The opinion
Krieger v. Johnson, 2014 NCBC 13.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF MECKLENBURG 12 CVS 13727
JOEL KRIEGER, Derivatively on Behalf of
)
Nominal Defendant DUKE ENERGY )
CORPORATION, )
Plaintiff )
)
v. )
)
WILLIAM JOHNSON, JAMES E. ROGERS, )
WILLIAM BARNET, III, G. ALEX ) OPINION AND ORDER
BERNHARDT, SR., MICHAEL G. ) ON MOTIONS TO DISMISS
BROWNING, DANIEL R. DIMICCO, JOHN )
H. FORSGREN, ANN MAYNARD GRAY, )
JAMES H. HANCE, JR., E. JAMES )
REINSCH, JAMES T. RHODES and PHILIP )
R. SHARP, )
Defendants )
)
and )
)
DUKE ENERGY CORPORATION, )
Nominal )
Defendant )
THIS MATTER comes before the court upon Motion to Dismiss for Failure to
State a Claim by Defendant William Johnson ("Johnson Motion") and Motion to Dismiss
the Verified Shareholder Amended Complaint by Defendants James E. Rogers; William
Barnet, III; G. Alex Bernhardt, Sr.; Michael G. Browning; Daniel R. Dimicco; John H.
Forsgren; Ann Maynard Gray; James H. Hance, Jr.; E. James Reinsch; James T.
Rhodes; Philip R. Sharp and Nominal Defendant Duke Energy Corporation ("Duke
Defendants’ Motion") (collectively, "Motions"). The Motions seek dismissal of this civil
action pursuant to the provisions of Rule 12(b)(6), North Carolina Rules of Civil
Procedure ("Rule(s)"); and
THE COURT, having reviewed the Motions, the briefs in support and opposition
thereof, arguments of counsel and other appropriate matters of record, CONCLUDES
that the Motions should be GRANTED for the reasons stated herein.
Ward Black Law by Janet Ward Black, Esq. and Faruqi & Faruqi, LLP by Michael
J. Hynes, Esq. and Ligaya T. Hernandez, Esq. for Plaintiff.
Tharrington Smith, LLP by Douglas E. Kingsbery, Esq., Randall M. Roden, Esq.
and Wade M. Smith, Esq. for Defendant William Johnson.
Womble Carlyle Sandridge & Rice, LLP by Debbie W. Harden, Esq. and Sidley
Austin LLP by Steven M. Bierman, Esq., Erica S. Malin, Esq. and Jackie A. Lu,
Esq. for Defendants James E. Rogers, William Barnet, III, G. Alex Bernhardt, Sr.,
Michael G. Browning, Daniel R. DiMicco, John H. Forsgren, Ann Maynard Gray,
James H. Hance, Jr., E. James Reinsch, James T. Rhodes, Philip R. Sharp and
Duke Energy Corporation.
Jolly, Judge.
PROCEDURAL BACKGROUND
[1] Plaintiff's Verified Shareholder Derivative Amended Complaint (“Amended
Complaint”) was filed on August 1, 2012.
[2] The Amended Complaint asserts the following derivative claims
("Claim(s)") on behalf of Duke Energy Corporation ("Duke"): (a) Count I – Against
Defendants Barnet, Bernhardt, Browning, DiMicco, Forsgren, Gray, Hance, Reinsch,
Rhodes and Sharp for Breach of Fiduciary Duties of Loyalty and Good Faith; (b) Count
II – Against Defendants Barnet, Bernhardt, Browning, DiMicco, Forsgren, Gray, Hance,
Reinsch, Rhodes and Sharp for Waste of Corporate Assets; (c) Count III – Against
Defendant Johnson for Unjust Enrichment; and (d) Count IV – Aiding and Abetting
Breach of Fiduciary Duty Against Defendant Rogers.
[3] The Motions have been briefed and argued, and are ripe for
determination.
