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Ex parte Sanderson

Supreme Court of Alabama

February 9, 2018

Ex parte Jon S. Sanderson et al.
v.
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
v.
Harold Lowell Wainwright, derivatively on behalf of Sterne Agee Group, Inc.

         Appellate Proceedings from Jefferson Circuit Court (CV-14-902794)

          PETITION FOR WRIT OF MANDAMUS

          BRYAN, Justice.

         James 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

         On July 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.

         In 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 Saban] ...."

         The 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 agreement was

"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."

         On 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.

         On 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.

         In 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.

         The 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.

         In 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 ...


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