State of North Carolina County of Columbus Dennis Worley v. Moore

• Decision Date: 28 February 2017
• Docket Number: 15 CVS 1316
• Citation: 2017 NCBC 15
• Court: Superior Court of North Carolina
• Parties: STATE OF NORTH CAROLINA COUNTY OF COLUMBUS DENNIS WORLEY, STERLING KOONCE, FLYING A LIMITED PARTNERSHIP L.P., JOSEPH W. FORBES, JR., KENNETH CLARK, JAMES BOGGESS, JOEL WEBB, JAIMIE LIVINGSTON, JAMES E. BENNETT, JR., DAVID MINER, RONALD ENGLISH, and MDF, LLC, Plaintiffs, v. ROY J. MOORE, PIERCE J. ROBERTS, DAVID BROWN, MICHAEL ADAMS, CHRISTOPHER BAKER, JAMES KERR, FRANK MCCAMANT, NEIL KELLEN, GINI COYLE, JOSEPH MOWERY, TOSHIBA CORPORATION, ALAMO ACQUISITION CORP., and STEPHENS, INC., Defendants.

2017 NCBC 15

STATE OF NORTH CAROLINA COUNTY OF COLUMBUS DENNIS WORLEY, STERLING KOONCE, FLYING A LIMITED PARTNERSHIP L.P., JOSEPH W. FORBES, JR., KENNETH CLARK, JAMES BOGGESS, JOEL WEBB, JAIMIE LIVINGSTON, JAMES E. BENNETT, JR., DAVID MINER, RONALD ENGLISH, and MDF, LLC, Plaintiffs, v. ROY J. MOORE, PIERCE J. ROBERTS, DAVID BROWN, MICHAEL ADAMS, CHRISTOPHER BAKER, JAMES KERR, FRANK MCCAMANT, NEIL KELLEN, GINI COYLE, JOSEPH MOWERY, TOSHIBA CORPORATION, ALAMO ACQUISITION CORP., and STEPHENS, INC., Defendants.

No. 15 CVS 1316

Superior Court of North Carolina, Columbus

February 28, 2017

Nexsen Pruet, PLLC, by R. Daniel Boyce and Thomas J. Ludlam, for Plaintiffs.

RuyakCherian LLP, by Arthur T. Farrell, for Plaintiffs.

Kilpatrick Townsend & Stockton LLP, by Joel D. Bush Jason M. Wenker, Elizabeth Winters, Stephen E. Hudson, John Moye, and Adam H. Charnes, for Defendants.

OPINION AND ORDER ON DEFENDANTS' MOTIONS TO DISMISS

THIS MATTER is before the Court on the following motions: (1) Motion to Dismiss of Defendants Roy J. Moore and Pierce J Roberts Pursuant to Rules 12(b)(1), 12(b)(2), and 12(b)(6) ("Moore and Roberts Motion"); (2) Motion to Dismiss of Defendants Christopher Baker, David G. Brown, and Frank McCamant Pursuant to Rules 12(b)(1), 12(b)(2), and 12(b)(6) ("Baker, Brown, and McCamant Motion"); (3) Defendant Michael Adams's Motion to Dismiss Pursuant to Rules 12(b)(1) and 12(b)(6) ("Adams Motion"); (4) Defendant James Kerr's Motion to Dismiss Pursuant to Rules 12(b)(1), 12(b)(2), and 12(b)(6) ("Kerr Motion"); (5) Defendant Neil Kellen's Motion to Dismiss Pursuant to Rules 12(b)(1), 12(b)(2), and 12(b)(6) ("Kellen Motion"); (6) Motion to Dismiss of Defendants Joseph Mowery and Stephens, Inc. Pursuant to Rules 12(b)(1), 12(b)(2), and 12(b)(6) ("Mowery and Stephens Motion"); and (7) Defendant Alamo Acquisition Corp.'s Motion to Dismiss Pursuant to Rules 12(b)(2) and 12(b)(6) ("Alamo Motion") (collectively "Motions").

