Court Opinion

ID: 4348459
Source: CourtListenerOpinion
Date Created: 2018-12-07 17:10:53.998484+00
Date Added: 2024-06-11T14:21:32.072420
License: Public Domain

IN THE SUPREME COURT OF NORTH CAROLINA

                                      No. 56PA17

                                 Filed 7 December 2018
DR. ROBERT CORWIN AS TRUSTEE FOR THE BEATRICE CORWIN LIVING
IRREVOCABLE TRUST, on Behalf of a Class of Those Similarly Situated

               v.
BRITISH AMERICAN TOBACCO PLC, REYNOLDS AMERICAN, INC., SUSAN
M. CAMERON, JOHN P. DALY, NEIL R. WITHINGTON, LUC JOBIN, SIR
NICHOLAS SCHEELE, MARTIN D. FEINSTEIN, RONALD S. ROLFE,
RICHARD E. THORNBURGH, HOLLY K. KOEPPEL, NANA MENSAH, LIONEL
L. NOWELL, III, JOHN J. ZILLMER, and THOMAS C. WAJNERT

        On discretionary review pursuant to N.C.G.S. § 7A-31 of a unanimous decision

of the Court of Appeals, ___ N.C. App. ___, 796 S.E.2d 324 (2016), affirming in part

and reversing and remanding in part an order and opinion entered on 6 August 2015

by Judge James L. Gale, Chief Special Superior Court Judge for Complex Business

Cases, in Superior Court, Guilford County. Heard in the Supreme Court on 9 January

2018.

        Mullins Duncan Harrell & Russell PLLC, by Alan W. Duncan and Stephen M.
        Russell, Jr.; and Block & Leviton LLP, by Jason M. Leviton, pro hac vice, for
        plaintiff-appellee.

        Robinson & Lawing, LLP, by H. Brent Helms; and Cravath, Swaine & Moore
        LLP, by Gary A. Bornstein, pro hac vice, for defendant-appellant British
        American Tobacco PLC.

        Bell Davis & Pitt, P.A., by Alan M. Ruley and William K. Davis, for North
        Carolina Association of Defense Attorneys, amicus curiae.

        MARTIN, Chief Justice.
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Opinion of the Court

      This appeal arises from the agreement of Reynolds American, Inc. to purchase

Lorillard, Inc. Defendant British American Tobacco PLC (BAT) owned 42% of the

stock in Reynolds and agreed to fund part of the Lorillard transaction by purchasing

enough of the newly acquired shares to maintain that 42% ownership interest. The

terms of this agreement diluted the voting power of Reynolds’ other minority

shareholders, including plaintiff Dr. Robert Corwin. Plaintiff then filed a putative

class action suit on behalf of similarly situated stockholders asserting a claim for

breach of fiduciary duty against, among others, BAT.

      In this appeal, we consider whether BAT owed fiduciary duties to those other

shareholders in the context of the Lorillard acquisition.        The Business Court

concluded that BAT did not owe fiduciary duties to the other shareholders and

granted BAT’s motion to dismiss. We agree with the Business Court and therefore

reverse the decision of the Court of Appeals.

                                    I. Background

      The matter before us is an appeal of a determination under Rule 12(b)(6) of the

North Carolina Rules of Civil Procedure, so we accept all of the facts pleaded in

plaintiff’s First Amended Class Action Complaint (the operative pleading here, which

we will hereinafter refer to as the Complaint) as true. See Arnesen v. Rivers Edge

Golf Club & Plantation, Inc., 368 N.C. 440, 448, 781 S.E.2d 1, 7 (2015) (quoting Sutton

                                          -2-
                           CORWIN V. BRITISH AM. TOBACCO PLC

                                      Opinion of the Court

v. Duke, 277 N.C. 94, 98, 176 S.E.2d 161, 163 (1970)). Our statement of the facts of

this case is derived from the Complaint, as well as from other documents that the

Complaint incorporates by reference.

       Reynolds, an American tobacco company, was created after Reynolds’

predecessor entity acquired Brown & Williamson (B&W), another tobacco company.

B&W was a subsidiary of BAT, a tobacco holding company that is headquartered in

London. As a result of the transaction, BAT became a 42% stockholder of Reynolds,

and BAT and Reynolds entered into a governance agreement dated 30 July 2004 (the

Governance Agreement).

       The Governance Agreement contained specific limitations on BAT’s power. 1

BAT could effectively nominate only five members to Reynolds’ thirteen-member

Board of Directors, and three of those nominees had to be “Independent Directors.”

The Governance Agreement defined the term “Independent Director” to mean a

director who was considered independent of Reynolds under the New York Stock

Exchange Rules2 and who had not been a director, officer, or employee of BAT or its

       1 Most of the provisions of the Governance Agreement that we discuss here refer not
to BAT but to its subsidiary, B&W. However, the Governance Agreement specifically
provides that “B&W may assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to BAT or any of its Subsidiaries that agrees in writing to
be bound by the provisions hereof.” We can find no portion of the record indicating that B&W
made such an assignment to BAT, but, because the courts below and both parties to this
appeal treat BAT as having assumed B&W’s rights and obligations under the Governance
Agreement, we also do so for the purpose of our decision here.

       2   This portion of the definition of the term “Independent Director” applies only if

                                              -3-
                          CORWIN V. BRITISH AM. TOBACCO PLC

                                     Opinion of the Court

subsidiaries within the past three years.          Reynolds’ Corporate Governance and

Nominating Committee (the Committee) had the right to nominate the remaining

eight directors, seven of whom had to be Independent Directors. All members of the

Committee itself had to be Independent Directors, and, provided that the Reynolds

board was fully staffed, the majority of those directors had to be non-BAT-nominated

Independent Directors.       During a standstill period imposed by the Governance

Agreement,3 BAT could not seek removal of any of the directors that it did not

nominate, unless the Reynolds board amended or waived that limitation. Further, a

majority of the Independent Directors who were not nominated by BAT had to

approve any material transaction between, or involving, Reynolds and BAT (with

certain narrow exceptions that no party asserts as being relevant here).               These

restrictions, along with the rest of the Governance Agreement, would continue until

BAT’s ownership interest reached 100% or fell below 15% (or until a person or group

other than BAT, with some other exceptions not relevant here, owned or controlled

Reynolds is listed on the New York Stock Exchange. Because the Complaint alleges that
Reynolds “trades on the New York Stock Exchange,” though, that portion of the definition
applies to the term for the purposes of this motion.

       3 The standstill period was set to run from 30 July 2004—the effective date of the
Governance Agreement—until either the tenth anniversary of the Governance Agreement or
the date on which a significant transaction occurred, whichever was earlier. According to the
Governance Agreement, a significant transaction would be “any sale, merger,
acquisition . . . , consolidation, dissolution, recapitalization or other business combination
involving Reynolds American or any of its Subsidiaries pursuant to which more than 30% of
the Voting Power or the consolidated total assets of Reynolds American would be acquired or
received” by an outside party.

                                             -4-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                   Opinion of the Court

more than 50% of the voting power of all voting stock), at which point the Governance

Agreement would terminate by its own terms.

      Alongside these restrictions, the Governance Agreement conveyed certain

contractual rights to BAT. The Governance Agreement required the approval of a

majority of the BAT-nominated directors for certain actions such as stock issuances

if that stock would have voting power greater than or equal to 5% of the voting power

outstanding before that issuance.       It also required the approval of BAT as a

stockholder for certain actions such as the sale of specified intellectual property.

      In September 2012, Reynolds, the second-largest tobacco company in the

United States, began considering a merger with Lorillard, the third-largest tobacco

company in the United States. Reynolds met with BAT before entering negotiations

with Lorillard. BAT indicated that it would support the Lorillard merger only on

terms that it approved of and expressed its desire to maintain its 42% ownership

interest in Reynolds.    BAT was willing to provide financing for the transaction

through purchasing enough of the newly acquired shares to maintain its ownership

interest, and the parties agreed to a term sheet regarding that financing.         BAT

insisted that this term sheet contain a provision that prevented BAT or Reynolds

from seeking to change the Governance Agreement in connection with the proposed

transaction. BAT also indicated that it was not willing to extend the standstill period

specified in the Governance Agreement.

                                           -5-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                   Opinion of the Court

      Initially, discussions proceeded toward what Lorillard hoped would be a

merger of equals. The Other Directors—a term that the Governance Agreement

defined (in its singular form) to mean an Independent Director of the Reynolds board

who was not nominated by BAT—even discussed reducing BAT’s ownership

percentage after the merger to allow a greater ownership level for Lorillard’s

stockholders. But this change ultimately did not happen. Eventually, Lorillard

terminated negotiations after concluding that the transaction was not truly a merger

of equals given the power that BAT would wield over the combined company.

Reynolds then decided to pursue an acquisition of Lorillard instead.

      During subsequent negotiations, the Other Directors requested the removal of

a provision in the proposed merger agreement that required BAT to vote its shares of

Reynolds stock in favor of the transaction regardless of whether the Reynolds board

changed its recommendation in favor of the transaction. Lorillard, however, insisted

that this provision remain in the agreement.          BAT said that it would consider

Lorillard’s demand but would not commit over the objections of the Other Directors.

The Other Directors agreed to allow the provision to remain in the proposed merger

agreement, so it did, in fact, remain there.

      On 15 July 2014, the companies announced that they had reached a final

agreement. Reynolds would purchase Lorillard and pay the Lorillard stockholders a

combination of 0.2909 shares of Reynolds common stock plus $50.50 for each share of

Lorillard stock that they owned. At the time, this price corresponded to a value of

                                           -6-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                   Opinion of the Court

$68.88 per Lorillard share based on the closing price of Reynolds stock on 14 July

2014.

        To help finance the acquisition, Reynolds would divest a package of assets,

including several cigarette brands, to Imperial Tobacco Group PLC. Additionally,

BAT would help finance the acquisition by purchasing enough additional shares of

Reynolds for it to maintain its 42% ownership of Reynolds after the completion of the

transaction. BAT would be permitted to purchase these additional Reynolds shares

for $60.16 per share—the price of Reynolds stock on 2 July 2014, which was also used

to determine the stock component of the Lorillard shareholders’ consideration. This

price was $3.02 less than the closing price of Reynolds stock on 14 July 2014, the day

before the transaction was executed. Reynolds and BAT also agreed to pursue a

technology-sharing initiative for next-generation tobacco products such as digital

vapor cigarettes.    The entire Reynolds board, including the Other Directors,

unanimously approved these transactions.4

        In response to the announcement of these transactions, plaintiff Dr. Robert

Corwin filed a class action complaint against BAT, Reynolds, and a group of Reynolds’

directors (director defendants) in his capacity as trustee for the Beatrice Corwin

Living Irrevocable Trust and on behalf of other stockholders similarly situated. The

        However, the Complaint indicates that plaintiff lacks specific information about
        4

whether a separate vote by the Reynolds board on the technology-sharing agreement
occurred (or, by necessary implication, how the board voted if a vote did occur).

                                           -7-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                   Opinion of the Court

case was designated as a mandatory complex business case to be heard by the

Business Court. The Complaint (which, again, is the operative pleading here) alleges,

among other things, that BAT was a controlling stockholder of Reynolds, that BAT

therefore owed fiduciary duties to plaintiff, and that BAT breached those fiduciary

duties through its conduct in connection with the Lorillard transaction. Although

BAT was not a majority stockholder of Reynolds, plaintiff bases his claim that BAT

was nevertheless a controlling stockholder on various aspects of the Reynolds-BAT

Governance Agreement and BAT’s involvement in the Lorillard transaction. Plaintiff

claims that BAT’s control over Reynolds allowed BAT to negotiate benefits for itself

that were not shared with other Reynolds stockholders.

      BAT, Reynolds, and director defendants moved to dismiss plaintiff’s

Complaint. BAT argued that it was not a controlling stockholder of Reynolds and did

not owe fiduciary duties to plaintiff under North Carolina law because it owned less

than a majority of Reynolds stock.       BAT also argued that plaintiff’s claim was

derivative and that plaintiff therefore lacked standing because he had not made a

pre-suit demand on the Reynolds board, as North Carolina law requires before a

plaintiff files a derivative suit. Plaintiff, on the other hand, urged the Business Court

to adopt the standard that Delaware uses to determine whether a stockholder is a

controlling stockholder, which would impose fiduciary duties on a minority

stockholder who is found to be controlling.

