In a costly episode of Aaron Sorkin’s adage that “decisions are made by those who show up,” the majority shareholder in a pair of family-controlled oil and gas companies learned of about 850,000 reasons why attendance can be a virtue in corporate governance.
In Worley v. Ormond, 2024 NCBC 40, three siblings who inherited the companies were at odds over shareholder dividends. Defendant William Ormond, president and CEO of both companies, and his sisters Sherry Worley and Ginger Massengill, owned all of the companies’ shares. William had a majority interest in each company.
At a properly noticed special meeting of defendant Ormond Oil & Gas Company, Inc.’s board of directors, rescheduled from its initial date to accommodate William, the board resolved to issue an $850,000 dividend to the shareholders, payable in two days. The board acted through its two attending members – the Ormond sisters. Despite the meeting notice containing “an offer for [William] to participate in the meeting by phone if he could not attend in person,” he “did not attend, by phone or otherwise.” Id. ¶¶ 11-12.
The Ormond sisters filed a lawsuit over non-payment of the declared dividend. William’s response to the lawsuit was an attempt to undo the board’s vote that declared the dividend. His vehicle was a special shareholders’ meeting of his own notice at which he voted alone to replace his sister Ginger with a new director, Ronald Waters. Id. ¶¶ 13-18. At a formally noticed special meeting of the reconstituted board – subject to the written objection of the Ormond sisters and the oral objection of Sherry – their brother William parsed no words in moving to (Id. ¶ 16):
“reject and reverse and invalidate and rescind all resolutions and other actions taken by the Ormond Oil Board from September 23rd through the present.”
On motion of the sisters, the Business Court had to decide whether either a writ of mandamus to order disbursement of the $850,000 dividend, or summary judgment on their claim that Ormond Oil improperly failed to pay declared dividends, was appropriate.
Judge Robinson noted that while the Court had authority to order a board or corporation to perform “a specified official duty imposed by law,” a writ should only issue when there is “no alternative, legally adequate” available remedy. Id. ¶¶ 27-28 (quoting Morningstar Marinas/Eaton Ferry, LLC v. Warren Cty., 368 N.C. 360, 364 (2015)).
The Court held that a grant of summary judgment could accomplish the same result as mandamus. N.C.G.S. § 55-6-40(a) enables a board of directors of a solvent corporation to authorize shareholder distributions. Judge Robinson found that the sisters, “acting as a majority of the directors,” authorized the dividends at a properly noticed special meeting that did not conflict with the company’s articles of incorporation. Under N.C.G.S. § 55-6-40(f) that obligation became “a debt of the company akin to other unsecured debt.” Id. ¶¶ 32, 34-35.
The Court found William’s effort to rescind the distribution ineffective for two reasons. First, the meeting at which his sister Ginger was purportedly removed was improperly noticed, rendering her removal ineffective, and so too the vote to install Waters into a board seat that was not vacant. Second, even if not barred by that infirmity, the board vote to rescind the dividend distribution was ineffective because it came after the specified payment date of the dividend. Id. ¶¶ 37-39.
Worth Noting
- The Court’s avoidance of a relatively uncommon mandamus order to force the dividend distributions was paired with direct and resolute findings that overcame the reality that “rarely is it proper to enter summary judgment in favor of the party having the burden of proof.” Id. ¶ 25 (quoting Blackwell v. Massey, 69 N.C. App. 240, 243 (1984)).
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