FACTUAL ALLEGATIONS
Among other things, the Amended Complaint alleges that:
[4] This action arises out of the merger between Progress Energy, Inc.
("Progress") and Duke that occurred between 2011 and 2012 ("Merger"). Under the
terms of the Merger, Progress became a wholly owned subsidiary of Duke, thereby
creating one of the country's largest electric utility companies.
[5] In the period leading up to the finalization of the Merger, it was
represented to stakeholders of both companies, among others, that William Johnson
("Johnson"), then CEO of Progress, would serve as CEO of the combined company.
James Rogers ("Rogers"), then the CEO of Duke, was to serve as executive chairman
of the combined company's board of directors.1
[6] The Merger was approved by a vote of the shareholders of both
companies on August 23, 2011.2
[7] On June 27, 2012, Duke entered into a three-year employment agreement
with Johnson under which Johnson would serve as President and CEO of the combined
company ("Employment Agreement"). Pursuant to the Employment Agreement,
Johnson was to receive significant severance payments if Duke terminated his
employment without cause, or if Johnson voluntarily resigned for good reason at any
time following the close of the merger but prior to the second anniversary of such
closing.3
1
Am. Compl. ¶ 35.
2
Id. ¶ 37.
3
Id. ¶ 40; Mem. Law Supp. Dir. Defs.' & Duke Energy Corp.'s Mot. Dismiss Verified Shareholder
Derivative Am. Compl. 6 ("Duke Brief").
[8] The terms of the Employment Agreement were consistent with a term
sheet that was executed as a part of the January 2011 merger agreement and attached
as an exhibit to Duke's Form 8-K, publicly filed with the SEC on July 3, 2012 ("8-K").4
[9] The Merger became final after being approved by North Carolina
regulators on July 2, 2012.5
[10] Within hours of the Merger becoming final, Duke announced that Johnson
had been removed as CEO of the combined company and that Rogers instead would
serve in that role. The decision to remove Johnson was made by the board of directors
of the newly-combined company. Ten former Duke directors voted in favor of removing
Johnson ("Director Defendants").6 Five directors, all former directors of Progress, voted
against the removal of Johnson as CEO.7
[11] Subsequently, Johnson and Duke entered into the Separation Agreement,
which provided, among other things, that Johnson became CEO of Duke effective July
2, 2012, and left that position by resignation at 12:01 a.m. on July 3, 2012. Johnson's
removal as CEO triggered payments to him that could reach as much as $44.4 million.8
4
The Employment Agreement and a Separation and Settlement Agreement ("Separation Agreement") are
attached to the 8-K as Exhibits 10.1 and 10.2, respectively. The 8-K, Employment Agreement and
Settlement Agreement are specifically referred to in the Amended Complaint, and properly are before the
court for consideration in the context of a Rule 12(b)(6) motion. See Coley v. N.C. Nat'l Bank, 41 N.C.
App. 121 (1979).
5
Am. Compl. ¶ 38.
6
Defendants William Barnet, III; G. Alex Bernhardt, Sr.; Michael G. Browning; Daniel R. Dimicco; John H.
Forsgren; Ann Maynard Gray; James H. Hance, Jr.; E. James Reinsch; James T. Rhodes and Philip R.
Sharp. The Duke Brief contends that the Director Defendants were outside directors. Plaintiff’s Omnibus
Opposition to Defendants' Motions to Dismiss does not contest that contention.
7
Am. Compl. ¶¶ 40-42.
