Horras v. Am. Capital Strategies, Ltd.

Citation729 F.3d 798
Decision Date16 October 2013
Docket NumberNo. 12–3886.,12–3886.
PartiesThomas M. HORRAS, Plaintiff–Appellant v. AMERICAN CAPITAL STRATEGIES, LTD., Defendant–Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

729 F.3d 798

Thomas M. HORRAS, Plaintiff–Appellant
v.
AMERICAN CAPITAL STRATEGIES, LTD., Defendant–Appellee.

No. 12–3886.

United States Court of Appeals,
Eighth Circuit.

Submitted: June 10, 2013.
Filed: Sept. 3, 2013.

Rehearing and Rehearing En Banc Denied Oct. 16, 2013.
*


[729 F.3d 800]


Gail E. Boliver, argued, Marshalltown, IA, for appellant.

Brian K. Condon, argued, Los Angeles, CA, Stanley J. Thompson, on the brief, Des Moines, IA, for appellee.


Before COLLOTON, GRUENDER, and BENTON, Circuit Judges.

GRUENDER, Circuit Judge.

Thomas Horras filed this lawsuit against American Capital Strategies, Ltd. (“ACS”), making claims for breach of fiduciary duty and breach of contract. The district court 1 granted ACS's motion to dismiss, seeFed.R.Civ.P. 12(b)(6), and denied Horras's subsequent motion for relief from judgment, seeFed.R.Civ.P. 60(b), and motion to alter or amend the judgment, seeFed.R.Civ.P. 59(e), in which he sought leave to amend the complaint as an alternative remedy. Horras appeals the dismissal and the denial of his request for post-judgment leave to amend. We affirm.

I.

Horras's complaint sets forth the following facts. See Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508 n. 1, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) ( “Because we review here a decision granting respondent's motion to dismiss, we must accept as true all of the factual allegations contained in the complaint.”). Sometime prior to 2000, Horras, an Iowa citizen, built a successful home health care business and agreed to merge his business with other home health care providers to form Auxi, Inc. (“Auxi”), a Delaware corporation. As a result of the merger, Horras received 417,734 shares of Auxi stock. At some time during 2000 or 2001, ACS acquired control of Auxi. In 2007, ACS initiated the sale of Auxi to Harden Health Care (“HHC”). Auxi did not inform Horras of the sale, and Horras received no compensation for his shares.

In Count I, for breach of fiduciary duty, Horras pleads that: (1) “ACS controlled Auxi Inc. at the time of its sale in 2007”; (2) “ACS, through its Auxi Board Members, initiated the sale of Auxi to HHC”; (3) “ACS was paid for its shares of Auxi in 2007”; (4) “ACS breached its fiduciary responsibility to plaintiff by failing to notify him of corporate activity [a]ffecting his shares”; (5) “Neither ACS nor Auxi has paid plaintiff for his shares”; (6) “Auxi shares sold for over $20.00 per share”; and (7) “Plaintiff was damaged by the failure to pay him for his shares.”

In Count II, for breach of contract, Horras pleads that: (1) “ACS controlled Auxi Inc. through its Board Members”; (2) “ACS and/or Auxi represented all shares of Auxi would be sold to HHC”; (3) “Neither ACS nor Auxi, Inc. had authority to

[729 F.3d 801]

sell the plaintiff's shares”; (4) “Plaintiff has not been compensated for his shares”; (5) “Plaintiff has been damaged by defendant's failure to compensate him for his shares”; and (6) “Auxi shares were sold for over $20.00 per share.”

ACS filed a motion to dismiss, arguing that Horras (1) failed to allege facts plausibly suggesting that ACS owed him or breached any fiduciary duties and (2) failed to allege facts demonstrating the existence of a contract between ACS and himself. Before a hearing on ACS's motion to dismiss, the district court distributed a memorandum to both parties identifying its concerns about the complaint. The memorandum asked Horras to identify at the hearing the source of ACS's alleged duty to Horras, whether Horras alleged anything other than ACS's failure to notify him of the sale, and whether a contract existed between ACS and Horras. Responding to these concerns, which the court reiterated at the hearing, Horras's counsel stated, “[T]here are more than an adequate amount of facts that have been alleged in this claim. I would request the court to ... allow this case to move on with some speed.... [I]t has been delayed for three months on a matter that confounds me with the simplicity given that the defendant purports to be a sophisticated financially based firm.” On June 25, 2012, the court granted ACS's motion to dismiss, determining that Horras (1) failed to plead facts showing that ACS breached any fiduciary duty and (2) failed to plead facts establishing the existence of a contract.

