Richardson v. Frontier Spinning Mills, Inc., 100611 NCSUP, 10 CVS 4660

Docket Nº:10 CVS 4660, 10 CVS 8307
Party Name:CLAY VANCE RICHARDSON, et al., Plaintiffs v. FRONTIER SPINNING MILLS, INC., et al., Defendants MURRAY C. GREASON, JR., et al., Plaintiffs v. FRONTIER SPINNING MILLS, INC., et al., Defendants
Case Date:October 06, 2011
Court:Superior Courts of Law and Equity of North Carolina

2011 NCBC 39

CLAY VANCE RICHARDSON, et al., Plaintiffs



MURRAY C. GREASON, JR., et al., Plaintiffs



Nos. 10 CVS 4660, 10 CVS 8307

Superior Court of North Carolina, Lee

October 6, 2011


THESE MATTERS, consolidated for discovery and pretrial purposes, are before the court on the captioned respective Plaintiffs' Motion to Compel Compliance with Subpoena and Compel Production of Documents (the "Motion"), filed on July 27, 2011, and

THE COURT, having reviewed and considered the Motion and the respective briefs propounded in support of and opposition to the Motion, FINDS and CONCLUDES that:

1. These civil actions arise from the sale (the "Sale") of Frontier Spinning Mills, Inc. ("Frontier"), a closely-held corporation in which Plaintiffs were minority shareholders. Frontier was sold to Sun Capital ("Sun"), a private equity firm.

2. Among other things, the Plaintiffs allege that the Defendants wrongfully caused the Sale to be structured so that shareholders of a single class of Frontier common stock were divided into two classes for sale and pricing purposes – the Plaintiffs ("Outside Shareholders") and the shareholding Defendants ("Inside Shareholders"). The Plaintiffs complain about the fact that the Outside Shareholders were paid less per share than the similarly situated Inside Shareholders when the Sale closed.

3. The Plaintiffs further allege that Defendants failed to disclose certain material facts concerning the Sale and affirmatively made materially misleading statements in order to create a sense of desperation about Frontier's financial condition prior to the Sale. They allege that this induced the Plaintiffs to accept a disproportionately lower share of the purchase price from the Frontier Sale.

4. Defendants contend that the Plaintiffs were informed fully about how the Sale was structured, including the disparate pricing of the shares held by Outside Shareholders and Inside Shareholders. Further, they contend that by signing a Stock Purchase Agreement ("SPA") and a separate release relative to the Sale, the Plaintiffs knowingly ratified and approved the very things they now are complaining about. Defendants further point out that the SPA contained a specific acknowledgement by Plaintiffs that they were approving the Sale knowing that they lacked certain "Seller Excluded Information" that either then was or later might come into the possession of Sun and the Inside Shareholders. Defendants also contend that Plaintiffs should not be heard to complain because any Outside Shareholders who did not want to approve the Sale had a right to dissent and receive "fair value" for their shares pursuant to N.C. Gen. Stat. §55-11-04.1

5. In responding to the substantive allegations of the Complaint, the Defendants have pled a number of affirmative defenses. One of those defenses is that Defendants were relying on the advice of counsel with regard to material parts of how the Sale was structured, including but not limited to the provision of two disparate purchase prices for the respective Frontier shares held by the Outside Shareholders and the Inside Shareholders. This defense has been raised both in the context of answers by one or more Defendants during oral depositions2 and by the formal filing of a Sixth Affirmative Defense ("Sixth Defense"), allowed as an amendment to Defendants' Answer by Order of this court on June 29, 2011.3 The Sixth Defense states that:

In response to all Plaintiffs' claims based on allegations of illegal disparate treatment of "Outside Shareholders" and the "Inside Shareholders" and all Plaintiffs' Claims based upon allegations of insufficient material disclosures in the Stock Purchase Agreement and otherwise, which Defendants specifically deny, and if it is determined that there was illegal disparate treatment of the "Outside Shareholder[s]" and the "Inside Shareholders" or insufficient material disclosure in the Stock Purchase Agreement and otherwise, which the Defendants specifically deny, then Defendants assert that in the discharge of any legal responsibilities with respect to these allegations, they relied on the advice of counsel.4

6. The Plaintiffs contend that by raising the defense that Defendants relied upon the advice of counsel, Defendants have waived any attorney-client privilege or work-product privilege between them and counsel with regard to all aspects of the Sale.5 Specifically, Plaintiffs seek to discover information and to depose the Defendants and Frontier counsel, Jamie Clarke, Esq. ("Clarke"), of the firm Moore & Van Allen, PLLC ("MVA"), free of attorney-client or work-product privilege constraints.

7. In response, the Defendants argue that any such waivers must be very narrowly limited in scope. They contend that any waiver of the attorney-client privilege arising from the advice of counsel defense must be confined to specific communications that are related to the subject matter for which the defense is asserted. Further, Defendants argue in...

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