{ "id": 9004807, "name": "EDA HOFSTEAD CABANISS, JAMES and KALEN HAUN, and ELIZABETH WANDERS, TRUSTEE, Individually and Derivatively on Behalf of the D.B. Alex. Brown Exchange Fund I, L.P., Plaintiffs v. DEUTSCHE BANK SECURITIES, INC. d/b/a DEUTSCHE BANK ALEX. BROWN, ALEX. BROWN MANAGEMENT SERVICES, INC., DC INVESTMENT PARTNERS, LLC, and D.B. ALEX. BROWN EXCHANGE FUND, I, L.P., Defendants", "name_abbreviation": "Cabaniss v. Deutsche Bank Securities, Inc.", "decision_date": "2005-05-03", "docket_number": "No. COA04-530", "first_page": "180", "last_page": "184", "citations": [ { "type": "official", "cite": "170 N.C. App. 180" } ], "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": "554 S.E.2d 840", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 2001, "pin_cites": [ { "page": "847" } ], "opinion_index": 0 }, { "cite": "147 N.C. App. 52", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 9377813 ], "year": 2001, "pin_cites": [ { "page": "60-1" } ], "opinion_index": 0, "case_paths": [ "/nc-app/147/0052-01" ] }, { "cite": "396 A.2d 512", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 8027486 ], "year": 1978, "pin_cites": [ { "page": "517" } ], "opinion_index": 0, "case_paths": [ "/a2d/396/0512-01" ] }, { "cite": "86 S. Ct. 1197", "category": "reporters:federal", "reporter": "S. Ct.", "year": 1966, "pin_cites": [ { "parenthetical": "holding that a plaintiff could not bring a derivative claim regarding a conflict of interest when this information had been disclosed in previous prospectuses" } ], "opinion_index": 0 }, { "cite": "16 L. Ed. 2d 209", "category": "reporters:federal", "reporter": "L. Ed. 2d", "year": 1966, "pin_cites": [ { "parenthetical": "holding that a plaintiff could not bring a derivative claim regarding a conflict of interest when this information had been disclosed in previous prospectuses" } ], "opinion_index": 0 }, { "cite": "383 U.S. 946", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6248097, 6249605, 6248393, 6248718, 6250351, 6249968 ], "year": 1966, "pin_cites": [ { "parenthetical": "holding that a plaintiff could not bring a derivative claim regarding a conflict of interest when this information had been disclosed in previous prospectuses" } ], "opinion_index": 0, "case_paths": [ "/us/383/0946-01", "/us/383/0946-04", "/us/383/0946-02", "/us/383/0946-03", "/us/383/0946-06", "/us/383/0946-05" ] }, { "cite": "213 A.2d 899", "category": "reporters:state_regional", "reporter": "A.2d", "year": 1965, "pin_cites": [ { "page": "902-03" } ], "opinion_index": 0 }, { "cite": "465 A.2d 353", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 7952936 ], "weight": 3, "year": 1983, "pin_cites": [ { "page": "357" }, { "page": "360" } ], "opinion_index": 0, "case_paths": [ "/a2d/465/0353-01" ] }, { "cite": "611 A.2d 12", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 7936608 ], "weight": 2, "year": 1992, "pin_cites": [ { "page": "15" }, { "page": "17" } ], "opinion_index": 0, "case_paths": [ "/a2d/611/0012-01" ] }, { "cite": "845 A.2d 1110", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 9276022 ], "weight": 2, "year": 2004, "pin_cites": [ { "page": "1122" }, { "page": "1124" } ], "opinion_index": 0, "case_paths": [ "/a2d/845/1110-01" ] }, { "cite": "845 A.2d 1031", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 9275795 ], "year": 2004, "pin_cites": [ { "page": "1033", "parenthetical": "emphasis omitted" } ], "opinion_index": 0, "case_paths": [ "/a2d/845/1031-01" ] }, { "cite": "540 S.E.2d 415", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 2000, "pin_cites": [ { "page": "419", "parenthetical": "internal citations and quotation marks omitted" } ], "opinion_index": 0 }, { "cite": "141 N.C. App. 273", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 9440839 ], "year": 2000, "pin_cites": [ { "page": "277-78", "parenthetical": "internal citations and quotation marks omitted" } ], "opinion_index": 0, "case_paths": [ "/nc-app/141/0273-01" ] } ], "analysis": { "cardinality": 557, "char_count": 11002, "ocr_confidence": 0.721, "pagerank": { "raw": 