                                           -8-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Opinion of the Court

      The Business Court granted all of the defendants’ motions to dismiss.

Regarding BAT, the Business Court concluded that, even if the Delaware standard

applied, the Complaint failed to allege that BAT exercised actual control over the

Reynolds board regarding the transaction. In reaching this conclusion, the Business

Court noted the “extraordinary” limitations that the Governance Agreement placed

on BAT’s ability to control the Reynolds board. Plaintiff appealed the dismissal of his

claims to the Court of Appeals.

      In a unanimous opinion, the Court of Appeals reversed the Business Court’s

dismissal of plaintiff’s claims against BAT but affirmed the dismissal of plaintiff’s

claims against Reynolds and director defendants. Corwin v. British Am. Tobacco

PLC, ___ N.C. App. ___, ___, 796 S.E.2d 324, 340 (2016). The Court of Appeals used

the Delaware approach to determine whether BAT was a controlling stockholder and

concluded that plaintiff alleged enough facts to support a reasonable inference that

BAT was a controlling stockholder. Id. at ___, ___, 796 S.E.2d at 332, 337. The Court

of Appeals also concluded that plaintiff had standing to bring a direct claim against

BAT because plaintiff sufficiently pleaded that BAT owed plaintiff a special duty. Id.

at ___, 796 S.E.2d at 338 (citing Barger v. McCoy Hillard & Parks, 346 N.C. 650, 658,

488 S.E.2d 215, 219 (1997)).

      BAT petitioned this Court for discretionary review on various issues related to

whether a minority stockholder could owe fiduciary duties to other stockholders

under North Carolina law and whether the Court of Appeals correctly found that a

                                          -9-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Opinion of the Court

controlling stockholder necessarily owes a special duty to other stockholders for

standing purposes. This Court allowed BAT’s petition.

                                     II. Analysis

      BAT moved to dismiss plaintiff’s Complaint for lack of standing under Rule

12(b)(1) and for failure to state a claim under Rule 12(b)(6) of the North Carolina

Rules of Civil Procedure. The Business Court assumed without deciding that plaintiff

had standing, and then dismissed plaintiff’s Complaint for failure to state any claim

for breach of fiduciary duty. Nevertheless, we will consider the issue of standing

before addressing the Rule 12(b)(6) issue because “standing is a ‘necessary

prerequisite to a court’s proper exercise of subject matter jurisdiction.’ ” Willowmere

Cmty. Ass’n v. City of Charlotte, 370 N.C. 553, 561, 809 S.E.2d 558, 563 (2018)

(quoting Crouse v. Mineo, 189 N.C. App. 232, 236, 658 S.E.2d 33, 36 (2008)).

                                     A. Standing

      The Court of Appeals concluded that plaintiff had standing to bring a direct

claim against BAT because the Complaint contained enough allegations to support a

determination that BAT owed a special duty to plaintiff. Corwin, ___ N.C. App. at

___, 796 S.E.2d at 338 (citing Barger, 346 N.C. at 658, 488 S.E.2d at 219). BAT

argues, however, that plaintiff’s claims are derivative and that plaintiff lacks

standing because he failed to make a pre-suit demand on Reynolds. Because this

appeal stems from a trial court’s order granting a motion to dismiss under Rule

                                         -10-
                         CORWIN V. BRITISH AM. TOBACCO PLC

                                    Opinion of the Court

12(b)(1), we apply de novo review, accepting the allegations in the complaint as true

and viewing them in the light most favorable to the non-moving party. Mangum v.

Raleigh Bd. of Adjustment, 362 N.C. 640, 644, 669 S.E.2d 279, 283 (2008).

      A derivative proceeding is defined as “a civil suit in the right of a domestic

corporation.”    N.C.G.S. § 55-7-40.1 (2017).         Before commencing a derivative

proceeding, a stockholder must make a written demand “upon the corporation to take

suitable action.” Id. § 55-7-42 (2017). In line with this requirement, this Court has

stated that “[t]he general rule is that ‘[s]hareholders . . . generally may not bring

individual actions to recover what they consider their share of the damages suffered

by [a] corporation.’ ” Green v. Freeman, 367 N.C. 136, 142, 749 S.E.2d 262, 268 (2013)

(second alteration in original) (quoting Barger, 346 N.C. at 660, 488 S.E.2d at 220-21).

There are two exceptions to this general rule: shareholders “may bring an individual

action . . . when (1) ‘the wrongdoer owed [them] a special duty’ or (2) they suffered a

personal injury ‘distinct from the injury sustained by . . . the corporation itself.’ ” Id.

at 142, 749 S.E.2d at 268 (second and third alterations in original) (quoting Barger,

346 N.C. at 659, 661, 488 S.E.2d at 219, 221).

      The first exception applies when the wrongdoer owes a duty that is “personal

to plaintiffs as shareholders and [is] separate and distinct from the duty defendant[ ]

owe[s] the corporation,” such as a fiduciary duty owed to the stockholders. Barger,

346 N.C. at 659, 488 S.E.2d at 220. In this case, whether plaintiff had standing to

bring a direct claim under the first exception depends on whether BAT was a

                                           -11-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Opinion of the Court

controlling stockholder that owed plaintiff fiduciary duties. This issue is the same

issue that we must decide in order to determine whether the Business Court properly

dismissed plaintiff’s Complaint under Rule 12(b)(6) for failure to state a claim. We

will therefore determine whether plaintiff has standing under the second exception

before addressing whether BAT owed plaintiff fiduciary duties, to ascertain whether

it gives us an independent basis for asserting jurisdiction.

      The second Barger exception applies when a plaintiff suffers an injury that is

“distinct from the injury suffered by the corporation itself.” Green, 367 N.C. at 144,

749 S.E.2d at 269 (quoting Barger, 346 N.C. at 661, 488 S.E.2d at 221). In this case,

plaintiff asserts that he and the Reynolds stockholders other than BAT have been

injured by the reduction of their percentage ownership of Reynolds.        Before the

transaction, BAT owned 42% of the outstanding shares, and plaintiff and other

stockholders owned the remaining 58% of shares. Under the transaction agreement,

however, former Lorillard stockholders would own approximately 15% of Reynolds

shares, and BAT would be permitted to purchase additional shares to maintain its

42% ownership. That means that plaintiff and the other stockholders would only own

43% of Reynolds shares after the transaction. Plaintiff claims that this arrangement

allowed BAT to “maintain[ ] its own ownership stake and control over [Reynolds]

while diluting the stake of Plaintiff and the Class by means of the BAT Share

Purchase.” This dilution translates to a reduction in voting power for plaintiff and

the other non-BAT stockholders, and that alleged injury affects the voting power of

                                         -12-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Opinion of the Court

plaintiff and the non-BAT stockholders rather than the corporation itself.         We

therefore conclude that plaintiff had standing to bring a direct claim against BAT

under the second Barger exception due to the alleged dilution of plaintiff’s voting

power.

      While this Court has never before addressed whether a stockholder can bring

a direct claim for voting power dilution, caselaw from Delaware permits it, and we

find that caselaw to be persuasive. In Tooley v. Donaldson, Lufkin & Jenrette, Inc.,

the Supreme Court of Delaware held that whether an action is direct or derivative is

determined by “(1) who suffered the alleged harm (the corporation or the suing

stockholders, individually); and (2) who would receive the benefit of any recovery or

other remedy (the corporation or the stockholders, individually)[.]” 845 A.2d 1031,

1033 (Del. 2004) (en banc). Before Tooley, Delaware applied a “special injury” test,

which Tooley rejected. Id. at 1038-39. At first glance, it might appear that Delaware

precedent should therefore be irrelevant to our analysis, on the assumption that the

special injury test that Tooley rejected is similar to our Court’s current “distinct

injury” exception under Barger. The special injury test in Delaware, however, was

different than the distinct injury exception in North Carolina. The phrase “special

injury” referred to a “wrong . . . inflicted upon the stockholder alone” and not shared

by the other stockholders, see id. at 1037, whereas “distinct injury” in North Carolina

means that the injury to the stockholder is distinct from the injury suffered by the

corporation, Green, 367 N.C. at 144, 749 S.E.2d at 269. So the Tooley analysis, like

                                         -13-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Opinion of the Court

the second Barger exception, focuses on whether the stockholder suffered a harm that

is distinct from the harm suffered by the corporation. Focusing on the stockholder’s

harm compared to the corporation’s harm rather than on the harm of one stockholder

compared to the harm of other stockholders makes sense because, as Tooley

explained, “a direct, individual claim of stockholders that does not depend on harm

to the corporation can also fall on all stockholders equally, without the claim thereby

becoming a derivative claim.” 845 A.2d at 1037.

      The Supreme Court of Delaware has recognized in In re Tri-Star Pictures, Inc.,

Litigation, furthermore, that voting power dilution is a harm to stockholders when

the minority stockholders’ voting power is decreased while the majority stockholder’s

power is increased. 634 A.2d 319, 330 (Del. 1993). In Tri-Star, the Supreme Court

of Delaware noted that the plaintiffs, who were minority stockholders, “suffer[ed]

harm by voting power dilution which, in essence, is no more than a relative

diminution in the minority’s proportionate influence over corporate affairs.” Id. The

court further explained that “[v]oting power dilution is a harm distinct and separate

from” other harms suffered by the minority stockholders, such as alleged

nondisclosure in proxy materials, because “[t]he harm from voting power dilution

goes to the impact of an individual stockholder’s vote.” Id. at 330 n.12. Although

Tri-Star was decided before Tooley, Delaware courts, including the Supreme Court of

Delaware, have continued to cite the pertinent analysis from Tri-Star while applying

the Tooley test for distinguishing between direct and derivative claims. See, e.g.,

                                         -14-
                          CORWIN V. BRITISH AM. TOBACCO PLC

                                     Opinion of the Court

Gentile v. Rossette, 906 A.2d 91, 101-03 (Del. 2006) (noting that Tri-Star provides the

“analytical framework” for claims based on dilution of stockholder voting power and

then applying Tooley to determine that the claim at issue was direct rather than

derivative because the harm to minority stockholders was unique from any injury

suffered by the corporation and because the only available relief would exclusively

benefit those minority stockholders).

       Using the Tooley test, the Delaware Court of Chancery has determined that a

claim of voting power dilution can be a direct claim “where a significant stockholder’s

interest is increased at the sole expense of the minority.” In re J.P. Morgan Chase &

Co. S’holder Litig., 906 A.2d 808, 818 (Del. Ch. 2005) (quoting In re Paxson Commc’n

Corp. S’holders Litig., No. Civ.A. 17568, 2001 WL 812028, at *5 (Del. Ch. July 12,

2001)).5 The Court of Chancery has explained that “[v]oting power dilution may

constitute a direct claim, because it can directly harm the shareholders without

affecting the corporation, and any remedy for the harm suffered under those

circumstances would benefit the shareholders.” Oliver v. Boston Univ., No. Civ.A.

16570-NC, 2006 WL 1064169, at *17 (Del. Ch. Apr. 14, 2006) (unreported).6

       5The Supreme Court of Delaware has likewise clarified that, although Tri-Star itself
speaks of, and the facts in Tri-Star involved, a majority stockholder’s power being increased,
the Tri-Star rule applies when a “significant or controlling stockholder[’s]” interest is
increased. See In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 766, 774-75 (Del.
2006) (en banc) (emphasis added) (quoting In re Paxson, 2001 WL 812028, at *5).

       6Delaware allows unpublished cases to be cited as precedent. Stephen R. Barnett,
No-Citation Rules Under Siege: A Battlefield Report and Analysis, 5 J. App. Prac. & Process

                                            -15-
                         CORWIN V. BRITISH AM. TOBACCO PLC

                                     Opinion of the Court

       In this case, BAT’s voting power did not increase, but it was allowed to remain

constant at the sole expense of plaintiff and the other non-BAT stockholders, whose

voting power significantly decreased. This voting power dilution did not harm the

corporation itself, but it did harm the non-BAT stockholders. Thus, although this

case is the first time that this Court has considered whether voting power dilution is

a direct claim, we agree with the relevant reasoning of the Delaware courts that we

have discussed, and hold that plaintiff has pleaded “a personal injury.” See Green,

367 N.C. at 142, 749 S.E.2d at 268. We further hold that the alleged personal injury,

in conjunction with plaintiff’s legal claim that BAT breached a purported fiduciary

duty to himself and his fellow non-BAT minority stockholders, is enough to confer

subject-matter jurisdiction on this Court. Because we have concluded that plaintiff

had standing to bring a direct claim for voting power dilution, we will now address

whether the Business Court properly granted BAT’s motion to dismiss under Rule

12(b)(6).

