Wright v. Sutton, et al
Filing
87
MEMORANDUM OPINION AND ORDER granting 77 and 79 Motions to Dismiss. The counts of the Amended Complaint, insofar as they are grounded in the failure of Ameribank, are DISMISSED. The Clerk is directed to send a copy of this Memorandum Opinion and Order to counsel of record. Signed by Senior Judge David A. Faber on 7/5/2017. (cc: counsel of record) (mk)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
AT BLUEFIELD
LACY WRIGHT, JR. et al.,
Plaintiffs,
v.
CIVIL ACTION NO. 1:08-1431
JAMES M. SUTTON, et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
Pending before the court are motions to dismiss the Amended
Complaint filed by the remaining defendants.
79).
(ECF Nos. 77 and
For reasons expressed more fully below, those motions are
GRANTED.
I.
Background
On October 27, 2006, plaintiffs filed this civil action, in
the Circuit Court of McDowell County, against various defendants
alleging that defendants engaged in a “freeze-out” of plaintiff
Lacy Wright and other John Doe minority shareholders in American
Bankshares, committed fraud, engaged in civil conspiracy, and
were negligent.
See Complaint generally (ECF No. 1).
On
September 19, 2008, the Office of Thrift Supervision closed
Ameribank, alleged to be a subsidiary of American Bankshares, and
appointed the Federal Deposit Insurance Corporation ("FDIC") as
Receiver.
On December 17, 2008, the FDIC filed a Motion to Substitute,
in the McDowell County Circuit Court, seeking to substitute the
FDIC as Receiver for defendant Ameribank.
FDIC removed the case to federal court.
On that same day, the
On September 29, 2010,
the court granted the motion to dismiss filed by the FDIC as
Receiver for Ameribank for lack of subject matter jurisdiction
based on plaintiffs' failure to exhaust administrative remedies.
On July 6, 2010, the court granted defendant Crowe Chizek
and Company, LLC's (hereinafter "Crowe") motion for a more
definite statement.
In particular, plaintiffs were directed to
explain:
1) the nature of each claim for relief they are
asserting while providing separate counts for each
individual claim, 2) any statute or regulation
allegedly violated (if applicable), 3) the facts that
support each claim, and 4) the relief he seeks for each
claim. The amended complaint must also specifically
identify which counts are applicable to which
defendants. Furthermore, plaintiffs are reminded of
Federal Rule of Civil Procedure 12(f) and directed to
omit from their more definite statement any impertinent
or scandalous matter such as that contained in the last
sentences of paragraphs numbered 20 and 21 of the
original complaint.
ECF No. 51 at pp. 3-4.
Plaintiffs were also warned that failure
to comply with the court's Order might result in dismissal of
this action without prejudice.
On July 20, 2010, plaintiffs filed a ten-count Amended
Complaint.
According to the Amended Complaint, plaintiff Lacy
Wright "was a loyal and patient stockholder in American
Bankshares, Inc., for over thirty (30) years and was a minority
shareholder in Defendant, American Bankshares, Inc."
2
Amended
Complaint at ¶ 2 (ECF No. 53).
The Amended Complaint alleges
that American Bankshares is a West Virginia corporation with its
principal place of business in McDowell County, West Virginia.
See id. at ¶ 5.
Named as defendants are:
1)
James M. Sutton, individually and in his capacity as
Chairman of American Bankshares and a member and
officer of the Board of Directors. See id. at ¶ 4.
2)
Phillip H. Ward, III, individually and in his capacity
as Vice Chairman of the Board of Directors of American
Bankshares. See id. at ¶ 7.
3)
Louis J. Dunham, individually and in his capacity as
President and Chief Executive Officer and as a member
of the Board of Directors of American Bankshares. See
id. at ¶ 8.
4)
Jack Baldini, individually and in his capacity as
Chairman of the Board of Directors and as a Director of
American Bankshares. See id. at ¶ 9.
5)
Richard D. Caruso, individually and in his capacity as
a Director of American Bankshares. See id. at ¶ 10.
6)
Edward W. Orisko, individually and in his capacity as a
Director of American Bankshares. See id. at ¶ 11.
7)
Robert W. Riggs, individually and in his capacity as a
Director of American Bankshares. See id. at ¶ 12.
8)
American Bankshares.
9)
Crowe, an accounting firm retained by American
Bankshares "to provide accounting, auditing, business
and consulting services" to Ameribank. Id. at ¶ 13.
See id. at ¶ 5.
