compensation in order to create preferential payments to
                 themselves from the sale proceeds; ma[king] personal loans
                 to Consert on usurious and egregious terms in order to
                 create preferential interest and principal payments to
                 themselves from the sale proceeds; and limit[ing] the
                 negotiations and sale of Consert to a buyer (Defendant
                 Toshiba) who agreed to permit the [Former Directors] to
                 make all of these preferential payments to themselves from
                 the sales proceeds.

(Id. at ¶ 48.)

       13.       On the other hand, the Merger Agreement provided for payment to

holders of Consert’s common stock (the “common shareholders”), including Plaintiffs,

solely from two post-Merger “earn out” events. The first earn out was based on the

performance of a contract between Toshiba and CPS Energy Corporation (“CPS”), to

be executed post-Merger. (the “Toshiba/CPS Contract”). (Id. at ¶ 123.) The second

earn out was based on the settlement of a lawsuit in which Consert was a party at

the time of the Merger (the “Itron Lawsuit”). (Id. at ¶ 125.) The common shareholders

would receive payments based on revenue generated by Toshiba under the

Toshiba/CPS Contract, and would receive payments from a portion of the amount

paid to Toshiba in settlement of the Itron Lawsuit. (ECF No. 123, at ¶¶ 123–25.) The
estimated total payments to common shareholders from these two events was $60–

70 million. (Id. at ¶ 126.)

      14.    The earn outs, however, were contingent on an all-or-nothing “trigger.”

(Id. at ¶ 127.) Toshiba would only be required to make the earn out payments to the

common shareholders if the Toshiba/CPS Contract (a) contained “a firm commitment

for the purchase of smart-grid hardware, software and/or services in a minimum

aggregate value of $100 million over a period of five years,” and (b) if the Toshiba/CPS

Contract was fully executed within one year of the Merger’s closing, or by February

4, 2014. (Id. at ¶ 128; Toshiba Mot. to Dis. Ex. 1, ECF No. 124.1, at p. 5 (“Merger

Information Statement”).)

      15.      Plaintiffs allege that Defendants and the co-conspirators knew that

CPS would not enter into a “firm commitment” for the minimum contract of $100

million, and that the trigger was “illusory and a sham” that would never be achieved.

(ECF No. 123, at ¶ 127.) Defendants and the co-conspirators misrepresented to, and

concealed from, the common shareholders that they likely would not receive the earn

out payments when presenting the Merger plan to the shareholders for review and

approval. (Id. at ¶¶ 133, 136, 146–47, 153.)

      16.    On January 25, 2013, Consert held a shareholders meeting at which it

announced the Merger Agreement to Consert’s shareholders (“Shareholders

Meeting”). (Id. at 88.) Plaintiffs allege that during the Shareholders Meeting, Moore

and Mowery made misrepresentations to common shareholders, and that Consert

withheld information material to the Merger. (Id. at ¶¶ 90–98.) Moore stated that
the earn out payments were “most likely to occur” and “absolutely achievable.” (Id.

at ¶ 92.) Moore also expressed the opinion that the Merger was “in the best interest

of all shareholders.” (Id. at ¶ 93.)

      17.    On January 28, 2013, Consert sent to its shareholders a “Merger

Information Statement” and “Shareholder Consent.” (Id. at ¶ 99; Merger Info. Stat.

and Shareholder Consent, ECF No. 124.1.)         Plaintiffs allege that the Merger

Information Statement contained misrepresentations and omissions of material facts

regarding the Merger. (Id. at ¶¶ 101–02, 105–19.) However, the Merger Information

Statement stated that the earn out payments were “contingent” and “uncertain.”

(ECF No. 124.1, at pp. WOR_7895–WOR_7897.)

      18.    Each of the Plaintiffs signed and returned the Shareholder Consent

form consenting to the merger and surrendering their shares of common stock. (ECF

No. 123, at ¶ 119; ECF No. 124.1, at p. WOR_7899.) The Merger closed on February

5, 2013.

      19.    Plaintiffs do not allege that Toshiba had any direct communications or

dealings with Plaintiffs during the negotiation of the Merger Agreement or prior to

the closing of the Merger. Instead, Plaintiffs claim that Toshiba was “fully aware” of

the Former Directors’ self-dealing, knew of “misleading statements” and “material

omissions” in the Former Directors’ communications with Plaintiffs, and that Toshiba

“did nothing to stop the fraudulent communications.” (ECF No. 123, at ¶¶ 44–45.)

