Hale v. 4tdd.Com, Inc. (Ex parte 4tdd.om, Inc.), 1180262

• Court: Supreme Court of Alabama
• Writing for the Court: STEWART, Justice.
• Citation: 306 So.3d 8
• Parties: EX PARTE 4TDD.COM, INC., et al. (In re: Sheila Hale, individually and on behalf of the shareholders of Bay Area Nutrition, Inc. v. 4tdd.com, Inc., et al.)
• Docket Number: 1180262
• Decision Date: 27 March 2020

306 So.3d 8

EX PARTE 4TDD.COM, INC., et al.

(In re: Sheila Hale, individually and on behalf of the shareholders of Bay Area Nutrition, Inc.
v.
4tdd.com, Inc., et al.)

1180262

Supreme Court of Alabama.

March 27, 2020

Thomas P. Oldweiler, J. Harris Oppenheimer, and Robert S. Walker of Armbrecht Jackson LLP, Mobile, for petitioners.

Richard E. Corrigan of The Corrigan Law Firm PC, Mobile, for respondent.

STEWART, Justice.

4tdd.com, Inc. ("4tdd"), Thomas Todd Martin III, and Martin & Associates Consulting Company, LLC ("MACC"), petition this Court for a writ of mandamus instructing the Mobile Circuit Court ("the trial court") to dismiss a derivative shareholder action filed against them by Sheila Hale, individually and on behalf of the shareholders of Bay Area Nutrition, Inc., on the ground, inter alia, that Hale did not satisfy the requirement of Rule 23.1, Ala. R. Civ. P., that she allege with particularity in her complaint the efforts she had made to obtain the requested relief from the corporate directors of Bay Area Nutrition, Inc. ("BAN"), before filing an action against them. For the reasons stated below, we grant the petition and issue the writ.

Facts

In 2009, Jenny Neese incorporated BAN, an Alabama corporation that provided diet and other nutrition-related services, and she served as BAN's president at all times pertinent to this case. Hale alleges that, between 2011 and 2012, she purchased a total of 130,000 shares of BAN stock, which constituted 13% of the total outstanding shares of the company.

In July 2012, BAN entered into a financial-services agreement with Martin and MACC, Martin's financial-management firm. In an effort to provide BAN with needed capital, Martin, along with other investors, incorporated 4tdd as a separate

306 So.3d 12

entity, and Martin used 4tdd as a vehicle to loan BAN a total of $457,062.54 over a period from July 2012 to August 2014. In April 2014, BAN executed, with Neese's approval, a promissory note in favor of 4tdd, promising to repay the loan, plus accrued interest, within six months ("the 2014 promissory note"). Neese also executed a security agreement on behalf of BAN pledging all assets of BAN to 4tdd as security for the note.

On November 17, 2014, Neese, individually, filed a petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Alabama ("the bankruptcy court"), which the bankruptcy court ultimately converted to a Chapter 7 bankruptcy. In December 2014, 4tdd foreclosed on the security agreement and acquired all of BAN's assets. 4tdd filed an adversary complaint against Neese in the bankruptcy action in which it sought an exception from the discharge of Neese's debts under 11 U.S.C. § 523(a)(2), (4), and (6) and asserted certain state-law claims against Neese. Neese filed counterclaims against 4tdd and "cross-claims" against Martin, MACC, and others in the adversary proceeding, alleging fraudulent misrepresentation, conspiracy, breach of contract, and breach of fiduciary duty.

In January 2016, Neese, on behalf of BAN and other entities owned by Neese that are not parties to this case, entered into a mutual release and a settlement and noncompetition agreement with 4tdd ("the mutual release"). In the mutual release, the parties agreed to release all claims they had against each other in connection with the matters pertinent to the settlement of the adversary proceeding. The bankruptcy court approved the mutual release. According to the complaint in this case, the bankruptcy court granted Neese a discharge from bankruptcy on November 1, 2016.