                                   B. Fiduciary Duties

       On appeal from the dismissal of a complaint pursuant to North Carolina Rule

of Civil Procedure 12(b)(6), we conduct de novo review to determine “whether the

473, 481 (2003). Specifically, the Rules of the Court of Chancery of the State of Delaware
refer to both reported and unreported Delaware cases as “principal Delaware decisions” that
can be included in a party’s compendium of authorities for the court to review along with its
brief. Del. Ch. Ct. R. 171(i). In ascertaining the nature of Delaware law, therefore, we cite
both reported and unreported Delaware Court of Chancery cases throughout this opinion and
consider them to have equal authority for the purposes of our analysis.

                                            -16-
                          CORWIN V. BRITISH AM. TOBACCO PLC

                                     Opinion of the Court

allegations of the complaint, if treated as true, are sufficient to state a claim upon

which relief can be granted under some legal theory.” CommScope Credit Union v.

Butler & Burke, LLP, 369 N.C. 48, 51, 790 S.E.2d 657, 659 (2016) (quoting Bridges v.

Parrish, 366 N.C. 539, 541, 742 S.E.2d 794, 796 (2013)). It is well established that

dismissal pursuant to Rule 12(b)(6) is proper when “(1) the complaint on its face

reveals that no law supports the plaintiff’s claim; (2) the complaint on its face reveals

the absence of facts sufficient to make a good claim; or (3) the complaint discloses

some fact that necessarily defeats the plaintiff’s claim.” Wood v. Guilford County,

355 N.C. 161, 166, 558 S.E.2d 490, 494 (2002) (citing Oates v. JAG, Inc., 314 N.C. 276,

278, 333 S.E.2d 222, 224 (1985)).7

       This Court held in Gaines v. Long Manufacturing Company that the majority

stockholder of a corporation owes fiduciary duties to the minority stockholders.

234 N.C. 340, 344, 67 S.E.2d 350, 353 (1951). This Court reasoned that majority

stockholders owe fiduciary duties to minority stockholders because majority

       7   The dissent relies heavily on the Rule 12(b)(6) standard recited in cases such as
Turner v. Hammocks Beach Corp., 363 N.C. 555, 559, 681 S.E.2d 770, 774 (2009), and State
ex rel. Cooper v. Ridgeway Brands Mfg., LLC, 362 N.C. 431, 444, 666 S.E.2d 107, 116 (2008),
which, in turn, finds its genesis in Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102
(1957), abrogated by Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007).
We decline to address what admittedly may be a lack of doctrinal consistency in our standard
of review for Rule 12(b)(6) motions when that question was not among “the issues stated
in . . . the petition for discretionary review and the response thereto filed.” N.C. R. App. P.
16(a). In any event, this Court routinely uses the Rule 12(b)(6) standard that we apply here
in assessing the sufficiency of complaints in the context of complex commercial litigation.
See, e.g., Krawiec v. Manly, 370 N.C. 602, 606, 811 S.E.2d 542, 546 (2018); Christenbury Eye
Ctr., P.A. v. Medflow, Inc., 370 N.C. 1, 5, 802 S.E.2d 888, 891 (2017).

                                             -17-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                   Opinion of the Court

stockholders “have a community of interest with the minority holders in the same

property and because the latter can act and contract in relation to the corporate

property only through the former.” Id. at 344, 67 S.E.2d at 353 (quoting 13 Am. Jur.

Corporations § 423 (1938)). “It is the fact of control of the common property held and

exercised . . . that creates the fiduciary obligation on the part of the majority

stockholders in a corporation for the minority holders.” Id. at 344-45, 67 S.E.2d at

353 (quoting 13 Am. Jur. Corporations § 423). Under Gaines, BAT did not necessarily

owe fiduciary duties to the other stockholders because BAT was not a majority

stockholder.

      This Court has never held that a minority stockholder owes fiduciary duties to

other stockholders, but it has also never held that a minority stockholder cannot owe

fiduciary duties to other stockholders. We do not need to decide that question today,

however. Even if we agreed with Delaware courts that a minority stockholder may

owe fiduciary duties to other stockholders based on its exercising actual control over

the board of directors, the complaint in this case would still fail to state a claim upon

which relief can be granted because the Complaint does not adequately allege that

BAT exercised actual control over the Reynolds board here.

      In Delaware, “[i]t is well settled law that only a ‘controlling stockholder’ owes

fiduciary duties to other stockholders.” In re Primedia Inc. Derivative Litig., 910 A.2d

248, 257 (Del. Ch. 2006) (citing Kahn v. Lynch Commc’n Sys., Inc., 638 A.2d 1110,

1113-14 (Del. 1994)). A stockholder is considered controlling if it owns more than

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                                   Opinion of the Court

50% of the corporation’s voting power or if it “exercises control over the business and

affairs of the corporation.” Id. (quoting Kahn, 638 A.2d at 1113 (emphasis omitted)).

Put another way, a minority stockholder is considered a controlling stockholder if the

minority stockholder exercises “domination . . . through actual control of corporate

conduct.” In re Morton’s Rest. Grp., Inc. S’holders Litig., 74 A.3d 656, 664 (Del. Ch.

2013) (quoting Citron v. Fairchild Camera & Instrument Corp., 569 A.2d 53, 70 (Del.

1989)). This inquiry focuses on actual control over the board of directors. Id. at

664-65; In re KKR Fin. Holdings LLC S’holder Litig., 101 A.3d 980, 993-94 (Del. Ch.

2014), aff’d sub nom. Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304 (Del. 2015).

Actual control exists only when the allegedly controlling stockholder “exercises such

formidable voting and managerial power that [it], as a practical matter, [is] no

differently situated than if [it] had majority voting control.” In re KKR, 101 A.3d at

993 (alterations in original) (quoting In re Morton’s, 74 A.3d at 665) (internal

quotations omitted).    As a necessary prerequisite for a minority stockholder to

exercise actual control, then, the stockholder’s “power must be so potent that

independent directors . . . cannot freely exercise their judgment, fearing retribution.”

Id. (emphasis omitted) (quoting In re Morton’s, 74 A.3d at 665 (alteration in original))

(internal quotations omitted).

      To survive a motion to dismiss in Delaware, a claim for breach of fiduciary duty

by a minority stockholder must contain more than “[t]he bare conclusory allegation

that a minority stockholder possessed control . . . . Rather, the [c]omplaint must

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                                  Opinion of the Court

contain well-pled facts showing that the minority stockholder ‘exercised actual

domination and control over . . . [the] directors.’ ” In re Morton’s, 74 A.3d at 664-65

(emphasis added) (fourth and fifth alterations in original) (quoting In re Sea-Land

Corp. S’holders Litig., No. Civ.A. 8453, 1988 WL 49126, at *3 (Del. Ch. May 13, 1988)

(unreported)). Even at the motion to dismiss stage, Delaware courts have noted that

“[t]his actual control test is ‘not an easy one to satisfy’ as ‘stockholders with very

potent clout have been deemed, in thoughtful decisions, to fall short of the mark.’ ”

Sciabacucchi v. Liberty Broadband Corp., No. CV 11418-VCG, 2017 WL 2352152, at

*16 (Del. Ch. May 31, 2017) (unreported) (quoting In re PNB Holding Co. S’holders

Litig., No. Civ.A. 28-N, 2006 WL 2403999, at *9 (Del. Ch. Aug. 18, 2006)

(unreported)).

      That the actual control standard emphasizes the exercise of actual control over

the board—an affirmative act by the minority stockholder—and not just the mere

possession of power means that an allegation that a minority stockholder has some

leverage over the board of directors is not enough. See In re Sea-Land, 1988 WL

49126, at *3 (stating that allegations that amount to significant “leverage” will not

allow a complaint to survive because “ ‘leverage’ is not actual domination and

control”). A party may, after all, use its leverage to negotiate favorable terms in a

transaction with another party even when it has no control (and thus has exercised

no control) over that other party. Applying this standard in the context of a Rule

12(b)(6) motion, plaintiff’s Complaint necessarily fails if it “reveals the absence of

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                                   Opinion of the Court

facts” that BAT engaged in some affirmative act to direct or compel the Reynolds

board to enter into the Lorillard transaction on the terms that plaintiff takes issue

with here. Wood, 355 N.C. at 166, 558 S.E.2d at 494 (citing Oates, 314 N.C. at 278,

333 S.E.2d at 224). In other words, the complaint must allege, through well-pleaded

facts, actual control, see Sciabacucchi, 2017 WL 2352152, at *16, which refers to

control that prevents a company’s directors from “freely exercis[ing] their judgment

in determining whether or not to approve and recommend” a transaction, In re KKR,

101 A.3d at 993.

      In the same vein, the fact that a stockholder possesses contractual rights

permitting it to restrict corporate action and thereby giving it leverage over board

decisions does not necessarily mean that the stockholder is exercising actual control.

Thermopylae Capital Partners, L.P. v. Simbol, Inc., C.A. No. 10619-VCG, 2016 WL

368170, at *13 (Del. Ch. Jan. 29, 2016) (unreported). Unexercised contractual rights

alone, such as board veto power, do not equate to actual control over a board.

Williamson v. Cox Commc’ns, Inc., No. Civ.A. 1663-N, 2006 WL 1586375, at *5 (Del.

Ch. June 5, 2006) (unreported). Even a stockholder who exercises its contractual

rights to further its own goals “is simply exercising [its] own property rights, not that

of others, and is no fiduciary.” Thermopylae, 2016 WL 368170, at *14. For example,

in Superior Vision Services, Inc. v. ReliaStar Life Insurance Co., No. Civ.A. 1668-N,

2006 WL 2521426 (Del. Ch. Aug. 25, 2006) (unreported), the allegedly controlling

stockholder had a contractual right to withhold its consent and effectively veto any

                                          -21-
                         CORWIN V. BRITISH AM. TOBACCO PLC

                                    Opinion of the Court

dividend payment that the board voted to approve, id. at *4.             The stockholder

exercised that right, but the Delaware Court of Chancery concluded that the

stockholder was not controlling solely by virtue of “exercis[ing] a duly-obtained

contractual right.” Id. at *5. The court reasoned that to hold otherwise would mean

that “any strong contractual right, duly obtained by a significant shareholder (a

somewhat elusive term in itself), would be limited by and subject to fiduciary duty

concerns.” Id.

      A minority stockholder who exercises contractual rights may, however, be

considered a controlling stockholder if the stockholder “achieved control or influence

over a majority of directors through non-contractual means.” Thermopylae, 2016 WL

368170, at *14. Additionally, it could be possible to determine that a stockholder is a

controlling one “where the holding of contractual rights [is] coupled with a significant

equity position and other factors, . . . especially if those contractual rights are used to

induce or to coerce the board of directors to approve (or refrain from approving)

certain actions.” Superior Vision, 2006 WL 2521426, at *5. In Williamson v. Cox

Communications, Inc., for example, the court found that unexercised veto power was

significant in denying a motion to dismiss because the stockholder had veto power

over all board decisions and could use that veto power “to shut down the effective

operation of the . . . board of directors.” 2006 WL 1586375, at *5. The veto power

therefore gave that stockholder coercive leverage because the board effectively had to

get the stockholder’s approval in order to take any action whatsoever. Id. But “a

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                                  Opinion of the Court

significant shareholder, who exercises a duly-obtained contractual right that

somehow limits or restricts the actions that a corporation otherwise would take, does

not become, without more, a ‘controlling shareholder’ for that particular purpose.”

Superior Vision, 2006 WL 2521426, at *5.

