Grinaker v. Grinaker, 950354

• Decision Date: 03 September 1996
• Docket Number: No. 950354,950354
• Parties: Debra GRINAKER, Plaintiff and Appellee, v. Gary GRINAKER, Defendant and Appellant, and The Photo Express, Inc., Defendant, and Lucia Stellick, Receiver and Appellee. Civil
• Court: North Dakota Supreme Court

Page 200

553 N.W.2d 200

Debra GRINAKER, Plaintiff and Appellee, v. Gary GRINAKER, Defendant and Appellant, and The Photo Express, Inc., Defendant,

and

Lucia Stellick, Receiver and Appellee.

Civil No. 950354.

Supreme Court of North Dakota.

Sept. 3, 1996.

Rehearing Denied Oct. 1, 1996.

Deborah J. Carpenter, of Carpenter Offices, Bismarck, for plaintiff and appellee.

Gary Grinaker, Bismarck, Pro se.

Malcolm H. Brown, Bismarck, for receiver and appellee.

VANDE WALLE, Chief Justice.

Gary Grinaker appealed from orders appointing a receiver, staying a corporate meeting, authorizing the sale of corporate assets, and approving the receiver's fees and final accounting. We affirm.

Gary and Debra Grinaker, husband and wife, each owned fifty percent of the stock of The Photo Express, Inc. [Photo Express], a photo finishing lab and portrait studio. Gary and Debra both worked full-time in the business.

The couple experienced marital difficulties which began affecting the business. Debra filed for divorce in 1993. Each party claims the other altered the computerized business records of Photo Express to gain an advantage in the divorce. Gary also changed the locks to Photo Express, resulting in Debra on one occasion being locked in the business after hours. Gary also restricted Debra's access to the business and its records, and threatened he would "throw [her] ass in jail" if she entered Photo Express without his permission.

During the pendency of the divorce action, Gary claimed he owned more than fifty percent of the stock of Photo Express and attempted to take control of the company. Gary acknowledged he intended to replace Debra's parents on the board of directors at the annual shareholders' meeting in December 1993. Debra brought this action against Gary and Photo Express seeking an emergency stay of the annual meeting and injunctive relief. The district court stayed the annual meeting and scheduled a hearing. Debra subsequently requested the court to appoint a receiver to preserve the assets of Photo Express while the divorce action was pending.

The district court found Gary's conduct was "reprehensible and clearly 'smacks' of attempted harassment and maneuvering to gain legal advantage in the divorce action." Deeming "the preservation of the assets to be of greatest significance and urgency," the court concluded the appointment of a receiver for Photo Express was appropriate. On October 7, 1994, Lucia Stellick, a certified public accountant, was appointed receiver of Photo Express with authority to run the business on a day-to-day basis. Although Gary was allowed to remain as an employee of Photo Express at the same salary he had earned previously, he quit when Stellick took over as receiver.

On June 15, 1995, the court ordered the assets of Photo Express returned to Gary and terminated the receivership. Gary ultimately was awarded all of the stock in Photo Express in the divorce action. ¹ On August 29, 1995, the court entered its order approving the receiver's final accounting and ordering payment of fees and expenses in the total amount of $39,494.47. Gary appealed.

Gary asserts the trial court abused its discretion in ordering appointment of a receiver. The decision to appoint a receiver rests within the sound discretion of the trial court, and we will overturn the court's decision only for an abuse of discretion. Bjorgen v. Kinsey, 491 N.W.2d 389 (N.D.1992). An abuse of discretion is never assumed; the burden is upon the party seeking relief to affirmatively establish it. Mertes v. Walberg, 548 N.W.2d 378 (N.D.1996); North Shore, Inc. v. Wakefield, 542 N.W.2d 725 (N.D.1996). A trial court abuses its discretion only when it acts in an arbitrary, unreasonable, or unconscionable manner, or when its decision is not the product of a rational mental process leading to a reasoned determination. Bruner v. Hager, 547 N.W.2d 551 (N.D.1996).

Gary supports his argument primarily with case law from other jurisdictions. However, our Business Corporation Act, Chapter 10-19.1, N.D.C.C., specifically covers the situation presented here. Curiously, the parties have failed to cite these relevant statutory provisions, other than one passing reference in Gary's brief.

Section 10-19.1-115(1)(b), N.D.C.C., authorizes the court to grant equitable relief, including dissolution of the corporation, when those in control of a corporation have acted fraudulently, illegally, or in a prejudicial manner toward shareholders:

"1. A court may grant any equitable relief it deems just and reasonable in the circumstances or may dissolve a corporation and liquidate its assets and business:

* * * * * *

"b. In an action by a shareholder when it is established that:

* * * * * *

"(2) The directors or those in control of the corporation have acted fraudulently or illegally toward one or more shareholders in their capacities as shareholders or directors or as officers or employees of a closely held corporation; [or]

"(3) The directors or those in control of the corporation have acted in a manner unfairly prejudicial toward one or more shareholders in their capacities as shareholders or directors of a corporation that is not a publicly held corporation or as officers or employees of a closely held corporation...."

Section 10-19.1-115(4), N.D.C.C., clarifies that, when dealing with a closely held corporation, the high degree of fiduciary duties between shareholders must be taken into consideration:

"In determining whether to order equitable relief or dissolution, the court shall take into consideration the duty which all shareholders in a closely held corporation owe one another to act in an honest, fair, and reasonable manner in the operation of the corporation and the reasonable expectations of the shareholders as they exist at the inception and develop during the course of the shareholders' relationship with the corporation and with each other...."

Shareholders in a close corporation have a right to relief when faced with oppressive conduct by those controlling the corporation. Fisher v. Fisher, 546 N.W.2d 354 (N.D.1996); Balvik v. Sylvester, 411 N.W.2d 383 (N.D.1987).

In this case, as we noted previously, there was evidence Gary restricted Debra's access to the premises and to the business records. He changed the locks and refused to give her a key, resulting in Debra being locked in the business premises. Gary claimed ownership of more than half of the corporation based upon additional "shares" ultimately found to be invalid, and attempted to gain total control of the corporation by replacing Debra's parents on the board of directors. Gary threatened to have Debra jailed if she entered Photo Express without his permission. There was also evidence Gary had tampered with the company's computerized business record system. Considering Gary's duty to act honestly, fairly, and in a reasonable manner toward Debra, Section 10-19.1-115(4), N.D.C.C., the court could conclude that Gary's conduct was oppressive, fraudulent, and unfairly prejudicial, supporting the decision to appoint a receiver.

Gary argues a receivership is not appropriate if the business is profitable and not in danger of discontinuing operations. Section 10-19.1-115(2), N.D.C.C., expressly provides the business's profitability is insufficient, standing alone, to deny equitable relief:

"In determining whether to order equitable relief or...