Mollozzi et al v. Fensel et al

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILSON DIVISION
IN RE:
COOPERATIVE BANKSHARES, INC.,
Debtor.
WILLIAM J. CONNORS et al.,
Plaintiffs
v.
F. PETER FENSEL JR. et al.,
Defendants.
JOHN D. MOLLOZZI et al.,
Plaintiffs
v.
F. PETER FENSEL JR. et al.,
Defendants.
CASE NO. 09-06989-8-JRL
Chapter 7
Adversary Proceeding No.
09-00289-8-JRL
Adversary Proceeding No.
09-00290-8-JRL
SO ORDERED.
SIGNED this 21 day of April, 2010.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW
These cases are before the court on various motions to dismiss, intervene, and abstain.
On March 31, 2010, this court conducted a hearing on these matters in Wilmington, North
Carolina.
BACKGROUND
Cooperative Bankshares, Inc. (“CBI”) is the holding company for, and sole shareholder
of, Cooperative Bank. On June 19, 2009, the Commissioner of Banks for the State of North
Carolina (“Commissioner”) determined that Cooperative Bank was conducting business in an
unauthorized and unsafe manner. The Commissioner issued an order taking possession of
Cooperative Bank and the Federal Deposit Insurance Company (“FDIC”) became receiver for
the bank. On August 19, 2009, CBI filed a voluntary Chapter 7 bankruptcy petition in the
Eastern District of North Carolina.
On November 5, 2009, a complaint was filed in the Superior Court of New Hanover
County, North Carolina, seeking damages based on corporate mismanagement of Cooperative
Bank. On December 9, 2009, a separate set of individual plaintiffs filed a similar lawsuit in New
Hanover County Superior Court. Both complaints (collectively, “complaint”) were filed by pro
se individuals who are shareholders of CBI (collectively, “plaintiffs”). In their complaint, the
plaintiffs seek relief from, Cooperative Bankshares Inc., d/b/a Cooperative Bank, and Directors
(F. Peter Fensel, Jr.; James D. Hundley; H. Thompson King, III; R. Allen Rippy; Fredrick
Willetts, III; and O. Richard Wright, Jr.) (collectively, “directors”) as a result of their alleged
negligence in operating Cooperative Bank and causing it to fail.
On December 17, 2009, the trustee removed both pending lawsuits to the United States
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1The district courts have authority to refer these proceedings to bankruptcy courts. See
28 U.S.C. § 157(a), (b)(1). By General Order of Reference entered on August, 1984, the U.S.
District Court for the Eastern District of North Carolina referred all such proceedings to this
court.
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Bankruptcy Court for the Eastern District of North Carolina. Since the time of removal, the
directors have filed motions to abstain, remand, or dismiss for lack of subject matter jurisdiction
due to lack of standing. The FDIC filed motions to be substituted for Cooperative Bank and
motions to dismiss under 12(b)(1) of the Federal Rules of Civil Procedure. The directors then
filed motions to dismiss both cases under Rules 12(b)(1) and 12(b)(6). The trustee also filed
motions to intervene or dismiss under Rule 12(b)(1). The plaintiffs then voluntarily dismissed
their actions against Cooperative Bankshares Inc. d/b/a Cooperative Bank and requested that the
remaining proceedings against the directors be remanded to the Superior Court of New Hanover
County, North Carolina. The plaintiffs’ voluntary dismissal of the action against Cooperative
Bankshares, Inc. d/b/a Cooperative Bank is interpreted as a dismissal of the action as it relates to
both CBI and Cooperative Bank; therefore, the only remaining action is against the individual
directors.
JURISDICTION
Title 28, § 1334 of the United States Code conveys original and exclusive jurisdiction of
all cases under Title 11 to district courts. In addition, the district courts have “original but not
exclusive jurisdiction of all civil proceedings arising under Title 11, or arising in or related to
cases under Title 11.” 1 28 U.S.C. § 1334(a), (b). “An action is related to bankruptcy if the
outcome could alter the debtor’s rights, liabilities, options or freedom of action (either positively
or negatively) and which in any way impacts upon the handling and administration of the
bankrupt estate.” A.H. Robins, Co., Inc. v. Piccinin, 788 F.2d 994, 1002 n.11 (4th. Cir. 1986)
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(citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d. Cir. 1984)). The complaint alleges claims
which are derivative in nature. Any derivative claim against the board of directors is property of
the estate and would impact the administration of the estate. Therefore, this court finds that the
plaintiffs’ claims against the directors are sufficiently related to CBI’s pending bankruptcy to
create subject matter jurisdiction under 28 U.S.C. § 1334.
