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

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

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

Full Opinion

The Court enforced mandatory buy-sell provisions in a shareholders agreement, noting the importance of such provisions to closely held businesses, and found that adjusted book value had been properly determined. It further found that the price to be paid was not unconscionable, after discussing both procedural and substantive unconscionability. Although the fair market value of the corporation’s equipment was substantially higher than its book value, that did not require an adjustment.

The Court rejected the shareholder’s argument that the termination of his employment was designed to obtain his stock at a favorable price. It found that if a terminated employee could make out a prima facie case of an improper motivation for the termination, that the employer would then have to show a legitimate business reason for the termination and the timing of the termination. The employee would then have to show that the proferred reason was a pretext.

Full Opinion

A majority shareholder has no fiduciary duty to minority shareholders to "auction off" the company or otherwise obtain the highest possible value for their interests once the majority shareholder decides to sell its controlling interest or engage in a cash out merger. The duties of a shareholder are distinct from those of a director under Revlon.

Under these circumstances, the remedy of the minority shareholders is exclusive, and limited to dissent and appraisal, unless the transaction is unlawful or fraudulent.

Assuming that the test of "entire fairness" must be met, it was met where the price per share was above the range determined to be appropriate by the investment advisor to the company’s special committee.

An injunction against the merger was not appropriate.

Full Opinion

An agreement requiring a shareholder in a closely held corporation to sell his shares back to the corporation upon termination of his employment is valid and enforceable, as a closely held corporation is entitled to determine who will participate in its business. Book value is a typical and accepted means of determining a purchase price.

Full Opinion

A senior lienholder had no fiduciary duty to a junior lienholder. The mere fact that the senior lienholder took action to cause its debt to be paid down did not establish domination and control of the debtor’s business so as to give rise to a fiduciary duty. The senior lienholder’s efforts to collect its debt did not constitute tortious interference with contract.

Full Opinion

Burgess v. Vitola, 2008 NCBC 4 (N.C. Super. Ct. Feb. 26, 2008)(Diaz)

Plaintiff sued the defendants, thirty out-of-state dentists and lawyers, charging that they had forced advertisements for their services onto his computer. He alleged that this had been accomplished by a “bug, worm, or virus.” 

Plaintiff based jurisdiction on N.C.G.S. §1-75.4(4)(a), which allows for the assertion of jurisdiction when “solicitation or services activities were carried on within this State or by or on behalf of the defendant.”

The Court didn’t agree and granted the Motion to Dismiss, holding “it makes absolutely no sense that Moving Defendants, all of whom operate law or dental practices in states far removed from North Carolina, would have any interest in soliciting [plaintiff], or any other North Carolina resident.” The defendants, via affidavits, had denied such interest, although many of them did have "passive" Internet websites.

Continue Reading Internet Advertising Didn’t Subject Defendants To Personal Jurisdiction In North Carolina

Signalife, Inc. v. Rubbermaid, Inc., 2008 NCBC 3 (N.C. Super. Ct. February 8, 2008)(Diaz)

Signalife sued Rubbermaid in Mecklenburg County Superior Court. The lawyers for Signalife camped out on the steps of the Mecklenburg County Courthouse and filed Signalife’s lawsuit literally one minute after the courthouse opened, at 9:01 a.m.

Rubbermaid’s lawyers, who slept in, sued Signalife in the Western District of North Carolina on the same day.

So, under the settled principle that "where a prior action is pending between the same parties for the same subject matter in a court within the state having jurisdiction, the prior action serves to abate the subsequent action," Signalife was entitled to go forward with its lawsuit, right?

Not here. The Rubbermaid lawyers had electronically filed their complaint in federal court eight hours earlier, at 12:25 a.m. Judge Diaz held that he would apply "the literal, chronological meaning of ‘first filed,’" and ruled that priority would belong to Rubbermaid. In reaching that conclusion, the Court rejected cases holding that cases filed on the same day should be deemed to have been filed simultaneously.