8
Id. ¶¶ 41-45. The Amended Complaint specifically refers to the 8-K in support of its allegation that
Johnson is owed as much as $44.4 million under the Employment Agreement. Both sides appear to
acknowledge that the total value of payments due Johnson based upon his termination could be as high
as $44.4 million. Notwithstanding the parties' implicit agreement, the payments alleged in the Amended
Complaint do not total $44.4 million. Rather, the amounts allegedly due Johnson included, among other
things, $7.4 million in severance, a nearly $1.4 million cash bonus, a special lump-sum payment worth up
to $1.5 million, accelerated vesting of his stock awards and $30,000 for relocation expenses. The
Amended Complaint provides no detailed explanation of how the total owing to Johnson might otherwise
DISCUSSION
[12] Both Motions seek dismissal of various Counts in the Amended Complaint
pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure ("Rule(s)").9
Rule 12(b)(6) dismissal is appropriate when the complaint fails to state a claim upon
which relief can be granted. In deciding a Rule 12(b)(6) motion, the well-pleaded
allegations of the complaint are taken as true and admitted, but legal conclusions and
unwarranted deductions of facts are not deemed admitted. Sutton v. Duke, 277 N.C.
94, 98 (1970). The court notes that in ruling upon such a motion, "the complaint is to be
liberally construed, and the trial court should not dismiss the complaint 'unless it
appears beyond doubt that [the] plaintiff could prove no set of facts in support of his
claim which would entitle him to relief.'" Meyer v. Walls, 347 N.C. 97, 111-12 (1997)
(quoting Dixon v. Stuart, 85 N.C. App. 338, 340 (1987)). In its discretion, the court
elects to address Count III before moving on to the less straightforward issues raised by
Counts I, II, and IV.
The Johnson Motion
[13] The Johnson Motion seeks dismissal of Plaintiff's Count III unjust
enrichment Claim on the basis that such a claim will not lie where there is a contract
between the parties. The court agrees. A claim for unjust enrichment is properly
dismissed where the complaint reveals the existence of a contract between the parties.
reach the $44.4 million figure, and the Separation Agreement provides no greater clarity. The Separation
Agreement specifies the payments alleged by Plaintiff in the Amended Complaint and also lists
undisclosed amounts due or paid to Johnson classified as, "[a]ccrued and vested amounts under all non-
qualified and incentive plans, including the Progress, Inc. Management Deferred Compensation Plan, the
Progress, Inc. Management Incentive Compensation Plan and the Progress, Inc. Deferred Compensation
Plan for Key Management Employees."
9
Although fashioned as a Rule 12(b)(6) motion, the Duke Defendants' Motion argues in favor of dismissal
based on both Rules 12(b)(6) and 12(b)(1), the latter upon an argument arising from the failure of Plaintiff
to make pre-suit demand as to the derivative Claims.
Se. Shelter Corp. v. BTU, Inc., 154 N.C. App. 321, 330-31 (2002) (holding that a claim
for unjust enrichment, as a quasi-contractual remedy, cannot be maintained where an
explicit contract exists between the parties).
[14] As the North Carolina Court of Appeals recently noted:
Unjust enrichment has been defined as "a legal term
characterizing the 'result or effect of a failure to make
restitution of, or for, property or benefits received under such
circumstances as to give rise to a legal or equitable obligation
to account therefor.'" "A claim of this type is . . . described as
a claim in quasi contract or a contract implied in law. . . . If
there is a contract between the parties[,] the contract governs
the claim and the law will not imply a contract."
Rev O, Inc. v. Woo, ___ N.C. App. ___, 725 S.E.2d 45, 49 (2012) (internal citations
omitted).
[15] Here, Plaintiff alleges that Johnson was "unjustly enriched by his receipt of
excessive compensation in the form of a $44 million severance payment."10 The
Amended Complaint reveals, however, that the severance payments of which Plaintiff
complains arose out of Johnson's Employment Agreement with Duke.11 Thus, the
Amended Complaint discloses the existence of a contract between the parties
concerning the subject matter of Plaintiff's unjust enrichment Claim.
[16] Plaintiff appears to argue that the severance payments owing to Johnson
were excessive in light of Johnson's "scant hours of service."12 Even assuming the
payments to Johnson might be considered excessive as Plaintiff alleges, the existence
10
Am. Compl. ¶ 74.
11
Id. ¶¶ 40-43.
