Whitacre Partnership v. Biosignia, Inc.

• Decision Date: 06 February 2004
• Docket Number: No. 617PA02.,617PA02.
• Citation: 591 S.E.2d 870,358 N.C. 1
• Court: North Carolina Supreme Court
• Parties: WHITACRE PARTNERSHIP, an Illinois limited partnership v. BIOSIGNIA, INC., corporate successor to Biomar International, Inc. and Future Health Technologies Company; T. Nelson Campbell; and T. Colin Campbell.

591 S.E.2d 870

358 N.C. 1

WHITACRE PARTNERSHIP, an Illinois limited partnership v. BIOSIGNIA, INC., corporate successor to Biomar International, Inc. and Future Health Technologies Company; T. Nelson Campbell; and T. Colin Campbell.

No. 617PA02.

Supreme Court of North Carolina.

February 6, 2004.

Farmer & Watlington, L.L.P., by R. Lee Farmer, Yanceyville; and Bill T. Walker, pro hac vice, Granite City, for plaintiff-appellee.

Parker, Poe, Adams & Bernstein, L.L.P., by Robert W. Spearman, Raleigh; and Steptoe & Johnson, L.L.P., by J. William Koegel, Jr., pro hac vice, Washington, DC, for defendants-appellants.

MARTIN, Justice.

Plaintiff Whitacre Partnership, an Illinois limited partnership (plaintiff or Whitacre Partnership), seeks a declaration establishing its ownership of 1,000,000 shares of common stock in defendant Biosignia, Inc. (defendant or Biosignia). In the alternative, plaintiff seeks damages for the wrongful conversion of the stock. On 28 June 2001, defendants moved for summary judgment on the ground that the doctrine of judicial estoppel precluded plaintiff from asserting a factual position contrary to earlier representations made by plaintiff's general partners before a bankruptcy tribunal. The trial court concluded there was no genuine issue of material fact and granted defendant's motion for summary judgment. The Court of Appeals determined that judicial estoppel did not apply on the facts of the present case and remanded to the trial court. We modify and affirm.

I.

The facts of the instant case may be summarized as follows. Whitacre Partnership is an Illinois limited partnership. Its general partners are Mark E. Whitacre and Ginger L. Whitacre (collectively "the Whitacres"), and its limited partners are the Whitacres' three children, Alexander R. Whitacre, William A. Whitacre, and Tanya M. Whitacre (collectively "the Whitacre children"). The Whitacres, as general partners, each hold a one percent interest in the family partnership. The Whitacre children collectively own a ninety-eight percent interest as limited partners. According to the deposition testimony of Mark E. Whitacre (Whitacre), "[t]he Whitacre Partnership was meant to be a trust fund" for the benefit of the Whitacre children. At all times since the partnership was formed, its sole asset has been whatever right or title it may have had in the stock at issue in the present case.

BioSignia is a closely held Delaware biotech corporation registered as a foreign corporation doing business in North Carolina. Its principal place of business is Orange County, North Carolina. BioSignia's corporate predecessors include Advocacy Communications, Inc. (Advocacy), also known by its trade name, Future Health Technologies, Inc. (FHT),¹ and Biomar International, Inc. (Biomar). Defendants T. Nelson Campbell and T. Colin Campbell (the Campbell defendants) are officers and directors of BioSignia and its predecessor companies.

On 1 October 1995, Whitacre was appointed director, President, and Chief Executive Officer of FHT, and Advocacy issued 250 shares of common stock to Whitacre in his name. The employment agreement reached between Whitacre and FHT on or prior to 1 October 1995 was memorialized in a letter dated 12 October 1995 and signed by both Whitacre and defendant T. Colin Campbell. The letter provided that Whitacre would receive, in addition to his salary, "20% of the outstanding shares of FHT by the date of FHT's first private placement," conditioned on Whitacre's contribution of $150,000 to FHT and his "not [having] voluntarily retired from [his] position of CEO or otherwise terminated [his] continuing relationship to FHT" as of the date of the first private placement. By the terms of the letter, the shares would be issued to Whitacre "and/or any trust established on behalf of [his] children." On 1 January 1996, Whitacre transferred his 250 shares in Advocacy to Whitacre Partnership.

On 26 April 1996, Advocacy's Board of Directors and shareholders executed a "Unanimous Written Consent in Lieu of a Joint Special Meeting" (Unanimous Written Consent). Whitacre signed as a director and on behalf of Whitacre Partnership as a shareholder of Advocacy. The Campbell defendants signed as directors and individually as shareholders. The Unanimous Written Consent (1) ratified Advocacy's hiring of Whitacre as President and CEO of the corporation and the issuance of 250 shares of Advocacy stock to Whitacre; (2) acknowledged that the value of those shares as of 1 October 1995 was $150,000, and that they "represent[ed] 20% of total ownership" of Advocacy and were issued for reimbursable expenses incurred on behalf of the corporation and as compensation for Whitacre's services; and (3) authorized a share exchange for officers and counsel of the corporation at a rate of 8,000 "New Shares" for each "Old Share."

