Ex parte Jon S. Sanderson et al.
James S. Holbrook, Jr., et al. In re: Harold L. Wainwright, derivatively on behalf of Sterne Agee Group, Inc. James S. Holbrook, Jr., and William K. Holbrook
Harold Lowell Wainwright, derivatively on behalf of Sterne Agee Group, Inc.
Proceedings from Jefferson Circuit Court (CV-14-902794)
PETITION FOR WRIT OF MANDAMUS
S. Holbrook, Jr., and William K. Holbrook ("the
Holbrooks") filed a notice of appeal from a postjudgment
order of the Jefferson Circuit Court ("the trial
court") that reinstated Harold Lowell Wainwright's
claims against them, which the trial court had previously
disposed of by granting the Holbrooks' motion to dismiss
as to certain claims and their motion for a summary judgment
as to others. Jon S. Sanderson; Eric B. Needleman; Sal A.
Nunziata; Robert G. Nunziata; Walter S. Robertson III; Walter
A. Ruch III; Henry S. Lynn, Jr.; Linda M. Daniel; Jay W.
Carter; and Joe B. Roberts, Jr. ("the non-Holbrook
directors"), who are codefendants with the Holbrooks in
Wainwright's action, petition this Court for a writ of
mandamus directing the trial court to vacate its postjudgment
order that reinstated Wainwright's claims against them,
which the trial court had previously disposed of by entering
a summary judgment for the non-Holbrook directors.
Facts and Procedural History
2, 2014, Traci Salinas and Sharon Lee Stark, as shareholders
of Sterne Agee Group, Inc. ("SAG"), a Delaware
corporation, filed a shareholder-derivative action, on behalf
of nominal defendant SAG, against the Holbrooks and the
non-Holbrook directors, who together composed the SAG board
of directors. Salinas and Stark alleged that the Holbrooks
had breached their fiduciary duty to the SAG shareholders by
misusing, misappropriating, and wasting corporate assets and
that the non-Holbrook directors had knowledge of, and had
acquiesced in, the Holbrooks' alleged misconduct.
2015, while Salinas and Stark's action was pending, SAG
entered into a merger agreement with Stifel Financial Corp.
("Stifel") pursuant to which Stifel would acquire
SAG ("the merger"). As a result of the merger, each
share of certain classes of SAG stock was to be converted
into a right of the shareholder to receive a pro rata share
of merger consideration in cash and/or shares of Stifel
common stock. As a precondition to receiving merger
consideration, a SAG shareholder was required to execute an
indemnification and release agreement ("the release
agreement") releasing SAG, its directors, Stifel, and
Saban Successor Subsidiary, LLC ("Saban"), a wholly
owned subsidiary of Stifel,
"from any and all liabilities and obligations to [the
shareholder] of any kind or nature whatsoever, in his, her or
its capacity as a current or former equity holder, ...
whether absolute or contingent, liquidated or unliquidated,
known or unknown, ... and [the shareholder] agrees that he,
she or it shall not seek to recover any amounts in connection
therewith or thereunder from [SAG, its directors, Stifel, or
release agreement further provided that the claims covered by
the agreement included, without limitation, "any claims
for breach of fiduciary duty arising from any actions or
inactions at or prior to" the merger and that the
"a general release and a covenant not to sue that
extinguishes all claims released above and precludes any
attempt by the [shareholder] to initiate any litigation
against [SAG, its directors, Stifel, or Saban] with respect
to the claims released above. If the [shareholder] commences
any claim in violation of this release, [SAG, its directors,
Stifel, and Saban] shall be entitled to assert this release
as a complete bar."
March 31, 2015, Wainwright, then a SAG shareholder, executed
the release agreement and received in exchange for his shares
of SAG stock $281, 573.22 in cash and 18, 994 shares of
Stifel common stock, which were valued in the aggregate at
approximately $1.09 million. The merger was completed on June
5, 2015. Approximately three months later, Salinas and Stark
amended their complaint to add Wainwright as a plaintiff and
to dismiss Stark as a plaintiff.
September 4, 2015, the Holbrooks filed a motion for a summary
judgment in which they argued that, under Delaware law, when
a plaintiff in a shareholder-derivative action ceases to be a
shareholder of the corporation on whose behalf the action was
brought, the shareholder is divested of standing to continue
prosecuting the derivative action. Thus, the Holbrooks
argued, because Salinas and Wainwright were no longer SAG
shareholders following the merger, they lacked standing to
prosecute their derivative action and, the argument
continued, the Holbrooks were entitled to a judgment as a
matter of law.
response, Salinas and Wainwright amended the complaint to
allege that the Holbrooks' and the non-Holbrook
directors' alleged misconduct asserted in the original
complaint constituted "a snowballing pattern of
fraudulent conduct" that allegedly forced the sale of
SAG "at a significantly depressed value" in an
allegedly fraudulent attempt "to cover massive
wrongdoing." Salinas and Wainwright argued that a merger
"cannot absolve fiduciaries from accountability for
fraudulent conduct that necessitated the merger."
Rather, they maintained, "such conduct gives rise to a
direct claim that survives the merger, as the injury
caused by such misconduct is suffered by the shareholders
rather than the corporation, and thereby supports a direct
cause of action." (Emphasis added.) Thus, given their
allegations of fraud, Salinas and Wainwright asserted, in
addition to the original derivative claims, direct claims of
breach of a fiduciary duty; negligence; and intentional,
reckless, and innocent misrepresentation and suppression.
Subsequently, the parties filed a stipulation of dismissal in
which they dismissed Salinas from the action, leaving
Wainwright as the sole plaintiff.
Holbrooks filed a motion to dismiss Wainwright's amended
complaint in which they asserted that Wainwright's direct
claims were actually derivative claims, regardless of how
Wainwright labeled them, and that, as such, the claims were
due to be dismissed for the reasons set forth in the
Holbrooks' motion for a summary judgment. Subsequently,
the non-Holbrook directors filed a motion for a summary
judgment in which they asserted the release agreement
executed by Wainwright as a defense to Wainwright's
claims, whether derivative or direct. Thereafter, the
Holbrooks supplemented their motion to dismiss to assert the
release agreement as a bar to Wainwright's claims.
response to the Holbrooks' motion to dismiss and the
non-Holbrook directors' motion for a summary judgment,
Wainwright argued that the release agreement was
unenforceable because, he said, it had been procured by fraud
in that, he said, the Holbrooks and the non-Holbrook
directors failed to make adequate disclosures regarding
material terms of the merger. Wainwright further argued that
the release agreement was unenforceable because, he said, it
was not supported by consideration. Although Wainwright
undisputedly received merger consideration, he argued that
the merger consideration he received could not constitute
consideration for the release agreement. According to
Wainwright, payment for his shares of SAG stock was a
preexisting duty owed to SAG shareholders by virtue ...