By Judgment Order entered on March 29, 2011, Crowe was dismissed
from the case.
3
The Amended Complaint asserts ten counts:
1) Negligence; 2)
Breach of Fiduciary Duty and Negligence; 3) Oppressive Conduct;
4) Negligent Misrepresentation; 5) Intentional Misrepresentation;
6) Civil Conspiracy; 7) Bad Faith and Fair Dealing; 8)
Intentional Infliction of Emotional Distress; 9) Negligent
Infliction of Emotional Distress and 10) Outrage.
The remaining
defendants – Sutton, American Bankshares, Ward, Dunham, Baldini,
Caruso, Orisko, and Riggs – have moved to dismiss all counts
against them.
II.
Standard of Review
"[A] motion to dismiss for failure to state a claim for
relief should not be granted unless it appears to a certainty
that the plaintiff would be entitled to no relief under any state
of facts which could be proved in support of his claim."
Rogers
v. Jefferson-Pilot Life Ins. Co., 883 F.2d 324, 325 (4th Cir.
1989) (citation omitted) (quoting Conley v. Gibson, 355 U.S. 41,
48 (1957), and Johnson v. Mueller, 415 F.2d 354, 355 (4th Cir.
1969)).
"In considering a motion to dismiss, the court should
accept as true all well-pleaded allegations and should view the
complaint in a light most favorable to the plaintiff."
Mylan
Laboratories, Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993);
see also Ibarra v. United States, 120 F.3d 474, 474 (4th Cir.
1997).
4
In evaluating the sufficiency of a pleading, the recent
cases of Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955 (2007), and
Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), provide guidance.
When reviewing a motion to dismiss, under Federal Rule of Civil
Procedure 12(b)(6), for failure to state a claim upon which
relief may be granted, a court must determine whether the factual
allegations contained in the complaint “give the defendant fair
notice of what the . . . claim is and the grounds upon which it
rests,” and, when accepted as true, “raise a right to relief
above the speculative level.”
Bell Atl. Corp. v. Twombly, 127 S.
Ct. 1955, 1964-65 (2007)(quoting Conley v. Gibson, 355 U.S. 41,
47 (1957); 5 Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 1216 (3d ed. 2004)).
“[O]nce a claim
has been stated adequately, it may be supported by showing any
set of facts consistent with the allegations in the complaint.”
Twombly, 127 S. Ct. at 1969.
As the Fourth Circuit has
explained, “[a] complaint attacked by a Rule 12(b)(6) motion to
dismiss will survive if it contains ‘enough facts to state a
claim to relief that is plausible on its face.’”
Lainer v.
Norfolk S. Corp., 2007 WL 4270847 at *3 (4th Cir. 2007) (quoting
Twombly, 127 S. Ct. at 1974).
According to Iqbal and the interpretation given it by our
appeals court,
[L]egal conclusions, elements of a cause of action, and
bare assertions devoid of further factual enhancement
5
fail to constitute well-pled facts for Rule 12(b)(6)
purposes. See Iqbal, 129 S.Ct. at 1949. We also
decline to consider “unwarranted inferences,
unreasonable conclusions, or arguments.” Wahi v.
Charleston Area Med. Ctr., Inc., 562 F.3d 599, 615 n.
26 (4th Cir. 2009); see also Iqbal, 129 S. Ct. at
1951-52.
Ultimately, a complaint must contain “sufficient
factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Iqbal, 129
S.Ct. at 1949 (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).
Facial plausibility is established once the factual
content of a complaint “allows the court to draw the
reasonable inference that the defendant is liable for
the misconduct alleged.” Id. In other words, the
complaint's factual allegations must produce an
inference of liability strong enough to nudge the
plaintiff's claims “‘across the line from conceivable
to plausible.’” Id. at 1952 (quoting Twombly, 550 U.S.
at 570, 127 S.Ct. 1955).
Satisfying this “context-specific” test does not
require “detailed factual allegations.” Id. at 1949-50
(quotations omitted). The complaint must, however,
plead sufficient facts to allow a court, drawing on
“judicial experience and common sense,” to infer “more
than the mere possibility of misconduct.” Id. at 1950.
Without such “heft,” id. at 1947, the plaintiff's
claims cannot establish a valid entitlement to relief,
as facts that are “merely consistent with a defendant's
liability,” id. at 1949, fail to nudge claims “across
the line from conceivable to plausible.” Id. at 1951
(quotations omitted).
Nemet Chevrolet, LTD v. Consumeraffairs.com, Inc., 591 F.3d 250,
255-56 (4th Cir. 2009).
