{ "id": 11468112, "name": "WERNER, et al. PROFIT SHARING PLAN FOR THE BENEFIT OF FRED WERNER, EDWARD TARAN, ALAN KAHN and JOHN H. NORBERG, JR., on behalf of themselves and all others similarly situated, Plaintiffs v. JOHN M. ALEXANDER, JR.; P.C. BARWICK, JR.; J. MELVILLE BROUGHTON, JR.; SIDNEY R. FRENCH; MARVIN D. GENTRY; ALEXANDER H. GRAHAM, JR.; M. REX HARRIS; WILLIAM H. KINCHELOE; CHAUNCEY W. LEVER; LYNN T. McCONNELL; JOHN F. McNAIR, III; JACK A. MOODY; JOHN S. RUSSELL; ROBERT W. GRIFFIN; and DAVID T. WOODARD, Defendants", "name_abbreviation": "Werner v. Alexander", "decision_date": "1998-08-04", "docket_number": "No. COA97-1083", "first_page": "435", "last_page": "441", "citations": [ { "type": "official", "cite": "130 N.C. App. 435" } ], "court": { "name_abbreviation": "N.C. Ct. App.", "id": 14983, "name": "North Carolina Court of Appeals" }, "jurisdiction": { "id": 5, "name_long": "North Carolina", "name": "N.C." }, "cites_to": [ { "cite": "536 A.2d 147", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 4442982 ], "weight": 2, "year": 1988, "pin_cites": [ { "page": "158" } ], "opinion_index": 0, "case_paths": [ "/md-app/73/0727-01" ] }, { "cite": "424 S.E.2d 401", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1992, "opinion_index": 0 }, { "cite": "332 N.C. 666", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 2504642, 2506949, 2507462, 2504142, 2508213 ], "year": 1992, "opinion_index": 0, "case_paths": [ "/nc/332/0666-05", "/nc/332/0666-02", "/nc/332/0666-01", "/nc/332/0666-04", "/nc/332/0666-03" ] }, { "cite": "419 S.E.2d 354", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 5, "year": 1992, "pin_cites": [ { "page": "356" }, { "page": "359" }, { "page": "357-358" }, { "page": "359" } ], "opinion_index": 0 }, { "cite": "107 N.C. App. 16", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8527069 ], "weight": 3, "year": 1992, "pin_cites": [ { "page": "20-21" }, { "page": "24" } ], "opinion_index": 0, "case_paths": [ "/nc-app/107/0016-01" ] }, { "cite": "498 A.2d 1099", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 7920538 ], "year": 1985, "pin_cites": [ { "page": "1105" } ], "opinion_index": 0, "case_paths": [ "/a2d/498/1099-01" ] }, { "cite": "457 A.2d 701", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 7989484 ], "weight": 3, "year": 1983, "pin_cites": [ { "page": "714" }, { "page": "703" } ], "opinion_index": 0, "case_paths": [ "/a2d/457/0701-01" ] }, { "cite": "N.C. Gen. Stat. \u00a7 55-13-02", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "weight": 4, "pin_cites": [ { "page": "(a)" }, { "page": "(a)" }, { "page": "(b)" }, { "page": "(b)" } ], "opinion_index": 0 }, { "cite": "355 S.E.2d 838", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 3, "year": 1987, "pin_cites": [ { "page": "840" }, { "page": "840", "parenthetical": "citations omitted" } ], "opinion_index": 0 }, { "cite": "85 N.C. App. 669", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 12170267 ], "year": 1987, "pin_cites": [ { "page": "670" } ], "opinion_index": 0, "case_paths": [ "/nc-app/85/0669-01" ] }, { "cite": "468 S.E.2d 58", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1996, "opinion_index": 0 }, { "cite": "343 N.C. 118", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 798827 ], "year": 1996, "opinion_index": 0, "case_paths": [ "/nc/343/0118-01" ] }, { "cite": "461 S.E.2d 13", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1995, "pin_cites": [ { "page": "14" } ], "opinion_index": 0 }, { "cite": "120 N.C. App. 164", "category": "reporters:state", "reporter": "N.C. App.", "year": 1995, "pin_cites": [ { "page": "155" } ], "opinion_index": 0 } ], "analysis": { "cardinality": 856, "char_count": 15954, "ocr_confidence": 0.762, "pagerank": { "raw": 1.2174259136119238e-07, "percentile": 0.597445256460898 }, "sha256": "cd3c617655282d0a9703f4ed1731afab700687ed7c837c004534559b8b189ed8", "simhash": "1:53e94f21d66eaa60", "word_count": 2548 }, "last_updated": "2023-07-14T19:24:27.441929+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "Judges WYNN and MARTIN, John C., concur." ], "parties": [ "WERNER, et al. PROFIT SHARING PLAN FOR THE BENEFIT OF FRED WERNER, EDWARD TARAN, ALAN KAHN and JOHN H. NORBERG, JR., on behalf of themselves and all others similarly situated, Plaintiffs v. JOHN M. ALEXANDER, JR.; P.C. BARWICK, JR.; J. MELVILLE BROUGHTON, JR.; SIDNEY R. FRENCH; MARVIN D. GENTRY; ALEXANDER H. GRAHAM, JR.; M. REX HARRIS; WILLIAM H. KINCHELOE; CHAUNCEY W. LEVER; LYNN T. McCONNELL; JOHN F. McNAIR, III; JACK A. MOODY; JOHN S. RUSSELL; ROBERT W. GRIFFIN; and DAVID T. WOODARD, Defendants" ], "opinions": [ { "text": "WALKER, Judge.