Despite knowing that the co-conspirators had misrepresented the details of the

Merger to, or concealed information from, the common stockholders, Toshiba is
alleged to have done “nothing to stop such fraudulent communications.” (ECF No.

123, at ¶ 45.) Plaintiffs further allege that

              Toshiba fraudulently, with the intent to deceive, signed the
              Merger Agreement which contained untrue and misleading
              statements of material fact, failed to disclose, and
              intentionally omitted necessary material facts, on all of
              which facts Defendants intended for Plaintiffs to rely in
              determining whether they should consent to the sale of and
              redemption of their stock in Consert. By so doing, [ ]
              Toshiba fully participated in the conspiracy and scheme to
              defraud Plaintiffs in collusion with the other Defendants[.]

(Id. at ¶ 147.)

       20.    The Merger resulted in Toshiba paying $30 million in cash

consideration as follows: $2.2 million was paid to the Former Directors, including

Adams, and other Consert executives in the form of “change of control” and bonus

payments; $2 million was paid to Consert’s advisors, including Stephens Bank and

Mowery; $14 million was used to repay Consert’s obligations and loans, including

substantial amounts to Roberts and Moore and to certain strategic investors who

were represented on Consert’s board by other Former Directors, for “bridge loans”

made by them to Consert; and approximately $9.8 million was paid to holders of

Consert Series A and Series B Preferred stock, including substantial amounts to the

Former Directors and the companies they represented on the board. (Id. at ¶ 121.)

       21.    The trigger event for payments to Plaintiffs from the earn outs contained

in the Merger Agreement did not occur, and Plaintiffs ultimately did not receive any

compensation in exchange for their shares of common stock.          Instead, “Toshiba

executed an agreement with CPS with a value of less than the required $100 million,
thereby avoiding the trigger requirements and eliminating any earn out to Plaintiffs.”

(Id. at ¶ 148.) Plaintiffs allege that the contract Toshiba entered into with CPS has

generated substantial revenues, but no earn out payments have been made because

the trigger was not achieved. (Id. at ¶ 149.)

      22.    In February, 2015, the Itron Litigation was settled and for “multiple

millions of dollars.” (Id. at ¶ 150.) No earn out payments were made from the

settlement proceeds because the trigger was not achieved.


                              III.   LEGAL STANDARD

      23.    The Court, in deciding a Rule 12(b)(6) motion, treats the well-pleaded

allegations of the complaint as true and admitted. Sutton v. Duke, 

(1970). The facts and permissible inferences set forth in the complaint are to be

treated in a light most favorable to the nonmoving party. Ford v. Peaches Entm’t

Corp., 

 (1986). As our Court of Appeals has noted, the “essential

question” raised by a Rule 12(b)(6) motion is “whether the complaint, when liberally

construed, states a claim upon which relief can be granted on any theory.” Barnaby

v. Boardman, 

 (1984), rev’d on other grounds, 

(1985) (citations and emphasis omitted). Dismissal of a claim pursuant to Rule

12(b)(6) is proper “(1) when the complaint on its face reveals that no law supports

plaintiff’s 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 plaintiff’s claim.” Oates v. JAG, Inc., 

, 

 (1985).     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, 

, 

 (emphasis omitted). The Court construes the complaint

liberally and accepts all allegations as true. Laster v. Francis, 

, 

 (2009). However, 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., 

, 

 (2005).

                                     IV.     ANALYSIS

   A. Count II: Common Law Fraud and Count V: Fraudulent Inducement

       24.    Plaintiffs make claims against Toshiba for fraud and fraudulent

inducement. (ECF No. 123, at ¶¶ 162–67; 181–85.) Defendants move to dismiss these

claims on the grounds that, inter alia, Plaintiffs do not allege that Toshiba had any

communications with or made any misrepresentations directly to Plaintiffs, Toshiba

was under no legal duty to disclose information to Plaintiffs, and Plaintiffs could not

reasonably have relied on any representations that the triggers for the earn outs

would be achieved. (ECF No. 125, at pp. 10–14.)

       25.    The essential elements of fraud or fraudulent inducement are: “(1)

[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.” Terry v. Terry, 

, 

(1981); see also Ward v. Fogel, 

, 581, 

, 301 (2014).
Additionally, the deceived party must reasonably have relied on the allegedly false

representations. Forbis v. Neal, 

, 

 (2007).