12
Id. ¶ 44.
of a contract between the parties concerning the subject matter of the unjust enrichment
Claim is dispositive, as discussed above.13
[17] Accordingly, the Amended Complaint fails to state a Claim for unjust
enrichment as to Defendant Johnson, and the Johnson Motion should be GRANTED
with regard to Count III.
The Duke Defendants’ Motion
[18] The Duke Defendants’ Motion seeks dismissal of Plaintiff's Claims in
Counts I and II against the Director Defendants and Duke, arguing that (a) Plaintiff has
failed to state any claim against them upon which relief may be granted, and (b) Plaintiff
lacks standing to bring any derivative claims because his failure to make pre-suit
demand is not excused. If Plaintiff does not have standing to bring the derivative
Claims alleged in this civil action, the action is subject to dismissal under Rule 12(b)(1)
for lack of subject matter jurisdiction and analysis of Defendants’ Rule 12(b)(6)
contentions would be unnecessary. Accordingly, the court will address the standing
issue first.
Standing – Failure to Make Pre-suit Demand
[19] Duke is incorporated in the State of Delaware and has its principal place
of business in North Carolina.14 Both Delaware15 and North Carolina16 require that prior
13
Plaintiff's unjust enrichment Claim is particularly problematic in the context of a derivative action.
Because Plaintiff's unjust enrichment Claim is brought by and on behalf of Duke, the Claim amounts to an
attempt by Duke to disown the terms of a contract into which it entered on the basis that the express
terms of the contract were unfair to Duke. An assertion that the express terms of a contract were
ultimately unfavorable to one of the contracting parties, without more, does not state a claim for unjust
enrichment. See, e.g., Embree Constr. Grp., Inc. v. Rafcor, Inc., 330 N.C. 487, 496 (1992) (distinguishing
a claim for unjust enrichment based on expected contractual benefits from a claim regarding non-
contractual benefits).
14
Am. Compl. ¶ 10.
15
Del. Ch. Ct. R. 23.1.
16
N.C. Gen. Stat. § 55-7-42.
to filing a derivative suit in behalf of a corporation, a plaintiff must make appropriate
demand that the board of directors initiate the action in behalf of the corporation.
Nothing else appearing, a plaintiff who files a derivative action without meeting this pre-
suit burden faces dismissal of the action for lack of standing to prosecute his claim.
[20] Plaintiff concedes that he did not make a pre-suit demand of the Duke
Board of Directors with regard to the matters alleged in the Complaint, but argues and
alleges that his failure to do so should be excused because such demand would have
been "a futile and useless act" since the Board was "incapable of making an
independent and disinterested decision to institute and vigorously prosecute this
action."17 Plaintiff’s contentions raise issues involving internal corporate governance and
affairs.
[21] The laws of Delaware and North Carolina are materially different with
regard to whether failure to make a pre-suit demand can be excused by a showing that
the demand would have been futile. North Carolina no longer recognizes the futility
exception to the demand requirement.18 Accordingly, the first determination to be made
is which state’s law should govern here. Both North Carolina and Delaware recognize
the “internal affairs” doctrine, which provides that only the state of incorporation can
exercise the authority to regulate "matters peculiar to the relationships among or
between the corporation and its current officers, directors, and shareholders." See, e.g.,
Pyott v. La. Mun. Police Emps.' Ret. Sys., 74 A.3d 612, 616 (Del. 2013), Bluebird Corp.
v. Aubin, 188 N.C. App. 671, 680 (2008) (citing Edgar v. MITE Corp., 457 U.S. 624
17
Am. Compl. ¶ 60.
18
See Allen v. Ferrera, 141 N.C. App. 284, 288-289 (2000); N.C. Gen. Stat. § 55-7-42.