\nIn our review of the trial court\u2019s dismissal of this action pursuant to N.C. Gen. Stat. \u00a7 1A-1, Rule 12(b)(6), we must consider the allegations of the plaintiffs\u2019 complaint as true. Arroyo v. Scottie\u2019s Professional Window Cleaning, 120 N.C. App. 164, 155, 461 S.E.2d 13, 14 (1995), disc. review improvidently allowed, 343 N.C. 118, 468 S.E.2d 58 (1996). In this action, the plaintiffs are minority shareholders of the North Carolina Railroad Company (NCRR), a private corporation which began operation in 1856 and whose principal asset consists of 317 miles of continuous railroad line running from Charlotte to Morehead City, North Carolina. The defendants comprise the board of directors of NCRR.\nIn 1895, the State of North Carolina (the State) became the majority shareholder of NCRR when it acquired approximately 75% of the outstanding shares. Soon thereafter NCRR leased the 317 miles of railroad line, as well as other railroad properties, to the Southern Railway Company, now the Norfolk Southern Railway Company (Norfolk Southern), for a term of 99 years (the 1895 Lease). The 1895 Lease, which expired on 1 January 1995, called for semi-annual lease payments totaling approximately $600,000.00 per year.\nIn 1994, NCRR and Norfolk Southern began negotiating the renewal of the 1895 Lease. On 24 November 1994, the parties announced that they had agreed on the basic terms of the renewal, which called for an annual lease payment of $8,000,000.00. According to the plaintiffs, the proposed lease agreement (the 1995 Lease) resulted in \u201ca ridiculously low return of 1.5% of the appraised value of NCRR\u2019s assets.\u201d and they alleged in their complaint:\n36. The [1995 Lease] was, on its face, the product of collusive bargaining between the State and Norfolk Southern . . . through which the State achieved its objective of a below-market rental rate and paltry rate of return for NCRR and its shareholders in exchange for [Norfolk Southern\u2019s] willingness to maintain a low preferential rate structure which would support and stimulate business activity among Norfolk Southern\u2019s customers and generally within the region.\nThe plaintiffs assert that in response to the minority shareholders\u2019 negative reaction to the announcement, the directors of NCRR sent a letter to the shareholders on 22 November 1995 in which they assured them that the 1995 Lease was in the shareholders\u2019 best interest.\nOn 25 December 1995, a vote regarding the 1995 Lease was conducted at the annual NCRR shareholder meeting, and the 1995 Lease was approved. Subsequently, a challenge to the shareholder vote was initiated in the Federal District Court for the Eastern District of North Carolina on the basis that the required quorum of minority shareholders was not present at the 1995 annual meeting. On 30 July 1996, the district court found that NCRR had improperly counted a revoked proxy toward the required quorum amount and therefore enjoined NCRR from implementing the 1995 Lease.\nOn 26 August 1996, NCRR announced that the State had retained NationsBank as a financial advisor to assist it with the buyout of the minority shareholders. Thereafter, the board of directors of NCRR appointed a \u201cspecial committee\u201d to represent the minority shareholders\u2019 interests in negotiations with the State\u2019s proposed buyout. However, the plaintiffs contend that this alleged independent special committee is nothing more than a \u201csham committee\u201d set up by the defendants which will ultimately result in \u201cvaluing] NCRR\u2019s assets at tens of millions of dollars below what they are really worth,\u201d such that the State will be able to purchase the minority shareholders\u2019 interests at an unfair price.\nOn 22 September 1996, the plaintiffs filed a complaint against the defendants. The defendants answered by filing a motion to dismiss the complaint pursuant to N.C. Gen. Stat. \u00a7 1A-1, Rule 12(b)(6), which the trial court granted on 18 June 1997.