       On the other hand, the existence of contractual restrictions on a stockholder’s

ability to exercise control may prevent a finding of control at the pleading stage. See

Sciabacucchi, 2017 WL 2352152, at *17-18. In Sciabacucchi v. Liberty Broadband

Corp., for instance, contractual restrictions prevented the allegedly controlling

stockholder from designating a majority of the board, soliciting proxies, or obtaining

more than 35% of the voting stock. Id. at *18. The restrictions also required certain

directors and unaffiliated stockholders to approve specific transactions like the one

at issue. Id. The court concluded that these “contractual handcuffs,” among other

things, prevented a finding that the plaintiff had adequately pleaded actual control.

Id. at *20.

       Threats and demands, however, may support a claim that the stockholder

exercised actual control.    See Kahn, 638 A.2d at 1114.          In Kahn v. Lynch

Communication Systems, Inc., the Supreme Court of Delaware affirmed the Court of

Chancery’s determination that a minority stockholder was controlling when the

43.3% stockholder threatened the board, saying, “[Y]ou must listen to us. We are 43

percent owner. You have to do what we tell you.” Id. There was also evidence in

Kahn that board members were intimidated by this stockholder and therefore

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                                   Opinion of the Court

complied with its demands instead of exercising their own independent business

judgment. Id. at 1114-15. Thus, Kahn suggests that allegations of a threat by a

significant minority stockholder, plus allegations that the board was intimidated by

that threat, may be enough to establish actual control.

      As we have already said, we do not need to decide whether to adopt the

Delaware approach to determining controlling-stockholder status in order to decide

this case. Even under the Delaware approach, we conclude that plaintiff has failed

to allege facts that, if true, would establish that BAT exercised actual control over the

Reynolds board of directors, and therefore that plaintiff has failed to plead a

breach-of-fiduciary-duty claim.

      Plaintiff claims that the Governance Agreement gave BAT the ability to control

the Reynolds board.     In fact, the exact opposite is true.      In several ways, the

Governance Agreement placed “contractual handcuffs” on BAT that prevented it from

controlling the Reynolds board. See Sciabacucchi, 2017 WL 2352152, at *20. BAT

could nominate only five of the thirteen Reynolds directors, and three of those

directors could not currently be (or have been in the past three years) an officer,

director, or employee of BAT. Generally, BAT was required to vote all of its shares

in favor of electing the directors that it did not nominate, and, if their removal was

sought, BAT was required to vote all of its shares against their removal. And BAT

could not seek to remove any of the directors that it did not nominate. BAT therefore

had no means of retribution against the majority of the directors that could have

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                         CORWIN V. BRITISH AM. TOBACCO PLC

                                   Opinion of the Court

impaired the ability of those directors to exercise independent judgment. See In re

KKR, 101 A.3d at 993-94. BAT also could not increase its ownership percentage

during the standstill period, which was in effect when this transaction occurred. And

the Other Directors who were not nominated by BAT or recently affiliated with BAT

had to approve this transaction in a separate vote—which they did unanimously.

      Plaintiff argues that BAT’s contractual approval rights over the issuance of

shares and the sale of intellectual property in this transaction gave BAT actual

control, but contractual approval rights do not equate to actual control. Superior

Vision, 2006 WL 2521426, at *4-5. Although BAT could stop this transaction from

happening, BAT could not make it happen. To be a controlling stockholder, the

minority stockholder must have “such formidable voting and managerial power that

[it], as a practical matter, [is] no differently situated than if [it] had majority voting

control.” In re PNB, 2006 WL 2403999, at *9. Merely being able to stop a transaction

does not give a minority stockholder the same level of power that a majority

stockholder would have, because a majority stockholder would have the power both

to stop a transaction and to make it happen. See Gaines, 234 N.C. at 344, 67 S.E.2d

at 353 (noting that a majority stockholder has “the power, by the election of directors

and by the vote of [its] stock, to do everything that the corporation can do” (quoting

13 Am. Jur. Corporations § 422)). Although a minority stockholder with veto power

might be able to exercise that same level of power through coercion, see Williamson,

2006 WL 1586375, at *5, merely having veto power over the Board’s ability to enter

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                                   Opinion of the Court

into this particular transaction is not enough. To be clear, plaintiff does not allege

that Reynolds had to enter into this transaction—much less to enter into this

transaction as it was structured, which is what triggered BAT’s contractual right to

veto it. So the fact of BAT’s contractual rights did not, on its own, give BAT the kind

of coercive power over the Reynolds board that could allow BAT to exercise actual

control. Cf. Kahn, 638 A.2d at 1112-13 (noting that the Lynch board had determined

that Lynch needed to obtain certain technology to remain competitive and that

Lynch’s “alternatives to [the] cash-out merger” that its significant stockholder Alcatel

had proposed “had been investigated but were impracticable”).

      As we have already said, of course, a stockholder who holds contractual rights

could be considered a controlling stockholder “where the holding of contractual rights

[is] coupled with a significant equity position and other factors.” Superior Vision,

2006 WL 2521426, at *5. But as we discuss more fully below, plaintiff has failed to

plead sufficient “other factors” to support such a finding in this case.

      Plaintiff claims that BAT’s involvement in the negotiations demonstrates

actual control. Plaintiff does not allege that BAT ever threatened the Reynolds board

in any way, however—unlike, for example, the stockholder who was considered

controlling in Kahn, 638 A.2d at 1114-15—even though BAT was involved in many of

the discussions regarding the Lorillard transaction from an early date. Admittedly,

BAT did represent that it would support the transaction only on terms that were

agreeable to BAT. BAT wanted to maintain its 42% ownership interest after the

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                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Opinion of the Court

transaction and did not want the transaction to affect the terms of the Governance

Agreement, but in expressing that, BAT was making a statement only about

exercising its veto power. And a statement that does not express the intent to do

anything other than exercise veto power does not make BAT a controlling

stockholder, because, in making that statement, BAT was merely informing the board

of how it would exercise its contractual rights—rights that were the property of BAT

alone and that could not turn BAT into a fiduciary. See Thermopylae, 2016 WL

368170, at *14.

      Plaintiff also alleges that BAT had additional leverage in the transaction due

to the threat that BAT would buy the remaining 58% of Reynolds’ shares at the

expiration of the standstill. But the Complaint does not actually allege that BAT ever

threatened to do that. It merely refers to news outlet reports that speculated that

BAT would buy the remaining shares at that time: specifically, to a report from the

Telegraph stating “that Citigroup analysts had ‘talked up the likelihood’ that BAT

would buy the remaining 58% of Reynolds” and to a report from the Daily Mail that

there was “growing speculation [that BAT] is ready to splash out billions of pounds

buying the 58 per cent of US rival Reynolds American it does not already own.” And

the Complaint alleges that the CEO of BAT told stockholders at its 2014 annual

stockholder meeting “that BAT looks at acquiring Reynolds on a yearly basis.”

Accepting these allegations in the complaint as true merely requires us to accept that

the Telegraph and the Daily Mail reported on this “speculation” and that BAT’s CEO

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                        CORWIN V. BRITISH AM. TOBACCO PLC

                                   Opinion of the Court

told stockholders that BAT considered acquiring Reynolds every year. None of these

allegations, if taken as true, indicate that BAT was actually planning to acquire

Reynolds, or, more importantly, that BAT had actually threatened Reynolds with the

idea of purchasing the remaining shares at the expiration of the standstill if BAT’s

preferences were not accommodated. And, more generally, taking as true plaintiff’s

allegation that “[t]he threat of a complete takeover gave BAT additional leverage to

impose its terms on the Reynolds Board during [ ] negotiations,” we must note again

that the mere existence of leverage does not equate to the exercise of actual control.

See In re Sea-Land, 1988 WL 49126, at *3. Where, as here, the “threat” to which a

complaint refers is the mere ability to take over a company, that ability does not

amount to actual control because it does not involve a stockholder who prevents board

members from exercising their own independent judgment.

      Plaintiff suggests in the complaint that the board was not independent of BAT

in this transaction for other reasons. Plaintiff claims that the Other Directors—who

were not nominated by BAT or recently affiliated with BAT—did not engage

independent legal counsel soon enough and should have also engaged independent

financial advisors. Plaintiff alleges that there is no evidence that Reynolds explored

other financing options until just weeks before the transaction was executed.

Plaintiff also suggests that many of Reynolds’ directors had conflicts of interest in the

transaction because seven of the directors were either current or former officers,

directors, or attorneys for BAT or its affiliates.        And, at times, BAT-appointed

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                         CORWIN V. BRITISH AM. TOBACCO PLC

                                   Opinion of the Court

Reynolds directors even spoke on behalf of BAT during meetings about the proposed

transactions, according to plaintiff’s allegations.

      But, aside from the fact that any BAT nominees representing BAT’s interests

to the board were necessarily in the minority, the presence of board members who

merely share interests with a significant stockholder does not give that stockholder

actual control of the board; the proper focus is on whether the allegedly controlling

stockholder exercised power over the board rather than on whether the directors had

conflicts of interest. See Sciabacucchi, 2017 WL 2352152, at *17. To the extent that

plaintiff relies on any of the above actions by the directors to state that BAT exercised

actual control over the board, moreover, plaintiff’s allegations are insufficient because

plaintiff does not allege any act by BAT to direct, compel, or coerce the actions of the

directors. As to the claim at issue here, after all, plaintiff is claiming a breach of

fiduciary duty by BAT, not by any of the Reynolds directors (whether they be directors

designed by or otherwise connected to BAT or not).

      The dissent’s reliance on plaintiff’s allegations that the board failed to obtain

outside and independent advice and counsel is marked by the same erroneous

reasoning. Even if the Reynolds board should have engaged, but failed to engage,

independent counsel, or otherwise failed to comply with its own legal obligations

(which we take no position on), that would in no way show that BAT “prevent[ed]

the . . . board from freely exercising its independent judgment in considering the

[transaction].” In re KKR, 101 A.3d at 995. Plaintiff cannot simply allege that the

                                          -29-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                      Opinion of the Court

Reynolds board failed to comply with all of its legal duties (assuming, for the sake of

argument, that he has at least done that); he must allege facts that would show that

BAT prevented the board from acting independently. He has failed to do so.

      Plaintiff points to recommendations of the Other Directors that were

ultimately rejected as further evidence that BAT had actual control over the board.

During negotiations, the Other Directors discussed reducing BAT’s ownership

percentage after the merger to allow a greater ownership level for Lorillard’s

stockholders, but this change ultimately never happened. Plaintiff does not allege

any facts showing that the ultimate rejection of this change was due to BAT’s

intervention, though; the mere fact that this change was considered and rejected does

not mean that BAT had actual control of the board. And even if BAT had influenced

the decision on this particular aspect of the transaction, that does not mean that BAT

exerted actual control over the board with respect to the transaction as a whole. Once

again, its influence on the decision would be readily explained by BAT’s leverage over

the transaction, as a major financer of the transaction and as a holder of contractual

rights implicated by the transaction. Because that leverage did not equate to actual

control over the Reynolds board with respect to the transaction, anything that arose

from that leverage does not equate to actual control, either.

      Similarly, the Other Directors sought to remove a provision in the proposed

merger agreement that required BAT to vote its shares of Reynolds stock in favor of

the   transaction   regardless   of     whether      the     Reynolds   board   changed   its

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                        CORWIN V. BRITISH AM. TOBACCO PLC

                                   Opinion of the Court

recommendation on the transaction. Lorillard, however, insisted that the provision

remain in the agreement. Far from controlling this decision, BAT said that it would

not commit to the provision over the objections of the Other Directors. The Other

Directors ultimately agreed to allow the provision to remain in the proposed merger

agreement, though, and remain it did. This change, then, was not rejected because

of BAT’s control over the Reynolds board.         Instead, it was rejected because of

Lorillard’s demands and the Other Directors’ acquiescence to those demands.

Anyway, it is unclear why plaintiff thinks that the retention of this provision is

helpful to his cause. All that the provision did was to restrict BAT’s ability to freely

decide whether to vote in favor of the transaction.

      To the extent that plaintiff argues that terms in the agreement that are

favorable to BAT demonstrate control, those arguments also fail. It is reasonable to

infer, based on the pleadings, that Reynolds wanted BAT’s support for the transaction

and that BAT had some leverage because of the number of shares that it owned and

its willingness to help finance the transaction (and because BAT could veto a

transaction that, like the one proposed, was structured in a way that stock

representing over 5% of Reynolds’ stockholders’ voting power had to be issued).

