Alford v. Shaw
| Decision Date | 05 December 1990 |
| Docket Number | No. 545PA89,545PA89 |
| Citation | 398 S.E.2d 445,327 N.C. 526 |
| Court | North Carolina Supreme Court |
| Parties | Frank O. ALFORD, Wilkie P. Beatty, as Executrix of the Estate of Paul B. Beatty, Carson Insurance Agency, Inc., Patricia A. Edlund, Stanley Edlund, James M. Gilfillin, Larry G. Goldberg, Raquel T. Goldberg, Betty F. Rhyne, Robert R. Rhyne and Norman V. Swenson, derivatively in the right of All American Assurance Company, Plaintiffs, v. Robert T. SHAW, American Commonwealth Financial Corporation, Great Commonwealth Life Insurance Company, ICH Corporation, Charles E. Black, S.J. Campisi, Roy J. Broussard, Truman D. Cox, Fred M. Hurst, C. Fred Rice, and Peggy P. Wiley, Defendants, and All American Assurance Company, Beneficial Party. |
Cansler, Lockhart, Burtis & Evans, P.A. by Thomas Ashe Lockhart, Blakeney, Alexander & Machen by J.W. Alexander, Jr., Charlotte, for plaintiff-appellants, cross-appellees.
Casstevens, Hanner, Gunter & Gordon, P.A. by Nelson M. Casstevens, Jr. and Teresa L. Conrad, Charlotte, for defendant-appellees, cross-appellants, Shaw and Rice.
Womble, Carlyle, Sandridge & Rice by H. Grady Barnhill, Jr., Robert E. Fields, III, and Anderson D. Cromer, Winston-Salem, Johnson & Gibbs by Stuart M. Reynolds, Jr., Dallas, Tex., for defendant-appellees, cross-appellants, ICH Corp., Great Com. Life Ins. Co. and American Com. Financial Corp.
Adams, Kleemeier, Hagan, Hannah & Fouts by Daniel W. Fouts and Peter G. Pappas, Greensboro, for defendant-appellees, cross-appellants, Black, Campisi, Broussard, Cox, Hurst and Wiley.
Petree, Stockton & Robinson by Ralph M. Stockton, Jr. and Daniel R. Taylor, Jr., Winston-Salem, for All American Assurance Company, defendant-appellant.
This case is before the Court following proceedings which occurred after the remand ordered in the opinion reported in 320 N.C. 465, 358 S.E.2d 323 (1987). A summary of the proceedings occurring before remand may be found in that opinion. Upon remand the trial court permitted discovery and then conducted a lengthy hearing pursuant to N.C.G.S. § 55-55(c) (1982) to receive evidence and hear arguments on various motions of the parties regarding disposition of this shareholders' derivative action. After completion of the hearing, the trial judge entered a judgment in which he approved a proposed settlement of several matters which were raised by plaintiffs' complaint, entered judgment for defendants on certain other issues, and dismissed the case. Additional facts necessary for an understanding of the issues decided will be discussed below.
A number of defendants in this case argue that the trial court erred by failing to dismiss the case for lack of subject matter jurisdiction. See N.C.G.S. § 1A-1, Rules 12(b)(1) and 12(h)(3) (1983). Because they are logically prior to the matters brought forward for review by plaintiffs, we address these jurisdictional issues first.
Plaintiffs filed an unverified complaint initiating this suit on 4 November 1982. On 17 November 1982, one of the plaintiffs signed and filed with the clerk of superior court a paper intended to verify the complaint. This paper writing was notarized by Bruce M. Simpson, who was at that time one of the attorneys of record in the case. Defendants argue first that in order for the trial court to have had subject matter jurisdiction over this shareholders' derivative suit the complaint was required to be verified when originally filed, and that it is not sufficient to verify the complaint after it is filed. See N.C.G.S. § 1A-1, Rule 23(b) (1983) (); Boyd v. Boyd, 61 N.C.App. 334, 300 S.E.2d 569 (1983). Secondly and alternatively, defendants argue that if verification of a pleading is sufficient to vest subject matter jurisdiction in the trial court nunc pro tunc to the date the original pleading was filed, the purported verification in the instant case was improperly executed and thus void because it was notarized by an attorney of record in the case. See N.C.G.S. § 47-8 (1984) () Cf. N.C.G.S. § 1A-1, Rule 11(b) (1983) (); Ogburn v. Sterchi Brothers Stores, Inc., 218 N.C. 507, 508, 11 S.E.2d 460, 461 (1940) (). Therefore, defendants argue, because the complaint has not been properly verified the trial court never obtained subject matter jurisdiction at any point.
