Worley v. Moore
| Decision Date | 02 November 2018 |
| Docket Number | 15 CVS 1316 |
| Citation | 2018 NCBC 113 |
| Court | Superior Court of North Carolina |
| Parties | 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. |
THIS MATTER comes before the Court on Defendant Toshiba Corporation's ("Toshiba") Motion to Dismiss Pursuant to Rule 12(b)(6). ("Motion", ECF No. 124.) Toshiba moves to dismiss all of the six claims asserted against it in the Second Amended Complaint ("SAC"). (Sec. Am. Compl., ECF No. 123.)[1]
THE COURT, having considered the Motion, the briefs filed in support of and in opposition to the Motion, the arguments of counsel at the hearing, and other appropriate matters of record, CONCLUDES that the Motion should be GRANTED, in part and DENIED, in part, in the manner and for the reasons set forth below.
Nexsen Pruet, PLLC, by R. Daniel Boyce for Plaintiffs.
RuyakCherian LLP, by Robert F. Ruyak, Richard A. Ripley (pro hac vice), and Arthur T. Farrell for Plaintiffs.
Kilpatrick Townsend & Stockton LLP, by Jason M. Wenker John M. Moye, Elizabeth L Winters, Joel D. Bush (pro hac vice) and Stephen E. Hudson (pro hac vice) for Defendants Michael Adams and Toshiba Corporation.
Gregory P. McGuire Special Superior Court Judge.
1. On February 28, 2017, this Court entered its Opinion and Order on Defendants' Motions to Dismiss (the "First Dismissal Order"). Worley v. Moore, 2017 NCBC LEXIS 15 (N.C. Super. Ct. Feb. 28, 2017). (ECF No. 99.) In the First Dismissal Order, the Court dismissed all of the Defendants except for Michael Adams ("Adams") Gini Coyle, and Toshiba based on the allegations in the First Amended Complaint ("FAC"). (First Am. Compl., ECF No. 18.) Worley, 2017 NCBC LEXIS 15, at *79-80.
2. On April 18, 2018, Plaintiffs filed the SAC. The factual allegations in the SAC are virtually identical to the allegations in the FAC, but the SAC makes claims only against Adams and Toshiba. In the SAC, Plaintiffs allege claims against Toshiba for common law fraud (Count II), conspiracy to defraud (Count IV), fraudulent inducement (Count V), violation of the North Carolina Securities Act ("NCSA") (Count VI), unlawful taking, conversion, and unjust enrichment (Count VII), and violation of the North Carolina Unfair and Deceptive Trade Practices Act ("UDTPA") (Count VIII).
3. On May 21, 2018, Toshiba filed the Motion to Dismiss and accompanying brief in support. (Br. Supp. Toshiba MTD, ECF No. 125.) Plaintiffs filed their brief in opposition on June 11, 2018. (Pls.' Br. Opp. Def. MTD, ECF No. 127.) Toshiba filed a reply on June 25, 2018. (ECF No. 128.) The Court held a hearing on the Motion. Plaintiffs subsequently sought leave to file additional legal authority responding to questions raised by the Court at the hearing, and the Court granted leave. (Mot. for Leave, ECF No. 139; Order, ECF No. 143.) The Motion it is now ripe for disposition.
4. The Court does not make findings of fact on motions to dismiss under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure ("Rule(s)"), but only recites those facts included in the complaint that are relevant to the Court's determination of the Motion. See e.g., Concrete Serv. Corp. v. Inv'rs Grp., Inc., 79 N.C.App. 678, 681, 340 S.E.2d 755, 758 (1986). The full factual background underlying Plaintiffs' claims is set out in the First Dismissal Motion. Worley, 2017 NCBC LEXIS 15, at *2-18. The Court recites here only those facts necessary to the disposition of the Motion.
5. Plaintiffs are former holders of the common stock of Consert, Inc. ("Consert"). (ECF No. 123, at ¶¶ 3-14.)
6. Defendant Toshiba is a Japanese corporation. (Id. at ¶ 16.)
7. Defendant Adams is a former director of Consert. (Id. at ¶ 17.) (Collectively, Toshiba and Adams are referred to as "Defendants").
8. Roy J. Moore ("Moore"), Pierce J. Roberts ("Roberts"), David Brown, Christopher Baker, James Kerr, Frank McCamant, and Neil Kellen, are former officers and/or directors of Consert (collectively, "Former Directors"). (Id. at ¶¶ 18- 25.) The Former Directors are alleged to be "co-conspirators" in the unlawful acts alleged in the SAC. (Id.)
