United States District Court, D. South Carolina, Columbia Division
ORDER AND OPINION
MARGARET B. SEYMOUR SENIOR UNITED STATES DISTRICT JUDGE.
within action arises from a series of events that began in
2007, when Nominal Defendant SCANA Corporation
(“SCANA”) received legislative approval to
construct a nuclear power facility at the V.C. Summer Nuclear
Generating Station in Fairfield County, South Carolina. SCANA
and its partner spent approximately $9 billion on the
project, which ultimately was abandoned. Plaintiffs Colleen
Witmer and Richard Wickstrom, derivatively on behalf of SCANA
Corporation, filed separate actions that were consolidated by
order filed January 23, 2018. Plaintiffs filed an amended
derivative complaint on January 30, 2018, and a corrected
amended derivative complaint on July 9, 2018. Plaintiffs
allege that SCANA lost billions of dollars in write-downs and
unrecoverable costs, lost billions in market capitalization,
and has been exposed to civil and criminal liabilities.
Plaintiffs contend Defendants Kevin B. Marsh, Gregory E.
Aliff, James A. Bennett, John F.A.V. Cecil, Sharon A. Decker,
D. Maybank Hagood, Lynne M. Miller, James W. Roquemore, Maceo
K. Sloan, Alfredo Trujillo, Stephen A. Byrne, James M.
Micali, Harold C. Stowe, and Jimmy E.
officers and directors of SCANA,
breached their fiduciary duties to [SCANA] and its
shareholders and acted in bad faith by, among other things,
overseeing, sanctioning, and participating in the grossly
mismanaged Nuclear Project; purposefully concealing material
information about the Nuclear Project, including findings of
the Bechtel Reports, from regulators and the public, in
violation of state and federal law; consciously disregarding
the many red flags related to the Nuclear Project's
inevitable failure; failing to maintain proper internal
controls; and accepting incentive compensation tied to their
management of the Nuclear Project.
ECF No. 115, ¶ 24.
January 2, 2018, SCANA entered into an Agreement and Plan of
Merger Agreement (the “Merger Agreement”).by
which SCANA would become a wholly-owned subsidiary of
Dominion Energy, Inc. (“Dominion”). ECF No.
172-2. Pursuant to the Merger Agreement, each share of SCANA
common stock was exchanged for 0.669 shares of common stock
in Dominion. The merger was consummated effective January 1,
2019. SCANA's outstanding shares of common stock were
canceled and SCANA became a wholly-owned subsidiary of
Dominion. On January 7, 2019, Defendants filed a motion for
judgment on the pleadings, asserting that, because Plaintiffs
no longer possess SCANA stock, they no longer have standing
to maintain this action. Plaintiffs filed a response in
opposition on February 5, 2019, to which Defendants filed a
reply on February 26, 2019. The court heard arguments on
April 4, 2019.
reviewing a motion for judgment on the pleadings made
pursuant to Federal Rule of Civil Procedure 12(c), the court
applies the same standard used for motions made pursuant to
Rule 12(b)(6). Burbach Broad. Co. v. Elkins Radio
Corp., 278 F.3d 401, 405-06 (4th Cir. 2002). To survive
a 12(b)(6) motion, “a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.'”
Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009)
(quoting Bell Atlantic Corp. v. Twombly, 127 S.Ct.
1955, 1955 (2007)). When a court is tasked with
“weighing the sufficiency of the complaint” as it
is upon motions for judgment on the pleadings, it must
“accept all well-pled facts as true and construe
these facts in the light most favorable to the
plaintiff[.]” Nemet Chevrolet, Ltd. v.
Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir.
2009). However, the court is not required to defer to
allegations in the complaint to the extent that they
“contradict matters properly subject to judicial notice
or by exhibit.” Demetry v. Lasko Prods., Inc.,
284 Fed.Appx. 14, 15 (4th Cir. 2008) (quoting Veney v.
Wyche, 293 F.3d 726, 730 (4th Cir. 2002)).
South Carolina common law,
[t]he right of a stockholder to maintain a derivative action
against the directors of a corporation ‘inheres in and
attaches to his ownership of its stock and does not exist
apart from such ownership.' 150 19 C.J.S., Corporations,
§ 824, page 228. It is a right which depends on status.
If there is a loss of status, the action abates so far as the
stockholder bringing the action is concerned, although the
cause of action itself survives. Kehaya v. Axton,
D.C., 32 F.Supp. 266. Accordingly, it has been held that
where such a derivative action is instituted by preferred
stockholders and thereafter the preferred stock is retired,
the plaintiffs have no further standing, whether the action
is abated or not. Hayman v. Morris, Sup., 46
N.Y.S.2d 482. . . . It is our conclusion that the right of
the plaintiff to continue to prosecute this action depends
upon her retaining her status as a stockholder and if she
ceased to be a stockholder, the cause of action abated so far
as she is concerned. There would be no one left in court with
the capacity to continue the litigation. She cannot prosecute
an action as a member of a class to which she does not
Johnson v. Baldwin, 69 S.E.2d 585, 589 (S.C. 1952).
holding in Johnson was reaffirmed in Davis v. Hamm,
387 S.E.2d 676, 678 (S.C. Ct. App. 1989). The rule that
standing for shareholder derivative actions generally
requires a plaintiff to maintain continuous stock ownership
also is recognized in other states. See, e.g., Judson C. Ball
Revocable Trust v. Phoenix Orchard Group I, L.P.,
431 P.3d 589 (Ariz.Ct.App. 2018); Calif. State
Teachers' Ret. Sys. v. Blankenship, 814 S.E.2d 549 (
W.Va. 2018); In Re Massey Energy Co. Derivative &
Class Action Litig., 160 A.3d 484 (Del. 2017); Rael
v. Page, 222 P.3d 678 (N.M. Ct. App. 2009);
Bacigalupo v. Kohlhepp, 240 S.W.3d 155 (Ky. Ct. App.
2007); Timko v. Triarsi, 896 So.2d 89 (Fla. Ct. App.
2005); Grace Bros., Ltd. v. Farley Indus., Inc., 450
S.E.2d 814 (Ga. 1994). The court concludes that, pursuant to
the continuous ownership rule articulated in Johnson,
Plaintiffs no longer possess standing to pursue a derivative
action against SCANA.
jurisdictions recognize exceptions to this rule of standing
as it applies to mergers. Under Delaware law, the one of the
recognized exceptions to the rule is where the merger itself
is the subject of a claim of fraud. Lewis v.
Anderson, 477 A.2d 1040, 1046, n.10 (Del. 1984)(citing
cases). At the hearing, Plaintiffs conceded that the
complaint does not list “a whole litany of frauds
related to the merger itself” or “descriptions
saying that the . . . merger was entered into solely by
fraudulent purposes[.]” ECF No. 189, 17. Rather,
Plaintiffs urged the court to fashion its own equitable
remedy to prevent Defendants from escaping liability.
Specifically, Plaintiffs contend that shareholders who did
not choose to have their standing stripped from them by the
conduct of the directors should be allowed to proceed with
their litigation. The court declines to fashion such a
any derivative action, “the liability of directors for
loss to a corporation due to their mismanagement is an asset
of the corporation and any recovery on such a cause of action
belongs solely to the corporation. The stockholder in an
action of this kind is only a nominal plaintiff, the
corporation being the real party in interest.” Johnson,
69 S.E.2d at 588 (citing cases). By virtue of the merger, the
asset represented by the within derivative litigation ...