III.
Analysis
Defendants have moved for dismissal for a variety of
reasons.
The court discusses each of these reasons in turn.
6
A)
Failure of Ameribank
Notably, as the court has earlier recognized, see ECF No.
66, the Amended Complaint goes far beyond the allegations and
theories of recovery of the original complaint.
The original
complaint alleged oppressive and misleading conduct related to a
reverse stock split occurring on or about November 1, 2006.
Specifically plaintiffs alleged:
!
"That, on or about September 22, 2006, the Board of
Directors of Defendant, American Bankshares, Inc.,
("The Board"), a West Virginia Corporation, approved a
resolution proposing a reverse stock split thereby
freezing out all minority shareholders which was
orchestrated by the Company's dominant and majority
shareholder, Defendant, James M. Sutton. That the said
resolution called for a 100,000 to 1 (one) reverse
stock split effectively removing all shareholders from
ownership in Defendant American Bankshares, Inc.,
except for the Defendant, James M. Sutton. That a
similar transaction was also advanced by the Defendants
in 2001 and 2004." Complaint ¶ 19.
!
"That the Defendants and each of them have and are
`squeezing out' minority shareholders to the economic
advantage of the majority thus acting in bad faith and
furthering continued oppressive and wrongful conduct
resulting in harm and damages to the Plaintiff and
others similarly situated." Id. at ¶ 22.
!
"That the Defendants and each of them have wrongfully
and oppressively communicated to the minority
shareholders of Defendant, American Bankshares, Inc.,
that they could/would engage in a `squeeze-out' if
necessary to further destroy the rights of the
Plaintiff and other minority shareholders." Id. at ¶
24.
!
"That the Defendants and each of them have continuously
made threats of a massive reverse stock split (RSS) in
a classic `freeze-out' technique whereby the interests
of long time minority shareholders in Defendant,
American Bankshares, Inc., would be
7
eliminated/destroyed proximately causing the Plaintiff
and others to sustain harm and damages." Id. at ¶ 26.
!
"Wrongfully, the Board and the other Defendants simply
acquiesced to Defendant, James M. Sutton's oppressive
and wrongful actions. The Board should have recognized
that Defendant, James M. Sutton had conflicts with his
position as majority shareholder and protecting the
interests of the Plaintiff and other minority
shareholders. Instead, the Board has done absolutely
nothing to ensure that the transactions are fair for
stockholders. The Board abdicated its responsibilities
by merely rubber stamping the deal/transaction at the
behest of Defendant, James M. Sutton. In so doing, the
Board disregarded the fact that the reverse stock split
transaction eliminated or will eliminate the
Plaintiff's interest as well as the other minority
shareholder's interest thereby destroying Plaintiff and
others ability to maximize shareholder return." Id. at
¶ 27 (emphasis added).
!
"That the Defendants and each of them have engaged in
long continuing patterns of intentional wrongful and
oppressive conduct whereby one stockholder is expected
to reap all of the benefits of a reverse stock split."
Id. at ¶ 37.
!
"That the Plaintiff asserts and alleges that the
actions of the Defendants and each of them have been
and are now designed to maximize value for one (1)
shareholder and to freeze out the Plaintiff and minor
shareholders from sharing in the benefits of expected
good times. That the actions of the Defendants have
been wholly self-serving with intentions to maximize
value for the majority." Id. at ¶ 55.
In other words, plaintiff Wright was upset with the Board's
action in approving the reverse stock split which, according to
him, deprived him of his status as a shareholder in American
Bankshares.1
1
Wright’s complaint was filed prior to consummation of the
reverse stock split. However, the Articles of Incorporation
effecting the corporate action became effective on November 1,
8
Contrast that with the allegations of the Amended Complaint
which, in addition to complaining about the reverse stock split,
lodges a number of additional allegations and theories of
liability relating to the failure of Ameribank.
Significantly,
the failure of Ameribank was not even mentioned in the original
complaint because, as of that filing in 2006, Ameribank was still
a going entity.
Indeed, the allegations regarding the failure of
Ameribank conflict with plaintiffs' theory of the case alleged in
the original complaint.
Furthermore, plaintiffs did not seek leave of the court to
amend their complaint in this manner and the amendment goes far
beyond the direction offered by the court in granting the motion
for a more definite statement.
are subject to dismissal.
