475 N.E.2d 331 (Ind.App. 1 Dist. 1985), 1-1183A357, Dotlich v. Dotlich
| Docket Number | 1-1183A357. |
| Citation | 475 N.E.2d 331 |
| Date | 13 March 1985 |
| Parties | Mechel DOTLICH, Monnie Dotlich, Defendants-Appellants, v. Sam DOTLICH, as a shareholder of Dotlich Bros. Corp. and on behalf of such corporation, Plaintiff-Appellee, Merko Dotlich, Dotlich Bros. Corp., Defendants-Appellees. |
| Court | Indiana Appellate Court |
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Donald A. Schabel, Indianapolis, Melvin N. Fredbeck, LaGrange, Fredbeck & Deppe, Franklin, for Mechel Dotlich.
Wayne C. Ponader, Alan W. Becker, Bose, McKinney & Evans, Indianapolis, for Monnie Dotlich.
Marvin Mitchell, Richard J. Dick, Ann E. Bartlett, Mitchell Hurst Pinkus Jacobs & Dick, Indianapolis, Tom Jones, Jones, Loveall, Johnson & Boyll, Franklin, for Sam Dotlich.
RATLIFF, Presiding Judge.
STATEMENT OF THE CASE
This is a shareholder's derivative action brought on behalf of Dotlich Brothers Corporation by Sam Dotlich a director and shareholder. Mechel Dotlich and Monnie Dotlich appeal from special findings of fact and a judgment against them for fraud and breach of their respective fiduciary duties as directors of the corporation. A constructive
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trust was imposed on property held by Monnie Dotlich ordering him to convey it to the corporation. Monnie was assessed $9,288 in compensatory damages and $20,000 in punitive damages. Mechel, Merko, and Sam Dotlich were ordered to reimburse the corporation for their homes according to their respective values as of 1978. Mechel and Monnie were also assessed $351,252.25 in attorney fees and costs. Finally, a receiver was appointed to take over the business of the corporation. We reverse the attorney fee award and punitive damage award against Mechel. In all other respects we affirm.
FACTS
In 1948, four brothers, Monnie, Mechel, Merko, and Sam Dotlich, formed a partnership to run a heavy equipment rental business. As the business grew, the four partners decided to acquire real estate upon which buildings could be erected to give the business extra space. In 1951, a 56 acre tract of land in Speedway was purchased with partnership funds. Sam, Merko, and Mechel agreed that the property should be titled in Monnie's name. The brothers subsequently cleared the land and developed it by erecting buildings which were leased by the partnership to other businesses.
In 1957, three lots on Kessler Boulevard were purchased. Sam, Mechel, and Merko each received a lot, deeded in his own name. Sam told Monnie he was entitled to a lot of his own but Monnie declined. In 1963, and 1964, homes were built on each lot for the three brothers and their families. By this time, two corporations had been formed. Dotlich, Inc., formed in 1960, ran the heavy equipment rental business. In 1962, Dotlich Brothers, Inc. (the corporation) was formed to carry on a real estate investment business. The corporation was the successor in interest to the real estate acquired by the partnership. Monnie, Mechel, Merko, and Sam each held a 25% share of the corporation's stock.
Before going further, it is necessary to discuss the handling of partnership and corporate finances. Basically, every financial transaction involved a single account. From 1948 on, all expenses and purchases were paid out of a single checking account controlled by Monnie. No distinction was drawn between business and personal expenses. Apparently, whenever money was needed by any of the brothers, Monnie would simply draw a check on the corporate account. Similarly, all income obtained was deposited into this account. Again, no distinction was drawn between personal and business income. For example, rental receipts from the buildings on the Speedway property as well as Sam's government disability check were deposited into the corporate account which the brothers called the common pot. The purchase money and development capital for the Speedway property and the three residences came from the common pot.
In 1964, a farm in Clermont was purchased with corporate funds apparently for investment purposes. The deed to this property was put in Monnie's name as was the Speedway deed. However, unlike the Speedway title, Sam was not aware Monnie was the record owner of the Clermont Farm.
In 1973, a 188 acre tract, referred to as the Mansfield Lake property, was purchased with corporate funds. Sam, when questioned by Monnie, agreed the purchase would be a good investment. However, the property was again titled in Monnie's name without Sam's or Merko's knowledge. The corporation spent additional amounts to develop the land by clearing it and installing drainage pipes and a septic system.