However, the pending matter is not a core proceeding under 28 U.S.C. § 157(b)(1)
because it neither arises under nor arises in a case under title 11. Under § 157(c)(1) this court
may hear a non-core proceeding that is otherwise related to a case under title 11. When
presiding over a non-core proceeding, this court shall file proposed findings of fact and
conclusions of law pursuant to Rule 9033 of the Federal Rules of Bankruptcy Procedure. After a
de novo review of the record, this court’s findings and any written objections, the district judge
may accept, reject, or modify these proposed findings of fact or conclusions of law, receive
further evidence, or recommit the matter to this court with instructions.
DISCUSSION
Addressing first the directors’ motions to dismiss under Rule 12(b)(6), the court finds
that resolution of this issue will render moot the remaining motions. Rule 12(b)(6) of the
Federal Rules of Civil Procedure is made applicable to this adversary proceeding by Rule
7012(b) of the Federal Rules of Bankruptcy Procedure. The complaint fails to state a claim upon
which relief can be granted for two reasons: (1) North Carolina law does not permit a direct
action by shareholders against the directors of their corporation, and (2) to the extent that the
plaintiffs’ claims are derivative, the complaint fails to allege that a demand was made on the
corporation.
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In the complaint, the plaintiffs allege that the directors were reckless, wanton, and/or
negligent in performing their duties, and as a result of this conduct all the shares in the
corporation became worthless. To the extent that these allegations can be interpreted as direct
claims, the plaintiffs have failed to allege the facts necessary for a direct claim to proceed against
the directors.
“The general rule is that a shareholder of a corporation may not recover individually for
injury to the corporation that results in diminution of the value of the corporation’s stock.” Allen
ex rel. Allen & Brock Cost. Co., Inc. v. Ferrera, 141 N.C. App. 284, 290, 540 S.E.2d 761, 766
(2000) (citing Barger v. McCoy Hillard & Parks, 346 N.C. 650, 488 S.E.2d 215 (1997)).
However, individual actions may be prosecuted if the shareholder can show either (1) that the
wrongdoer owed him a special duty, or (2) that the injury suffered by the shareholder is personal
to him and distinct from the injury sustained by other shareholders or the corporation itself. Id.
The complaint does not allege any facts which would allow a direct claim to proceed
under one of the exceptions to the bar on direct claims against directors. The plaintiffs do not
allege that the directors breached any special duty owed to them. Furthermore, the plaintiffs
have simply alleged that the value of their stock decreased; therefore, their injury is not distinct
from any other shareholder or the corporation itself. As a result, to the extent that the allegations
set forth in the complaint are interpreted as direct claims, the claims should be dismissed for
failing to state a claim for which relief can be granted.
To the extent that the plaintiffs’ claims may be interpreted as derivative claims, the
plaintiffs have failed to comply with the statutory requirements for bringing a derivative action.
No shareholder may commence a derivative proceeding until: (1) a written
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demand has been made upon the corporation to take suitable action; and (2) 90
days have expired from the date demand was made unless, prior to the expiration
of the 90 days, the shareholder was notified that the corporation rejected the
demand, or unless irreparable injury to the corporation would result by waiting
for the expiration of the 90-day period.
N.C. GEN . STAT . § 55-7-42 (1995). A failure to fulfill the statutory requirements for bringing a
shareholder derivative action is an insurmountable bar justifying dismissal of a complaint for
failure to state a claim upon which relief could be granted. Ferrera, 141 N.C. App. at 287, 540
S.E.2d at 764.
In their complaint, the plaintiffs fail to allege that any demand was made on the debtor
corporation. As a result, the plaintiffs have failed to state a claim upon which relief may be
granted, and their claims should be dismissed pursuant to Rule 12(b)(6).
CONCLUSION
Based on the foregoing, this court recommends that the directors’ Rule 12(b)(6) motions
to dismiss be granted because the complaint fails to state a direct or a derivative claim upon
which relief can be granted. 	Pursuant to Rule 9033, if any party objects to these proposed
findings of fact and conclusions of law, the objecting party may serve and file with the clerk a
written objection within 10 days after being served with a copy of these proposed findings and
conclusions of law. The written objection must identify the specific proposed findings or
conclusions objected to and state the grounds for such objection. A party may respond to an
objection within 10 days of being served a copy thereof.
“END OF DOCUMENT”
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