Leverage is not the same as actual control, though, and does not, on its own,

transform a minority stockholder into a controlling stockholder. See In re Sea-Land,

1988 WL 49126, at *3.

                                          -31-
                         CORWIN V. BRITISH AM. TOBACCO PLC

                                    Opinion of the Court

      At best, the allegations that some terms in the transaction agreement were

favorable to BAT show only that BAT’s contractual rights gave it the ability to secure

some favorable terms from the board. Those allegations do not show that BAT

exercised control over the board—that is, to make it take action. If they did, then

every contractual right that allowed a stockholder to exert some leverage over a

transaction would automatically convert the stockholder into a controlling

stockholder.   That, in turn, would contravene the principle that a “contractual

right . . . , without more,” does not turn “a significant shareholder” into “a ‘controlling

shareholder.’ ” Superior Vision, 2006 WL 2521426, at *5.

      The terms of the agreement allowed BAT to maintain its 42% ownership

interest in Reynolds by purchasing shares at a rate lower than the closing price for

Reynolds shares the day before the transaction agreements were signed.               That

purchase price was based on the closing price of Reynolds stock on 2 July 2014, which

was the date used to set the financial terms of the acquisition. Setting the purchase

price ahead of time makes sense because Reynolds would have needed to know how

much money it would receive from BAT in order to secure the rest of the financing

required to complete the transaction. Further, using this date allowed the purchase

price to be set before news of the proposed transaction was publicly released and

affected stock prices. This term of the agreement therefore does not indicate actual

control.

                                           -32-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Opinion of the Court

      Reynolds and BAT also agreed to pursue a technology-sharing initiative for

next generation tobacco products such as digital vapor cigarettes. Plaintiff alleged

that “the Director Defendants . . . agreed to allow BAT to access Reynolds’[ ]

game-changing technology without adequate compensation,” thereby removing any

“need for BAT to pay the Public Shareholders a control premium to buy the rest of

the Company.” But it is unclear how this agreement demonstrates that BAT had

actual control of the Reynolds board with respect to the transaction to purchase

Lorillard. The dissent points to the perceived threat of a takeover by BAT and to the

allegation that this technology-sharing agreement made Reynolds a “significantly

less attractive takeover target for BAT” and contends that these allegations, taken as

true, show that BAT exercised actual control over the board. Again, though, leverage

to obtain favorable terms in an agreement does not necessarily indicate that the

beneficiary of those favorable terms was a controlling stockholder.

      Overall, plaintiff’s allegations and the incorporated Governance Agreement

demonstrate that BAT did not have majority voting power either on the board or as

a stockholder, that BAT could not retaliate against the non-BAT appointed directors

who made up a majority of the board, and that the Lorillard transaction could not be

approved without the separate approval of the Other Directors, who were

Independent Directors not nominated by BAT. Because of these facts, BAT could not

and did not exercise actual control over the Reynolds board. Additionally, plaintiff

has filled his Complaint with allegations of BAT’s leverage and bargaining power—

                                         -33-
                         CORWIN V. BRITISH AM. TOBACCO PLC

                                   Opinion of the Court

contractual or otherwise—and has also demonstrated that BAT was able to obtain

favorable terms for itself during Reynolds’ acquisition of Lorillard. But again, BAT’s

having bargaining power and negotiating a good deal because of it does not mean that

BAT engaged in any coercive behavior or otherwise exercised actual control over the

board.

         Considering the restrictions in the Governance Agreement that we discuss

above, and considering the absence of allegations of coercive or otherwise controlling

actions on the part of BAT, plaintiff has failed to allege that BAT exercised such

domination and control over the Reynolds board that BAT was indistinguishable from

a majority stockholder. See In re KKR, 101 A.3d at 993-94. Under the Delaware

controlling-stockholder standard, therefore, plaintiff’s Complaint “on its face reveals

the absence of facts sufficient to make a good claim” that BAT owed plaintiff fiduciary

duties because it controlled the Reynold’s board, and it also “discloses some fact[s]

that necessarily defeat[ ] the plaintiff’s claim” that BAT could even exercise such

control. Wood, 355 N.C. at 166, 558 S.E.2d at 494 (citing Oates, 314 N.C. at 278, 333

S.E.2d at 224).

                                    III. Conclusion

         For the reasons stated above, the Court of Appeals erred in concluding that

plaintiff’s allegations, if true, would satisfy the actual control test as that test is

elucidated in Delaware caselaw. Because BAT was not a majority or controlling

                                          -34-
                       CORWIN V. BRITISH AM. TOBACCO PLC

                                 Opinion of the Court

stockholder, it did not owe fiduciary duties to the other Reynolds stockholders, and

the Business Court properly dismissed plaintiff’s breach-of-fiduciary-duty claim

against BAT. We accordingly reverse the decision of the Court of Appeals on this

issue.   Plaintiff has not appealed the dismissal of his claims against defendant

directors or Reynolds to this Court. The dismissal of those claims is therefore not

before us, and the decision of the Court of Appeals as to those claims remains

undisturbed.

         REVERSED.

                                        -35-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Hudson, J., dissenting

      Justice HUDSON dissenting.

      Here the majority concludes that plaintiff’s complaint fails to adequately allege

actual control by BAT over the Reynolds board of directors in the context of the

Lorillard acquisition and that, as a result, we need not decide whether, in accordance

with Delaware courts that have addressed the issue, “a minority stockholder may owe

fiduciary duties to other stockholders based on its exercising actual control over the

board of directors.” Accordingly, the majority holds that the Business Court properly

dismissed plaintiff’s breach of fiduciary duty claim against BAT. In my opinion the

complaint sufficiently alleges actual control by BAT; therefore, I would proceed to

address whether this Court follows the Delaware approach on the issue of whether a

minority stockholder who exercises actual control over the board of directors owes

fiduciary duties to other stockholders. As such, I respectfully dissent.

      The relevant inquiry in reviewing a trial court’s ruling on a motion to dismiss

under Rule 12(b)(6) is “whether, as a matter of law, the allegations of the complaint,

treated as true, are sufficient to state a claim upon which relief may be granted.”

Newberne v. Dep’t of Crime Control & Pub. Safety, 359 N.C. 782, 784, 618 S.E.2d 201,

203 (2005) (quoting Meyer v. Walls, 347 N.C. 97, 111, 489 S.E.2d 880, 888 (1997)).

Under N.C.G.S. 1A-1, Rule 8(a)(1) (2017), a complaint must contain “[a] short and

plain statement of the claim sufficiently particular to give the court and the parties

                                           -1-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Hudson, J., dissenting

notice of the transactions, occurrences, or series of transactions or occurrences,

intended to be proved showing that the pleader is entitled to relief.” (Emphasis

added.) “The system of notice pleading affords a sufficiently liberal construction of

complaints so that few fail to survive a motion to dismiss.” Wray v. City of Greensboro,

370 N.C. 41, 46, 802 S.E.2d 894, 898 (2017) (quoting Ladd v. Estate of Kellenberger,

314 N.C. 477, 481, 334 S.E.2d 751, 755 (1985)); see also id. at 50, 802 S.E.2d at 900

(“In light of the low bar for notice pleading under Rule 12(b)(6), . . . the averments in

plaintiff’s first amended complaint are sufficient . . . .”). “The complaint should be

liberally construed and should not be dismissed ‘unless it appears beyond doubt that

the plaintiff could prove no set of facts in support of his claim which would entitle

him to relief.’ ” Turner v. Hammocks Beach Corp., 363 N.C. 555, 559, 681 S.E.2d 770,

774 (2009) (quoting State ex rel. Cooper v. Ridgeway Brands Mfg., LLC, 362 N.C. 431,

444, 666 S.E.2d 107, 116 (2008) (brackets omitted)); see also id. at 559, 681 S.E.2d at

774 (stating that the complaint must be viewed “in the light most favorable to

plaintiffs, giving them the benefit of every reasonable inference that can be drawn

therefrom”).   “We review appeals from dismissals under Rule 12(b)(6) de novo.”

Arnesen v. Rivers Edge Golf Club & Plantation, Inc., 368 N.C. 440, 448, 781 S.E.2d 1,

8 (2015) (citing Bridges v. Parrish, 366 N.C. 539, 541, 742 S.E.2d 794, 796 (2013)).

      I agree with much of the majority’s discussion of the Delaware approach, under

which a minority stockholder is considered to be a controlling stockholder—therefore

owing fiduciary duties to other stockholders—if the minority stockholder exercises

                                           -2-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Hudson, J., dissenting

“domination . . . through actual control of corporate conduct.” In re Morton’s Rest.

Grp. S’holders Litig., 74 A.3d 656, 664 (Del. Ch. 2013) (quoting Citron v. Fairchild

Camera & Instrument Corp., 569 A.2d 53, 70 (Del. 1989)); see also id. at 664-65 (“[T]he

Complaint must contain well-pled facts showing that the minority stockholder

‘exercised actual domination and control over . . . [the] directors.’ ” (second and third

alterations in original) (quoting In re Sea-Land Corp. S’holders Litig., Civ.A. No.

8453, 1988 WL 49126, at *384 (Del. Ch. May 13, 1988))). A complaint must allege

facts from which it is reasonable to infer that the allegedly controlling stockholder

could “prevent the [company’s] board from freely exercising its independent judgment

in considering the [transaction] or . . . exact retribution by removing the [company’s]

directors from their offices.” In re KKR Fin. Holdings LLC S’holder Litig., 101 A.3d

980, 995 (Del. Ch. 2014), aff’d sub nom. Corwin v. KKR Fin. Holdings LLC, 125 A.3d

304 (Del. 2015). A plaintiff is not required to plead actual control by a minority

stockholder of the “day-to-day operations” of the board of directors; rather, a

“[p]laintiff can survive the motion to dismiss by alleging actual control with regard to

the particular transaction that is being challenged.” Williamson v. Cox Commc’ns,

Inc., No. Civ.A. 1663-N, 2006 WL 1586375, at *4 (Del. Ch. June 5, 2006) (citing In re

W. Nat’l Corp. S’holders Litig., No. 15927, 2000 WL 710192, at *20 (Del. Ch. May 22,

2000)); see also Super. Vision Servs. v. ReliaStar Life Ins. Co., No. Civ.A. 1668-N, 2006

WL 2521426, at *4 (Del. Ch. Aug. 25, 2006) (explaining that “pervasive control over

the corporation’s actions is not required” and a plaintiff can allege “ ‘actual control

                                           -3-
                         CORWIN V. BRITISH AM. TOBACCO PLC

                                   Hudson, J., dissenting

with regard to the particular transaction that is being challenged’ ” (quoting

Williamson, 2006 WL 1586375, at *4)).

      Here the allegations of control are “with regard to a particular transaction that

is being challenged”—the Lorillard acquisition. Among the allegations that in my

view sufficiently allege actual control by BAT are the following1:

                    5.     As a July 15, 2014 CNBC story put it, “the
             real victor” in the Proposed Transaction is neither
             Reynolds nor Lorillard, but BAT, which “solidified its
             position in a larger company without paying a
             premium.” The Proposed Transaction enriches BAT by
             extracting and transferring value from all other Reynolds
             shareholders (the “Public Shareholders”) to BAT. As a
             result of the Proposed Transaction, the Public
             Shareholders will not only lose out on the economic value
             of the “game changing” e-cigarette and heat-not-burn
             technology being transferred to BAT, but their share of the
             combined company will be notably diluted and they will
             lose out on the control premium that BAT should have been
             required to pay to maintain its effective control over the
             Company.

                    ....

                    34.    In addition to the power to designate five
             board members, the Governance Agreement gives BAT
             significant additional means by which it exerts control over
             Reynolds. For example, as Reynolds disclosed in its most
             recent Form 10-K, BAT has a veto over “the sale or transfer
             of certain RAI intellectual property associated with B&W
             brands having an international presence, other than in
             connection with a sale of [Reynolds]; and [Reynolds’s]
             adoption of any takeover defense measures that would
             apply to the acquisition of equity securities of Reynolds by

      1  Allegations pertaining to the threat of takeover are summarized with that part of
the discussion below.

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          CORWIN V. BRITISH AM. TOBACCO PLC

                    Hudson, J., dissenting

[BAT] or its affiliates, other than the re-adoption of the
[Reynolds] rights plan in its present form.” Moreover, “the
approval of a majority of [BAT’s] designees on [Reynolds’s]
Board is required in connection with the following matters:
any issuance of [Reynolds] securities in excess of 5% of its
outstanding voting stock, unless at such time [BAT’s]
ownership interest in [Reynolds] is less than 32%; and any
repurchase of [Reynolds] common stock, subject to a
number of exceptions, unless at such time [BAT’s]
ownership interest in [Reynolds] is less than 25%.”