      26.    Plaintiffs    have   not    alleged   that   Toshiba    made    affirmative

misrepresentations to Plaintiffs. Instead, Plaintiffs apparently contend that Toshiba

is somehow responsible for misrepresentations that were made to Plaintiffs by other

co-conspirators because Toshiba knew that misrepresentations were being made but

did nothing to stop them. Plaintiffs have not pointed the Court to any basis in law

upon which Toshiba could be responsible for statements made to Plaintiffs by the

Former Directors or any other co-conspirator.

      27.    If a claim of fraud is based on concealment of a material fact, the plaintiff

must also allege that the party allegedly committing the fraud had a duty to

speak. E.g., Griffin v. Wheeler-Leonard & Co., 

, 

(1976)(“[I]t is well settled that where there is a duty to speak the concealment of a

material    fact   is     equivalent    to   fraudulent   representation”      (emphasis

added).); Lawrence v. UMLIC-Five Corp., 

, at *8 (N.C. Super.

Ct. June 18, 2007) (“Where the claim arises by concealment or nondisclosure,

[p]laintiffs also must allege that all or some of the [d]efendants had a duty to disclose

material information to them, as silence is fraudulent only when there is a duty to

speak.”).

      28.    Plaintiffs have not pleaded facts that would support an allegation that

Toshiba had an obligation to disclose directly to Plaintiffs, nor provided any legal

authority that would support a duty to disclose by Toshiba to Plaintiffs under the
circumstances present in this case. Again, Toshiba did not negotiate the terms of the

Merger Agreement with Plaintiffs directly, and did not have direct communications

with Plaintiffs.2

      29.    Finally, the facts pleaded in the SAC do not support, and, in fact

undercut, the allegation that Plaintiffs could reasonably have relied on any

misrepresentations or omissions regarding the likelihood of achieving the earn out

triggers. First, Plaintiffs have not alleged that the Merger Agreement required

Toshiba to enter into the Toshiba/CPS Contract. To the contrary, they allege that the

Merger Agreement gave Toshiba “total and exclusive control over both the execution

and value of the [Toshiba/CPS Contract]” and “the unbridled right[ ] to conclude a

contract with CPS in an amount less than $100 million, or delay the execution of an

agreement until after February 4, 2014, to completely avoid paying any earn out to”

the common shareholders. (ECF No. 123, at ¶¶ 143, 145.)

      30.    In addition, “[r]eliance is not reasonable where the plaintiff could have

discovered the truth of the matter through reasonable diligence, but failed to

investigate.” Sullivan v. Mebane Packaging Group, Inc., 

, 

 (2003). Here, Plaintiffs allege that they were provided with the

Merger Information Statement along with the Shareholder Consent forms seeking

surrender of the stock and approval of the Merger.             The Merger Information

Statement clearly stated that the earn out payments were not guaranteed, but

instead were “contingent” and “uncertain.”        (ECF No. 124.1, at pp. WOR_7895–


2 As discussed below at paragraphs 40–41, an acquiring company generally has no duty to

disclose information to the acquired company’s shareholders.
WOR_7897.) The Merger Information Statement also provided information about the

time frames for payment of the earn outs, but qualified that information by stating

that the specified timeline would apply only “if any” payments were made at all. (Id.

at p. WOR_7901.) The use of this type of language in the Merger Information

Statement should have placed Plaintiffs on notice that they could not rely on

statements by Former Directors or other co-conspirators regarding the likelihood of

receiving earn out payments. See Sullivan, 

, 

(affirming summary judgment for defendants on plaintiff-shareholder’s claim for

fraud arising from alleged misrepresentations and omissions by defendants in sale of

stock by plaintiff where plaintiff was provided with documents summarizing

plaintiff’s pertinent rights); Atkinson v. Lackey, 

, at *40 (N.C.

Super. Ct. Feb. 27, 2015) (dismissing fraud claim and holding that plaintiffs’ reliance

was unreasonable where “the information disclosed in the [private placement

memo][,] . . . which [p]laintiffs received after the alleged misconduct and before they

made their investments, plainly contradicted the alleged misrepresentations and

omissions about which [p]laintiffs complain”).

