Wilson v. Wilson-Cook Medical, Inc.

Decision Date18 August 1989
Docket NumberNo. C-89-138-WS.,C-89-138-WS.
Citation720 F. Supp. 533
CourtU.S. District Court — Middle District of North Carolina
PartiesJon S. WILSON, Plaintiff, v. WILSON-COOK MEDICAL, INC.; William A. Cook; Cook Group, Inc.; Robert K. Irie; and Dan G. Sterner, Defendants.

James R. Hubbard and David C. Smith, for plaintiff.

M. Daniel McGinn and Ronald Wilder, for defendants.


TILLEY, District Judge.

In a seven-count Amended Complaint Plaintiff Jon S. Wilson ("Wilson") alleges constructive fraud, wrongful employment termination and failure to pay dividends against Defendants Wilson-Cook Medical, Inc. ("Wilson-Cook"), William A. Cook ("Cook"), Cook Group, Inc. ("Cook Group"), Robert K. Irie ("Irie") and Dan G. Sterner ("Sterner"). The Defendants have moved for dismissal on jurisdictional, venue and substantive grounds pursuant to Fed.R. Civ.P. 12(b), for misjoinder of claims pursuant to Fed.R.Civ.P. 20(a) and for failure to comply with the pleading requirements of Fed.R.Civ.P. 10(b).

For the reasons which follow, personal jurisdiction is found to exist with regard to all defendants. However, counts one, two, and that portion of three regarding the stock option purchase agreement will be transfered to the United States District Court for the Southern District of Indiana pursuant to 28 U.S.C. § 1406(a) because venue does not exist in this district. The remaining portion of count three and counts four, five, six and seven will be retained because the claims did "arise" in this district as that term is used in 28 U.S.C. § 1391(a). Count seven and that portion of count three that relates to the wrongful employment termination will be dismissed for failure to state a claim under the law of North Carolina.

A. Parties

William A. Cook, an Indiana citizen and resident, is the President and Chief Executive Officer of Cook Group, an Indiana corporation with its principal place of business in that state. Cook is a member of the Board of Directors of Wilson-Cook. Cook Group, a holding company with investments in health care companies throughout the world, owns 80% of the stock of Wilson-Cook, a North Carolina corporation with its principle place of business in North Carolina. Prior to relocating to North Carolina in 1984, Wilson-Cook had been a Canadian corporation established in Toronto, Canada in 1982. Wilson-Cook is engaged in the design, manufacture and distribution of medical equipment, primarily therapeutic endoscopy devices. Irie, a citizen and resident of Indiana, at all times material to this suit was a director of Wilson-Cook and an officer and director of Cook Group. Sterner, also a citizen and resident of Indiana, acted as legal counsel to Cook Group and to Cook individually, as well as serving as an officer of both Cook Group and Wilson-Cook.

Plaintiff Jon S. Wilson is a citizen of Canada and a resident of North Carolina. Wilson, who owns 10% of Wilson-Cook's stock, was the President of Wilson-Cook and served in that capacity until January 19, 1989, when he resigned, allegedly under duress. Donald Wilson, Plaintiff's father, owns the final 10% of Wilson-Cook's stock and, at least until January, 1989, served as the corporation's Vice-President. It is unclear from the record whether Donald Wilson also resigned his duties on January 19, 1989.

B. Shareholder Agreement

The voting stock of Wilson-Cook is closely held, with Cook Group owning 80% of the corporation's stock and Jon and Donald Wilson each owning 10%. Plaintiff alleges Cook, Irie and Sterner, individually and as agents of Cook Group, "devised a scheme and plan to acquire Plaintiff's minority stock interest in Wilson-Cook at substantially less than fair market value." In essence, it is alleged that Defendants Cook Group, Cook, Irie and Sterner committed a constructive fraud against the Plaintiff in coercing him to sign a stock purchase agreement which, if enforced, allegedly would allow the Cook Group to buy the Plaintiff's stock at a fraction of its true value.

Defendants allegedly initiated the scheme in early 1984, by delivering both to Plaintiff and to Donald Wilson in North Carolina similar documents entitled "Stock Option — Purchase Agreement For Shares of the Capital Stock of Wilson-Cook Medical, Inc." ("Agreement"). Each agreement, drafted by Sterner at the direction of Cook and Irie, gave Cook Group the option to require the employee to sell Cook Group his shares of the capital stock of Wilson-Cook upon demand in the event of the employee's death, resignation or dismissal from Wilson-Cook. In the event Cook Group exercised that option, the purchase price for the stock would be the greater of book value or three times the average of the per-share after-tax net income of the company for the three years preceding the date of purchase. Finally, each Agreement contained an employment termination provision that gave Wilson-Cook the right to terminate that employee without cause. The Wilsons refused to sign the Agreements.