\nA motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of a complaint. Harris v. NCNB, 85 N.C. App. 669, 670, 355 S.E.2d 838, 840 (1987). This Court has summarized the trial court\u2019s duty in ruling upon such a motion as follows:\nIn order to withstand [a 12(b)(6) motion], the complaint must provide sufficient notice of the events and circumstances from which the claim arises, and must state allegations sufficient to satisfy the substantive elements of at least some recognized claim. The question for the court is whether, as a matter of law, the allegations of the complaint, treated as true, are sufficient to state a claim upon which relief may be granted under some legal theory, whether properly labeled or not. In general, \u201ca complaint should not be dismissed for insufficiency unless it appears to a certainty that plaintiff is entitled to no relief under any state of facts which could be proved in support of the claim.\u201d\nId. at 670-671, 355 S.E.2d at 840 (citations omitted).\nThe plaintiffs contend that when the defendants\u2019 attempts to renew the 1895 Lease at an inadequate price failed in 1996 due to the invalid shareholder vote, the defendants began discussing with the State the possibility of \u201csqueezing out\u201d the minority shareholders by instituting a cash merger where the State would purchase the outstanding shares owned by the minority shareholders. A cash merger, also known as a \u201cfreeze-out\u201d or \u201csqueeze-out\u201d merger, occurs when the majority shareholders of a corporation attempt to gain control of the corporation by \u201ccashing out\u201d the shares of the minority shareholders. See Russell M. Robinson, II, Robinson on North Carolina Corporation Law \u00a7 24-5(b), at 495-496 (5th ed. 1995). The issue which arises in these situations is what remedies are available to shareholders who oppose such an action. Id., \u00a7 24-9 at 500-503. In this regard, N.C. Gen. Stat. \u00a7 55-13-02(a), the appraisal statute, provides that a shareholder may dissent from a plan of merger proposed by the corporation or the majority shareholders and obtain the fair value of his shares. See N.C. Gen. Stat. \u00a7 55-13-02(a) (Cum. Supp. 1997).\nHowever, it is important to note that this right to appraisal is the exclusive remedy for a shareholder who wishes to exercise a dissenter\u2019s rights, as N.C. Gen. Stat. \u00a7 55-13-02(b) explains:\nA shareholder entitled to dissent and obtain payment for [the fair value of his/her] shares under this Article may not challenge the corporate action creating [this] entitlement, including without limitation a merger solely or partly in exchange for cash or other property, unless the action is unlawful or fraudulent with respect to the shareholder or the corporation.\nN.C. Gen. Stat. \u00a7 55-13-02(b) (Cum. Supp. 1997). This provision is a change from the prior law. Previously, the appraisal remedy was \u201cin addition to any other right [the shareholders] may have in law or in equity,\u201d whereas now the appraisal remedy is the exclusive remedy for dissatisfied shareholders unless they can show the transaction is \u201cunlawful\u201d or \u201cfraudulent.\u201d See Amended N.C. Commentary \u00a7 55-13-02 (Cum. Supp. 1997); see also Robinson \u00a7 27-7 at 533.\nTherefore, the critical issue in this type of case is how the \u201cunlawful\u201d and \u201cfraudulent\u201d exceptions to the rule will be applied. See Robinson \u00a7 27-7 at 534. The plaintiffs argue that the defendants have engaged in a course of conduct that is so procedurally unfair as to amount to unlawful or fraudulent conduct entitling them to a remedy broader than the statutorily prescribed appraisal. On the other hand, the defendants contend that the plaintiffs\u2019 claims are essentially about an inadequate buyout price cloaked in terms of fraud and unfair dealing.\nSince our courts have not considered this issue, we look to other jurisdictions. In support of their claim, plaintiffs rely on the Delaware Supreme Court\u2019s decision in Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983). There, the court stated that in cases involving fraud or misrepresentation, the dissenting shareholders may be entitled to a remedy beyond the statutorily prescribed appraisal remedy. Id. at 714. However, the court also stated that, \u201cin a suit challenging a cash-out merger [the dissenting shareholders] must allege specific acts of fraud, misrepresentation, or other items of misconduct to demonstrate the unfairness of the merger terms to the minority.