      31.    Plaintiffs have not alleged that Toshiba made any affirmative

misrepresentations to Plaintiffs, nor pleaded facts that would establish a legal duty

on Toshiba to disclose information to Plaintiffs relating to the Merger. In addition,

the allegations in the SAC and the information provided in the Merger Information

Statement establish that Plaintiffs could not reasonably have relied on any

representations or omissions regarding whether the trigger event necessary for the
earn out payments would be achieved. Toshiba’s motion to dismiss Plaintiffs’ claims

for common law fraud and fraudulent inducement should be GRANTED, and the

claims DISMISSED.

   B. Count IV: Conspiracy to Defraud

      32.    Plaintiffs make a claim for conspiracy to defraud against Toshiba. (ECF

No. 123, at ¶¶ 174–80.) Plaintiffs allege that Toshiba “agreed, colluded and conspired

with” Adams and the co-conspirators, “and intentionally performed one or more

actions in furtherance of an illegal scheme to defraud Plaintiffs[.]” (Id. at ¶ 175.)

“Specifically,” Plaintiffs allege, Toshiba “saw, approved and did nothing to stop the

distribution of Shareholder Consent Documents that were misleading and contained

material omissions . . . . [which] were sent with the express purpose of misleading

Plaintiffs in order to get them to agree” to the Merger. (Id. at ¶¶ 176–77.)

      33.    “A claim for damages resulting from a conspiracy to defraud exists

where there is an agreement between two or more persons to defraud a party, and as

a result of acts done in furtherance of, and pursuant to the agreement, that party is

damaged.” Johnson v. First Union Corp., 

, 

(1998) (citing Fox v. Wilson, 

, 

 (1987)). “A

claim for conspiracy to defraud cannot succeed without a successful underlying claim

for fraud.” Jay Group, Ltd. v. Glasgow, 139 N.C. App 595, 599, 

(2000); see also, Sellers v. Morton, 

, 

 (2008)

(“Only where there is an underlying claim for unlawful conduct can a plaintiff state

a claim for civil conspiracy by also alleging the agreement of two or more parties to
carry out the conduct and injury resulting from that agreement.”) (quoting Toomer v.

Garrett, 

, 

 (2002); and citing Muse v.

Morrison, 

, 

 (1951)).

        34.   There is no underlying claim for fraud left standing in this case. The

Court has dismissed the claims for fraud against Toshiba in this order. The Court

previously dismissed the claims for fraud against all of the present and former

Defendant-conspirators. Worley, 

, at *79–80. Since there is no

viable claim for fraud against any present or former party to this action, the claim for

conspiracy to defraud also must fail. See Precision Components, Inc. v. C.W. Bearing

USA, Inc., 

, (W.D.N.C. Dec. 16, 2008) (dismissing the civil

conspiracy claim where the two other claims upon which plaintiff relied were

dismissed).

        35.   Therefore, Toshiba’s motion to dismiss Plaintiffs’ claim for conspiracy to

defraud should be GRANTED, and the claim DISMISSED.

     C. Count VI: Violation of the North Carolina Securities Act

        36.   Plaintiffs claim that Toshiba violated sections 78A-56(b) and 78A-8 of

the NCSA. (ECF No. 123, at ¶¶ 186–91.) Section 78A-56(b) provides a cause of action

to

              [a]ny person who purchases a security by means of any
              untrue statement of a material fact or any omission to state
              a material fact necessary in order to make the statements
              made, in the light of the circumstances under which they
              are made, not misleading (the seller not knowing of the
              untruth or omission), and who does not sustain the burden
              of proof that the person did not know, and in the exercise
             of reasonable care could not have known, of the untruth or
             omission[.]

G.S. § 78A-56(b).

      37.    Pursuant to G. S. § 78A-8:

             It is unlawful for any person, in connection with the offer,
             sale or purchase of any security, directly or indirectly:

             (1) To employ any device, scheme, or artifice to defraud,

             (2) To make any untrue statement of a material fact or to
             omit to state a material fact necessary in order to make the
             statements made, in the light of the circumstances under
             which they are made, not misleading or,

             (3) To engage in any act, practice, or course of business
             which operates or would operate as a fraud or deceit upon
             any person.

