Green v. Condra, 081409 NCSUP, 08 CVS 6575

Docket Nº:08 CVS 6575
Opinion Judge:Diaz, Judge.
Party Name:W. GREG GREEN and DR. KENNETH ELLINGTON, individually and Derivatively on Behalf of MedOasis, Inc., Plaintiffs, v. KEN CONDRA, DANIEL PREVOST, MARC MILLER, and PETER FONTAINE, individually and as current or former directors of MEDOASIS, INC., and TIM LONGBINE and DAVID PHILLIPS in their capacity as current or former directors of MEDOASIS, INC.,...
Attorney:Burr & Forman LLP by John O'Shea Sullivan and Anderson Terpening PLLC by William R. Terpening for Plaintiffs. Brown Law LLP by Gregory W. Brown and Joshua M. Hiller for Defendants.
Case Date:August 14, 2009
Court:Superior Courts of Law and Equity of North Carolina
 
FREE EXCERPT

2009 NCBC 21

W. GREG GREEN and DR. KENNETH ELLINGTON, individually and Derivatively on Behalf of MedOasis, Inc., Plaintiffs,

v.

KEN CONDRA, DANIEL PREVOST, MARC MILLER, and PETER FONTAINE, individually and as current or former directors of MEDOASIS, INC., and TIM LONGBINE and DAVID PHILLIPS in their capacity as current or former directors of MEDOASIS, INC., Defendants,

and

MEDOASIS, INC., a North Carolina Corporation, Nominal Defendant.

No. 08 CVS 6575

Superior Court of North Carolina, Buncombe

August 14, 2009.

Burr & Forman LLP by John O'Shea Sullivan and Anderson Terpening PLLC by William R. Terpening for Plaintiffs.

Brown Law LLP by Gregory W. Brown and Joshua M. Hiller for Defendants.

ORDER & OPINION

Diaz, Judge.

{1} Before the Court is the Motion of Defendants Ken Condra ("Condra"), Daniel Prevost ("Prevost"), Marc Miller ("Miller"), Peter Fontaine ("Fontaine"), Tim Longbine ("Longbine"), and David Phillips ("Phillips"), collectively "Defendants, " to Dismiss Plaintiffs' Complaint pursuant to Rules 9(b) and 12(b)(6) of the North Carolina Rules of Civil Procedure ("the Motion to Dismiss").

{2} After considering the Court file, the Motion to Dismiss, the briefs, 1 and the arguments of counsel, the Court GRANTS in part and DENIES in part Defendants' Motion.

I. PROCEDURAL BACKGROUND

{3} On 16 December 2008, Plaintiffs filed their Complaint in this case.

{4} On 16 January 2009, Defendants designated this case as mandatory complex business, and it was assigned to me on 21 January 2009.

{5} On 27 February 2009, Defendants filed the Motion to Dismiss and supporting brief.

{6} Plaintiffs filed a response brief on 27 March 2009.

{7} Defendants filed their reply brief on 17 April 2009.

{8} The Court heard oral argument on the Motion on 22 April 2009.

II.THE FACTS2

A. THE PARTIES

{9} Plaintiff W. Greg Green ("Green") is a shareholder of MedOasis, Inc. ("MedOasis" or "the Company") who has continually held MedOasis stock since 2002. (Compl. ¶ 2.)

{10} Green previously served on the board of MedOasis (the "Board") and as MedOasis' CEO. (Compl. ¶ 2.)

{11} Plaintiff Kenneth Ellington, M.D. ("Ellington") is a shareholder of MedOasis who has continually held MedOasis stock since 2002. (Compl. ¶ 3.)

{12} Ellington previously served on the Board. (Compl. ¶ 3.)

{13} Nominal Defendant MedOasis is a North Carolina corporation with its principal place of business in Asheville, North Carolina. (Compl. ¶ 4.)

{14} MedOasis provides billing and collection services to anesthesiologist practices. (Compl. ¶ 12.)

{15} Defendant Condra is the Company's CEO, and he also serves on the Board. (Compl. ¶ 5.)

{16} Defendant Prevost is a Company officer and a member of the Board. (Compl. ¶ 6.)

{17} Defendant Miller is the former CEO of the Company and a former Board member. (Compl ¶ 7.)

{18} Defendant Fontaine serves as the current chairman of the Board. (Compl. ¶ 8.)

{19} Defendant Longbine has served on the Board since 5 August 2008. (Compl. ¶ 9.)

{20} Defendant Phillips also serves on the Board. (Compl. ¶ 10.)

B. THE CLAIMS

{21} In 2000, Plaintiff Green was a consultant for Asheville Anesthesia Associates ("AAA"). (Compl. ¶ 13.) Green later became AAA's CEO. (Compl. ¶ 13.)

{22} MedOasis was incorporated on or about 11 December 2001 as Medical Specialty Services, Inc. (Compl. ¶ 14.)

{23} Green created the Company to manage the billing and collection services of AAA, as well as other anesthesiology practices. (Compl. ¶¶ 12–13.)

{24} The Company's Articles of Incorporation (the "Articles") authorized MedOasis to issue up to one million (1, 000, 000) shares of common stock. (Compl. ¶ 14; Compl., Ex. A, at 1.)

{25} There was no provision in the Articles for any other class of stock, nor were there any provisions addressing the redemption of shares. (Compl. ¶ 14; Compl., Ex. A, at 1.)

{26} The Company's original Bylaws, however, did contain a provision governing redemption of shares that would be triggered by certain events, "including the termination of a Management Services Agreement between [the Company] and a client medical practice in which the shareholder holds [an] ownership interest or is an employee." (Compl. ¶ 19.)

