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CSR, Inc. v. Foster-Bey

United States District Court, E.D. Virginia, Alexandria Division

May 10, 2017

CSR, INCORPORATED, in its corporate capacity and in its capacity as fiduciary of the CSR, Incorporated Employee Stock Ownership Plan. Plaintiff,
v.
JOHN FOSTER-BEY, Defendant.

          MEMORANDUM OPINION

          James C. Cacheris, UNITED STATES DISTRICT COURT JUDGE

         This matter is before the Court on Plaintiff CSR, Incorporated's Motion to Dismiss [Dkt. 77] Defendant John Foster-Bey's Amended Counterclaims. For the reasons that follow, the Court will deny Plaintiff's Motion.

         I. Background

         The following allegations of fact from Foster-Bey's Counterclaims are taken as true for purposes of Plaintiff's Motion. See E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 440 (4th Cir. 2011).

         Foster-Bey has served as CEO and President of CSR, as well as Trustee of CSR's Employee Stock Ownership Plan (ESOP), since December of 2011. Am. Counterclaim [Dkt. 75] ¶ 8. In 2012, he was made a member of CSR's Board of Directors. Id. Under Foster-Bey's leadership, CSR returned from near-insolvency to “profitability and a strong balance sheet.” Id. ¶¶ 12-13.

         In 2013, Foster-Bey appointed Thomas Edgar and Robert Neil to CSR's Board. Id. ¶ 16. He appointed Cynthia Marsden to the Board in 2015. Id. The terms of Neil and Edgar were, by resolution, set to expire on September 30, 2016, while Marsden's term is due to expire September 30, 2017. Id. ¶ 17.

         From 2013 on, Foster-Bey “spent a significant amount of time on business development” and successfully grew CSR's business. Id. ¶¶ 18-20. In April of 2015, however, Foster-Bey became ill and was forced to take a leave of absence for several weeks, during which he worked from the hospital. Id. ¶ 23. Upon being discharged from the hospital, Foster-Bey's doctor cautioned him that he should work from home to the extent possible - a practice Foster-Bey had generally permitted among his employees. Id. ¶¶ 24-25. Upon learning of Foster-Bey's plans to work from home, Neil and Edgar first suggested that Foster-Bey retire, then insisted that he take another month away from the office, during which Foster-Bey worked from home. Id. ¶¶ 26-27.

         After this incident, Foster-Bey became concerned that Neil and Edgar were attempting to pressure him to quit - a concern that grew acute after those two Board members attempted to reduce Foster-Bey's annual bonus by half without good cause. Id. ¶¶ 29-36. Foster-Bey's suspicions were substantiated when the other Board members attempted to oust him from his various positions at CSR.

         After meeting in secret, the outside Board members sent Foster-Bey an email on September 7, 2016 asking him to attend a special Board meeting regarding “Business Development and Corporate governance.” Id. ¶¶ 38-39, 47-52. After a cryptic email exchange, Foster-Bey grew concerned about the meeting and sought advice from CSR's legal counsel regarding the process for dissolving the Board. Id. ¶¶ 49-54. Counsel for CSR, however, declined to provide legal advice, as he deemed the issue a dispute between management and the Board. Id. ¶¶ 54-56.

         Foster-Bey attended the special Board meeting on September 12, 2016, and was surprised to learn that the subject of the meeting was the Board's decision to remove him from his various positions at CSR over “business development” concerns. Id. ¶¶ 57-60. Foster-Bey pointed out his successes in business development and suggested that the Board provide him with specific benchmarks for business development. Id. ¶¶ 63-64. The Board agreed to provide a memo outlining their expectations, and the meeting concluded without the Board taking any action or setting a future meeting date. Id. ¶¶ 65-67.

         The Board sent Foster-Bey the promised memorandum several days later. Id. ¶ 69. Among other things, it required that Foster-Bey reappoint Edgar and Neil as Board members upon the expiration of their membership terms - a provision Foster-Bey deemed a bridge too far. Id. ¶¶ 72-73. In light of this and the Board's other irregular activities, Foster-Bey appointed two new Board members to replace Edgar and Neil - Garland Yates and James Hymen. Id. ¶¶ 74-75.

         Meanwhile, Foster-Bey thought it best in light of the September 12 meeting to cancel an appointment scheduled for September 19, 2016, during which Foster-Bey was to meet with “two newly retained business development consultants.” Id. ¶¶ 77-79. Upon learning that the meeting was cancelled, Edgar protested and asked in an email dated September 18, 2016, that Foster-Bey meet with the entire Board the following day. Id. ¶ 79. Foster-Bey was not provided with any notice regarding what the topic of the meeting would be. Id. ¶ 80. In light of all that had come before, Foster-Bey retained independent counsel and wrote letter informing Edgar and Neil that they would be replaced as Board members, mistakenly believing their terms to have already run. Id. ¶¶ 82-84.

         Foster-Bey appeared at the September 19, 2016 meeting with counsel and provided Edgar and Neil with the letters he had written. Id. ¶¶ 85-86. At the meeting, counsel for Foster-Bey discussed the situation with counsel for Plaintiff, but they were unable to reach a resolution and agreed to speak again at a later date. Id. ¶ 86. The meeting ended without the Board having taken any action. Id. ¶¶ 88-89.

         On September 21, 2016, the Board sent Foster-Bey notices of termination regarding his positions as CEO and Board member of CSR through counsel. Id. ¶ 96. Several days later, on September 26, 2016, the Board communicated that those notices had become effective, and that Foster-Bey would additionally be terminated from his position as Trustee of CSR's ESOP. Id. ¶¶ 110-14. At no point was a Board meeting formally convened at which Foster-Bey's termination from his various positions was discussed and decided upon. I ...


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