      38.    Plaintiffs allege that Toshiba purchased the Consert stock “(i) with

knowledge that the material facts disclosed to Plaintiffs in the Merger Agreement

were untrue and/or misleading, (ii) knowingly omitting and failing to disclose facts

material to Plaintiffs’ shareholder consent, which made the statements in the Merger

agreement (sic) misleading in the circumstances under which they were made, and

(iii) employing an act, practice, course of business, and scheme to defraud and deceive

Plaintiffs.” (ECF No. 123, at ¶ 188.)

      39.    The Court has already concluded that Plaintiffs have not sufficiently

alleged that Toshiba made any statements to Plaintiffs in connection with the

Merger, let alone statements that could constitute misrepresentations, or statements

from which Toshiba made misleading omissions. Since Plaintiffs have not alleged
statements by Toshiba, Toshiba cannot be liable to Plaintiffs pursuant to G.S. §§ 78A-

56(b) and 78A-8(2).

      40.    Furthermore, there was no duty on Toshiba, as a purchaser of securities,

to disclose anything to Plaintiffs in relation to the Merger. “[A] purchaser of stock

who has no duty to a prospective seller because he is neither an insider nor a fiduciary

has been held to have no obligation to reveal material facts.” Chiarella v. United

States, 

, 

 (1980). This Court has previously

held that the NCSA does not impose a general “duty to speak” on sellers or purchasers

of stock. NNN Durham Office Portfolio 1, LLC v. Highwoods Realty Ltd. P’ship, 

, at *29–30 (N.C. Super. Ct. Feb. 14, 2013). Courts in other

jurisdictions also “have uniformly declined to find a duty to disclose running from one

party in an arm’s-length securities transaction to the shareholders of the

counterparty to the transaction, absent some fiduciary or other special relationship

between them.” Badger v. S. Farm Bureau Life Ins. Co., 

 (2010)

(citing numerous cases from the 5th, 8th, and 7th Circuits, and from Delaware,

Pennsylvania, and New York holding the same). Plaintiffs have not alleged that

Toshiba had a fiduciary or any other relationship with them that imposed a duty to

disclose on Toshiba.

      41.    Furthermore, to the extent Plaintiffs allege and argue that Toshiba had

a duty to disclose arising from its knowledge that the Merger Information Statement

and other communications made to Plaintiffs by the alleged co-conspirators were

misleading or omitted material facts, Plaintiffs have cited no authority to support
such argument, and the Court finds it unpersuasive. 

 (finding that the

trial court’s jury instruction imposing on the acquiring company a duty to disclose

information to the acquired company’s shareholders because it “knew or was severely

reckless as to whether material information had not been fully disclosed to the

shareholders or that the disclosures made . . . were materially misleading” was “clear

error”).

       42.         Plaintiffs have not alleged that Toshiba made statements to Plaintiffs

that could give rise to a violation of the NCSA, nor have Plaintiffs alleged that

Toshiba had any duty to disclose information to Plaintiffs. Accordingly, Toshiba’s

motion to dismiss Plaintiffs’ claims for violation of the NCSA should be GRANTED.

   D. Count VII: Unlawful Taking and Conversion

       43.        Plaintiffs make claims against Toshiba for conversion, “unlawful

taking,” and unjust enrichment. (ECF No. 123, at ¶¶ 192–201.) Plaintiffs seek

“restitution from [ ] Toshiba for the full value of all benefits and gains obtained by [ ]

Toshiba resulting from the transfer of Plaintiffs’ ownership interests in Consert stock

to [ ] Toshiba.” (Id. at ¶ 197.)

             i.      Conversion and unlawful taking

       44.        Conversion is the “unauthorized assumption and exercise of the right of

ownership over goods or personal chattels belonging to another, to the alteration of

their condition or the exclusion of an owner’s rights.” Variety Wholesalers, Inc. v.

Salem Logistics Traffic Servs., LLC, 

, 

(2012) (internal citation and quotation marks omitted). “There are, in effect, two
essential elements of a conversion claim: ownership in the plaintiff and wrongful

possession or conversion by the defendant.” 

 “Where there has been no wrongful

taking or disposal of the goods, and the defendant has merely come rightfully into

possession and then refused to surrender them, demand and refusal are necessary to

the existence of the tort.” White v. Consol. Planning, Inc., 

, 310–

11, 

 (2004) (citation and quotation marks omitted).