For these reasons, those counts
See, e.g., Palm Beach Strategic
Income, LP v. Salzman, No. 11-2668-cv, 457 F. App’x 40, *43 (2d
Cir. Jan. 26, 2012) (“District courts in this Circuit have
routinely dismissed claims in amended complaints where the court
granted leave to amend for a limited purpose and the plaintiff
filed an amended complaint exceeded the scope of the permission
granted.”); United States ex rel. Atkinson v. P.A. Shipbuilding
Co., 473 F.3d 506, 524 (3d Cir. 2007) (“The rejection of an
unapproved amended complaint is not an abuse of discretion.”);
FDIC v. Kooyomjian, 220 F.3d 10, 15 (1st Cir. 2000) (no abuse of
2006.
See ECF No. 80-2.
9
discretion where district court struck new counts alleging new
theories of recovery where court granted leave to amend for the
“limited purpose” of showing that existing claims were not
barred); Benton v. Baker Hughes, No. CV 12-07735 MMM (MRWx), 2013
WL 3353636, *3 (C.D. Cal. June 30, 2013) (“The court’s order
granted Benton leave to amend only to address the deficiencies in
his existing causes of action identified in its order, however.
It did not grant Benton leave to add new claims.
Benton was
therefore required to seek leave of the court or defendants’
written consent to file an amended complaint asserting new
promissory estoppel, breach of the implied covenant of good faith
and fair dealing, negligent misrepresentation, and intentional
misrepresentation claims.
He did not do so.
The addition of
Benton’s new claims therefore exceeds the scope of the leave to
amend granted, and it is appropriate to strike the newly added
claims on this basis.”); Maisa Property, Inc. v. Cathay Bank, No.
4:12-CV-066-A, 2012 WL 1563938, *2 (N.D. Tex. May 2, 2012)
(granting motion to strike amended pleading where “Plaintiff has
not obtained written consent from [defendant] or sought leave of
the court to amend its pleading”); DeLeon v. Wells Fargo Bank,
N.A., No. 10-CV-01390-LHK, 2010 WL 4285006, *3 (N.D. Cal. Oct.
22, 2010) (“In cases like this one. . . where leave to amend is
given to cure deficiencies in certain specified claims, courts
have agreed that new claims alleged for the first time in the
10
amended pleading should be dismissed or stricken.”); Farac v.
Sundown Energy, LP, Civil Action No. 06-7147, 2009 WL 2241329, *3
(E.D. La. Jul. 23, 2009) (granting motion to strike portions of
amended complaint where “[t]he Court did not grant leave– nor did
Sundown and Mid-Continent agree– for Isla to expand the scope of
the present lawsuit in its Fourth Amended complaint.
As such,
Isla’s Fourth Amended Complaint, to the extent it asserts
entirely new factual allegations, is improper.”); Williams v.
Equity Holding Corp., 245 F.R.D. 240, 245 (E.D. Va. 2007)
(granting defendants’ motion to strike where plaintiffs had “gone
outside the scope given by this court to amend their amended
complaint”); Willett v. City Univ. of N.Y., No. 94 CV 3873, 1997
WL 104769, *2 (E.D.N.Y. Feb. 18, 1997) (“The court’s second order
granted plaintiff leave to amend his complaint only with respect
to his First Amendment and defamation claims.
Accordingly, the
court will not consider plaintiff’s second, fourth, fifth,
seventh, and eighth claims.”).
Therefore, the counts of the Amended Complaint, insofar as
they are grounded in the failure of Ameribank, are DISMISSED.
11
B.
Reverse Stock Split2
Defendants also argue that plaintiffs’ challenges to the
reverse stock split are barred by the West Virginia dissenters’
rights statute.
According to § 31D-13-1302(a)(4) of the West
Virginia Business Corporation Act, "[a] shareholder is entitled
to appraisal rights, and to obtain payment of the fair value of
that shareholder's shares, in the event of any of the following
corporate actions: . . . An amendment of the articles of
incorporation with respect to a class or series of shares that
reduces the number of shares of a class or series owned by the
shareholder to a fraction of a share if the corporation has the
obligation or right to repurchase the fractional share so
created. . . ."
In addition, the appraisal rights statute
prohibits a dissenting shareholder from "challeng[ing] a
completed corporate action for which appraisal rights are
available unless the corporate action:
(1) was not effectuated
in accordance with the applicable provisions of article ten [§§
31D-10-1001 et seq.], eleven [§§ 31D-11-1101 et seq.] or twelve
[§§ 31D-12-1201 et seq.] of this chapter or the corporation's
2
"A reverse stock split is `the conventional stock split in
reverse -- instead of a company amending its charter so as to
have more shares authorized and outstanding, the charter is
amended so as to reduce dramatically the authorized and
outstanding shares.'" Michael R. Rickman, Reverse Stock Splits
and Squeeze-Outs: A Need for Heightened Scrutiny, 64 Wash.
