Driver Opportunity Partners I, LP v. First United Corp.

DRIVER OPPORTUNITY PARTNERS I, LP, Plaintiff, v. FIRST UNITED CORPORATION, et al., Defendants.

Civil Action No. RDB-20-2575

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

January 8, 2021

MEMORANDUM OPINION

Plaintiff Driver Opportunity Partners I, LP ("Plaintiff" or "Driver") brings this tort action against Defendant First United Corporation ("First United") and individual Defendants John F. Barr, Brian R. Boal, M. Kathryn Burkey, Robert W. Kurtz, John W. McCullough, Elaine L. McDonald, Patricia Milon, Carissa L. Rodeheaver, Gary R. Ruddell, Marisa A. Shockley, I. Robert Rudy, and H. Andrew Walls, III (collectively, "Defendants"). Plaintiff alleges intentional interference with prospective business relations (Count VII) and unfair competition (Count VIII) against all Defendants, in addition to three counts of abuse of process (Counts II, III, IV) and two counts of defamation (Counts V and VI) against First United only. (Compl., ECF No. 1.) Plaintiff also alleges breach of fiduciary duty (Count I) and unjust enrichment (Count IX) against the individual Defendants. (Id.)

Presently pending is Defendants' Motion to Dismiss and Request for Hearing. (ECF No. 18.) On January 4, 2021, this Court conducted a motions hearing and heard argument on the pending Motion.¹ See Local Rule 105.6 (D. Md. 2018). For the reasons stated on the record at the motions hearing, and for the reasons that follow, Defendants' Motion to Dismiss and Request for Hearing (ECF No. 18) shall be GRANTED IN PART and DENIED IN PART. Specifically, Counts I, II, III, IV, VIII, and IX shall be DISMISSED, but the Motion to Dismiss is DENIED as to Counts V and VI, setting forth claims of defamation, and is DENIED as to Count VII, claiming intentional interference with prospective business relations.

BACKGROUND

In ruling on a motion to dismiss, this Court "accept[s] as true all well-pleaded facts in a complaint and construe[s] them in the light most favorable to the plaintiff." Wikimedia Found. v. Nat'l Sec. Agency, 857 F.3d 193, 208 (4th Cir. 2017) (citing SD3, LLC v. Black & Decker (U.S.) Inc., 801 F.3d 412, 422 (4th Cir. 2015)). The Court may consider only such sources outside the complaint that are, in effect, deemed to be part of the complaint, for example, documents incorporated into the complaint by reference and matters of which a court may take judicial notice. Sec'y of State for Defence v. Trimble Navigation Ltd., 484 F.3d 700, 705 (4th Cir. 2007).

Driver Opportunity Partners I, LP ("Driver") is a Delaware limited liability company formed in April 2019 as an investment fund. (Compl. ¶ 1, ECF No. 1.) Driver also has a general partner, Driver Management Company, LLC, whose managing member is J. Abbott Cooper. (Id. n.3.) Since August of 2019, Driver has been the beneficial owner of just under5.1% of the outstanding shares of Defendant First United Corporation's ("First United") common stock. (Id.) Driver alleges it is one of the largest holders of First United's common stock. (Id.) First United is the publicly traded parent of the Maryland-chartered First United Bank & Trust, a depository institution in Garrett County, Maryland. (Id. ¶ 2.) As a bank holding company, First United is subject to regulatory oversight by the Maryland Commissioner of Financial Regulation (the "Commissioner"). (Id.) The following individual Defendants served as members of First United's board of directors during the period leading up to the June 11, 2020 First United annual meeting of shareholders: John F. Barr, Brian R. Boal, M. Kathryn Burkey, Robert W. Kurtz, John W. McCullough, Elaine L. McDonald, Carissa L. Rodeheaver, Gary R. Ruddell, Marisa A. Shockley, I. Robert Rudy, and H. Andrew Walls, III. (Id. ¶ 3.) After that annual meeting, Defendants Kurtz and McDonald resigned and Defendant Patricia Milon was appointed to the board. (Id.)

I. The Parties' Dispute

Driver represents that it invests in publicly traded bank holding companies when it believes that the sale value of the company "far surpasses standalone value" and when the "major impediment to a sale that would significantly increase the value of all shareholders' investment is a board of directors with interests that are not aligned with shareholders." (Compl. ¶ 7.) In 2019, after conducting extensive research and analysis, Driver alleges it first raised concerns about First United's poor corporate governance, its prospects as a standalone enterprise, and whether First United's shareholders would be better served by selling to a larger banking organization. (Compl. ¶ 23.) Specifically, Driver criticized the board's excessive tenure, poor risk oversight, entrenchment and conflicts of interest. (Id.)