\u201d Id. at 703. Furthermore, in a later case, the Delaware Supreme Court held that \u201ca plaintiff\u2019s mere allegation of \u2018unfair dealing,\u2019 without more, cannot survive a motion to dismiss [unless the averments contain] \u2018specific acts of fraud, misrepresentation, or other items of misconduct\u2019. . . .\u201d Rabkin v. Philip A. Hunt Chemical Corp., 498 A.2d 1099, 1105 (Del. 1985).\nThis Court reached a similar conclusion in IRA ex rel. Oppenheimer v. Brenner Companies, Inc., 107 N.C. App. 16, 419 S.E.2d 354, disc. review denied, 332 N.C. 666, 424 S.E.2d 401 (1992). In that case, a group of dissenting minority shareholders filed suit against a corporation and its directors contesting the forced sale of their stock in connection with a cash merger. The plaintiffs alleged claims of unfairness, breach of fiduciary duty, fraud and constructive fraud on behalf of the directors, and complained that the price to be paid for their shares was \u201cridiculously low.\u201d Id. at 18, 419 S.E.2d at 356. In addressing the issue of fraud, this Court first noted that the elements of fraud are (1) a false representation or concealment of a material fact, (2) which is reasonably calculated to deceive, (3) made with an intent to deceive, (4) which does in fact deceive another party, and (5) results in damage to the injured party. Id. at 24, 419 S.E.2d at 359.\nThe Court then cited with approval the case of Schloss Associates v. C&ORY, 536 A.2d 147 (Md. Ct. Spec. App. 1988), where the Maryland court held that the minority shareholders\u2019 allegations of fraud were entirely too general and dismissed the complaint. The court concluded the dispute over the terms of merger and how the price offered for shares was determined could be resolved through the statutory appraisal process. Id. at 158.\nFinally, in affirming a judgment for the defendants, the Oppenheimer Court stated:\n[Although] a statutory appraisal remedy \u201cmay not be adequate ... in certain cases, particularly where fraud, misrepresentation, self-dealing, deliberate waste of corporate assets, or gross and palpable overreaching are involved[,]\u201d ... a \u201cremedy beyond the statutory procedure is not available where the shareholder\u2019s objection is essentially a complaint regarding the price which he received for his shares.\u201d\nIRA ex rel. Oppenheimer v. Brenner Companies, Inc., 107 N.C. App. at 20-21, 419 S.E.2d at 357-358.\nHere, the plaintiffs\u2019 allegations have similarities to those in Oppenheimer, and include the following:\n3. Having failed to gain shareholder approval for the lease extension, defendants are now attempting to freeze out NCRR\u2019s minority shareholders . . . [and] are seeking to purchase the outstanding shares of NCRR not owned by the State, without putting into place any procedures or safeguards to insulate against the majority shareholder\u2019s pecuniary interest in paying the lowest possible price ....\n5. [T]he directors who comprise the \u201cspecial committee\u201d suffer from disabling conflicts of interest in that their desire to remain entrenched in their positions of control at NCRR and receive the substantial benefits that result from those positions are in direct conflict with their obligation to maximize shareholder value and secure fair value for NCRR\u2019s minority shareholders. . . .\n8 [I]n an effort to freeze out NCRR\u2019s minority shareholders at an inadequate price, the consideration to be paid to NCRR\u2019s minority shareholders to effectuate the coercive transaction will be based on a flawed valuation of NCRR ....\n10. By freezing out these minority shareholders at an unfair and inadequate price, defendants endeavor to finally execute the inadequate lease agreement with Norfolk Southern so that the controlling shareholder of NCRR \u2014 the State of North Carolina\u2014 can advance its own economic agenda, at minimal cost. . . .\n(Emphasis added).\nAll of these allegations point to one central theme, the plaintiffs feel the defendants have intentionally engaged in a course of conduct designed to reduce the value of NCRR\u2019s assets, which in turn will reduce the value of their shares, thereby enabling these shares to be purchased at a reduced price. However, as this Court has stated, \u201cinadequate price alone will not support a claim for fraud.