U.L.Q. 1219, 1219 n.1 (1986) (quoting Dykstra, The Reverse Stock
Split--That Other Means of Going Private, 53 Chi. Kent. L. Rev.
1, 3 (1976)).
12
articles of incorporation, bylaws or board of directors'
resolution authorizing the corporate action; or (2) [w]as
procured as a result of fraud or material misrepresentation."
31D-13-1302(d).
West Virginia's highest court, in discussing a prior version
of the statute,3 agreed that an appraisal rights statute
ordinarily provides the exclusive remedy for dissenting
shareholders.
Courts have developed several general rules
regarding dissenter's rights statutes. The first is
that ordinarily such a statute provides the exclusive
remedy for a dissenting shareholder in the absence of a
showing of fraud, unfairness, or illegality. See
generally 18A Am. Jur.2d Corporations § 809. Although
our statute does not contain any specific provisions as
to exclusivity, we agree with the general rule.
Matter of Fair Value of Shares of Bank of Ripley, 399 S.E.2d 678,
682 (W. Va. 1990).
West Virginia is in line with a number of jurisdictions who
also find that appraisal rights provide the exclusive remedy for
dissenting shareholders except under certain narrow
circumstances.
See, e.g., Weber v. Iowa State Bank and Trust Co.
of Fairfield, Iowa, 457 F.3d 857, 859 (8th Cir. 2006) (“Iowa law
specifically states that an appraisal is the sole and exclusive
remedy for a shareholder in the event of a reverse stock
split.”); Mitchell Partners, L.P. v. Irex Corp., 53 A.3d 39, 45-
3
West Virginia Code § 31-1-23.
13
47 (Pa. 2012) (holding that statutory appraisal process under
Pennsylvania law provided exclusive remedy to former minority
shareholder unless "fraud, illegality, or fundamental unfairness"
was present); Sound Infiniti, Inc. v. Snyder, 237 P.3d 241, 245
(Wash. 2010) ("We will not allow a dissenting shareholder to
bring a claim outside the appraisal proceeding without a showing
of fraudulent action, as we will not destroy the general
principle enshrined in the statute that the appraisal proceeding
should be the exclusive remedy.
A dissenting shareholder cannot
seek identical relief outside the appraisal proceeding by merely
alleging fraudulent conduct.") (emphasis in original).
In this case, plaintiffs have not made specific allegations
that the reverse stock split was "procured as a result of fraud
or material misrepresentation."
Although both the Complaint and
the Amended Complaint make general allegations regarding fraud
and misrepresentations, plaintiffs fail to direct the court to
any specific instances of fraud or misrepresentation that would
call the challenged corporate action into question.
In the
absence of such a showing,4 plaintiff's claims arising out of the
4
As one court observed, “the fraud or fundamental
unfairness exception may not be invoked lightly. . . . It is
also well established elsewhere, and should pertain in
Pennsylvania, that mere inadequacy in price is not sufficient to
implicate the exception.” Mitchell Partners, L.P. v. Irex Corp.,
53 A.3d 39, 47 (Pa. 2012); see also 15 Fletcher Cyc. Corp. § 7165
(“Allegations of fraud should be scrutinized to make sure the
conflict is not merely one concerning valuation, which is
properly handled in an appraisal proceeding.”); James D. Cox and
14
reverse stock split are barred by West Virginia Code § 31D-131302(d).
Furthermore, to the extent that plaintiffs allege that they
may avoid the exclusivity of the dissenters’ rights statute by
relying on Masinter v. Webco Co., 262 S.E.2d 433, 438 (W. Va.
1980), that argument is without merit.
Under West Virginia law,
“the majority stockholders in a corporation owe a fiduciary duty
to the minority, as do the officers and directors . . . .”
Masinter v. Webco Co., 262 S.E.2d 433, 438 (W. Va. 1980).
West
Virginia also recognizes an “oppressive conduct exception to the
general rule that a corporation has complete control of its
affairs.”
Va. 2001).
State ex rel. Smith v. Evans, 547 S.E.2d 278, 283 (W.
According to the West Virginia Supreme Court of
Appeals, “[a] claim of a freeze-out rests on the wrongful denial
by the majority shareholders of the legitimate claims or
expectations of a minority shareholder.”