9. Alamo Acquisition Corp. ("Alamo") was a wholly-owned subsidiary of Toshiba. Alamo is alleged to be a "co-conspirator" in the unlawful acts alleged in the SAC. (Id. at ¶ 27.)
10. Stephens, Inc. ("Stephens Bank") was retained and employed as an investment bank by Consert, and Joseph S. Mowery ("Mowery") was a Managing Director of Stephens Bank. (Id. at ¶¶ 29-30.) Stephens Bank and Mowery are alleged to be "co-conspirators" in the unlawful acts alleged in the SAC (collectively, the Alamo, Stephens Bank, and Mowery are referred to as "co-conspirators"). (Id.)
11. On January 24, 2013, following negotiations between Consert's board of directors and Toshiba, Consert and Toshiba entered into an Agreement and Plan of Merger ("Merger Agreement") under which Toshiba acquired all of the stock of Consert and then merged Consert into Alamo. The Merger closed on February 5, 2013 ("the Merger"). (Id. at ¶ 36.)
(ECF No. 123, at ¶ 38.) The Former Directors allegedly maximized the monetary benefits from the Merger to themselves by:
substantially increas[ing] and accru[ing] their salaries, bonuses, special 'change of control payments' and other compensation in order to create preferential payments to themselves from the sale proceeds; ma[king] personal loans to Consert on usurious and egregious terms in order to create preferential interest and principal payments to themselves from the sale proceeds; and limit[ing] the negotiations and sale of Consert to a buyer (Defendant Toshiba) who agreed to permit the [Former Directors] to make all of these preferential payments to themselves from the sales proceeds.
13. On the other hand, the Merger Agreement provided for payment to holders of Consert's common stock (the "common shareholders"), including Plaintiffs, solely from two post-Merger "earn out" events. The first earn out was based on the performance of a contract between Toshiba and CPS Energy Corporation ("CPS"), to be executed post-Merger. (the "Toshiba/CPS Contract"). (Id. at ¶ 123.) The second earn out was based on the settlement of a lawsuit in which Consert was a party at the time of the Merger (the "Itron Lawsuit"). (Id. at ¶ 125.) The common shareholders would receive payments based on revenue generated by Toshiba under the Toshiba/CPS Contract, and would receive payments from a portion of the amount paid to Toshiba in settlement of the Itron Lawsuit. (ECF No. 123, at ¶¶ 123-25.) The estimated total payments to common shareholders from these two events was $60- 70 million. (Id. at ¶ 126.)
14. The earn outs, however, were contingent on an all-or-nothing "trigger." (Id. at ¶ 127.) Toshiba would only be required to make the earn out payments to the common shareholders if the Toshiba/CPS Contract (a) contained "a firm commitment for the purchase of smart-grid hardware, software and/or services in a minimum aggregate value of $100 million over a period of five years," and (b) if the Toshiba/CPS Contract was fully executed within one year of the Merger's closing, or by February 4, 2014. (Id. at ¶ 128; Toshiba Mot. to Dis. Ex. 1, ECF No. 124.1, at p. 5 ("Merger Information Statement").)
15. Plaintiffs allege that Defendants and the co-conspirators knew that CPS would not enter into a "firm commitment" for the minimum contract of $100 million, and that the trigger was "illusory and a sham" that would never be achieved. (ECF No. 123, at ¶ 127.) Defendants and the co-conspirators misrepresented to, and concealed from, the common shareholders that they likely would not receive the earn out payments when presenting the Merger plan to the shareholders for review and approval. (Id. at ¶¶ 133, 136, 146-47, 153.)
16. On January 25, 2013, Consert held a shareholders meeting at which it announced the Merger Agreement to Consert's shareholders ("Shareholders Meeting"). (Id. at 88.) Plaintiffs allege that during the Shareholders Meeting, Moore and Mowery made misrepresentations to common shareholders, and that Consert withheld information material to the Merger. (Id. at ¶¶ 90-98.) Moore stated that the earn out payments were "most likely to occur" and "absolutely achievable." (Id. at ¶ 92.) Moore also expressed the opinion that the Merger was "in the best interest of all shareholders." (Id. at ¶ 93.)
17. On January 28, 2013, Consert sent to its shareholders a "Merger Information Statement" and "Shareholder Consent." (Id. at ¶ 99; Merger Info. Stat. and Shareholder Consent, ECF No. 124.1.) Plaintiffs allege that the Merger Information Statement contained misrepresentations and omissions of material facts regarding the Merger. (Id. at ¶¶ 101-02 105-19.) However, the Merger Information Statement stated that the earn out payments were "contingent" and "uncertain." ...
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