       35.   Finally, the mere size of BAT’s stake gives it
significant control over Reynolds. As the Preliminary
Proxy notes, “[u]nless substantially all RAI shareholders
other than BAT vote together on matters presented to RAI
shareholders, BAT would have the power to determine the
outcome of matters submitted to a shareholder vote, which
could result in RAI taking actions that RAI’s other
shareholders do not support.”

     36.    The Governance Agreement will terminate,
however, if BAT owns either 100% or less than 15% of
Reynolds. The Governance Agreement will also terminate,
automatically, if a third party acquires a majority stake in
Reynolds.

      ....

      41.    Reynolds’s release also disclosed that BAT
would receive two significant benefits stemming from the
Proposed Transaction that were not shared with Public
Shareholders: (i) the Technology Sharing Agreement will
give BAT access to Reynolds’s “game-changing” e-cigarette
technology; and (ii) the BAT Share Purchase will allow
BAT to maintain its pre-acquisition share of the Company
and avoid being diluted along with the Public Shareholders
by purchasing new shares at a discount to the Company’s
trading price:

      . . . . As part of the transaction, BAT will
      maintain its 42 percent ownership in

                             -5-
          CORWIN V. BRITISH AM. TOBACCO PLC

                   Hudson, J., dissenting

      RAI     through     an   investment     of
      approximately $4.7 billion (based on
      RAI’s closing share price of $60.16 as of
      July 2, 2014, the same share price used to
      determine the stock component of
      Lorillard shareholders’ consideration).

      In addition, RAI and BAT have agreed in
      principle    to  pursue   an   ongoing
      technology-sharing initiative for the
      development and commercialization of
      next-generation    tobacco    products,
      including heat-not-burn cigarettes and
      vapor products.

      ....

        C. BAT’s De Facto Control Over the
           Reynolds Board Enabled It To Dominate
           The Board’s Decision Making Process

      42.    The “Background of the Merger” section in the
Form S-4 that Reynolds filed with the Securities and
Exchange Commission on October 17, 2014 (the
“Preliminary Proxy”) underscores that the Proposed
Transaction was driven by the interests of BAT, at the
expense of the Public Shareholders.

       43.   BAT was involved in the negotiation of the
Proposed Transaction from the beginning. According to the
Preliminary Proxy, Reynolds met with BAT before it
presented any proposal to Lorillard or Imperial. In
discussions between Reynolds and BAT in January 2013,
BAT’s representatives made clear that BAT would dictate
the terms of any transaction:

      BAT’s representatives reiterated BAT’s
      support, as a RAI shareholder, for a business
      combination of RAI and Lorillard. They also
      indicated BAT would wish to maintain its
      approximately 42% beneficial ownership

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           CORWIN V. BRITISH AM. TOBACCO PLC

                     Hudson, J., dissenting

      interest in RAI after the transaction and was
      willing to provide equity financing for such a
      transaction in order to maintain its
      ownership interest. BAT’s representatives
      also stated that decisions as to whether and
      how to pursue a business combination
      between RAI and Lorillard were to be made
      by the RAI board of directors, but that BAT,
      in its capacity as a substantial financing
      source and holder of contractual approval
      rights, would cooperate with combining the
      companies only on transactional terms and
      with an execution strategy of which it
      approved.     Such issues included, among
      others, the brands to be divested, the
      subscription price for any additional BAT
      investment, maintaining the terms of the
      governance agreement, avoiding a RAI
      commitment to pay any material ‘reverse
      termination fee’ due to the failure to obtain
      regulatory clearance and an executive
      succession plan for the combined company.

       44.   In June 2013, BAT and RAI agreed to a term
sheet “with respect to the subscription by BAT for
additional shares of RAI common stock in order to provide
financing for the potential transaction involving RAI and
Lorillard and to maintain BAT’s approximately 42%
beneficial ownership interest in RAI” (the “2013 Term
Sheet”). At “the insistence of BAT,” the 2013 Term Sheet
included a provision “that neither BAT nor RAI would seek
any changes in the governance agreement in connection
with the possible acquisition of Lorillard.”          The
Preliminary Proxy does not disclose any other material
terms of the 2013 Term Sheet.

       45.    According to the Preliminary Proxy, the 2013
Term Sheet was approved by a vote of “the independent
directors of RAI [i.e., directors who are neither officers nor
employees of Reynolds] not designated by B&W, referred
to as the Other Directors.” Yet there is no indication in the

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          CORWIN V. BRITISH AM. TOBACCO PLC

                    Hudson, J., dissenting

Preliminary Proxy that the Other Directors hired
independent counsel or an independent financial advisor to
assist them in evaluating or negotiating the 2013 Term
Sheet.

      46.    Indeed, it does not appear that the Other
Directors played any significant role in the negotiations
with BAT over the 2013 Term Sheet. Rather, according to
the Preliminary Proxy, the Board established a strategic
matters review committee (“SMRC”), which existed and
operated on behalf of Reynolds from September 2012 to
May 2014. The Preliminary Proxy does not disclose the
members of the SMRC. Between September 2012 and the
signing of the 2013 Term Sheet in June 2013, Reynolds’s
primary negotiator was Daniel M. Delen, the then-CEO of
Reynolds. Mr. Delen worked for BAT from 1989 through
2006.

       47.    Later in the summer of 2013, “representatives
of BAT indicated to representatives of RAI that BAT was
not prepared to provide financial support to a transaction
that would include a divestiture of the ‘e-vapor’ brand blu,
as requested by Imperial, although eventually it changed
its position.” Reynolds and BAT then worked hand-in-
hand to negotiate the divestments. According to the
Preliminary Proxy, “[i]n July 2013, with the support of the
RAI board of directors, [Thomas R.] Adams [an RAI
executive], along with Scott M. Hayes, then group head of
mergers & acquisitions for BAT, contacted representatives
of another potential divestiture partner to inquire about
the possibility of such party’s participation in a brand
divestiture transaction.”

        48.   Mr. Hayes continued to function as a de facto
member of the Reynolds team.            According to the
Preliminary Proxy, on November 21, 2013, Reynolds’s
SMRC met with “representatives of RAI’s senior
management, [Reynolds’s legal advisors] Jones Day, [and]
Richards Layton and [Reynolds’s financial advisor] Lazard.
Mr. Hayes also participated in part of the meeting.” And,
“[a]t the request of the SMRC, Mr. Hayes presented BAT’s

                             -8-
          CORWIN V. BRITISH AM. TOBACCO PLC

                    Hudson, J., dissenting

view of a possible transaction with Lorillard and expressed
BAT’s support for such a transaction.”

       49.    BAT continued to give strong direction to the
Reynolds Board. On December 4 and 5, 2013, “the RAI
board of directors met . . . with representatives of Jones
Day, Richards Layton and Lazard. . . . Representatives of
BAT provided BAT’s view of the potential transaction,
including BAT’s belief that the transaction was value
enhancing for all RAI shareholders and important from a
competitive perspective and that, given the status of
discussions with Imperial, BAT supported renewing
contact with Lorillard.” After that presentation, “the RAI
board of directors authorized Mr. Wajnert to contact Mr.
Kessler [Lorillard’s Chairman and CEO] to explore the
possibility of a potential transaction between RAI and
Lorillard on the terms reviewed at the meeting.”

      50.    According to the Preliminary Proxy, on
December 19, 2013, Mr. Wajnert conveyed the following
proposal to Mr. Kessler:

      • the proposed business combination would
        be a market based transaction structured
        in a manner similar to a ‘merger-of-
        equals,’ in which Lorillard shareholders
        would receive consideration consisting of a
        mix of cash and stock at market value
        without a premium and both Lorillard’s
        and RAI’s shareholders would realize
        future value creation through the
        realization of meaningful synergies and
        changed market dynamics;

      • BAT would maintain a significant
        beneficial ownership interest in the
        combined company, including through an
        investment of approximately $4.5 billion
        in cash at the consummation of the
        proposed      business     combination
        transaction;

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          CORWIN V. BRITISH AM. TOBACCO PLC

                    Hudson, J., dissenting

      • the leadership and governance of the
        combined company would be structured as
        a balance between the two organizations,
        subject to BAT’s expressed desire to
        preserve its right to designate five
        members to the board of directors of the
        combined company (three of whom would
        be required to be independent of both BAT
        and the combined company); and

      • in connection with a proposed business
        combination,       RAI’s      subsidiaries’
        WINSTON, SALEM and KOOL and
        Lorillard’s Maverick cigarette brands and
        Lorillard’s ‘e-vapor’ brand blu (including
        SKYCIG) would be divested to Imperial in
        an effort to enhance the receipt of
        antitrust clearance from the regulatory
        authorities.

       51.     After discussions amongst the Lorillard
Board, Mr. Kessler contacted Mr. Wajnert on January 11,
2014 to inform him that “while the Lorillard board of
directors was potentially interested in the strategic and
long-term financial aspects of a potential business
combination between the companies, they did not think the
RAI proposal provided sufficient value to Lorillard
shareholders. Mr. Kessler indicated, however, that the
Lorillard board of directors was willing to explore a
business combination that was structured like a ‘merger-
of-equals’ if the key terms were improved[.]”

      52.     According to the Preliminary Proxy, the
Reynolds Board met by phone on January 14, 2014. At that
meeting, “[a] representative of Lazard reported that he had
contacted representatives of UBS Limited and Deutsche
Bank AG, financial advisors to BAT, referred to as UBS
and Deutsche Bank, respectively, to discuss potential pro
forma ownership.” There is no indication that any of the
BAT Designees recused themselves from this call. It

                            -10-
          CORWIN V. BRITISH AM. TOBACCO PLC

                    Hudson, J., dissenting

appears that the Other Directors had not retained
independent counsel or an independent financial advisor
prior to Lazard initiating negotiations with UBS and
Deutsche Bank regarding BAT’s stake in the combined
company.

       53.   Indeed, the Preliminary Proxy does not
reference any separate action by the Other Directors—
other than a separate vote on the 2013 Term Sheet—until
January 18, 2014, more than a year after serious
discussions began. On January 18, 2014, the Other
Directors held a telephone meeting with Lazard, Jones
Day, and Richards Layton separately from the other
Reynolds directors.

       54.    That same day, a “representative of Lazard . .
. introduc[ed] a [possible] alternative approach in which
cash available as consideration would be distributed on a
pro rata basis to Lorillard shareholders and to RAI
shareholders other than BAT.” Lazard also reported on
discussions regarding “potential solutions that would be in
the best interests of RAI shareholders other than BAT and
continue to meet the objectives of both Lorillard and BAT.
These discussions included the possibility that BAT and/or
RAI shareholders other than BAT could have decreased
post-closing ownership interest in the combined company.”
This appears to be the first time that the Reynolds Board
considered the obvious tension between the interests of
BAT and the Public Shareholders.

      55.    According to the Preliminary Proxy, the
Other Directors did not discuss obtaining independent
counsel until February 2014. During meetings between
February 4 and 7, 2014, “[r]epresentatives of Lazard
presented a variety of modifications to the proposal made
in December in connection with the exploration of an
alternative proposal to present to Lorillard.         The
modifications considered included providing a premium on
cash paid to Lorillard shareholders, a premium on shares
of RAI common stock issued, changes to the BAT
investment and incremental changes to RAI’s leverage and

                            -11-
          CORWIN V. BRITISH AM. TOBACCO PLC

                    Hudson, J., dissenting

cash allocation. It was the consensus of the Other
Directors that RAI shareholders other than BAT should
receive at least 30% of the equity ownership of the
combined company and receive a pro rata portion of the
cash distribution.     The Other Directors discussed
engaging independent legal counsel.”