2.4449983104915615e-07, "percentile": 0.8034835235567788 }, "sha256": "155e6a8a3666a74edb66c45a0d3f7deaa95499750959184bd60ab260def0641a", "simhash": "1:1df487e168591371", "word_count": 1736 }, "last_updated": "2023-07-14T16:44:47.676310+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "Judges WYNN and STEELMAN concur." ], "parties": [ "EDA HOFSTEAD CABANISS, JAMES and KALEN HAUN, and ELIZABETH WANDERS, TRUSTEE, Individually and Derivatively on Behalf of the D.B. Alex. Brown Exchange Fund I, L.P., Plaintiffs v. DEUTSCHE BANK SECURITIES, INC. d/b/a DEUTSCHE BANK ALEX. BROWN, ALEX. BROWN MANAGEMENT SERVICES, INC., DC INVESTMENT PARTNERS, LLC, and D.B. ALEX. BROWN EXCHANGE FUND, I, L.P., Defendants" ], "opinions": [ { "text": "HUDSON, Judge.\nThis action arises from a complaint filed against defendants Deutsche Bank Securities, Inc. (\u201cDeutsche Bank\u201d) d/b/a Deutsche Bank Alex. Brown, Alex. Brown Management Services, Inc. (\u201cAlex. Brown\u201d), DC Investment Partners, LLC (\u201cDCIP\u201d), and D.B. Alex. Brown Exchange Fund, I, L.P. (\u201cExchange Fund\u201d), by plaintiffs Eda Hofstead Cabaniss (\u201cMrs. Cabaniss\u201d), James and Kalen Haun (\u201cthe Hauns\u201d), and Elizabeth Wanders (\u201cMrs. Wanders\u201d) as trustee, alleging, both as individuals and derivatively on behalf of the Exchange Fund, breach of contract, negligence, misrepresentation, and breach of fiduciary duty, and individual claims for fraudulent non-disclosure. On 28 July 2003, defendants moved to dismiss the complaint pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure. On 17 October 2003, the court entered an order dismissing the complaint. Plaintiffs appeal. As discussed below, we affirm in part and reverse and remand in part.\nIn 1997, each of the plaintiffs owned or controlled a large number of shares of highly-appreciated stock and wished to diversify their holdings without triggering significant capital gains tax liability. Deutsche Bank, an investment advisor to plaintiffs, created the Exchange Fund, a Delaware limited partnership, as a solution to plaintiffs\u2019 investment quandary. Deutsche Bank acted as the placement agent for the Exchange Fund, while Alex. Brown, a wholly-owned subsidiary of Deutsche Bank, served as the Exchange Fund\u2019s general partner and investment advisor responsible for management. Alex. Brown employed DCIP to handle the day-to-day management and administration of the Exchange Fund. The management committee of the Exchange Fund consisted of six members, five of whom were Deutsche Bank executives.\nPlaintiffs became limited partners in the Exchange Fund. In 2000, the value of the Exchange Fund\u2019s limited partnership units fell dramatically. After plaintiffs filed their complaint, defendants moved to dismiss on the ground that the claims could only be asserted derivatively, and that derivative claims could not be pursued in court in the absence of a prior demand on the management committee.\nPlaintiffs first argue that the court erred in dismissing plaintiffs\u2019 complaint on the ground that they could not assert individual claims against defendants. We agree with respect to the misrepresentation and fraudulent non-disclosure claims, but disagree with respect to plaintiffs\u2019 other claims.\nIt is well-established that:\nOn a motion to dismiss pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure, the standard of review 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. The complaint must be liberally construed, and the court should not dismiss the complaint unless it appears beyond a doubt that the plaintiff could not prove any set of facts to support his claim which would entitle him to relief.\nBlock v. County of Person, 141 N.C. App. 273, 277-78, 540 S.E.2d 415, 419 (2000) (internal citations and quotation marks omitted).\nHere, because the Exchange Fund is a Delaware limited partnership, Delaware law controls. N.C. Gen. Stat, \u00a7 59-901 (1999); 6 Del. Co. \u00a7 17-901 (1999). The determination of whether a stockholder\u2019s claim should be brought directly or derivatively\nmust turn solely on the following questions: (1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders, individually)?