      45.     While Plaintiffs allege in conclusory fashion that “[t]he transfer of

Plaintiffs’ stock interests to Defendant Toshiba was an unlawful taking and

conversion,” (ECF No. 123, at ¶ 194), the facts pleaded in the SAC defeat the

allegation. Plaintiffs allege that they each signed the Shareholder Consent that

surrendered their stock in Consert pursuant to the Merger Agreement with Toshiba

“in exchange for the consideration which the undersigned is entitled in respect to

the . . . Merger Agreement.” (ECF No. 123, at ¶ 119; ECF No. 124.1, at p. WOR_7942.)

Therefore, the allegations establish that Toshiba did not take wrongful or

unauthorized possession of Plaintiffs’ stock, but rather that Plaintiffs consented to

the transfers of the stock.

      46.     Plaintiffs argue that the transfers of their stock was not with their

consent because Toshiba fraudulently induced the transfers. (ECF No. 127, at pp.

17–18.)     The Court, however, has dismissed Plaintiffs’ claim for fraudulent

inducement, and the allegations of fraud cannot support the contention that Toshiba

took unauthorized possession of Plaintiffs’ stock.
       47.    Finally, since Toshiba rightfully came into possession of Plaintiffs’ stock

interests, Plaintiffs were required to allege that they made demand for return of those

interests and that Toshiba refused the demand. White, 166 N.C. App. at 310–11, 

; Stratton v. Royal Bank of Can., 

, *20–21 (N.C.

Super. Ct. Feb. 5, 2010) (“If there is no wrongful taking, i.e., if the defendant rightfully

comes into possession and then refuses to surrender the goods, then demand and

refusal is necessary for the tort of conversion to exist.”). Plaintiffs have not alleged

that they demanded return of the stock interests nor that Toshiba refused such

demand.

       48.    In conclusion, Toshiba’s motion to dismiss Plaintiffs’ claim for

conversion should be GRANTED, and the claim DISMISSED.

              ii. Unjust enrichment

       49.    Plaintiffs make a claim for unjust enrichment, alleging that Toshiba

“unjustly enriched itself by inducing Plaintiffs to transfer all of their ownership

interests in Consert stock to Defendant Toshiba without just and adequate

compensation to Plaintiffs.” (ECF No. 123, at ¶ 193.) Toshiba makes very limited

argument in support of dismissal of the unjust enrichment claim, essentially

contending unjust enrichment should fail because Plaintiffs have an adequate

remedy at law. (ECF No. 128, at pp. 13–14.)

       50.    “A claim of unjust enrichment is an alternative to a claim based on

breach of contract whereby, upon the absence of an actual agreement between the

parties, the court implies that a ‘quasi-contract’ existed and permits a plaintiff to
bring an action in restitution to recover the amount of the benefit conferred on the

defendant.” Volumetrics Med. Imaging, Inc. v. ATL Ultrasound, Inc., 

, 411–12 (2003) (citing Horack v. Southern Real Estate Co. of Charlotte, Inc., 

, 

 (2002)); see also Islet Scis., Inc. v. Brighthaven

Ventures, LLC, 

, at *15 (N.C. Super. Ct. Jan. 12, 2017) (“A claim

for unjust enrichment is neither in tort nor contract but is described as a claim in

quasi contract or a contract implied in law” (quoting Booe v. Shadrick, 

, 

) (internal quotation marks omitted).). “The general rule of

unjust enrichment is that where services are rendered and expenditures made by one

party to or for the benefit of another, without an express contract to pay, the law will

imply a promise to pay a fair compensation therefor.” Atlantic C. L. R. Co. v. State

Highway Comm’n, 

, 95–96, 

 (1966). “The doctrine of

unjust enrichment was devised by equity to exact the return of, or payment for,

benefits received under circumstances where it would be unfair for the recipient to

retain them without the contributor being repaid or compensated.” Collins v. Davis,

, 

 (1984).

      51.    In North Carolina, to recover on a claim of unjust enrichment, a plaintiff

must prove that: (1) it conferred a benefit on another party; (2) the other party

consciously accepted the benefit; and (3) the benefit was not conferred gratuitously or

by an interference in the affairs of the other party. Southeastern Shelter Corp. v.

BTU, Inc., 

, 

 (2002).
      52.    Plaintiffs contend that they conferred a benefit on Toshiba by

surrendering their common stock and consenting to the Merger. Plaintiffs allege that

Toshiba needed Plaintiffs’ consent because “one of the conditions to closing in the

[Merger Agreement] was a requirement that less than 35% of Consert shareholders

exercise their Dissenters’ Rights under Delaware law.” (ECF No. 123, at ¶ 105.)