From 1974 to 1975, three rental properties were purchased with corporation funds. Again, unknown to Sam and Merko, these homes were all titled in Monnie's name. Rental income, from these homes was put into the common pot.
All of the land titled in Monnie's name, i.e., the Speedway property, the Clermont Farm, the Mansfield Lake property, and the rental properties, was purchased, developed, maintained, and insured with corporate funds. Taxes were also paid with
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corporate funds and each parcel was listed on corporate tax returns as a corporate asset. The three Kessler Boulevard homes, titled in Sam's, Merko's and Mechel's names, were also considered corporate assets. Taxes, maintenance, insurance and construction were paid for by the corporation. Simplified tremendously, the present controversy involves ownership of these nine pieces of property. Monnie claimed, at trial, that he was the ultimate owner of the six properties titled in his name. Mechel agreed with Monnie and also claimed he was the absolute owner of his Kessler Boulevard residence. Sam and Merko, on the other hand, contended the beneficial owner of all nine parcels was the corporation.
In 1976, Sam discovered the Clermont Farm, Mansfield Lake property, and three rental properties were titled in Monnie's name. He obtained private counsel who wrote a letter to his three brothers notifying them that Monnie was the owner of record of these five parcels. Sam requested the directors take action to remedy this irregularity, but none was taken. Later, a board of directors meeting was held on the subject of allowing Sam to take his share and withdraw from the corporation. A plan was worked out between Sam's accountant and the accountant for the corporation, but it was rejected by the brothers. Monnie was opposed to Sam's withdrawal and indicated to Merko that he (Monnie) would "grab all the money" so Sam could not withdraw.
In 1978, Sam attempted to supervise Monnie's control of corporate funds by getting independent financial statements. Sam also believed it was crucial that the six properties titled in Monnie's name be conveyed to the corporation. Regarding the Speedway property, Sam, as well as Mechel and Merko, always were aware that Monnie's name appeared on the deed. However, Sam always had thought, at least prior to 1976, that Monnie recognized beneficial title to the property was in the corporation. When he discovered the other five tracts were also titled in Monnie's name, Sam took the same position that Monnie was merely holding title as trustee and the corporation was the beneficial owner. Sam understood that all the property had been purchased and maintained with corporate funds.
In the 1960's, an IRS agent investigating the corporate tax returns, questioned deductions taken on the Speedway property since the owner of record was Monnie. The corporation's accountant stated that Monnie held the land as trustee for the corporation. Similarly, Sam confronted the issue of the ultimate ownership of the three residences built for himself, Merko, and Mechel by admitting this property also belonged to the corporation. Merko agreed with Sam stating it was his understanding the homes on Kessler Boulevard belonged to the corporation.
In an attempt to settle the disagreement, the brothers held one final meeting of the corporate directors. Sam introduced a resolution which would have empowered Sam, Merko, and Mechel to supervise the necessary conveyances to insure that all corporate property would be titled in the corporate name. Sam and Merko voted to pass the resolution but Monnie and Mechel voted against it deadlocking the directors on the issue.
Convinced that further negotiation would be fruitless, Sam initiated a shareholder's derivative action on behalf of the corporation naming Monnie and Mechel as defendants. Merko was brought in as a necessary party. The complaint alleged Monnie and Mechel had breached their fiduciary duties to the corporation by converting corporate opportunity to their own benefit. Monnie was accused of mismanagement of corporate finances and improperly holding valuable corporate property in his own name. Mechel was accused of aiding and abetting Monnie's acts. The corporation asked that the property be conveyed to the rightful owner and punitive damages be assessed against Monnie and Mechel. The complaint also requested a court appointed receiver to take over the business of the corporation. Monnie responded by filing a
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counterclaim for an accounting which, pursuant to the pre-trial order, was separated from the derivative action and is still pending.
The trial court entered special findings under Indiana Rules of Procedure, Trial Rule 52(A) in favor of the corporation on all issues raised. The property claimed by Monnie was to be transferred to the corporation by imposition of a constructive trust. All three Kessler Boulevard homes were found to be corporate property and Sam, Merko, and Mechel were ordered to pay the corporation the value of their respective residences. Punitive damages, attorney fees, and expenses were assessed against Monnie and Mechel in favor of the corporation. Mechel and...
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