Masinter, 262 S.E.2d at
442.
Plaintiffs’ invocation of Masinter nothwithstanding, a
careful reading of plaintiffs’ complaint makes clear that the
oppressive conduct complained of is related to the reverse stock
Thomas Lee Hazen, 4 Treatise on the Law of Corporations § 22.27
(3d ed. 2011) (“The courts are fairly consistent in refusing to
allow an exception to the appraisal statute when the sole
complaint is that the merger does not offer a fair price for the
dissent’s shares.).
15
split – an action that is allowed by law.5
is distinguishable from this case.
Accordingly, Masinter
As the West Virginia Supreme
Court of Appeals has stated in the context of protecting a
minority shareholder’s rights in the merger context:
We have never agreed with the business purpose
doctrine because attempting to infer the motivations
behind a majority stockholder’s buyout of minority
shares is like trying to catch the wind in a net. In
the often clashing cross-purposes and constant friction
of haggling and dickering that characterize a
corporation, it is perfectly reasonable for a majority
5
As one court noted:
There is broad consensus that a reverse stock
split may validly be used for the sole purpose of
removing minority shareholders, subject to the
restriction that the removal of the minority
shareholders must not constitute a breach of fiduciary
duty on the part of the majority shareholders or
directors of the corporation. See, e.g., Laird v.
I.C.C., 691 F.2d 147, 151 (3d Cir. 1982) (finding that
a reverse stock split is legal under Missouri law);
Goldman v. Union Bank & Trust, 765 P.2d 638 (Colo. App.
1988) (deciding that the Colorado Corporation Code
authorized a reverse stock split that ‘froze out’
minority stockholders); FGS Enters., Inc. v. Shimala,
625 N.E. 2d 1226 (Ind. 1993) (ruling that the Indiana
General Corporation Act permits reverse stock splits in
which corporation acquired fractional shares); Lerner
v. Lerner Corp., 132 Md. App. 32, 750 A.2d 709, 719
(Md. Ct. Spec. App. 2000); see also Elliot M. Kaplan &
David B. Young, Corporate ‘Eminent Domain’: Stock
Redemption and Reverse Stock Splits, 57 UMKC L. Rev.
67, 74 (1988) (“No jurisdiction has any per se rule
against squeeze-outs by means of reverse stock splits
or otherwise. . . .”). It is clear that the use of a
reverse stock split to redeem minority shareholder
interests is a powerful weapon in the majority
shareholder's arsenal. . .
While the fairness of this
approach is open to debate, these policy decisions are
within the province of the Legislature.
U.S. Bank N.A. v. Cold Spring Granite Co., 802 N.W. 2d 363, 371
(Minn. 2011).
16
shareholder to rid himself of minority shareholders who
he perceives may compromise fundamentally that
corporation’s interests. Consequently, our rule in
West Virginia is that when a majority stockholder or
majority stockholders seek to effect a corporation’s
merger, they may do so for any purpose whatsoever, so
long as the terms tendered to the minority stockholders
accurately reflect the fair market value of the
minority interest.
Persinger v. Carmazzi, 441 S.E.2d 646, 654 (W. Va. 1994).
Given that plaintiffs have failed to make sufficient
allegations, pursuant to Twombly and Iqbal, that would avoid the
exclusivity provision of § 31D-13-1302(d), the claims relating to
the reverse stock split are dismissed.
C.
Additional Considerations
1.
Count 5: Intentional Misrepresentation
As to the intentional misrepresentation claim, plaintiff
alleges that defendants:
!
“conducted, helped with or provided assistance in
the preparation of fraudulent and/or negligent
audits by failing to uncover the true
assets/liabilities of Defendant American
Bankshares, Inc., and Ameribank, Inc. and/or
closing their eyes to an internally generated
auditing system.”
!
“fraudulently and/or negligently failed to properly and
accurately disclose the true financial condition of
Defendant American Bankshares, Inc. and Ameribank,
Inc.; failed to disclose material information; and
assisted in the publication and dissemination of false
and misleading information, thereby conspiring and
colluding with the other Defendants and breaching a
fiduciary duty to the Plaintiff and others.”
!
“based upon information and belief breached a fiduciary
duty to Plaintiff and others by misrepresentations,
fraud, negligence, failure to avoid conflicts of
17
interest to eliminate oppression and conspiring,
planning and colluding to eliminate minority
shareholders including Plaintiff and others.”
!
“breached a fiduciary duty to Plaintiff by not fully
disclosing financial information and truthfully keeping
Plaintiff and others advised of the true intentions of
the majority shareholder, namely, Defendant James M.