       56.   The Other Directors finally engaged separate
legal counsel on February 12, 2014—retaining Moore &
Van Allen. Based on the Preliminary Proxy, however, it
appears that the Other Directors never retained any
independent financial advisors. Moreover, as set forth
below, Moore & Van Allen appears to have frequently been
excluded from crucial negotiations.

       57.   At the February 12, 2014 meeting of the
Other Directors, “[t]here was extensive discussion
regarding the consideration to be received by RAI
shareholders other than BAT and BAT’s willingness to
move from its initial position regarding post-transaction
equity ownership.” According to the Preliminary Proxy,
later in February 2014, there were discussions regarding a
proposal to provide extra equity to Lorillard shareholders
by reducing BAT’s stake: “the ownership level of Lorillard
shareholders in the combined company would be
approximately 36.5%, with RAI shareholders other than
BAT and BAT holding approximately 30% and 33.5% of the
outstanding common stock of the combined company,
respectively” (subject to a provision allowing BAT to
subscribe for additional shares in phases over two years).

       58.    Ultimately, however, BAT’s ironclad control
over the Board won out. The Public Shareholders will
receive no separate consideration and BAT did not move
from its initial position regarding post-transaction equity
ownership.

      59.     Similarly, during the course of discussions in
February 2014, “[r]epresentatives of Cravath[, BAT’s
attorneys,] indicated that BAT was not prepared to extend
the standstill covenant in the governance agreement in

                            -12-
           CORWIN V. BRITISH AM. TOBACCO PLC

                    Hudson, J., dissenting

connection with the proposed business combination
transaction[.]” As with its other demands, BAT got its way.
The Standstill would still expire on schedule on July 30,
2014.

      60.    On March 10, 2014, the Lorillard board met
and discussed the fact that the proposed transaction was
not appropriately viewed as a merger of equals given BAT’s
control over the combined company. According to the
Preliminary Proxy, Lorillard’s board believed that the
proposed transaction would not be a merger-of-equals
because “BAT would continue to be the most significant
shareholder of the combined company with the right to
board representation in accordance with the governance
agreement and . . . BAT would resist agreeing to an
extension of the standstill agreement in the governance
agreement[.]”

       61.     On March 13, 2014, the Lorillard board
“determined not to proceed with the proposed business
combination transaction and to terminate the related
discussions with RAI, BAT and Imperial. Among other
things . . . the Lorillard board of directors did not believe
that the proposed transaction in fact reflected a ‘merger-of-
equals’-like transaction[.]” Lorillard informed Reynolds of
its decisions and discussions between Lorillard and
Reynolds ceased until May 10, 2014.

     62.   On May 1, 2014, Ms. Cameron was elected
CEO of Reynolds, following Mr. Delen’s retirement.

       63.   The Preliminary Proxy states that on May 7,
2014, “the Other Directors met with RAI senior
management, representatives of RAI’s outside legal and
financial advisors and Moore & Van Allen to consider
further the possibility of an acquisition of Lorillard.” The
Preliminary Proxy claims that “[t]here was extensive
discussion, among other things, of the potential benefits to
[the Public Shareholders] of BAT’s commitment to
purchase additional shares of RAI common stock as part of
the financing for the proposed transaction, including that

                            -13-
            CORWIN V. BRITISH AM. TOBACCO PLC

                    Hudson, J., dissenting

it was unlikely RAI would be able to obtain equity
financing from a third party on terms as favorable as those
offered by BAT.”

      64.    There is no indication in the Preliminary
Proxy, however, that Reynolds, its advisors or the Other
Directors had, at this point, (i) compared the terms of
BAT’s proposed equity financing to potential debt financing
options that might be available (including the potential tax
benefits thereof); (ii) actually contacted other potential
sources of equity financing or (iii) determined that BAT
was unwilling to offer more favorable terms.

        65.    According to the Preliminary Proxy, the
Reynolds Board dissolved the SMRC on May 7 or 8, 2014
“in light of the role required by the governance agreement
of the Other Directors in considering the transaction and
the fact that the SMRC was not otherwise operative at this
time.” The Preliminary Proxy does not explain why it was
appropriate for the SMRC—instead of the Other
Directors—to act on behalf of Reynolds, for approximately
a year and a half prior to May 2014, during which period
all of the fundamental aspects of BAT’s role in the Proposed
Transaction were negotiated.

      66.   On May 10, 2014, Mr. Wajnert sent Mr.
Kessler a proposal for Reynolds to acquire Lorillard for
cash and stock worth approximately $65 per share. The
proposal provided for BAT to maintain its 42% stake in
exchange for an additional cash investment of
approximately $5 billion.

      67.     Reynolds    and     Lorillard    engaged    in
negotiations over this proposal between May 15 and May
20, 2014. “Representatives of Centerview [Lorillard’s
financial advisor] telephoned representatives of Lazard
and indicated that Mr. Kessler would be prepared to
discuss with the Lorillard board of directors the proposed
acquisition if RAI increased its offer to $68 per share.”

      68.     At a May 20, 2014 meeting of the Reynolds

                            -14-
          CORWIN V. BRITISH AM. TOBACCO PLC

                    Hudson, J., dissenting

Board, Reynolds’s Directors “determined it would not agree
to a ‘reverse’ termination fee”—which was, of course, one of
BAT’s conditions—but authorized a proposal to Lorillard
with a range of $67 to $68 per share. The Preliminary
Proxy states that, during the discussions, “representatives
of BAT on the RAI board of directors reported, on behalf of
BAT, support for the proposed transaction at the higher
price.”

       69.   The fact that the BAT Designees were
designated by BAT does not change the fact that they owed
independent fiduciary duties to Reynolds and its public
shareholders. It was inappropriate for the BAT Designees
to act “on behalf of BAT,” in any capacity, while acting as
members of the Reynolds Board. That the BAT Designees
were speaking for BAT while sitting as Reynolds directors
in a Reynolds board meeting underscores BAT’s dominance
over Reynolds’s decision making.

       70.    On May 27, 2014, Reynolds and Imperial
executed a non-binding memorandum of understanding
with respect to the proposed asset sale. According to the
Preliminary Proxy, “Over the next several weeks,
representatives of RAI, Imperial, Lorillard, and in some
cases BAT, engaged in discussions regarding the
divestiture transaction, including with respect to ‘route to
market,’ reciprocal contract manufacturing and other
commercial arrangements.” Then, “[f]rom June 11, 2014
through July 15, 2014, legal counsel to RAI, BAT and
Lorillard, with the assistance of RAI’s and Lorillard’s
senior managements and financial advisors, engaged in
extensive negotiations concerning, and exchanged
numerous drafts of, the proposed merger agreement and its
key terms, including the allocation of antitrust risk and
required efforts in the proposed transaction.”

       71.   The Preliminary Proxy identifies only one
specific recommendation made by the Other Directors
during this period. That recommendation was ultimately
rejected. According to the Preliminary Proxy, “on July 2,
2014, Moore & Van Allen reviewed the proposed draft of

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          CORWIN V. BRITISH AM. TOBACCO PLC

                    Hudson, J., dissenting

the subscription and support agreement with the Other
Directors, who requested that BAT’s draft provision for an
unconditional commitment to vote the shares of RAI
common stock it beneficially owned in favor of the
transaction (regardless of any change in recommendation
of the RAI board of directors) be deleted.” Yet, on July 5,
2014 “Simpson Thacher [counsel for Lorillard] advised
Jones Day [counsel for Reynolds] that Lorillard was
insistent, as a condition of proceeding, on having a
commitment from BAT to vote the shares of RAI common
stock it beneficially owned in favor of the transaction even
if the RAI board of directors changed its recommendation
of the transaction. Cravath [counsel for BAT] advised
Jones Day that BAT would consider this demand but would
not give such a commitment over the objections of the
Other Directors. The Other Directors agreed to accept that
commitment.”

      72.   The Preliminary Proxy suggests that even
after Moore & Van Allen—independent counsel to the
Other Directors—was retained, the firm was frequently
excluded from discussions amongst counsel for the parties.
For example:

      • Between February 20 and February 24,
        2014, “representatives of Jones Day [for
        Reynolds], Cravath [for BAT] and Simpson
        Thacher [for Lorillard] began to discuss
        the outlines of other potential terms in the
        ‘merger-of-equals’-like transaction.”;

      • “[C]ommencing on May 21, 2014,
        representatives of Jones Day, Cravath and
        Simpson Thacher began discussing
        various process matters, including those
        relating to structure, due diligence,
        documentation and various matters
        relating to the Imperial asset divestiture.”;

      • “On June 3, 2014, representatives of Jones
        Day, Cravath and Simpson Thacher held a

                            -16-
          CORWIN V. BRITISH AM. TOBACCO PLC

                    Hudson, J., dissenting

         telephonic meeting to discuss certain legal
         matters, including the potential key
         terms of the definitive transaction
         agreements expected to be entered into
         among the parties, including the allocation
         of antitrust risk and required efforts.”; and

      • “On July 5, 2014, . . . representatives of
        Jones Day, Cravath and Simpson Thacher
        met to discuss the proposed merger
        agreement, including the allocation of
        antitrust risk and required efforts in the
        proposed transaction, and the status of the
        other definitive transaction documents,
        including the subscription and support
        agreement”

      73.     The Other Directors should have insisted—
yet apparently did not—that Moore & Van Allen be
included in every discussion amongst counsel for the
parties, including those listed above.

      74.    On July 13 and 14, 2014, the Other Directors
reviewed and unanimously approved the Proposed
Transaction.    They did not retain any independent
financial advisor to assist them in evaluating the fairness
of the Proposed Transaction to the Public Shareholders.
The Reynolds Board also unanimously approved the
Proposed Transaction.

II.   THE PROPOSED TRANSACTION UNFAIRLY
      BENEFITS BAT AT THE EXPENSE OF
      PUBLIC SHAREHOLDERS

         A. The Proposed Transaction Will Give BAT
            Access To Reynolds’s “Game-Changing”
            E-Cigarette    Technology      Without
            Adequately    Compensating      Public
            Shareholders

      ....

                            -17-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Hudson, J., dissenting

                       B. The Proposed Transaction Will Dilute
                          Public Shareholders But Permit BAT To
                          Retain Its Blocking Position Without
                          Paying A Control Premium

                    ....

                    87.   Under the terms of the Subscription and
             Support Agreement dated as of July 15, 2014, BAT will
             purchase the additional shares at a reference price of
             $60.16 per share. This is $3.02 per share less than
             Reynolds’s closing price on July 14, 2014 of $63.18 per
             share—representing a negative 4.8% premium. In a truly
             arm’s-length negotiation, Reynolds should have required
             BAT to pay a significant, positive premium to purchase
             sufficient shares to maintain its controlling blocking
             position.

Construing the complaint liberally and drawing every reasonable inference

therefrom, the complaint alleges that BAT used its significant forty-two percent

minority stake (the Preliminary Proxy, incorporated by reference, reveals that the

next largest ownership block was five percent) and its veto power over the board to

dictate the terms of the Lorillard acquisition in order to enrich itself at the expense

of other shareholders, namely, by gaining access to Reynolds’s lucrative e-cigarette

technology and by maintaining its acquisition share while other shareholders’ shares

were diluted. The complaint further alleges that BAT employed additional coercive

leverage to control the board in the Lorillard acquisition, including by implicitly

threatening a takeover of Reynolds made possible by the impending expiration of the

Standstill, as well as by acting as a major source of financing for the transaction. The

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                         CORWIN V. BRITISH AM. TOBACCO PLC

                                   Hudson, J., dissenting

complaint also alleges that during discussions the representatives of BAT on the

board spoke “on behalf of BAT,” in contravention of their fiduciary duties as board

members, further underscoring BAT’s coercive influence over the board. Finally, the

complaint alleges that, as a result of BAT’s control of the board in this transaction,

the other board members (several of whom are alleged to have close ties with BAT)

delayed in retaining separate legal counsel and then failed to adequately utilize that

counsel, never retained an independent financial advisor, never received a separate

fairness opinion regarding the BAT share purchase, and never considered other

options to finance the transaction besides BAT equity financing. In my view, “[i]n

light of the low bar for notice pleading under Rule 12(b)(6),” Wray, 370 N.C. at 50,

802 S.E.2d at 900, these allegations are more than sufficient to allege that BAT

exercised actual control over the board and prevented the board from “freely

exercising its independent judgment” in considering the Lorillard acquisition.