On or about March 15, 2019, Driver expressed all of these concerns to the CEO and Chair of First United's board, Carissa Rodeheaver, providing analyses illustrating that a sale could provide shareholders a significant premium over First United's then-trading price. (Id. ¶¶ 13, 16.) On or about March 26, 2019 and March 28, 2019, Driver publicly expressed its views regarding its concerns about First United by filing exempt solicitation materials with the United States Securities and Exchange Commission ("SEC"). (Id. ¶¶ 14-16.) Driver alleges other shareholders also called on the board to explore a sale. (Id. ¶¶ 27, 31.) First United allegedly ignored Driver's inquiries and concerns. (Id. ¶ 17.)

On or about August 28, 2019, Driver purchased additional shares of First United, increasing its stake in the company from 4.970% to 5.005%. (Id. ¶ 18.) Driver disclosed this acquisition to the SEC a week later, as required by federal law. (Id. (citing 17 C.F.R. § 240.13d-19(a)).) Driver also issued a press release which raised the possibility of Driver's nominating candidates for director at First United's next annual meeting unless the Board took immediate steps to increase shareholder value. (Id. ¶ 23.) Driver alleges that, during the fourth quarter of 2019 and the first quarter of 2020, potential buyers attempted to pursue a transaction to acquire First United at around $28.00 per share, but Defendant Rodeheaver prevented any such transaction, asserting that First United "was not for sale." (Id. ¶ 28.)

In response to both Driver's publicly expressed concerns and Driver's acquisition of more First United shares, Driver alleges that the directors of First United's board sought to "neutralize what they perceived as a threat to the status quo," and that the directors began a campaign to disenfranchise Driver. (Id. ¶¶ 17, 20, 22, 26, 29-30, 80-89.) Driver asserts First United executed its campaign by manipulating the Commissioner to open an investigation intoDriver's alleged violation of Section 3-314 of the Financial Institutions Article of the Annotated Code of Maryland. (Id. ¶¶ 60-70.) Section 3-314 provides that one who intends to acquire a controlling interest in a Maryland bank or bank holding company must first apply to the Commissioner for him to determine if the proposed acquisition is anticompetitive or a threat to the safety or soundness of the banking institution. (Id. ¶ 45 (citing Md. Code Ann., Fin. Inst. § 3-314(c)).) The statute does not define what percentage of stock ownership triggers its requirements. (Id.) Shareholders found in violation of Section 3-314 may not vote their shares for a period of 5 years. (Id.)

Driver alleges that, in October of 2019, company counsel for First United, Andrew Bulgin, confirmed with the Commissioner that Driver had not applied to the Commissioner before purchasing its shares of First United. (Compl. ¶¶ 65-67.) On or about November 1, 2019, Bulgin allegedly submitted a detailed complaint with exhibits to the Commissioner, asking him to open an investigation into Driver because Driver had "violated Section 3-314" and should be prohibited from voting its share for 5 years. (Id. ¶ 68.) On or about November 19, 2019, Driver announced publicly that it intended to nominate three candidates, Michael Driscoll, Lisa Narrell-Mead, and Ethan Elzen, to compete for seats on the board. (Id. ¶ 32.)

In January of 2020, First United allegedly enlisted political help from Maryland State Senator George Edwards, Garrett County Delegate Wendell Beitzel, and representatives from Governor Hogan's office to pressure the Commissioner into taking action against Driver. (Id. ¶¶ 96-98.) On or about January 21, 2020, Driver was notified that the Commissioner's office had opened an investigation under § 3-314 into Driver's purchase of First United stock. (Id. ¶ 99.) On or about January 22, 2020, Driver alleges that Defendant Rodeheaver and Mr.Bulgin met with the Commissioner, the Secretary of Labor, Delegate Beitzel and representatives of the Governor to discuss the investigation of Driver. (Id. ¶ 101.)

In its March 30, 2020 preliminary proxy statement, First United instructed shareholders that "[i]f Driver Management is ultimately prohibited from voting its shares of Common Stock or nominating the Driver Nominees, then any proxy that you deliver to Driver Management will be void and your vote will not be counted." (Id. ¶¶ 79, 114.) The SEC challenged this statement and required First United to remove it. (Id.) On April 7, 2020, First United's amended preliminary proxy statement cited the existence of the investigation as a reason to discount Driver's position, which the SEC also allegedly challenged. (Id. ¶¶ 115-117.) In its definitive proxy statement on April 17, 2020, First United stated that Driver was "currently being investigated" and maintained that if Driver was unable to vote, its nominations would not be valid. (Id. ¶ 119.) Driver alleges that First United never disclosed in any of its filings that it was the one to request, compile support for, and lobby the Commissioner to open the investigation against Driver. Instead, Driver alleges that First United made multiple false or materially misleading statements to shareholders about First United's sponsorship of the investigation and the...