Sullivan v. Mebane Packaging Group, Inc.
Decision Date | 20 May 2003 |
Docket Number | No. COA02-762.,COA02-762. |
Citation | 581 S.E.2d 452,158 NC App. 19 |
Court | North Carolina Court of Appeals |
Parties | J. Richard SULLIVAN, Plaintiff, v. MEBANE PACKAGING GROUP, INC., Joseph G. Andersen, Dustin McDulin and Donna I. Wilson, Defendants. |
Vernon, Vernon, Wooten, Brown, Andrews & Garrett, P.A. by John H. Vernon, III, Mark A. Jones, and Benjamin D. Overby, Burlington, for plaintiff-appellant.
G. Wayne Abernathy, Graham, and Alston & Bird, L.L.P. by Mary C. Gill, Atlanta, GA, for defendant-appellees Mebane Packing Group, Inc. and Joseph G. Andersen.
Plaintiff J. Richard Sullivan appeals the entry of summary judgment in favor of defendants Mebane Packaging Group, Inc. ("MPG"), and Joseph G. Andersen. Plaintiff, a former MPG employee, filed his complaint in this action on 12 October 2000 alleging claims of fraud, constructive fraud, negligent misrepresentation, and a violation of the North Carolina Securities Act arising out of his sale of MPG stock to defendant Joseph G. Andersen. Plaintiff voluntarily dismissed defendants Dustin McDulin and Donna I. Wilson from the suit on 10 January 2002.
The materials before the trial court at the summary judgment hearing established that plaintiff worked for MPG from 1978 until mid-February 1999. In 1994, plaintiff acquired 2,000 shares of company stock from MPG. When plaintiff left MPG in February 1999, his stock was governed by an Amended and Restated Shareholders' Agreement (the "Agreement"). Under that Agreement, within 90 days of his termination, plaintiff had a so-called "put right" to require MPG to buy back his shares. In the event plaintiff did not exercise his put right during those 90 days, MPG would have a "call right" to require that plaintiff sell his shares back to the company. If either the put right or call right were exercised, the shares would be sold for a price equal to the greater of fair value or book value as of the end of the fiscal month immediately preceding plaintiff's termination date. Fair value was defined by the Agreement as the price agreed upon by the parties, or in the absence of agreement, as determined by an independent investment banking firm. MPG could also elect not to exercise its call right, in which event plaintiff would not be required to sell the stock.
Plaintiff testified he knew MPG could require that he sell back his 2,000 shares of MPG stock upon his leaving the company. Plaintiff testified that in mid-February, he met with McDulin and Wilson about leaving MPG. During that meeting, plaintiff asked what MPG was going to do about his shares, because he was aware it was MPG's policy that only employees were to own stock in the company. Sometime thereafter, McDulin explained to plaintiff that he would need to sell his shares back to MPG, and that the value of the stock as of the end of January 1999 was $17 per share based upon an MPG formula set forth in the company's monthly financial package. Shortly thereafter, Wilson delivered to plaintiff a promissory note dated 18 February 1999 stating that plaintiff would sell his shares to MPG for $17 a share, and containing a place for plaintiff's signature. Wilson testified she instructed plaintiff to consult with his attorney about the promissory note. Defendant Andersen, MPG's Chief Financial Officer, instructed Wilson to present the promissory note to plaintiff because it was MPG policy that only employees were entitled to be stockholders. Andersen testified that MPG's Board of Directors set the price of the shares at $17 each based upon a stock valuation model and the value of MPG stock as of the closest month-end to plaintiff's termination date.
Plaintiff testified that he did consult with his attorney about the promissory note and sale of his stock and concluded that while he "didn't have any objection to selling the stock," he did not want to sell for $17 per share. Plaintiff testified he had no basis for seeking to sell the stock at more than $17 per share, other than his opinion that he "just thought it was worth more than that." Plaintiff did not act on the promissory note, and was subsequently contacted independently by Wilson and McDulin, who each informed plaintiff that he needed to sell his stock to MPG and that $17 was the value per share of the stock. Plaintiff told McDulin that he would sell his stock to MPG for $26 per share. Plaintiff testified that throughout this negotiation process, he requested a copy of the Agreement more than once from McDulin, yet never received such a copy. Andersen testified he was never told that plaintiff wished to have a copy of the Agreement.