(1982)); see also N.C. Gen. Stat. § 55-7-47 (providing that the laws of the state of
incorporation of a foreign corporation shall govern derivative actions). Duke is a
Delaware corporation, and the failure to make pre-suit demand of a derivative claim
concerns Duke's internal affairs. Consequently, whether Plaintiff's failure to make pre-
suit demand is excused is a matter to be settled in accordance with the laws of
Delaware. 19 Id.
[22] Delaware Chancery Court Rule 23.1 requires a plaintiff in a derivative suit
to "allege with particularity the efforts, if any, made by the plaintiff to obtain the action he
desires from the directors or comparable authority." A plaintiff who brings a derivative
suit without such an allegation must show that a demand on the board of directors
would have been futile. A plaintiff that fails to meet this burden faces dismissal upon a
motion to dismiss "even if he has an otherwise meritorious claim." Kaufman v. Belmont,
479 A.2d 282, 286 (Del. Ch. 1984).
The Aronson Test
[23] Under Delaware law, whether the pre-suit demand requirement is excused
is governed by Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984), overruled in part by
Brehm v. Eisner, 746 A.2d 244 (Del. 1998) ("Aronson Test"). Pursuant to the Aronson
Test, pre-suit demand is excused where particular facts are alleged that raise a
reasonable doubt as to (a) director disinterest or independence or (b) whether the
directors exercised proper business judgment in approving the challenged transactions.
Rales v. Blasband, 634 A.2d 927, 933 (Del. 1993), abrogated by Hamilton Partners,
19
Defendants concede this point. See Duke Brief 11. Further, in other cases this court has reached the
same determination under similar circumstances. See, e.g., Smith v. Raymond, 2010 NCBC 18 ¶ 1 n.1;
Egelhof v. Szulik, 2006 NCBC 4 ¶ 41 (reversed in part on other grounds by Egelhof v. Szulik, 193 N.C.
App. 612 (2008)).
L.P. v. Englard, 11 A.3d 1180 (Del. Ch. 2010). Reasonable doubt in this context is
present where facts are alleged that would give a reasonable shareholder reason to
doubt the ability of a board of directors to disinterestedly consider a demand. Rales,
634 A.2d at 934.
Directors’ Disinterest or Independence
[24] Turning first to whether the Amended Complaint raises a reasonable
doubt as to director disinterest or independence, the court notes that there is no
allegation that any director obtained a personal financial or pecuniary benefit from the
decision to terminate Johnson. Instead, the Amended Complaint argues that the
Director Defendants face a substantial likelihood of personal liability for "committing
waste and violating the Company's compensation mandates by approving Johnson's
severance payment."20 According to Plaintiff, the ability of the Director Defendants to
consider any demand for corporate action made by Plaintiff was sufficiently
compromised by a substantial likelihood of liability for the Director Defendants so as to
make any demand by Plaintiff futile.
[25] Under Delaware law, directors have a "disabling interest when the
potential for liability is not a mere threat but instead may rise to a substantial likelihood."
In re Baxter Int'l, Inc. S'holders Litig., 654 A.2d 1268, 1269 (Del. Ch. 1995) (internal
quotations and citations omitted). Put another way, "the mere threat of personal liability
for approving a questioned transaction, standing alone, is insufficient to challenge either
the independence or disinterestedness of directors, although in rare cases a transaction
may be so egregious on its face that board approval cannot meet the test of business
20
Pl. Resp. Br. 9 (citing Am. Compl.).
judgment, and a substantial likelihood of director liability therefore exists." Aronson, 473
A.2d at 815.
[26] The Amended Complaint alleges that the Duke Board is incapable of
disinterestedly and independently considering a demand to commence and vigorously
prosecute this action because the "[Director Defendants] are substantially likely to be
held liable for breaching their fiduciary duties and wasting corporate assets by
terminating Johnson and paying him a $44 million severance package."21
[27] Mere allegations that directors participated in or approved of the alleged
wrongs as a showing of directorial interest have been consistently rejected by Delaware
courts. Decker v. Clausen, 1989 Del. Ch. LEXIS 143, at *7-8 (Del. Ch. Sept. 8, 1989).