Plaintiffs’ surrender of their stock and consents were not gratuitous, but rather were

provided in exchange for the opportunity to participate in the earn out payments from

Toshiba.

      53.    Plaintiffs further allege that Toshiba consciously accepted the benefit of

Plaintiffs’ consent knowing “that it would take no action which might trigger the

Earn-out provisions of the Merger Agreement or take any other action which would

require Toshiba to pay any earn-out” to Plaintiffs. (Id. at ¶ 146.) Further, “Toshiba

had no incentive to execute [the Toshiba/CPS Contract] . . . because, in so doing, it

would have been required to potentially pay over $60 million as an earn out to”

Plaintiffs and other common stockholders. (Id. at ¶ 145.) Plaintiffs allege that as a

result of their consents, Toshiba has retained the revenues from the work it has

performed for CPS and from the settlement of the Itron lawsuit without having to

share any of it with Plaintiffs, and that despite paying only $30 million for Consert,

“Toshiba has, to date, received revenues resulting from its acquisition of Consert of

approximately $200 million,” while Plaintiffs have received nothing for their common

stock. (Id. at ¶¶ 148–54.)
      54.    The Court finds that Plaintiffs have alleged facts sufficient to support a

claim for unjust enrichment, and to survive a motion to dismiss. The allegations

suggest that Toshiba received the benefit of Plaintiffs’ consent to the Merger “under

circumstances where it would be unfair for the recipient to retain them without the

contributor being repaid or compensated.” Collins, 

, 

. Therefore Toshiba’s motion to dismiss Plaintiffs’ claim for unjust enrichment

should be DENIED.

   E. Count VIII: Violation of the North Carolina Unfair and Deceptive Trade
      Practices Act

      55.    As Plaintiffs’ final claim, they allege that Toshiba engaged in unfair or

deceptive trade practices in violation of the UDTPA. (ECF No. 123, at ¶¶ 202–06.)

Plaintiffs allege that during “the time leading up to the [M]erger,” Toshiba made

“numerous misrepresentations” and withheld information. (Id. at ¶ 203.) Plaintiff

claims that Toshiba’s conduct was “deceptive and in violation of the law.” (Id.)

      56.    “To establish a prima facie case of unfair and deceptive trade practices,

a plaintiff must show that (1) the defendant committed an unfair or deceptive act or

practice, (2) the act was in or affecting commerce, and (3) the act proximately caused

injury to the plaintiff.” White v. Consol. Planning, Inc., 

, 

 (2004). Plaintiffs argue that their UDTPA claim is based on their

claims for fraud. (ECF No. 127, at p. 15.)

      57.    Since the Court has dismissed Plaintiffs’ claims for fraud, the claim for

violation of the UDTPA also should be dismissed. B & F Slosman v. Sonopress, Inc.,

, 

 (2001) (The essence of plaintiff’s [UDTPA]
claim is that defendant committed fraud . . . . Having determined that plaintiff has

failed to make a prima facie case with respect to [the fraud claim], we likewise

conclude plaintiff has not established a claim for unfair and deceptive business

practices.”); Combs & Assocs. v. Kennedy, 

, 

(2001) (“[P]laintiff’s claim that defendants engaged in unfair and deceptive trade

practices rests with its claims for misappropriation of trade secrets, tortious

interference with contracts and civil conspiracy. Having determined that the trial

court properly granted summary judgment on each of these claims, we likewise

conclude that no claim for unfair and deceptive trade practices exists.”).

      58.      Therefore, Toshiba’s motion to dismiss Plaintiffs’ claim for unfair and

deceptive trade practices should be GRANTED, and the claim DISMISSED.

                                  V.     CONCLUSION

      In conclusion, the Motion is GRANTED, in part, and DENIED, in part, as

follows:


      1. Toshiba’s motion to dismiss Plaintiffs’ claim for unjust enrichment is

            DENIED.

      2. Except as specifically denied herein, Toshiba’s motion to dismiss the

            remainder of Plaintiffs’ claims is GRANTED.
SO ORDERED, this, the 2nd day of November, 2018.




                                    /s/ Gregory P. McGuire
                                   Gregory P. McGuire
                                   Special Superior Court Judge for
                                   Complex Business Cases