Andersen further testified that he met with plaintiff between 4 May and 24 May 1999 to assist him in understanding how MPG had valued his stock at $17 per share, including the fact that it was based on the value of MPG shares as of January 1999, the month ending just prior to plaintiff's termination, as required by the Agreement. Andersen provided plaintiff with MPG's March financial package, which was completed 4 May 1999, and was the most recent financial package available. The package showed the value of plaintiff's stock to be $17 per share as of the end of January 1999, as well as an increase in the value of the stock in the following months. Andersen told plaintiff to take the materials home to review, to consult with his attorney about the information, and to call Andersen if he had any questions. Plaintiff testified that he took the information home, and after showing it to his business partner, simply put it away and never looked at it again because he "wouldn't have understood it." Plaintiff did not consult with his attorney or an accountant about the materials, and never called Andersen with any questions.
Following the meeting with Andersen, plaintiff spoke to McDulin and suggested splitting the difference between $17 and the $26 price, which plaintiff had demanded earlier. Plaintiff told McDulin he would sell his stock to MPG for $22 a share. McDulin communicated plaintiff's offer to MPG. Andersen testified the discussions within MPG over plaintiff's offer took place in May 1999. Andersen testified that MPG decided it was not willing to pay $22 per share since MPG valued the stock at $17 per share. Instead, MPG offered Andersen the right to purchase plaintiff's stock for $22 a share. Andersen was informed he was under no obligation to purchase plaintiff's shares and that if he did not desire to do so, MPG would require plaintiff to sell his stock to the company at $17 per share. George Krall, MPG's President and Chief Executive Officer, testified that he approved allowing Andersen to purchase plaintiff's shares because it would allow plaintiff to receive the price he desired for the shares while rewarding Andersen for his work at MPG. Garrison Kitchen, a member of MPG's Board of Directors, likewise testified it was his understanding that both Andersen and plaintiff desired such an agreement because it was mutually beneficial and would allow plaintiff to receive a higher price for his stock. Andersen agreed to purchase plaintiff's shares for $22 a share, and plaintiff was informed that his offer had been accepted.
As a result, on 1 June 1999, MPG's Board of Directors executed a consent action finding that plaintiff desired to sell his stock shares, that Andersen desired to buy plaintiff's shares of stock, and that it was in MPG's best interest to allow Andersen to purchase plaintiff's 2,000 shares. The Board accordingly waived its call right in favor of Andersen. Immediately thereafter, Andersen applied for a bank loan for the purchase price. On 15 June 1999, Andersen obtained a bank line of credit in the amount of $44,000, the total purchase price for 2,000 shares at $22 per share.
On 8 August 1999, plaintiff met with McDulin to sign over his stock. Plaintiff testified that when he arrived for the closing, he was informed that Andersen had agreed to purchase the stock. Plaintiff testified that he had assumed MPG's majority shareholder, Cravey, Green and Whalen, Inc. ("CGW"), would be purchasing the stock. Plaintiff did not object to selling the stock to Andersen, and he testified it made no difference to him who was purchasing his stock, so long as he would receive $22 a share.
On 24 November 1999, MPG was sold to Westvaco Corporation through execution of a stock purchase agreement. Plaintiff's former 2,000 shares were sold to Westvaco at a price significantly higher than the $44,000 plaintiff received for his sale to Andersen. Plaintiff testified that he first heard rumors about a sale of MPG in July, but that he never asked Wilson, Andersen or McDulin about the rumors, and that, in any event, a sale of the company did not matter to him. Richard Cravey, an MPG director, testified that prior to the fall of 1999, MPG received several unsolicited inquiries with respect to the availability of the company for sale. Cravey testified the inquiries were simply statements of interest that if MPG were for sale, the interested party might be willing to buy the company. Cravey testified these interested parties were informed MPG was not for sale. As a result, MPG never received an actual offer to buy. Cravey reiterated that between January 1999 and the August 1999 closing on plaintiff's stock, there were no discussions with prospective purchasers.
Cravey further testified that although Donaldson, Lufkin & Jenrette ("DLJ"), an investment banking firm that had previously worked with MPG, was sending MPG financial packages and information that could be used to market the company, such information had not been requested by MPG, but was voluntarily submitted by DLJ as a means to promote the sale of MPG which would generate a fee for DLJ. Despite receiving this information from DLJ, Cravey testified that MPG directors "continued to resist ... because we didn't think it was the right time to sell the business," and that each time MPG received packages from DLJ, there were...
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