See also Rales, 634 A.2d 927 (holding that blanket allegations that the director
participated in or approved the alleged misconduct are insufficient to establish interest);
Kaufman v. Belmont, 479 A.2d 282, 288 (Del. Ch. 1984) ("[M]ere approval of a
corporate action . . . will not disqualify the director from subsequently considering a pre-
suit demand to rectify the challenged transaction." (internal citations omitted)); Haber v.
Bell, 465 A.2d 353, 359 (Del. Ch. 1983) ("[A]llegations that the members of the Board of
Directors 'approved or acquiesced in' the actions which plaintiffs attack are . . . not
sufficient to excuse demand for redress before suit." (internal citations omitted))
Instead, plaintiff must plead with particularity facts that demonstrate that the potential for
director liability rises to the level of a "substantial likelihood." Wood v. Baum, 953 A.2d
136, 141, 141 n.11 (Del. 2008) (internal citations omitted).
21
Am. Compl. ¶ 62(a).
[28] In substance, the Amended Complaint relies upon the sort of conclusory
allegations that are inadequate to demonstrate a substantial likelihood of liability on the
part of the Director Defendants. By way of example, the Amended Complaint alleges
that "Johnson's severance payment is excessive, unreasonable and serves no
legitimate purpose,"22 that "[t]here was not, and could not possibly have been, a good
faith business reason to approve a $44 million severance payment to Johnson in
connection with his dismissal,"23 and that "the Company has received nothing of real
value from Johnson in exchange for awarding him $44 million."24
[29] The court notes that the relative timing of Johnson's formal Employment
Agreement and his departure presents some troublesome details. However, after
consideration of the Amended Complaint and materials appropriately of record, viewed
in the light most favorable to Plaintiff, as well as the broad discretion afforded directors
as to compensation and severance matters, the court cannot conclude that the amount
of Johnson's severance and its timing give rise to a substantial likelihood of director
liability. See, e.g., Brehm v. Eisner, 746 A.2d 244, 262 n.56 (Del. 2000) ("To be sure,
directors have the power, authority and wide discretion to make decisions on executive
compensation.").
[30] Plaintiff argues that, in approving the termination of Johnson and the
severance payments to him, the Director Defendants knowingly violated the Company's
publicly-disclosed compensation mandates. According to Plaintiff, "Duke has pledged
to its stockholders in the Company's annual proxy materials that compensation of Duke
22
Id. ¶ 43.
23
Id. ¶ 44.
24
Id. ¶ 46.
executives will serve the goals of (1) 'attract[ing] and retain[ing] talented executive
officer' [sic]; (2) 'emphasiz[ing] performance-based compensation'; and (3) 'reward[ing]
individual performance.'"25 Plaintiff contends that, "[b]y granting Johnson's excessive
payout at a time when he was leaving the Company after having only performed a few
hours of work, the Director Defendants clearly knew that his severance award fulfilled
none of the Company's compensation mandates."26
[31] Plaintiff attempts to transform the executive compensation goals stated in
Duke's proxy materials into affirmative mandates that were breached by Director
Defendants based on their dealings with Johnson. This attempt by Plaintiff also fails to
demonstrate a substantial likelihood of director liability. While Plaintiff is correct that
shareholders may generally rely upon information distributed by directors, Malone v.
Brincat, 722 A.2d 5 (Del. 1998), the statements by Duke related to executive
compensation are plainly aspirational on their face and should not be contorted into
affirmative mandates or representations that could give rise to a substantial likelihood of
liability under the circumstances of this matter.
[32] Accordingly, the court CONCLUDES that Plaintiff's failure to make pre-suit
demand is not excused based on the failure of the Director Defendants to be
disinterested and independent.
Directors' Business Judgment
[33] In order for pre-suit demand to be excused in the context of directors'
business judgment, a complaint must meet the burden of raising a reasonable doubt as
to whether "the challenged transaction was the product of a valid exercise of business
25
Pl. Resp. Br. 17.