In early April, 1987, Irie and M. Phil Hathaway ("Hathaway"), officers of Cook Group, traveled to Winston-Salem from Cook Group headquarters in Bloomington, Indiana in a renewed attempt to persuade the Wilsons to sign the Agreements. Unsuccessful, Irie and Hathaway returned to Indiana. Irie then called the Plaintiff in Winston-Salem and advised him that Cook wanted to see him and his father in Indiana. On April 22, 1987, Cook sent a Cook Group company plane to Winston-Salem to transport the Wilsons to Cook Group headquarters.

Upon their arrival and in the presence of Sterner and others, Cook demanded that Plaintiff and Donald Wilson sign the Agreements, threatening to cause the Wilsons to be fired as officers of Wilson-Cook and to shut-down the company if they refused. Plaintiff and Donald Wilson each signed.

On January 19, 1989, Plaintiff resigned from his position as President of Wilson-Cook, allegedly under duress. Upon accepting the resignation, Sterner tendered to Plaintiff a "Notice of Exercise of Option." This document, executed by Irie on behalf of the company, exercised Cook Group's option, pursuant to the Agreement, to purchase Plaintiff's 10% interest in Wilson-Cook.

C. Wrongful Employment Termination

At some time prior to the relocation of Wilson-Cook from Canada to North Carolina in 1984, Defendant Cook Group, through Cook, "assured Plaintiff that he would be employed as President of Wilson-Cook, absent malfeasance in office, as long as the company was considered reasonably profitable."

On January 19, 1989, during a time of at least reasonable profitability for Wilson-Cook, Irie, at that time Vice-President of Cook Group, and Sterner, Assistant Secretary and counsel to Cook Group, noticed and convened a meeting of the Board of Directors of Wilson-Cook at the Winston-Salem offices of the company's corporate counsel. At the meeting, Irie accused Plaintiff of taking unauthorized personal loans from Wilson-Cook and stated that Cook had ordered Plaintiff fired should he choose not to resign. Sterner then presented Plaintiff with a typewritten letter of resignation and requested that Plaintiff execute it. Sterner threatened to call a shareholders meeting and take action that would result in the termination of the Plaintiff as President of Wilson-Cook if he did not sign the resignation. Plaintiff executed the resignation.

Upon execution of the resignation, Sterner tendered to Plaintiff (in addition to the Notice of Exercise of Option noted above) a document titled "Executive and Sales Employee Termination Agreement" ("Termination Agreement"). This document contained a covenant not to compete, an acknowledgement of termination of employment and a waiver of any claims that Plaintiff might have against Wilson-Cook arising from his termination. Sterner demanded that Plaintiff execute the Termination Agreement as a condition of the payment of the purchase price for the Plaintiff's stock. Plaintiff neither signed the Termination Agreement nor tendered his shares of Wilson-Cook stock.

D. Failure to Pay Dividends

Wilson-Cook was established in 1982 as a Canadian corporation and in 1984 changed its incorporation to North Carolina in 1984, relocating to plant facilities in Winston-Salem. The company's 1988 sales were approximately $10,000,000 and its retained earnings at the close of that year were in excess of $3,500,000. No dividend has been authorized since the inception of the company, despite demand by Plaintiff.

E. Relevant Procedural History

Plaintiff filed the instant action in this Court on February 23, 1989. Defendants filed their first motion to dismiss on April 3, 1989. Plaintiff filed an Amended Complaint along with its brief in opposition on May 5, 1989. The Amended Complaint contains seven counts. Count I seeks to rescind the stock purchase agreement and Plaintiff's January 19, 1989, resignation on the grounds of duress, economic coercion and undue influence. Count II also seeks recission, relying on N.C.Gen.Stat. § 55-35 and claiming that the use of duress and coercion violated the Defendants' fiduciary duties as officers, directors and majority shareholders of Wilson-Cook. Count III seeks recovery for wrongful employment termination, wrongful forced execution of the stock purchase agreement and failure to pay dividends under N.C.Gen.Stat. § 75-1.1 et seq., North Carolina's Unfair Trade Practice Act.

Counts IV and V seek relief for failure to pay dividends, Count IV asserting rights under N.C.Gen.Stat. § 55-50 and Count V for breach of fiduciary duty under N.C. Gen.Stat. § 55-35. Count VI seeks dissolution of Wilson-Cook or alternative relief to allow Plaintiff to receive fair compensation for his Wilson-Cook stock as provided, under appropriate circumstances, by N.C.Gen. Stat. §§ 55-125(a)(4) and 55-125.1. Finally, Count VII alleges wrongful termination of employment.

Defendants have renewed their motions to dismiss, the Plaintiff has answered and the case now...

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