THE COURT, having considered the Motions, the affidavit evidence submitted by Defendants, the briefs in support of and in opposition to the Motions, the oral arguments of counsel at the hearing, and other appropriate matters of record, concludes that the Moore and Roberts Motion, the Baker, Brown, and McCamant Motion, the Kerr Motion, the Kellen Motion, the Mowery and Stephens Motion, and the Alamo Motion should be GRANTED, and the Adams Motion should be GRANTED in part and DENIED in part for the reasons set forth below.

Gregory P. McGuire Special Superior Court Judge

I. FACTUAL AND PROCEDURAL BACKGROUND

1. This action arises out of an Agreement and Plan of Merger ("Merger Agreement") executed on January 24, 2013 by Consert, Inc. ("Consert"), Defendant Alamo Acquisition Corp. ("Alamo"), and Defendant Toshiba Corporation ("Toshiba"). (FAC ¶ 2.)^[1] Pursuant to the Merger Agreement, Toshiba acquired Consert, and Alamo, a wholly-owned subsidiary of Toshiba, was merged with and into Consert (the "Merger"). The Merger closed on February 5, 2013. (FAC ¶ 2; Aff. Amy Mansfield Exh. 1 [hereinafter Mansfield Aff.].)

A. The Parties.

2. Plaintiffs are former shareholders of Consert, a Delaware corporation with its headquarters in San Antonio, Texas. (FAC ¶ 2; Mansfield Aff. Exh. 1.) Before the Merger, Plaintiffs collectively owned 36.5% of Consert's common stock and 18% of all classes of Consert's stock. (FAC ¶¶ 2, 15.)

3. Toshiba is a Japanese corporation and was a party to the Merger Agreement. (FAC ¶ 26.) Defendant Alamo was a Delaware corporation and a wholly-owned subsidiary of Toshiba. (FAC ¶ 27.) Alamo was formed as a vehicle to facilitate the Merger. (FAC ¶ 27.) Toshiba purchased all of the stock in, acquired, and merged Consert into Alamo, after which time Consert became the surviving wholly-owned subsidiary of Toshiba. (FAC ¶ 26.)

4. Defendants Roy J. Moore ("Moore"), Pierce J. Roberts ("Roberts"), David Brown ("Brown"), Michael Adams ("Adams"), Christopher Baker ("Baker"), James Kerr ("Kerr"), Frank McCamant ("McCamant"), and Neil Kellen ("Kellen"), are former officers and/or directors of Consert (collectively, "O&D Defendants"). (FAC ¶¶ 17-24.)

5. Moore was Consert's Chief Development Officer ("CDO") from January 2008 until the Merger.^[2] (FAC ¶ 17; Aff. Roy J. Moore ¶ 3 [hereinafter Moore Aff.].) Moore was also a director of Consert. Roberts was Chairman of Consert's Board of Directors ("Board") and Consert's CEO from January 2008 until the Merger in February 2013. (FAC ¶ 16; Aff. Pierce J. Roberts, Jr. ¶ 3 [hereinafter Roberts Aff.].) Roberts and Moore together held approximately 25% of all classes of Consert stock.

6. Brown, Adams, Baker, Kerr, and McCamant were members of the Board at the time of the Merger in February 2013. (FAC ¶ 21; Aff. David G. Brown ¶ 5 [hereinafter Brown Aff.]; Aff. Chris Baker ¶ 6 [hereinafter Baker Aff.]; Aff. James Y. Kerr, II ¶ 5 [hereinafter Kerr Aff.]; Aff. Frank McCamant ¶ 4 [hereinafter McCamant Aff.].)

7. Kellen began working for Consert as a consultant in March 2012. (Aff. Neil Kellen ¶ 3 [hereinafter Kellen Aff.].) From April 2012 until the Merger in February 2013, Kellen served as Consert's Chief Financial Officer ("CFO"). (Kellen Aff. ¶ 3.)

8. Defendant Stephens, Inc. ("Stephens") is the investment bank that represented Consert in the Merger. (FAC ¶ 29.) Defendant Joseph Mowery ("Mowery") is the managing director of Stephens. (FAC ¶ 28.)