\nTooley v. Donaldson, Lufkin, & Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004) (emphasis omitted). Defendants concede that under this analysis, the claims for fraudulent non-disclosure and misrepresentation are properly brought as direct actions, as the alleged harm was suffered by the individual stockholders and any remedy or recovery would benefit the individual stockholders. Thus, we reverse the dismissal of these claims.\nThe remaining claims are for breach of contract, negligence, and breach of fiduciary duty. In answering the first question of the Tooley test, we must determine if \u201cthe plaintiff [has] demonstrated that he or she can prevail without showing an injury to the corporation.\u201d Agostino v. Hicks, 845 A.2d 1110, 1122 (Del. Ch. 2004). Here, we believe that the answer must be no. Each of these claims is at its heart, based on allegations of mismanagement of the Exchange Fund\u2019s assets. Where the \u201cinjury suffered by plaintiff, a devaluation of his stock, was a natural and expected consequence of the injury initially borne by the Company[,] the injury ... is not individual in nature.\u201d Id. at 1124. Plaintiffs allege that by failing to screen adequately contributions to the Exchange Fund and to manage properly and diversify the investments, and by engaging in self-dealing, defendants caused the Fund\u2019s assets to decline and thus financially damaged plaintiffs in proportion to their investments in the Fund. Thus, we conclude that plaintiffs\u2019 claims for breach of contract, negligence, and breach of fiduciary duty are derivative claims.\nPlaintiffs also argue that they were not required to make demand upon Alex. Brown before asserting their derivative claims because such demand would have been futile. We disagree.\n\u201c[T]he determination of whether a fiduciary duty lawsuit is derivative or direct in nature is substantially the same for corporate cases as it is for limited partnership cases.\u201d Litman v. Prudential-Bache Properties, Inc., 611 A.2d 12, 15 (Del. Ch. 1992). Under Delaware law, a plaintiff may not bring a derivative claim in the right of a limited partnership unless the general partner has refused to do so, or any demand that the general partner do so would be futile:\nA limited partner or an assignee of a partnership interest may bring an action in the Court of Chancery in the right of a limited partnership to recover a judgment in its favor if general partners with authority to do so have refused to bring the action or if an effort to cause those general partners to bring the action is not likely to succeed.\n6 Del. C. \u00a7 17-1001 (2001). In addition, in derivative actions, the complaint must state with particularity what effort plaintiffs made to get a general partner to initiate an action by a general partner or explain why it has not done so. Litman, 611 A. 2d at 17. \u201cThis rule is one of substantive right \u2014 not simply a technical rule of pleading.\u201d Haber v. Bell, 465 A.2d 353, 357 (Del. Ch. 1983). The purpose of this rule is to allow the general partner, on behalf of the limited partnership, \u201cthe opportunity to rectify the alleged wrong without suit or to control any litigation brought for its benefit.\u201d Id. Plaintiffs contend that making demand on Alex. Brown would have been futile because the majority of its current and former management committee members were employed by Deutsche Bank and its affiliates and that a demand would in essence be asking the managers of the general partner to sue themselves. However, as the court pointed out in Haber, \u201c[t]his is not a sufficient excuse for failure to make a demand.\u201d Id. at 360.