{27} On or about 19 November 2002, MedOasis issued 26, 000 shares to Green. (Compl. ¶ 16.)

{28} The Company issued an additional 174, 000 shares to Green in or around 2004. (Compl. ¶ 16.)

{29} As part of the Company's business model, the physicians in the anesthesia groups serviced by the Company participated as shareholders in the Company. (Compl. ¶ 17.) Accordingly, MedOasis issued 26, 000 shares to Ellington, who was a physician at AAA, on or about 19 November 2002. (Compl. ¶¶ 15, 17.)

{30} Green and Ellington also served on the Board. (Compl. ¶ 14.)

{31} In November 2005, the Board removed Green as CEO of MedOasis at a special meeting of the Board. (Compl. ¶ 20.) Additionally, Green and Ellington were removed from the Company's Board. (Compl. ¶ 20.)

{32} Green and Ellington, however, retained their shares after being voted off the Board. (Compl. ¶ 20.)

{33} In February 2006, the Board offered to purchase Green's 200, 000 shares for $0.898 per share. (Compl. ¶ 22.)

{34} At the time of the offer, Defendant Miller-MedOasis' CEO at the time (Compl. ¶ 22; Pls'. Mem. Law Opp'n Defs'. Mot. Dismiss 3–4 & n.5)-valued the shares at $0.99 per share. (Compl. ¶ 22.)

{35} Green refused the Board's offer to purchase his shares. (Compl. ¶ 22.)

{36} On 13 August 2006, Ellington ceased to be a AAA physician, but he retained his shares in MedOasis. (Compl. ¶ 23.)

{37} MedOasis has not held an annual shareholders' meeting since October 2006. (Compl. ¶ 24.) As such, there have been no elections for directors as provided for in the Company's Bylaws, and only one current Board member was elected at an annual meeting of its shareholders. (Compl. ¶ 24.)

{38} Since Green and Ellington were removed from the Board, the Company has failed to provide any financial information to its shareholders. (Compl. ¶ 24.)

{39} In October 2006, MedOasis amended its Articles to increase the number of authorized shares from 1 million to 1.5 million. (Compl. ¶ 26; Compl., Ex. B.)

{40} On or about 3 July 2007, the Board adopted new Bylaws. (Compl. ¶ 27; Compl., Ex. C.)

{41} On or about 31 March 2008, MedOasis named Ken Condra as its CEO and awarded him 60, 000 shares, which shares (according to Plaintiffs) did not become fully vested until 31 December 2008. (Compl. ¶ 29.)

{42} On 31 May 2008, MedOasis terminated AAA's Management Services Agreement. (Compl. ¶ 30.)

{43} AAA was the oldest and most profitable client of the Company. (Compl. ¶ 30.)

{44} On 23 June 2008, MedOasis wrote to Ellington to advise him that a provision in the amended Bylaws made it necessary for the Company to redeem Ellington's shares in light of the Company's termination of AAA's Management Services Agreement. (Compl. ¶¶ 31–32.)3

{45} The Company retained Dixon Hughes CPAs ("Dixon Hughes") to render a valuation opinion for the shares to be redeemed. (Compl. ¶ 33.)

{46} Dixon Hughes told MedOasis management that the shares were valued between $0.00 and $0.40 per share. (Compl. ¶ 33.)

{47} The Company thereafter set the redemption share price at $0.17 per share. (Compl. ¶ 33.)

{48} The Company's 23 June 2008 letter to Ellington advised him that he would receive a check in the amount of $4, 420.00 for his shares if Ellington complied with certain conditions, which included signing an agreement to indemnify the Company and release it (and its officers and directors) from all claims. (Compl. ¶¶ 34–35.)

{49} Ellington did not agree to the redemption. (Compl. ¶ 35.)

{50} In July 2008, twenty (20) shareholders, each of whom received similar redemption notices from the Company, granted Ellington "irrevocable proxies to act, vote and execute consents with respect to all of their shares of MedOasis as fully and to the same extent and effect as those shareholders would be entitled to act, vote and execute consents themselves." (Compl. ¶ 38.)

{51} The proxies granted to Ellington totaled 481, 000 shares (the "AAA Shares"). (Compl. ¶ 38.)

{52} On 4 August 2008, Green sent MedOasis a demand for a special meeting of the Company's shareholders, to be held 16 August 2008, for the following purposes: "(a) deletion from the amended Bylaws of the last two sentences of Article V, Section 2, first paragraph;4 (b) removal of one or more members of [the Board]; and (c) election of a new Board of Directors." (Compl. ¶ 37.)

{53} In response to Green's demand, the Board called an emergency meeting for 5 August 2008 at 7:55 p.m. (Compl. ¶ 39.)

{54} Condra, Prevost, Phillips, Evans, Fontaine, and Longbine were present at the 5 August 2008 meeting. (Compl. ¶ 39.)

{55} At this meeting, the Board discussed the voting power of Green and Ellington at the upcoming shareholder meeting, who, combined, would control and vote 707, 000 of the Company's shares. (Compl. ¶ 40)

{56} At the time, the Board controlled the remaining 440, 109 of the 1, 147, 109 shares that were issued and outstanding. (Compl. ¶ 40.)

{57} The Board determined at the 5 August 2008 meeting that neither Ellington nor the AAA Shares, as a group, would have any voting rights at the upcoming shareholder meeting. (Compl. ¶ 41.)

{58} The Board also decided that it would not give notice of the shareholder meeting to Ellington...

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