Horras then filed motions for post-judgment relief under Rules 59(e) and 60(b), which the court denied. With those motions, Horras sought leave to amend as alternative relief and submitted a proposed First Amended Complaint. Noting that Horras never sought leave to amend prior to judgment, the district court held that it was not required to grant leave to amend post-judgment, alternatively denying Horras's motion for leave to amend on the basis of futility.

Horras appeals the grant of ACS's motion to dismiss and the denial of his request for leave to amend the complaint.

II.

We review the dismissal of a complaint for failure to state a claim de novo, Braden v. Wal–Mart Stores, Inc., 588 F.3d 585, 591 (8th Cir.2009), affirming dismissal if the complaint “fail[s] to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). “A pleading that states a claim for relief must contain: a short and plain statement of the claim showing that the pleader is entitled to relief....” Fed.R.Civ.P. 8(a)(2). The complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.’ ” Id. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). “Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’ ” Id. (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955) (alteration in original).

A.

To state a claim for breach of a fiduciary duty under Iowa law, the plaintiff must plead facts showing that “(1) [the

[729 F.3d 802]

defendant] owed a fiduciary duty to [the plaintiff]; (2) [the defendant] breached the fiduciary duty ...; (3) the breach of fiduciary duty was a proximate cause of damage to [the plaintiff]; and (4) the amount of damages, if any.” Top of Iowa Co–op. v. Schewe, 149 F.Supp.2d 709, 717 (N.D.Iowa 2001)aff'd,324 F.3d 627 (8th Cir.2003).2 A fiduciary duty exists between two entities “when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation[ship].” Kurth v. Van Horn, 380 N.W.2d 693, 695 (Iowa 1986) (quoting Restatement (Second) of Torts, § 874 cmt. a (1979)).

Iowa law suggests that ACS, Auxi's controlling shareholder according to Horras's complaint, had a fiduciary relationship with Horras. The Iowa Supreme Court has held that “majority shareholders do owe a fiduciary duty to minority shareholders.” Linge v. Ralston Purina Co., 293 N.W.2d 191, 194 (Iowa 1980); see also Cookies Food Prods., Inc. v. Lakes Warehouse Distrib., Inc., 430 N.W.2d 447, 451 (Iowa 1988) (noting that Iowa law imposes the same fiduciary responsibilities on majority shareholders that it does on corporate directors). Linge, however, did not address how a majority shareholder might breach its duties. Rather, it noted that the majority shareholder's status as a fiduciary to minority shareholders eased the minority-shareholder-plaintiff's burden of proof in a fraud action. Id. at 195. The court explicitly declined to address whether breach of fiduciary duty constituted a tort independent of fraud. Id. at 196–97. In Cookies, the court again announced that majority shareholders owe fiduciary duties to the minority, but it analyzed the case in terms of the traditional directorial duties of care and loyalty because the defendant majority shareholder in that case also was a director and officer of the corporation. Cookies, 430 N.W.2d at 451–53.

In Baur v. Baur Farms, Inc., 832 N.W.2d 663 (Iowa 2013), the state court clarified a majority shareholder's fiduciary duty to a minority shareholder: “This fiduciary duty encompasses a duty of care and a duty of loyalty to the corporation. The fiduciary duty also mandates that controlling directors and majority shareholders conduct themselves in a manner that is not oppressive to minority shareholders.” See Baur, 832 N.W.2d at 674 (internal citation omitted). The oppression determination “must focus on whether the reasonable expectations of the minority shareholder have been frustrated under the circumstances.” Id. The court concluded that “majority shareholders act oppressively when ... they fail to satisfy the reasonable expectations of a minority shareholder by paying no return on shareholder equity while declining the minority shareholder's repeated offers to sell shares for fair value.” Id. The court did not, however, determine “all the categories of conduct and circumstances that will constitute oppression.” Id.

Unlike the minority shareholder in Baur, Horras requested neither dissolution of the company nor that ACS purchase his shares at fair market value. See id. at 665–66. Thus, we must determine whether Horras's complaint pleads facts sufficient to establish that ACS breached duties owed to Horras in its capacity as majority shareholder. Horras alleges that ACS sold its stock to HHC and that ACS failed to notify him of “corporate activity [a]ffecting his shares.” Because the Iowa Supreme Court has not defined that this constitutes a breach of a majority shareholder's fiduciary duties, “we must determine what rule the Iowa Supreme Court

[729 F.3d 803]

would apply.” Doe v. Baxter Healthcare Corp., 380 F.3d 399, 407 (8th Cir.2004). “Statements made by the Iowa...

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