26
Id.
judgment." Aronson, 473 A.2d at 814. There exists a presumption that the directors
acted on an informed basis, and with a good faith honest belief that the action taken
was in the company's best interest. Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1373
(Del. 1995) (quoting Aronson, 473 A.2d at 812). The burden is on the challenging party
to plead facts rebutting this presumption. Id. A plaintiff must plead particularized facts
sufficient to raise a reason to doubt that (a) "the action was taken honestly and in good
faith" or (b) "the board was adequately informed in making the decision." In re J.P.
Morgan Chase & Co. S'holder Litig., 906 A.2d 808, 824-25 (Del. Ch. 2005) ("Due to the
absence of particularized factual allegations calling into question the directors' good
faith, honesty, or lack of adequate information, the court finds that the complaint does
not give rise to a reason to doubt whether the decision of the board of directors of JPMC
to approve the Merger Agreement is entitled to the protection of the business judgment
rule.").
[34] The Amended Complaint here contains no particularized allegations that
the Director Defendants were not adequately informed in making the decision to
terminate Johnson's employment agreement and approve the severance payments to
him. The only allegation that speaks to whether the Director Defendants were
adequately informed is Plaintiff's conclusory allegation that, "[f]or certain, in its hurry to
pay Johnson off, the Board failed to deliberate or inform itself of the foregoing
transaction."27
[35] Plaintiff contends that the decision by the Director Defendants to approve
the severance payments to Johnson could not have been the product of a valid exercise
27
Am. Compl. ¶ 49.
of business judgment because those payments amount to corporate waste.28 Thus,
according to Plaintiff, reasonable doubt as to whether the severance payments to
Johnson were the product of a valid exercise of business judgment may be raised by its
allegations that those payments amounted to waste. Specifically, Plaintiff contends that
reasonable doubt can be raised through allegations of waste by pleading that, "what the
corporation has received is so inadequate that no person of ordinary, sound business
judgment would deem it worth that which the corporation has paid."29
[36] Delaware courts have developed an exacting standard by which to
evaluate claims of corporate waste.
The judicial standard for determination of corporate waste is
well developed. Roughly, a waste entails an exchange of
corporate assets for consideration so disproportionately small
as to lie beyond the range at which any reasonable person
might be willing to trade. See Saxe v. Brady, 40 Del. Ch. 474,
184 A.2d 602, 610; Grobow v. Perot, Del. Supr., 539 A.2d 180,
189 (1988). Most often the claim is associated with a transfer
of corporate assets that serves no corporate purpose; or for
which no consideration at all is received. Such a transfer is in
effect a gift. If, however, there is any substantial consideration
received by the corporation, and if there is a good faith
judgment that in the circumstances the transaction is
worthwhile, there should be no finding of waste, even if the
fact finder would conclude a post that the transaction was
unreasonably risky. Any other rule would deter corporate
boards from the optimal rational acceptance of risk, for
reasons explained elsewhere. See Gagliardi v. TriFoods
Intern., Inc., Del. Ch., 683 A.2d 1049 (1996). Courts are ill-
fitted to attempt to weigh the 'adequacy' of consideration
under the waste standard or, ex post, to judge appropriate
degrees of business risk.
Lewis v. Vogelstein, 699 A.2d 327, 336 (Del. Ch. 1997).
28
Pl. Resp. Br. 10.
29
Id. at 9 (citation omitted).
[37] The crux of Plaintiff's argument related to waste is that, "[t]he Director
Defendants' unanimous decision to pay Johnson $44 million for only a few hours of
work is a clear waste of Company assets under Delaware law."30 To this end, Plaintiff
attempts to parse the total severance payments made to Johnson in terms of the few
hours he actually served as CEO of the combined company. However, the Amended
Complaint fails to account for the fact31 that in the event of merger, Johnson was
entitled to receive substantial severance benefits under the Progress Management
Change-In-Control Plan even if his subsequent Employment Agreement with Duke had
never been formalized. The Amended Complaint only fleetingly acknowledges that, in
further consideration of his severance payments, Johnson provided (a) a release of
claims against Duke; (b) an agreement to cooperate with Duke in respect to transition
matters and (c) non-competition, non-solicitation, non-disparagement and confidentiality
covenants.