Plaintiffs respond to defendants' contentions by arguing that because defendants raised the verification issue for the first time on 9 January 1990 in the appellate briefs now before this Court, over seven years after the complaint was filed, and after many years of active litigation of this suit, defendants have waived their right to complain about verification. See Sisk v. Perkins, 264 N.C. 43, 46-47, 140 S.E.2d 753, 755-56 (1965).
We agree with defendants that the complaint in this case has not been properly verified. However, we hold that because N.C.G.S. § 1A-1, Rule 23(b) addresses the procedure to be followed in, and not the substantive elements of, a shareholder's derivative suit, plaintiffs' failure to comply with the verification requirement at the time the complaint was filed is not a jurisdictional defect. See Venner v. Great Northern Railway, 209 U.S. 24, 34-35, 28 S.Ct. 328, 330-31, 52 L.Ed. 666, 669-70 (1908); Weisfeld v. Spartans Industries, Inc., 58 F.R.D. 570 (S.D.N.Y.1972). In the present case, the defendants have waived their objection by failing to raise the issue of verification until this, the fourth time the case has been heard in the appellate division.
Both the North Carolina Rules of Civil Procedure and the Federal Rules of Civil Procedure contain a requirement that the complaint initiating a shareholder derivative action be verified under oath. N.C.G.S. § 1A-1, Rule 23(b); Fed.R.Civ.P. 23.1 (1981). Because the present federal rule and its predecessors (which also contained a verification requirement) have been interpreted and discussed widely, we turn to federal cases to elucidate the purpose behind this requirement. We emphasize that certain aspects of our rule and the procedures in our State governing derivative suits may differ from the federal approach. However, insofar as the purposes of certain of the federal and state rules are congruent, we find cases explaining federal rules helpful.
The verification requirement at issue here:
[u]nquestionably ... was originally adopted and has served since in part as a means to discourage 'strike suits' by people who might be interested in getting quick dollars by making charges without regard to their truth so as to coerce corporate managers to settle worthless claims in order to get rid of them. On the other hand, however, derivative suits have played a rather important role in protecting shareholders of corporations from the designing schemes and wiles of insiders who are willing to betray their company's interests in order to enrich themselves.
Surowitz v. Hilton Hotels Corp., 383 U.S. 363, 371, 86 S.Ct. 845, 850, 15 L.Ed.2d 807, 812-13 (1966). Accord, e.g., Halsted Video, Inc. v. Guttillo, 115 F.R.D. 177 (N.D.Ill.1987) (). Because the rule containing the verification requirement is not jurisdictional in nature, see Venner v. Great Northern Railway, 209 U.S. 24, 34-35, 28 S.Ct. 328, 330-31, 52 L.Ed. 666, 669-70; Weisfeld v. Spartans Industries, Inc., 58 F.R.D. 570, where the purposes behind the rule have been fulfilled by the time the objection to a defective or absent verification is lodged, dismissal or summary judgment in favor of defendants is not appropriate. E.g., Surowitz v. Hilton Hotels Corp., 383 U.S. 363, 15 L.Ed.2d 807; Weisfeld v. Spartans Industries, Inc., 58 F.R.D. 570; Deaktor v. Fox Grocery Company, 332 F.Supp. 536, 541 (W.D.Pa.1971), aff'd, 475 F.2d 1112 (3d Cir.1973), cert. denied, 414 U.S. 867, 94 S.Ct. 65, 38 L.Ed.2d 86 (1973). In the instant case the vigor with which both plaintiffs and defendants have litigated this case over the span of seven years, and the massive amount of discovery conducted--even before defendants have yet to file answers--are indications that the purposes behind the verification rule have been met.
Thus, we hold that in this case plaintiffs' failure to properly verify the complaint initiating this shareholder derivative action is merely a procedural defect which ordinarily would be curable by amendment to the pleadings. E.g., Halsted Video, Inc. v. Guttillo, 115 F.R.D. 177. However, in the instant case because defendants raised this issue for the first time during this appeal, addressing it as a jurisdictional challenge, plaintiffs were apparently unaware until briefs were filed in this Court in January 1990 of the problems with the purported verification paper filed 17 November 1982. Thus they have had no opportunity since learning of defendants' challenge to move to amend the complaint in the trial court. Were we remanding the case to the trial division it would be appropriate for plaintiffs to move to amend to verify the complaint properly. See, e.g., Weisfeld v. Spartans Industries, Inc., 58 F.R.D. 570. In light of our disposition of the case on this appeal, however, this is unnecessary. It suffices to say that plaintiffs' failure to verify the complaint did not divest the trial court of subject matter jurisdiction over this matter.
A number of defendants also argue that the trial court lost...
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