B. The "Scheme."

9. Plaintiffs allege that:

Beginning on or about mid to late 2011, as part of the [O&D] Defendants' decision to sell Consert, Defendants Roberts and Moore, acting individually and in concert with other defendants, devised and executed a scheme which included a number of activities and elements which had the purpose and effect of disenfranchising certain shareholders, including Plaintiffs. Among other things, Defendants orchestrated the timing of, the negotiations related to, the terms and conditions of, and the actual sale of Consert to Toshiba in a manner and under circumstances that maximized the monetary benefits of the sale to themselves and which disregarded, compromised, and ultimately precluded, monetary returns to Plaintiffs on their investments as shareholders in Consert [("Scheme")].

(FAC ¶ 33.)

10. Plaintiffs allege that in furtherance of the Scheme:

a. Roberts and Moore orchestrated the removal of Plaintiff Joseph W. Forbes, Jr. ("Forbes") from his position as Chief Operating Officer and membership on the Board, as well his termination from employment in the fall of 2011. Forbes was a founder of Consert, Consert's largest common shareholder, and was the principal inventor of all but one of Consert's twenty patents. Plaintiffs contend that Defendants removed Forbes in order to conceal the Scheme from Plaintiffs. (FAC ¶ 41.)

b. Roberts and Moore announced at a shareholders meeting on October 26, 2011 that Consert had entered into a significant contract with CPS Energy Corporation ("CPS") ("Consert/CPS Contract"). (FAC ¶ 42.) Plaintiffs allege that, at this meeting, certain O&D Defendants represented to Plaintiffs that the Consert/CPS Contract was a significant milestone in Consert's success, but the Consert/CPS Contract was never consummated and its non-consummation was not disclosed to Plaintiffs prior to the Merger. (FAC ¶ 43.)

c. Plaintiffs allege that around the same time, "Defendants began the process of relocating Consert's [headquarters] from Raleigh, North Carolina to San Antonio, Texas. (FAC ¶ 44.) Plaintiffs contend that relocation to Texas was completed in the first quarter of 2012. (FAC ¶ 44.) Defendants have provided evidence that the relocation of Consert's offices from Raleigh to San Antonio was completed in August 2011, and that Consert conducted its business activities from Texas thereafter. (Mansfield Aff. Exhs. 2-3; Moore Aff. ¶ 5; Roberts Aff. ¶¶ 5-6.)

d. Roberts and Moore increased their salaries and accrued those salaries on Consert's books in order to receive "preferential payments for themselves" upon consummation of the Merger. (FAC ¶ 44.)

e. Roberts, Moore, and the other O&D Defendants made loans to Consert at exorbitant interest rates. The loans were to be paid back from the proceeds of the Merger. (FAC ¶ 45.)

f. In January 2013, "Defendants contrived and implemented an additional 'bridge loan' to Consert with egregious and usurious terms intended to insure that Defendant Moore would be guaranteed to receive nearly all of the money that he had invested in Consert common and Series A stock, in the form of a preferential payment at the time of sale." (FAC ¶ 46.)

11. Plaintiffs allege that "the O&D Defendants systematically and collusively prevented Consert's shareholders from receiving any information about the lucrative preferences and other payments that the O&D Defendants had orchestrated for themselves." (FAC ¶ 49.)

12. In April 2012, Consert retained Stephens to find a potential buyer of Consert. (FAC ¶ 51; Aff. Joseph S. Mowery ¶ 4 [hereinafter Mowery Aff.].)

13. The Merger of Consert attracted several interested parties. Toshiba, General Electric, and Silver Spring Networks provided Defendants with written proposals outlining the terms on which they would consider purchasing Consert. (FAC ¶ 52.)

14. At a Board meeting on January 23, 2013, Moore proposed that Consert accept Toshiba's terms, and O&D Defendants unanimously approved that Consert limit further Merger negotiations to Toshiba. (FAC ¶ 53.)

15. On January 24, 2013, Consert, Alamo, and Toshiba executed the Merger Agreement. (FAC ¶ 32.) Moore executed the Merger Agreement on behalf of Consert in Texas. (Moore Aff. ¶ 8.) Plaintiffs allege that O&D Defendants chose to sell Consert to Toshiba because it was the only potential purchaser that would agree to O&D Defendants' terms providing for undisclosed...