Raymac Leasing Corp. v. U.S. Brands Corp.
| Citation | 941 F.2d 1210 |
| Decision Date | 14 August 1991 |
| Docket Number | No. 90-4043,90-4043 |
| Parties | NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. RAYMAC LEASING CORP., et al., Plaintiffs-Appellants, v. U.S. BRANDS CORPORATION, et al., Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
Before BOGGS, Circuit Judge, LIVELY, Senior Circuit Judge, and CLELAND, District Judge. *
This is a diversity case in which the rights of the parties are controlled by the substantive law of Ohio. The plaintiffs are two Ohio corporations, Raymac Leasing Corporation and S & R Products, Inc., and their sole shareholder, Ray G. McIntire, an Ohio resident. The only defendant named in the original complaint was U.S. Brands, a New York corporation. The second amended complaint added three individual defendants, David Bonerb, Michael McGee and Michael P. Conroy, all New York residents, the appellees here.
The only question on appeal is whether the district court properly granted summary judgment in favor of the individual defendants. There was no appeal from a default judgment entered against U.S. Brands.
Plaintiff-appellant S & R Products, Inc. began a sugar repackaging business in Xenia, Ohio in 1980, which operated at a loss for two years. During that time, both the corporation and its sole shareholder, plaintiff-appellant Ray McIntire, incurred large debts in order to keep the business solvent. In May 1982, in an attempt to salvage the failing business, Mr. McIntire, for S & R Products, entered into a "Management Agreement" with the defendant U.S. Brands. Under the agreement, U.S. Brands acquired complete control over the management of S & R. The agreement required that all officers and directors of S & R resign. During the term of the agreement, U.S. Brands was to manage the packaging business for S & R, and make monthly payments to S & R of either $1.00 per hundred pounds of sugar packed or $10,000, which ever amount was greater. Those monthly payments, which eventually totalled over $227,000, enabled both McIntire personally and his corporation to make payments on their respective debts. The contract also permitted U.S. Brands to "cancel this agreement at any time in its sole discretion by giving notice to that effect" to S & R. McIntire also retained the option of cancelling the agreement if U.S. Brands did not make timely monthly payments. Under the agreement, in the event McIntire chose to cancel, his sole remedy was the cancellation of the agreement "and in no event [would] U.S. be liable for money damages to S & R."
U.S. Brands operated S & R's sugar packing operation for 20 months, until the end of February 1984. S & R contends that during that time, U.S. Brands fired all of S & R's management employees, transferred all of S & R's accounts receivable to the books of U.S. Brands in Buffalo, New York, transferred the servicing of all of S & R's customers to their plant in Buffalo, dismissed S & R's entire sales staff, took S & R's inventory of packaging materials to Buffalo, opened an additional sugar packing line at the plant in Xenia but paid nothing to S & R for the sugar packed from that line, and quit the management of S & R without providing it notice. The plaintiffs contend that after leaving S & R, U.S. Brands continued to service S & R's most valuable clients from their Buffalo plant and that U.S. Brands experienced a significant increase in sales volume as a result. The original complaint, filed in an Ohio state court, sought recovery from U.S. Brands on several different theories, including a claim for breach of the management agreement. In its answer U.S. Brands denied all material allegations of the complaint. The plaintiffs added Count V in their second amended complaint.
The defendants removed the case to the district court following the filing of the second amended complaint. After tentatively denying the defendants' motion for summary judgment as to all counts, upon reconsideration the district court granted the motion of the individual defendants and dismissed the only claims against them contained in Count V. The court specifically held that the management agreement was a valid contract which determined the rights and obligations of the parties. The plaintiffs do not question this holding on appeal. The court ruled that the individual defendants were not acting outside the scope of their employment with U.S. Brands and that they could not be liable individually for any alleged harm caused to the plaintiffs arising from a breach of the contract between their principal and the plaintiffs. In addition, the court held that the individual defendants could not be held personally liable to the plaintiffs for an alleged tort unless the tort consisted of breach of a duty owed to the plaintiffs independently of the contract between the plaintiffs and U.S. Brands.
After the individual defendants were dismissed, a default judgment was entered against U.S. Brands on the remaining counts of the complaint. The court found that U.S. Brands was liable, among other things, for breach of fiduciary duty owed to the plaintiffs, and awarded the plaintiffs $2.7 million in compensatory damages and $1.5 million in punitive damages.
On appeal, the plaintiffs seek reversal of the district court's dismissal of Count V, which we copy in full:
COUNT V
1. Plaintiff, Ray G. McIntire, is the sole shareholder of Plaintiff, S & R Products, Inc., an Ohio Corporation which was chartered on or about November 3, 1970. On or about June 1, 1982, S & R Products, Inc., was in the business of packaging raw sugar and was selling and distributing packaged sugar to customers in Michigan, Illinois, Indiana, Ohio, Kentucky, and Pennsylvania.
2. Pursuant to the agreement attached hereto as Exhibit "B," Plaintiff, Ray G. McIntire, resigned as an officer and director of S & R Products, Inc., and turned the total management of that corporation over to U.S. Brands Corp. and its principal officers, David Bonerb, Michael McGee, and Michael P. Conroy. In assuming the control and management of S & R Products, Inc., the Defendants acted in place of the officers and directors of S & R Products, Inc., and became the defacto officers and directors of S & R Products, Inc., and as such owed a fiduciary duty to Plaintiff, Ray G. McIntire, sole shareholder of S & R Products, Inc., to see that the assets and business of S & R Products, Inc., were honestly conserved and managed and to see that same were not wasted or mismanaged. In violation of their duty, the Defendants did cause and permit the assets, business, customers, and corporate opportunities of Plaintiff, S & R Products, Inc., to be wasted and mismanaged by diverting the same to the benefit of U.S. Brands Corp.
3. As a result of the acts alleged, the Defendants, other than Defendant, U.S. Brands Corp., have directly and indirectly profited and are continuing to profit at the expense of Plaintiff, S & R Products, Inc., which continues to sustain losses, and was left and abandoned by the Defendants on or about February 28, 1984, in such physical and financial condition that it could no longer operate.
4. No demand has been made upon the Defendants to bring an action for relief appropriate to the facts herein alleged, inasmuch as Defendants participated in the acts herein complained of and a demand upon them to sue themselves would be ignored and a vain and futile act.
In reviewing the district court order granting a motion for summary judgment, this court conducts a de novo review, making all reasonable inferences in favor of the non-moving party to determine if a genuine issue of material fact exists. E.E.O.C. v. University of Detroit, 904 F.2d 331, 334 (6th Cir.1990).
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