Sutton who operated Defendants’ American Bankshares,
Inc. and Ameribank, Inc. as his alter ego.”
!
“have engaged in long continuing patterns of
intentional wrongful and oppressive conduct whereby one
stockholder is expected to reap all of the benefits of
a reverse stock spit. As a direct and proximate cause
of the collective, long continuing, oppressive actions
of the Defendants, the Plaintiff and others have been
and will be damaged in that Plaintiff and others will
be wrongfully deprived of the full value of their
American Bankshares, Inc., investment. As a result of
Defendants’ actions, Plaintiff and others are entitled
to recover all damages; suffered past, present and post
as a direct and proximate result of Defendants’
wrongful and oppressive actions.”
!
“[engaged in] oppressive conduct . . . [that] includes
but is not limited to: a) freeze out; b) squeeze-out;
c) withhold (held) dividends; d) siphoning off of
corporate earnings; e) utilizations of controlling
position to obtain special advantages; f) retention of
disproportionate benefits of majority shareholders; g)
buyout of oppressed investors stock at less than fair
value; h) caused Plaintiff and others to relinquish
stock at inadequate prices; and i) selfish ownership.”
!
“That the wrongful acts of the Defendants, including
the misrepresentations made by the Defendants. . . were
intentional, willful and wanton, and were arbitrarily
made without any consideration to the legal rights of
Plaintiff and others and as such constitutes predatory
practices that have occurred over a long and continuous
period of time proximately causing the Plaintiff and
others to sustain harm, injury and damages.”
!
“engaged in a pattern of intentional
misrepresentation and through oppression and
deceit, . . . misrepresented material facts
concerning the true financial condition of the
18
American Bankshares, Inc., and that said
misrepresentations were made with scienter with a
purposeful intent to induce the Plaintiff and
others to act on said intentional
misrepresentation or to purposefully induce the
Plaintiff to refrain from acting because of the
misrepresentation made by Defendants and that as a
direct and proximate result of the Defendants’
intentional misrepresentations made through fraud,
oppression and deceit the Plaintiff justifiably
relied on the misrepresentations . . . provided to
the press about the true financial condition of
Ameribank, Inc./American Bankshares, Inc., and as
a result of the intentional misrepresentations
made by the Defendants the Plaintiff and others
have sustained financial loss, harm and damages.”
!
“intentionally misrepresented the American Bankshares,
Inc./Ameribank, Inc.’s profits, assets, financial
reports and overall financial condition of said bank
and said misrepresentations whether intentional or
negligent, proximately and directly caused the
Plaintiff and others to sustain financial loss, harm
and damages as well as emotional stress, loss of
enjoyment of life, mental anguish, aggravation,
annoyance and inconvenience.”
Amended Complaint ¶¶ 28, 33, 37, 38, 55, 56, 69, 70, and 71.
Plaintiffs’ intentional misrepresentation claim is essentially a
claim for fraud.
See Fifth Third Bank v. McClure Properties,
Inc., 724 F. Supp.2d 598, 610 (S.D.W. Va. 2010) (“Fraud includes
intentional misrepresentation and the elements required to prove
each tort overlap.”); Gerver v. Benavides, 530 S.E.2d 701, 705
(W. Va. 1999) (“Actual fraud is intentional, and consists of an
intentional deception or misrepresentation to `induce another to
part with property or to surrender some legal right, and which
accomplishes the end designed.’”).
19
Federal Rule of Civil Procedure 9(b) requires that “[i]n all
averments of fraud or mistake, the circumstances constituting
fraud or mistake shall be stated with particularity.”
Plaintiffs’ intentional misrepresentation claim is governed by
Rule 9(b).
See Felman Production, Inc. V. Bannai, 2007 WL
3244638, *7 (S.D.W. Va. 2007).
The Fourth Circuit has concluded
that “a complaint which fails to specifically allege the time,
place and nature of the fraud is subject to dismissal on a Rule
12(b)(6) motion.”
Lasercomb America, Inc. v. Reynolds, 911 F.2d
970, 980 (4th Cir. 1990); see also Holland v. Cline Brothers
Mining Co., 877 F. Supp. 308, 318 (S.D.W. Va. 1995).
Plaintiffs’ intentional misrepresentation claim is not pled
with the particularity required by Rule 9(b).
The claim is
stated wholly in conclusory form and fails to put defendants on
notice of the time, place, or nature of the alleged fraud.
