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NCSU ARE 306 - Robbins v. Tweetsie Railroad

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Robbins v. Tweetsie Railroad, Inc., 126 NC App. 572 (NC Ct. App. 1997) Appeal by plaintiff from order entered 1 February 1996 by Judge Loto G. Caviness in Watauga County Superior Court. Heard in the Court of Appeals 17 February 1997. Elliot, Pishko, Gelbin & Morgan, P.A., by David C. Pishko, for plaintiff-appellant. Robinson, Bradshaw & Hinson, P.A., by Garland S. Cassada, for defendants-appellees Revalle B. Courtley and Christopher B. Robbins. Rayburn, Moon & Smith, P.A., by James B. Gatehouse, for defendant- appellee Tweetsie Railroad, Inc. Anderson, Rutherford, Geil & Scherer, L.L.P., by John M. Geil, for defendant-appellee Jerald C. Liebhart, Jr. Byrd, Byrd, Ervin, Whisnant, McMahon & Ervin, P.A., by Robert C. Ervin, for defendants-appellees T. Bragg McLeod, H. Brill Huntley, Richard L. Liebhart and Grace F. Liebhart. James H. Henderson, P.C., by James H. Henderson, for defendant-appellee E. Spencer Robbins. SMITH, Judge. Plaintiff James Michael Robbins is a minority shareholder of defendant Tweetsie Railroad, Inc. (hereinafter "Tweetsie") Class B non-voting common stock. Plaintiff also owns an interest in a tract of land leased to defendant Tweetsie. The individual defendants are officers, directors, and shareholders of defendant Tweetsie, and include the owners of Class A shares who control the corporation. Plaintiff was made aware of some disturbing transactions between defendant corporation and some of its officers and directors by William J. Bair, the organizer of an investment group which had an interest in purchasing defendant Tweetsie's outstanding shares of stock. In response to Mr. Bair's information, plaintiff employed the accounting firm of McMillan, Pate and Robertson to conduct an examination of defendant Tweetsie's books and records. After receiving the firm's report, on 10 July 1995, plaintiff instituted this shareholder derivative action against defendant Tweetsie and several of its officers and directors pursuant to North Carolina General Statutes section 55-7-40. In his complaint, plaintiff alleged that, over a period of years, the corporation made loans and cash advances to certain officers and directors without proper documentation or approval by the Board of Directors, and that the directors had failed to take appropriate action to recover these funds. Plaintiff further alleged that the making of these loans and advances, along with the failure to collect these funds, constituted a violation of the individual defendants' fiduciary duties to the corporation and its shareholders.On 18 August 1995, defendant Christopher B. Robbins filed a verified motion to dismiss plaintiff's complaint pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure. Defendant Robbins also submitted a transcript of his deposition taken in another action, as well as other matters outside of the pleadings, in support of his motion. Thereafter, on 22 August 1995, defendant Revalle B. Courtley filed a motion to dismiss plaintiff's complaint pursuant to Rules 12(b)(4) and (5) of the Rules of Civil Procedure for insufficiency of process and insufficiency of service of process. On 31 August 1995, defendant Tweetsie filed a motion to dismiss pursuant to Rule 12(b)(6), supported by the affidavit of Linda Wise. Finally, on 5 September 1995, defendants H. Brill Huntley, Grace F. Liebhart, Richard L. Liebhart and T. Bragg McLeod filed a motion to dismiss pursuant to Rules 12(b)(6) and (7) of the Rules of Civil Procedure. Subsequently, plaintiff's amended complaint, filed 6 September 1995, was deemed properly filed and served and proceedings were stayed for sixty (60) days by order entered 27 September 1995 by Judge James U. Downs. On 22 December 1995, defendants Tweetsie, Robbins and Courtley renewed their motions to dismiss; and these motions were scheduled for hearing on 29 January 1996. Plaintiff filed a motion for continuance of this hearing on 17 January 1996, and on 24 January 1996, plaintiff filed a motion for leave to amend complaint and add additional parties plaintiff and defendant. This matter came on for hearing before Judge Loto G. Caviness on defendants' and plaintiff's respective motions. Defendants presented evidence which tended to show that plaintiff had sold William Bair an option to purchase the land leased to defendant Tweetsie, and used the proceeds to fund this shareholder derivative action. Further, defendants' evidence tended to show that plaintiff filed this action as a part of Mr. Bair's plan to purchase defendant Tweetsie's outstanding shares. Plaintiff, however, presented evidence that his objectives in filing this action were to halt defendants' practice of making unsecured, undocumented loans to favored directors and officers, and to cause the corporation to collect the outstanding loans in order to "get the money back into the company." After reviewing all of the evidence, Judge Caviness entered an order on 1 February 1996 denying plaintiff's motion for continuance and motion to amend, granting defendants' motions to dismiss for failure to state a claim upon which relief can be granted, and granting defendant Courtley's motion to dismiss for lack of personal jurisdiction. Plaintiff appeals. At the outset, we must determine the proper procedural posture of this action on appeal. In the instant action, defendants made 12(b)(6) motions to dismiss for failure to state a claim for which relief can be granted. However, the trial court, in ruling upon the motion, admitted and considered matters outside of the pleadings. Accordingly, defendants' 12(b)(6) motions to dismiss were converted to Rule 56 motions for summary judgment. See Industries, Inc. v. Construction Co., 42 N.C. App. 259, 262, 257 S.E.2d 50, 53, disc. review denied, 298 N.C. 296, 259 S.E.2d 301 (1979). Consequently, the inquiry becomes whether there is any genuine issue as to any material fact and whether the moving party is entitled to judgment as a matter of law. See id.On appeal, plaintiff first argues that the former section 55-7-40(a) of the North Carolina General Statutes does not require that a shareholder derivative plaintiff be a "fair and adequate representative" of the corporate interest. Defendants, however, argue that this requirement is implicit in the statute, by the very nature of a shareholder derivative action. For the reasons stated herein, we find defendants' argument to be persuasive. Derivative actions are actions


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NCSU ARE 306 - Robbins v. Tweetsie Railroad

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