On November 23, 2016, Hale sued 4tdd, Martin, MACC, and BAN in the trial court, asserting two claims of ultra vires acts, a breach-of-fiduciary-duty claim, and a breach-of-contract claim. In support of her first ultra vires claim, Hale alleged that Neese's approval of the 2014 promissory note was beyond the scope of her authority as BAN's president and should have required authorization from BAN's board of directors or a majority of BAN's shareholders. Hale requested that the trial court declare the 2014 promissory note void, award damages to BAN's shareholders for the alleged deprivation of BAN's assets resulting from foreclosure of the security agreement, and award court costs and attorney fees. Hale also requested that the trial court grant injunctive relief as to that ultra vires claim, but she did not specify the acts she sought to enjoin. In her second ultra vires claim, Hale alleged that Neese's approval of the mutual release on behalf of BAN also was an ultra vires act in that the mutual release should have required approval of BAN's board of directors or a majority of BAN's shareholders. Hale requested that the trial court declare the mutual release void "and of no effect as to BAN." In the claim of breach of fiduciary duty, Hale alleged that 4tdd, Martin, and MACC breached their fiduciary obligations to BAN. In addition, Hale alleged in her breach-of-contract claim that Martin and MACC "breached their contract with BAN in that they failed and refused to find financing for BAN," that Martin and MACC "availed themselves of the opportunity to finance BAN," and that Martin and MACC "caused BAN to enter into a Security Agreement whereby the entirety of the assets of BAN were jeopardized [and] ultimately lost, thereby proximally [sic] causing damage to BAN."

306 So.3d 13

Hale further stated in her complaint that "[t]he Directors of BAN are not known to [Hale]. Accordingly, she has been unable to request action be taken by the Board of Directors of BAN to resolve the issues raised herein." Hale also stated that she was "uncertain as to the exact number of other stockholders in BAN, but it may be a total of seven (7) excluding Jenny Neese."

Nearly two years after the filing of the complaint, Hale obtained service of process on 4tdd, Martin, and MACC, although, as of the date of the filing of the petition for a writ of mandamus, BAN had not been served. On September 19, 2018, 4tdd, Martin, and MACC filed a motion to dismiss the complaint or, in the alternative, for a summary judgment, in which they argued that Hale's complaint was due to be dismissed under Rule 12, Ala. R. Civ. P., for lack of subject-matter jurisdiction because, they argued, Hale did not have standing to bring a derivative shareholder action in that she failed to comply with the requirements provided in Rule 23.1, Ala. R. Civ. P., for filing a derivative shareholder claim. 4tdd, Martin, and MACC also asserted that they were entitled to a summary judgment because, they said, Hale's claims were barred by the mutual release and by the doctrines of res judicata and collateral estoppel. 4tdd, Martin, and MACC further contended that Hale failed to state a claim upon which relief could be granted as to the ultra vires claims because, they alleged, BAN was the proper party against whom Hale, in her capacity as a shareholder of BAN, could bring an ultra vires claim. Hale did not file a response to the motion. After holding a hearing, the trial court entered an order denying 4tdd, Martin, and MACC's motion. 4tdd, Martin, and MACC filed a petition to this Court seeking a writ of mandamus directing the trial court to dismiss Hale's complaint or to enter a summary judgment in their favor. This Court entered an order staying the proceedings in the trial court pending mandamus review.

Standard of Review

A writ of mandamus is an extraordinary remedy available only when the petitioner can demonstrate: " ‘(1) a clear legal right to the order sought; (2) an imperative duty upon the respondent to perform, accompanied by a refusal to do so; (3) the lack of another adequate remedy; and (4) the properly invoked jurisdiction of the court.’ " Ex parte Nall, 879 So. 2d 541, 543 (Ala. 2003) (quoting Ex parte BOC Grp., Inc., 823 So. 2d 1270, 1272 (Ala. 2001) ).

Analysis

In their petition to this Court, 4tdd, Martin, and MACC contend that they are entitled to a dismissal of Hale's claims because, they contend, Hale's claims are derivative claims as to BAN and she did not satisfy the pleading requirements of Rule 23.1 by stating the efforts she had made to obtain the action she desires from BAN's directors or her reasons for not making such efforts. 4tdd, Martin, and MACC also contend that the trial court should have entered a summary judgment in their favor because, they argue, Hale's claims are barred by the mutual release and by the doctrine of res judicata.

I. Rule 23.1

When a plaintiff seeks recovery of damages that are incidental to his or her status as a shareholder in a corporation, "the claim is a derivative one and must be brought on behalf of the corporation." Pegram v. Hebding, 667 So. 2d 696, 702 (Ala. 1995) (citing McLaughlin v. Pannell Kerr Forster, 589 So. 2d 143 (Ala. 1991) ). "The derivative form of action permits an individual shareholder to bring ‘suit to enforce a corporate cause of action

306 So.3d 14

against officers, directors, and third parties.’ " Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 95, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991) (quoting Ross v. Bernhard, 396 U.S. 531, 534, 90 S.Ct. 733, 24 L.Ed.2d 729 (1970) ). "[T]he purpose of the derivative action was to place in the hands of the individual shareholder a means to...