\nFurther, when a plaintiff accepts the terms of a partnership agreement which discloses conflicts of interest or self-dealing, he or she is precluded from bringing a derivative claim based on facts disclosed in that agreement. Goodman v. Futrovsky, 213 A.2d 899, 902-03 (Del. 1965), cert. denied, 383 U.S. 946, 16 L. Ed. 2d 209, 86 S. Ct. 1197 (1966) (holding that a plaintiff could not bring a derivative claim regarding a conflict of interest when this information had been disclosed in previous prospectuses). \u201cA stockholder cannot complain of corporate action in which he has concurred.\u201d Schreiber v. Bryan, 396 A.2d 512, 517 (Del. Ch. 1978). Because plaintiffs failed to make demand on Alex. Brown or excuse such demand as futile as required by 6 Del. C. \u00a7 17-1001, they have no standing to bring these derivative actions.\nFinally, plaintiffs argue that the trial court wrongly considered documents outside the scope of the second amended complaint which were attached to the motion to dismiss. Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 60-1, 554 S.E.2d 840, 847 (2001). However, given plaintiffs\u2019 failure to comply with the demand requirements as discussed above, the court\u2019s consideration of the letter in making its ruling, while improper, was not prejudicial.\nReversed and remanded in part, affirmed in part.\nJudges WYNN and STEELMAN concur.", "type": "majority", "author": "HUDSON, Judge." } ], "attorneys": [ "Kilpatrick Stockton L.L.P., by David C. Smith, for plaintiff - appellants.", "Bell, Davis & Pitt, PA., by William K. Davis, and Brooks Pierce, by Mack Sperling, and Smith Moore, L.L.P., by J. Donald Cowan, Jr., for defendant-appellees." ], "corrections": "", "head_matter": "EDA HOFSTEAD CABANISS, JAMES and KALEN HAUN, and ELIZABETH WANDERS, TRUSTEE, Individually and Derivatively on Behalf of the D.B. Alex. Brown Exchange Fund I, L.P., Plaintiffs v. DEUTSCHE BANK SECURITIES, INC. d/b/a DEUTSCHE BANK ALEX. BROWN, ALEX. BROWN MANAGEMENT SERVICES, INC., DC INVESTMENT PARTNERS, LLC, and D.B. ALEX. BROWN EXCHANGE FUND, I, L.P., Defendants\nNo. COA04-530\n(Filed 3 May 2005)\n1. Partnerships\u2014 limited partner claims \u2014 misrepresentation \u2014 fraudulent nondisclosure \u2014 individual claims\nUnder Delaware law, plaintiff limited partners could assert individual claims for misrepresentation and fraudulent nondisclosure directly against the general partner, its parent bank which acted as placement agent for the partnership, and the partnership managers. The determination of whether a partner\u2019s claim should be brought directly or derivatively turns on who suffered the alleged harm and who would receive the benefit. Defendants concede that the alleged harm here was suffered by the individual limited partners and any remedy or recovery would benefit those individual partners.\n2. Partnerships\u2014 limited partner claims \u2014 breach of contract \u2014 negligence\u2014breach of fiduciary duty \u2014 derivative claims \u2014 demand upon general partner\nUnder Delaware law, plaintiff limited partners\u2019 claims for breach of contract, negligence, and breach of fiduciary duty against the general partner, its parent bank which acted as placement agent for the partnership, and the partnership managers were derivative claims that could be asserted by plaintiffs on behalf of the limited partnership only after the general partner refused to do so or it was shown that a demand on the general partner to bring the action would be futile. Although plaintiffs contend that making a demand on the general partner would have been futile because it would in essence have been asking the general partner to sue itself, this reason is not a sufficient excuse for failure to make a demand.\nAppeal by plaintiffs from judgment entered 17 October 2003 by Judge W. Erwin Spainhour, Jr. in the Superior Court of Forsyth County. Heard in the Court of Appeals 26 January 2005.\nKilpatrick Stockton L.L.P., by David C. Smith, for plaintiff - appellants.\nBell, Davis & Pitt, PA., by William K. Davis, and Brooks Pierce, by Mack Sperling, and Smith Moore, L.L.P., by J. Donald Cowan, Jr., for defendant-appellees." }, "file_name": "0180-01", "first_page_order": 210, "last_page_order": 214 }