[38] The business judgment rule entitles the Director Defendants to the
presumption that they acted in good faith in making the decision to terminate Johnson
and approve the severance payments to him. That presumption is heightened in cases
where the majority of directors are outside or independent. Leung v. Schuler, 2000 Del.
Ch. LEXIS 41 at *39 (Del. Ch. Feb. 29, 2000) (internal citations omitted). "To overcome
that presumption and to survive a motion to dismiss . . . the complaint must plead
specific facts from which it can be inferred that 'the decision [by the board] is so beyond
30
Id. at 11.
31
Clearly established in the Employment Agreement, 8-K and attached exhibits. This is conceded by
Plaintiff in his response brief. Id. at 11 n.4.
the bounds of reasonable judgment that it seems essentially inexplicable on any other
grounds.'" Id.
[39] The court cannot conclude that the allegations of the Amended Complaint
support a finding or conclusion that what Duke received in consideration for the
severance payments to Johnson was so inadequate that no person of ordinary, sound
business judgment would deem it worth the amount paid.
[40] The Amended Complaint asserts that Johnson received "exit payments
worth as much as $44.4 million for his day's work,"32 and that, "the Company . . .
received nothing of real value from Johnson in exchange for awarding him $44
million."33 These conclusory assertions are insufficient to overcome the presumption
that the Director Defendants acted in good faith in terminating Johnson and approving
his severance payments. Thus, in the context of the present action, Plaintiff's
allegations of waste do not provide sufficient basis to doubt that the action was taken
honestly and in good faith.
[41] Accordingly, the court CONCLUDES that Plaintiff's failure to make a pre-
suit demand relative to any derivative Claims in this civil action was not excused.
Plaintiff therefore does not have standing to bring the derivative Claims alleged in
Counts I and II of this civil action. As to Counts I and II, the action is subject to
dismissal under Rules 12(b)(1) and 12(b)(6) for lack of subject matter jurisdiction and
further analysis of Defendants’ Rule 12(b)(6) contentions is unnecessary. As to Counts
I and II the Duke Defendants' Motion therefore should be GRANTED.
32
Am. Compl. ¶ 41.
33
Id. ¶ 46.
Claim IV Against Defendant Rogers
[42] In view of the above rulings, there remain no substantive Claims against
the Director Defendants. Consequently, there are no Claims to support the aiding and
abetting Count IV allegations against Rogers. Accordingly, as to Count IV the Duke
Defendants’ Motion should be GRANTED.
NOW THEREFORE, based upon the foregoing, it hereby is ORDERED that:
[43] The Motion to Dismiss for Failure to State a Claim by Defendant William
Johnson is GRANTED. Count III of the Amended Complaint therefore is DISMISSED.
[44] The Motion to Dismiss the Verified Shareholder Derivative Amended
Complaint by Defendants James E. Rogers; William Barnet, III; G. Alex Bernhardt, Sr.;
Michael G. Browning; Daniel R. Dimicco; John H. Forsgren; Ann Maynard Gray; James
H. Hance, Jr.; E. James Reinsch; James T. Rhodes; Philip R. Sharp and Nominal
Defendant Duke Energy Corporation is GRANTED as to Counts I, II and IV of the
Amended Complaint. Counts I, II and IV of the Amended Complaint therefore are
DISMISSED.
[45] There remain no further Claims in this civil action, and this matter hereby
is DISMISSED in its entirety.
[46] Taxable costs in this civil action are charged to Plaintiff.
This the 30th day of April, 2014.