Maurer v. Maurer, 2013 NCBC 44, is a continuation of several Business Court opinions (2005 NCBC 1, 2005 NCBC 4, and 2006 NCBC 1), which involves extensive litigation between Jill L. Maurer (“Ms. Maurer”) and SlickEdit Inc., a software corporation owned by her and her husband, Joseph Clark Maurer (“Mr. Maurer”). In Maurer v. Maurer, a North Carolina superior court found that there is no special fiduciary duty in favor of one fifty percent owner against a fellow fifty percent owner who has effective control.
The allegations arose after the conversion of SlickEdit Inc., into a Subchapter “S” corporation in May 2008. Ms. Maurer and Mr. Maurer, former spouses, each held fifty percent of issued and outstanding shares in the corporation. Ms. Maurer brought individual claim action for breach of fiduciary duties against Mr. Maurer, the sole director, Chief Executive Officer, President and Corporate Secretary of SlickEdit Inc. She alleged that Mr. Maurer abused his control by operating and implementing an overall system designed to exclude her from any knowledge of or participation in corporate affairs despite her equal ownership in the corporation. The Amended Complaint included, inter alia, allegations that Ms. Maurer was precluded from voting in a fair election of directorsand that she had been denied access to details of SlickEdit’s plans, operations, and financials and other corporate books and records.
In an “unprecedented” case, the issue before the court was whether it could extend the line of appellate cases to impose a fiduciary duty in favor of one fifty percent owner against the other fifty percent owner who had effective control.
The court first considered the Court of Appeals refusal to impose such a fiduciary duty in favor of a fifty percent owner and concluded that a controlling shareholder, not a fifty percent owner, owes a special fiduciary duty to a minority shareholder. Allen v. Ferrera, 141 N.C. App. 284, 291, 540 S.E.2d 761, 766 (2000) (recognizing that a special duty may be owed to minority shareholders, but, as a fifty percent owner, the plaintiff was not a minority shareholder). The court also noted that a fifty percent shareholder relationship does not create a “special” shareholder relationship sufficient to create individual standing. Outen v. Mical, 118 N.C. App. 263, 266–67, 454 S.E.2d 883, 885-886 (1995)(dismissing argument that a fifty percent shareholder relationship created a special relationship sufficient to create individual standing).
In reaching its final decision (see 2013 NCBC 44, at *24, *26), the court cited Blythe v. Bell, 2013 NCBC LEXIS 18 (N.C. Super. Ct. April 8, 2013), and reasoned that “the cases turn on their particular facts, [ . . . ] allowing a minority shareholder to pursue an individual action against a controlling shareholder when a derivative claim would be adequate to protect the asserted rights of both the corporation and the minority owner.” However, the court noted, “the cases affording an individual claim to the minority shareholder were based, at least in part, on the fact that the minority shareholder faces potentially insurmountable hurdles because of the procedural requirements for derivative actions which can be manipulated by a controlling majority. [Contrarily,] [a] fifty percent owner, with the ability to impose an impasse, is not in the same precarious position.” The court then proceeded to conclude, “[a]n equal owner, unlike a minority owner, can automatically create a deadlock on any matter requiring a shareholder vote, and the existence of such a deadlock may afford greater access to judicial dissolution and a limit on the control of the other shareholder. See N.C. Gen. Stat. § 55-14-30.”
In sum, the court held that a fifty percent owner, unlike a minority owner, can automatically create a deadlock on any matter requiring a shareholder vote, and the existence of such a deadlock may afford greater access to judicial dissolution and a limit on the control of the other shareholder. As a fifty percent owner, Ms. Maurer was not a minority shareholder irrespective of the matter that one of the two fifty percent owners, Mr. Maurer, controlled the company books and management. Lesson learned? A defendant might not always owe any special fiduciary duty towards the plaintiff who is not a minority shareholder.