For
these reasons, the intentional misrepresentation claim will be
dismissed.
2.
Counts 8 and 10: Intentional Infliction of Emotional
Distress and Outrage
In order for a plaintiff to prevail on a claim for
intentional infliction of emotional distress, four elements must
be established:
(1) that the defendant’s conduct was atrocious,
intolerable, and so extreme and outrageous as to exceed
the bounds of decency; (2) that the defendant acted
with the intent to inflict emotional distress, or acted
recklessly when it was certain or substantially certain
20
emotional distress would result from his conduct; (3)
that the actions of the defendant caused the plaintiff
to suffer emotional distress; and (4) that the
emotional distress suffered by the plaintiff was so
severe that no reasonable person could be expected to
endure it.
Tomblin v. WCHS-TV8, 2010 WL 324429, *10 (S.D.W. Va. 2010)
(quoting Philyaw v. Eastern Associated Coal Corp., 633 S.E.2d 8,
Syl. pt. 2 (W. Va. 2006)).
Intentional or reckless infliction of
emotional distress is the same thing as the tort of outrage.
Lovell v. State Farm Mutual Ins. Co., 584 S.E.2d 553, 557 n.10
(W. Va. 2003); see also Travis v. Alcon Laboratories, 504 S.E.2d
419, 424 (W. Va. 1998) (“Intentional or reckless infliction of
emotional distress, also called the `tort of outrage,’ is
recognized in West Virginia as a separate cause of action.”).
“[T]rial courts should first examine the proof presented by
the plaintiff to determine if the defendant's conduct may legally
be considered “extreme and outrageous.”
O’Dell v. Stegall, 703
S.E.2d 561, 594 (W. Va. 2010).
In evaluating a defendant's conduct in an intentional
or reckless infliction of emotional distress claim, the
role of the trial court is to first determine whether
the defendant's conduct may reasonably be regarded as
so extreme and outrageous as to constitute the
intentional or reckless infliction of emotional
distress. Whether conduct may reasonably be considered
outrageous is a legal question, and whether conduct is
in fact outrageous is a question for jury
determination.
Id.
21
Plaintiffs have failed to state a prima facie case for
intentional infliction of emotional distress.
First, the conduct
complained of, i.e., the reverse stock split, is not the type of
“atrocious,” “intolerable,” or “outrageous” behavior that exceeds
the bounds of decency.
Second, plaintiffs cannot show that any
emotional distress suffered by them was so severe that it could
not be endured by a reasonable person.
See, e.g., Brown v. City
of Fairmont, 655 S.E.2d 563, 569 (W. Va. 2007) (holding that
improper disbursement of pension benefits to former wife did not
make out a claim for intentional infliction of emotional distress
because while “resulting financial consequences were doubtless
upsetting and worrisome,” it did not “cause the kind of emotional
upheaval that no reasonable person could be expected to
endure.”).
For these reasons, the claims for intentional
infliction of emotion distress and outrage are dismissed.
3.
Count 9: Negligent Infliction of Emotional Distress
A defendant may be held liable for negligently causing a
plaintiff to experience serious emotional distress, after the
plaintiff witnesses a person closely related to the plaintiff
suffer critical injury or death as a result of the defendant’s
negligent conduct, even though such distress did not result in
physical injury, if the serious emotional distress was reasonably
foreseeable.
Arbogast v. Nationwide Mutual Insurance Co., 427
S.E.2d 461, 466 (W. Va. 1993); Heldreth v. Marrs, 425 S.E.2d 157
22
(W. Va. 1992).
A claim for negligent infliction of emotional
distress “is applicable only to limited situations `premised on
conduct that unreasonably endangers the plaintiff’s physical
safety or causes the plaintiff to fear for his or her physical
safety.’”
Tomblin v. WCHS-TV8, 2010 WL 324429, *10 (S.D.W. Va.
2010) (quoting Brown v. City of Fairmont, 655 S.E.2d 563, 569 (W.
Va. 2007)).
This is not a case pertaining “to the threatened health or
safety of the plaintiff or a loved one of the plaintiff.”
655 S.E.2d at 569.
Brown,
Given that no such conduct is alleged herein,
dismissal of the negligent infliction of emotional distress claim
is appropriate.
IV.
Conclusion
For the reasons discussed above, the motions to dismiss are
GRANTED.
The Clerk is requested to send a copy of this
Memorandum Opinion and Order to counsel of record.
IT IS SO ORDERED this 5th day of July, 2017.
ENTER:
David A. Faber
Senior United States District Judge
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