Corwin as Trustee for Beatrice Corwin Living Irrevocable Trust v. British American Tobacco PLC
371 N.C. 605
| N.C. | 2018Background
- Reynolds (U.S. tobacco company) entered agreement to acquire Lorillard; BAT (British American Tobacco) owned 42% of Reynolds and agreed to buy enough new Reynolds shares to maintain 42% post-transaction.
- A 2004 Governance Agreement limited BAT's board influence (BAT could designate 5 of 13 directors; many protections required Independent Director approval; a standstill constrained BAT's ability to increase ownership until 2014).
- The transaction included a BAT share purchase at a preset price ($60.16) below market the day before signing and a technology‑sharing agreement allegedly favorable to BAT.
- Corwin (plaintiff, shareholder) sued on behalf of a class alleging BAT was a controlling stockholder who breached fiduciary duties by securing benefits for itself and diluting other shareholders’ voting power.
- Business Court dismissed for failure to state a claim; Court of Appeals reversed as to BAT, finding allegations sufficient; the Supreme Court granted review and reversed the Court of Appeals, affirming dismissal as to BAT.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing: direct vs derivative (voting dilution) | Corwin: dilution of voting power is a personal injury permitting a direct claim | BAT: claim is derivative; no pre‑suit demand was made | Court: direct standing exists for voting‑power dilution (analogous to Delaware Tooley/Tri‑Star analysis) |
| Whether a minority shareholder can owe fiduciary duties | Corwin: BAT was a controlling minority and thus owed fiduciary duties | BAT: minority (42%) ownership alone does not create fiduciary duties; no control alleged | Court: need not decide generally whether minority can owe duties; analysis proceeds under controlling‑stockholder/actual‑control standard |
| Whether Complaint pleaded actual control by BAT | Corwin: BAT negotiated from start, dictated key terms, provided financing, threatened takeover via standstill expiration, and procured favorable tech and pricing terms | BAT: Governance Agreement restrained BAT (limited board slots, approval requirements, standstill, Independent Director protections); contractual rights and leverage ≠ actual control; no allegations of coercion or threats | Court: Complaint fails to plead actual control; contractual rights and leverage insufficient; dismissal proper under Rule 12(b)(6) |
| Rule 12(b)(6) standard and result | Corwin: facts alleged suffice under liberal notice pleading to infer coercive control for this transaction | BAT: pleadings reveal absence of facts to support control and so fail as a matter of law | Court: under de novo review, complaint "reveals absence of facts sufficient" to plead actual control; claim dismissed as to BAT |
Key Cases Cited
- Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) (test for direct v. derivative claims focuses on who suffered the harm and who would benefit from relief)
- Tri‑Star Pictures, Inc. Litig., In re, 634 A.2d 319 (Del. 1993) (voting‑power dilution can be a distinct injury to stockholders)
- Kahn v. Lynch Commc'n Sys., Inc., 638 A.2d 1110 (Del. 1994) (minority stockholder deemed controlling where it intimidated board and threatened directors)
- In re KKR Fin. Holdings LLC S'holder Litig., 101 A.3d 980 (Del. Ch. 2014) (actual control requires domination preventing independent directors from freely exercising judgment)
- Gaines v. Long Mfg. Co., 234 N.C. 340 (N.C. 1951) (majority stockholder fiduciary duties to minority stockholders)
- Barger v. McCoy Hillard & Parks, 346 N.C. 650 (N.C. 1997) (exceptions when shareholder may bring individual action: special duty or distinct personal injury)
- Green v. Freeman, 367 N.C. 136 (N.C. 2013) (clarifies distinct‑injury exception to derivative rule)