\u201d See IRA ex rel. Oppenheimer v. Brenner Companies, Inc., 107 N.C. App. at 24, 419 S.E.2d at 359. While the plaintiffs have a legitimate concern that the defendants act in such a way as to maximize shareholder value, their complaint fails to demonstrate how the defendants\u2019 conduct amounted to a false representation or concealment of a material fact, reasonably calculated and intentionally made to deceive the plaintiffs, which in fact did deceive the plaintiffs to their detriment.\nIn conclusion, since the plaintiffs have failed to plead with particularity circumstances constituting unlawful or fraudulent conduct by the defendants, the trial court did not err by granting the defendants\u2019 Rule 12(b)(6) motion to dismiss. See N.C.R. Civ. P. 9(b).\nAffirmed.\nJudges WYNN and MARTIN, John C., concur.\n. We note that the North Carolina General Assembly approved funding for a buyout of the minority shareholders in 1997, and this buyout was approved by the shareholders on 31 March 1998. However, rather than addressing whether the issue is now moot or the claims extinguished as a result of the shareholders\u2019 approval of the buyout, we choose to address the merits of the complaint.", "type": "majority", "author": "WALKER, Judge." } ], "attorneys": [ "McDaniel, Anderson & Stephenson, L.L.P., by L. Bruce McDaniel; Milberg Weiss Bershad Hynes & Lerach, LLP, by Melvyn J. Weiss, Steven G. Schulman, Edith M. Kallas and U. Seth Ottensoser; Wolf Haldenstein Adler Freeman & Herz LLP, by Daniel W. Krasner, Fred Taylor Isquith and Michael Jaffe; Taylor, Gruver & McNew, by R. Bruce McNew; and Greenfield & Rifkin LLP, by Mark Rifkin, for plaintiffs-appellants.", "Wyrick Robbins Yates & Ponton L.L.P., by Samuel T. Wyrick, III and L. Diane Tindall, for defendants-appellees." ], "corrections": "", "head_matter": "WERNER, et al. PROFIT SHARING PLAN FOR THE BENEFIT OF FRED WERNER, EDWARD TARAN, ALAN KAHN and JOHN H. NORBERG, JR., on behalf of themselves and all others similarly situated, Plaintiffs v. JOHN M. ALEXANDER, JR.; P.C. BARWICK, JR.; J. MELVILLE BROUGHTON, JR.; SIDNEY R. FRENCH; MARVIN D. GENTRY; ALEXANDER H. GRAHAM, JR.; M. REX HARRIS; WILLIAM H. KINCHELOE; CHAUNCEY W. LEVER; LYNN T. McCONNELL; JOHN F. McNAIR, III; JACK A. MOODY; JOHN S. RUSSELL; ROBERT W. GRIFFIN; and DAVID T. WOODARD, Defendants\nNo. COA97-1083\n(Filed 4 August 1998)\nCorporations\u2014 minority shareholders \u2014 value of assets \u2014 fraud not shown\nThe trial court correctly granted defendants\u2019 motion to dismiss under N.C.G.S. \u00a7 1A-1, Rule 12(b)(6) in an action alleging that defendant board of directors had appointed a special committee as a sham which would ultimately result in valuing the corporation\u2019s assets below their real worth so that the State would be able to purchase plaintiff-minority shareholders\u2019 interest at an unfair price. The appraisal remedy in N.C.G.S. \u00a7 55-13-02(b) is the exclusive remedy for dissatisfied shareholders unless they can show the transaction is \u201cunlawful\u201d or \u201cfraudulent.\u201d Plaintiffs here have a legitimate concern that the defendants act in such a way as to maximize shareholder value, but their complaint fails to demonstrate how the defendants\u2019 conduct amounted to a false representation or concealment of a material fact reasonably calculated and intentionally made to deceive plaintiffs, which in fact did deceive plaintiffs to their detriment.\nAppeal by plaintiffs from judgment entered 18 June 1997 by Judge Robert L. Farmer in Wake County Superior Court. Heard in the Court of Appeals 23 April 1998.\nMcDaniel, Anderson & Stephenson, L.L.P., by L. Bruce McDaniel; Milberg Weiss Bershad Hynes & Lerach, LLP, by Melvyn J. Weiss, Steven G. Schulman, Edith M. Kallas and U. Seth Ottensoser; Wolf Haldenstein Adler Freeman & Herz LLP, by Daniel W. Krasner, Fred Taylor Isquith and Michael Jaffe; Taylor, Gruver & McNew, by R. Bruce McNew; and Greenfield & Rifkin LLP, by Mark Rifkin, for plaintiffs-appellants.\nWyrick Robbins Yates & Ponton L.L.P., by Samuel T. Wyrick, III and L. Diane Tindall, for defendants-appellees." }, "file_name": "0435-01", "first_page_order": 467, "last_page_order": 473 }