      The majority recognizes that the complaint alleges that BAT possessed

significant veto power and used this to its advantage in the transaction, but the

majority concludes that in the absence of “other factors,” the veto power, as the mere

exercise of a contractual right, cannot alone support a finding of actual control. See

Super. Vision, 2006 WL 2521426, at *5 (“There may be circumstances where the

holding of contractual rights, coupled with a significant equity position and other

factors, will support the finding that a particular shareholder is, indeed, a ‘controlling

shareholder,’ especially if those contractual rights are used to induce or to coerce the

                                           -19-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                 Hudson, J., dissenting

board of directors to approve (or refrain from approving) certain actions.”). In light

of the complaint’s allegations of the threat posed by an acquisition of Reynolds by

BAT, BAT’s role as the major source of equity financing, and the alleged

“inappropriate” role played by representatives of BAT on the board, I conclude these

allegations include such other factors.

      The majority dismisses any alleged leverage over the board posed by the threat

of a takeover of Reynolds by BAT, asserting that the complaint merely alleges that

news outlets reported on “speculation” of a takeover and that the complaint fails to

allege that BAT actually threatened Reynolds with purchasing the remaining shares

at the end of the Standstill period. The majority further asserts that “BAT could not

seek to remove any of the directors that it did not nominate” and “therefore had no

means of retribution against the majority of the directors that could have impaired

the ability of those directors to exercise independent judgment.” In my view, the

majority reads the complaint’s allegations regarding the threat of a takeover too

narrowly and also ignores the fact that the restriction on BAT’s seeking to remove

any of the Other Directors, similar to the prohibition on BAT increasing its ownership

percentage, was one of the governance agreement restrictions set to expire with the

impending cessation of the Standstill period, which, according to the complaint, “

‘BAT was not prepared to extend[.]’ . . . As with its other demands, BAT got its way.

The Standstill would still expire on schedule on July 30, 2014.”       Following the

expiration of the Standstill period, BAT could seek the removal of Other Directors, or

                                          -20-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                 Hudson, J., dissenting

it could effect their removal by doing precisely what the Standstill had prevented for

ten years—acquiring Reynolds.      As the complaint alleges, “[t]he timing of the

Proposed Transaction is no coincidence.”        Turning back to the complaint, which

alleges regarding the control exercised over the board by the threat of a takeover:

                    3.     The Proposed Transaction is Reynolds’s first
             significant strategic transaction since 2004. The Proposed
             Transaction was announced just two weeks before the
             expiration of a ten-year standstill provision (the
             “Standstill”) that prevented BAT from purchasing the
             Company in its entirety.

                    4.    The timing of the Proposed Transaction is no
             coincidence. The Proposed Transaction forestalls a
             takeover by making Reynolds a significantly less attractive
             takeover target for BAT.

                   ....

                       A. The Impending Expiration Of The
                          Standstill Put The Directors’ Jobs At
                          Risk

                   32.    Reynolds was created as a result of the 2004
             acquisition of BAT’s U.S. subsidiary, B&W, by Reynolds’s
             predecessor entity, the R.J. Reynolds Tobacco Company.
             As part of the Brown & Williamson Acquisition, BAT
             acquired a 42% stake in Reynolds.

                   33.     In connection with the Brown & Williamson
             Acquisition, BAT and Reynolds adopted a July 30, 2004
             Governance Agreement (the “Governance Agreement”),
             which included a provision that prohibited BAT from
             increasing its percentage ownership of Reynolds until July
             30, 2014—i.e., the Standstill.

                   ....

                                         -21-
            CORWIN V. BRITISH AM. TOBACCO PLC

                     Hudson, J., dissenting

        37.   . . . . BAT cannot replace the Reynolds Board
in its entirety without purchasing 100% of the Company.

      38.     In the weeks leading up to the expiration of
the Standstill, there were reports suggesting that BAT
might be interested in doing just that. On March 10, 2014,
the Telegraph reported that Citigroup analysts had “talked
up the likelihood” that BAT would buy the remaining 58%
of Reynolds. At BAT’s annual shareholder meeting in April
2014, BAT CEO Nicandro Durante made a point of noting
that BAT looks at acquiring Reynolds on a yearly basis.
Such commentary resurfaced in early July 2014 when the
Daily Mail reported on “growing speculation [that BAT] is
ready to splash out billions of pounds buying the 58 per
cent of US rival Reynolds American it does not already
own.”

       39.    At the time of these reports, the Proposed
Transaction was already being negotiated. The threat of a
complete takeover gave BAT additional leverage to impose
its terms on the Reynolds Board during those negotiations.

      40.   The Director Defendants adopted a plan that
had the purpose and effect of allowing them to keep their
jobs. On July 15, 2014, Reynolds issued a press release
announcing the Proposed Transaction[.]

      ....

      93.     ....

        • All members of the Reynolds Board have an
          incentive to safeguard their comfortable and
          lucrative positions, which could be lost in the
          event of a BAT takeover of Reynolds.

      ....

     97.     As detailed in the Company’s most recent
annual proxy, Reynolds’s non-officer directors are paid
hundreds of thousands of dollars each year to serve on the

                             -22-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Hudson, J., dissenting

             Board[.]

(Emphases added.) Construing these allegations liberally, there appears to be more

than a reasonable inference that the threat of a takeover of Reynolds by BAT loomed

large; indeed, the specter of a BAT takeover would seem to be a familiar shadow to

Reynolds by then, given that it was apparently the entire purpose of the ten-year-old

Standstill provision. In my view, the distinct message of plaintiff’s allegations is that

after the expiration of the Standstill period a takeover could well follow along with

the loss of a board position if the Other Directors did not agree to BAT’s transaction

terms in the Lorillard acquisition. These allegations set forth a scenario in which

BAT in effect coerced the Other Directors into acceding to exceedingly favorable terms

for BAT in order to maintain their positions in the company. The likelihood that

plaintiff could ultimately prove these allegations is an entirely different issue, and

one on which I express no opinion. The majority appears to focus on likely proof of

the allegations, rather than sufficiency of the allegations themselves; our review in

accord with Rule 12(b)(6) requires focus on the latter.

      In that respect, I note that the majority also asserts that “[p]laintiff does not

allege that BAT ever threatened the Reynolds board in any way, however—unlike,

for example, the stockholder who was considered controlling in Kahn[ ]—even though

BAT was involved in many of the discussions regarding the Lorillard transaction from

an early date.” See Kahn v. Lynch Commc’n Sys., Inc., 638 A.2d 1110, 1113-15 (Del.

1994) (concluding that a minority stockholder was controlling when the minority

                                          -23-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Hudson, J., dissenting

stockholder intimidated the board and at one point threatened them, saying, “[y]ou

must listen to us. We are 43 percent owner. You have to do what we tell you.”). But

Kahn was not decided on a motion to dismiss for failure to state a claim; rather, the

Court of Chancery determined that the minority stockholder was controlling after a

three-day trial. Id. at 1111. As the majority states, “[t]here was also evidence in

Kahn that board members were intimidated by this stockholder and therefore

complied with its demands instead of exercising their own independent business

judgment.” An explicit statement like the one in Kahn, or testimonial evidence that

board members were intimidated, would certainly be beneficial to a claimant in

plaintiff’s position, but these are examples of evidence that will only be made known

or available through discovery or at trial.

      On the other hand, portions of the complaint pertaining to information

available to a stockholder situated like plaintiff are summarily dismissed by the

majority. For instance, plaintiff alleges that the other board members delayed in

retaining separate legal counsel and then failed to adequately utilize that counsel,

never retained an independent financial advisor, never received a separate fairness

opinion regarding the BAT share purchase, and never considered other options to

finance the transaction besides BAT equity financing. The majority briefly touches

on some of these allegations but concludes that because they focus on the actions of

the Other Directors rather than on the actions of BAT, these allegations “would in no

way show that BAT” exercised actual control of the board in the Lorillard transaction.

                                          -24-
                          CORWIN V. BRITISH AM. TOBACCO PLC

                                  Hudson, J., dissenting

(Emphasis added.) Given that plaintiff—with his allegations that BAT dictated the

terms of the Lorillard transaction by means of its significant forty-two percent

minatory stake, its veto power over the board, its role as a major source of equity

financing for the transaction, and the threat of a takeover and the termination of the

Other Directors following the expiring Standstill, as well as the allegation that BAT’s

representatives on the Board acted in breach of their fiduciary duties—has alleged

that BAT exercised actual control of the board in this transaction, i.e. “prevent[ing]

the [company’s] board from freely exercising its independent judgment in considering

the [transaction],” In re KKR, 101 A.3d at 995, and given that these allegations reflect

that the other board members were in fact not “freely exercising [their] independent

judgment,” id., I find perplexing the majority’s conclusion that such allegations are

essentially irrelevant.

      Similarly, with regard to the complaint’s allegations of the “Technology

Sharing Agreement” concerning “the development and commercialization of next-

generation tobacco products, including heat-not-burn cigarettes and vapor products,”

the majority dismisses these allegations with an oft-repeated refrain, stating “[a]gain,

though, leverage to obtain favorable terms in an agreement does not necessarily

indicate that the beneficiary of those favorable terms was a controlling stockholder.”

Indeed, in the majority’s view, nearly everything can be reduced to the “mere

existence of leverage.” See In re Sea-Land, 1988 WL 49126, at *3 (“Plaintiffs allege

only that LLC and its affiliates had significant ‘leverage,’ (i.e., a superior bargaining

                                          -25-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                 Hudson, J., dissenting

position) because they owned 39.5% of Sea-Land’s stock. But ‘leverage’ is not actual

domination and control.”). But as the majority recognizes elsewhere in its opinion, a

minority stockholder may employ means beyond its mere ownership percentage or

contractual rights that amount to “coercive leverage” and actual control over the

board. See Williamson, 2006 WL 1586375, at *5 (“Cox and Comcast’s potential veto

power is significant for analysis of the control issue, however, because it supports

plaintiff’s allegation that Cox and Comcast had coercive leverage over At Home. Cox

and Comcast had the ability to shut down the effective operation of the At Home

board of directors by vetoing board actions. Plaintiff may be able to prove facts

showing that this leverage (together with the special business relationships and other

circumstances mentioned above) was enough for Cox and Comcast to obtain a far

better deal th[a]n they would have in an arm’s-length transaction.” (emphasis

added)). In light of the allegations of coercive leverage discussed above, I also view

as relevant the allegations regarding the “Technology Sharing Agreement,” which is

alleged to have been significant, if not vital, to the Lorillard transaction; these

allegations demonstrate that BAT was able “to obtain a far better deal th[a]n [it]

would have in an arm’s-length transaction.” Id.

      For instance, the complaint included numerous allegations about the

importance to Reynolds of its “game-changing” VUSE brand of e-cigarettes, as well

as its heat-not-burn technology, asserting that e-cigarettes are “the future of the

tobacco industry” and that before the Lorillard acquisition, Reynolds was predicted

                                         -26-
                        CORWIN V. BRITISH AM. TOBACCO PLC

                                  Hudson, J., dissenting

to “have $4 billion in revenue from e-cigs in 2021, compared with $3.9 billion from

conventional cigarettes.” The complaint alleges further that news reports prior to the

transaction had recognized that “gaining access to Reynolds’s e-cigarette and heat-

not-burn technology was one of the primary reasons that BAT might want to buy the

Company.” Due to BAT’s control of the board, however, “the Director Defendants

have agreed to allow BAT to access Reynolds’s game-changing technology without

adequate compensation, [and] there is no need for BAT to pay the Public

Shareholders a control premium to buy the rest of the Company.” The complaint

alleges that this “forestalls a takeover by making Reynolds a significantly less

attractive takeover target for BAT,” or in other words, it allows BAT to “get the milk

without buying the cow.” Based on these allegations, I disagree with the majority’s

assertion that “it is unclear how this agreement demonstrates that BAT had actual

control of the Reynolds board with respect to the transaction to purchase Lorillard.”

      In sum, looking solely at the allegations in the complaint and taking them as

true, I conclude that plaintiff has sufficiently alleged actual control by BAT over the

board in the Lorillard acquisition. As such, I respectfully dissent.

      Justices BEASLEY and MORGAN join in this dissenting opinion.

                                          -27-