On 29 April 1996, Advocacy filed a certificate of amendment with the Delaware Secretary of State to change its corporate name to "Biomar, International, Inc." The following day Biomar issued stock certificate number 8 to Whitacre Partnership for 2,000,000 shares. No restrictive legend or other limiting indication appears on the face of the stock certificate. In a letter enclosing the certificate dated 25 September 1996, counsel for Biomar informed Whitacre that the new certificate "replace[d] the stock certificate of the original corporation, Advocacy Communications, Inc." and that the "original of those certificates were marked cancelled and placed in the corporate book of Advocacy Communications, Inc."²

In early 1997, a federal grand jury indicted Whitacre on forty-five counts of tax fraud, wire fraud, money laundering, conspiracy, and other charges in connection with Whitacre's embezzlement of several million dollars from his former employer, Archer-Daniels-Midland (ADM). Pursuant to a plea agreement, Whitacre pled guilty in October 1997 to thirty-seven counts of wire fraud, interstate transportation of stolen property, conspiracy to defraud, money laundering, and filing false tax returns in the United States District Court for the Central District of Illinois. On 4 March 1998, Whitacre was ordered to serve an active sentence of 108 months in a federal correctional facility and to pay over $11,000,000 in restitution. Shortly thereafter, in a separate federal proceeding, Whitacre was sentenced to an active term of thirty months for his participation in a price-fixing scheme during his tenure at ADM. In at least the former of the two criminal proceedings, as well as a bankruptcy proceeding initiated in September 1997, Whitacre was represented by Attorneys Bill T. Walker and Richard F. Kurth.

In January or February of 1997, upon Whitacre's request, Biomar reissued 250,000 of the 2,000,000 shares held by Whitacre Partnership in the names of Whitacre's attorneys, Walker and Kurth. Certificate number 18 was issued to Bill T. Walker and his spouse Susan P. Walker as joint tenants with a right of survivorship in the amount of 100,000 shares. Certificate number 19 was issued to Richard Kurth and his spouse Diane Kurth for 150,000 shares. Both certificates were issued sometime in 1997 and backdated to 3 September 1996, and both are listed in Biomar's stock ledger as "transfer[s]" from Whitacre Partnership. The record also reveals that a third stock certificateÔÇöcertificate number 17, issued to Whitacre Partnership in the amount of 1,750,000 sharesÔÇöwas also dated 3 September 1996. The record is silent as to whether this certificate was also backdated, and the stock ledger entry describes certificate number 17 as a new issue for "shares retained" after a transfer of 250,000 shares. Taken together, certificates 17, 18, and 19 are consistent with T. Nelson Campbell and Whitacre's contentions that Whitacre Partnership transferred 250,000 of its 2,000,000 shares in Biosignia to compensate Whitacre's attorneys. Cumulatively, they reflect a 250,000-share reduction in Whitacre Partnership's holding in BioSignia, an amount equivalent to the number of shares transferred to Whitacre's attorneys as compensation for their services. All three certificates were signed by T. Nelson Campbell as Secretary/Treasurer of Biomar and by Mark E. Whitacre as President of Biomar.

On 11 February 1997, following his indictment by a federal grand jury and a brief period of hospitalization for what he characterized as "suicidal thoughts and erratic behavior," Whitacre resigned as President and Chief Executive Officer of Biomar. In connection with his resignation, Whitacre accepted a position as an officer of Clintech, a new subsidiary of Biomar. In his letter of resignation to T. Nelson Campbell, Whitacre referred to a "previous understanding" between Campbell and Whitacre whereby Whitacre's resignation would "result in the forfeiture of 500,000 unearned shares of Biomar's common stock." The letter also expressed Whitacre's understanding "that a new certificate will be issued in the amount of 1,250,000 shares," and stated that a "copy of [Whitacre's original] stock certificate" was attached. The letter requested that the new certificate be "issued to [Whitacre's] children" in the name of W.F.P. Management Company (WFP), which Whitacre described as "the company holding my children's estate (via a Family Limited Partnership)." W.F.P. Management, it appears, is simply another name for the Whitacre Family Partnership.

In a letter accepting Whitacre's resignation dated 20 February 1997, T. Colin Campbell invited Whitacre's approval to an expression of the "agreement between [Whitacre] and Biomar concerning [Whitacre's] resignation." The letter stated that "the total number of shares owned by [Whitacre's] family partnership (prior to any share distributions to [Whitacre's] attorneys) is 1,250,000 shares" and requested Whitacre to "indicate [his] approval by signing below." Whitacre did sign the letter, just below Campbell's signature, under the caption "AGREED TO." The...