BJ McAdams, Inc. v. Boggs

• Decision Date: 03 November 1977
• Docket Number: Civ. A. No. 75-3054.
• Citation: 439 F. Supp. 738
• Parties: B. J. McADAMS, INCORPORATED v. Winston M. BOGGS, Hughes Refrigerated Express, Inc., David E. Green, R. V. Phillips, Ralph T. Stalnaker, Robert E. Taylor, J. C. Long, Hal G. Davis, Edward G. Jukes, John W. Moore, Edward M. Schlein, L. B. Carnes, and Doris Beasley.
• Court: U.S. District Court — Eastern District of Pennsylvania

439 F. Supp. 738

B. J. McADAMS, INCORPORATED v. Winston M. BOGGS, Hughes Refrigerated Express, Inc., David E. Green, R. V. Phillips, Ralph T. Stalnaker, Robert E. Taylor, J. C. Long, Hal G. Davis, Edward G. Jukes, John W. Moore, Edward M. Schlein, L. B. Carnes, and Doris Beasley.

Civ. A. No. 75-3054.

United States District Court, E. D. Pennsylvania.

November 3, 1977.

COPYRIGHT MATERIAL OMITTED

Peter Hearn, Patricia L. Freeland, Philadelphia, Pa., for plaintiff.

Tom P. Monteverde, Philadelphia, Pa., for defendants.

Michael J. Rotko, Philadelphia, Pa., for defendant Boggs.

OPINION

LUONGO, District Judge.

This is a diversity action for breach of a fiduciary duty and diversion of a corporate opportunity. I disposed of various procedural motions in an earlier opinion. See 426 F.Supp. 1091 (E.D.Pa.1977). The case is now before me on a motion by some of the defendants for summary judgment under Federal Rule 56. As required in considering this motion, I shall assess the evidence in a light most favorable to plaintiff, the non-moving party. See, e. g., Bishop v. Wood, 426 U.S. 341, 347 n. 11, 96 S.Ct. 2074, 48 L.Ed.2d 684 (1976).

The plaintiff, B. J. McAdams, Incorporated, is a closely held Arkansas corporation engaged in interstate trucking. Its president and chief operating officer is Bob J. McAdams, who, with his former wife, are plaintiff's sole shareholders. The principal defendant, Winston M. Boggs, was an employee of plaintiff in 1974 and 1975.

This case centers around Boggs' purchase (for himself and some of the other defendants, rather than for plaintiff) of an Interstate Commerce Commission (ICC) certificate of public convenience and necessity authorizing certain interstate trucking in twenty-six Eastern states. The certificate had been owned by W. W. Hughes of Cornwells Heights, Pennsylvania. Boggs met Hughes in March 1974 while in Pennsylvania on business for plaintiff and, on plaintiff's behalf, made inquiries regarding purchase of the certificate. According to Bob McAdams, he and Boggs then undertook extensive, but unsuccessful, negotiations with Hughes regarding purchase of the certificate by plaintiff. Hughes died in February 1975, whereupon Boggs began conducting negotiations with the Hughes estate to purchase the certificate for himself. In May 1975, the estate accepted Boggs' purchase offer.

Rather than sell the certificate outright, the Hughes estate formed Hughes Refrigerated Express, Inc., a Pennsylvania corporation, having Mary Hughes, the estate's administratrix, as its sole shareholder, and sought ICC approval to transfer the certificate to the corporation. Once that approval was received and the transfer completed, the estate would sell all of the stock in Hughes Refrigerated Express. The stock sale, unlike sale of the certificate itself, would not require ICC approval.

While the ICC considered the application to transfer the certificate to Hughes Refrigerated Express, Boggs attempted to find other persons who would invest in the stock purchase. He offered this opportunity to David E. Green, a Haines City, Florida, physician, who, along with other potential investors from Haines City assembled by Green, met with Boggs in Florida in June 1975 to discuss the investment opportunity. Eleven Haines City residents — Green, Ralph T. Stalnaker, John W. Moore, Edward M. Schlein, Edward F. Jukes, J. C. Long, Hal G. Davis, Doris Beasley, R. V. Phillips, L. B. Carnes, and Robert E. Taylor (hereinafter collectively referred to as the investors) — agreed to join in the stock purchase. Financing was obtained through a loan from a local bank, Exchange Bank of Central Florida. The investors appointed Boggs as "Trustee or agent to represent them in the acquisition of the Hughes Refrigerated Express stock",¹ and on June 24, 1975, while in Philadelphia on business for plaintiff, Boggs, as "trustee," executed the agreement of sale with Mary Hughes and made a down payment.

On approximately August 22, 1975, the ICC approved transfer of the certificate to Hughes Refrigerated Express. Shortly thereafter, on August 25, 1975, the closing took place in Cornwells Heights, Pennsylvania. Boggs signed the closing documents for the investors and paid the balance of the purchase price. Hughes Refrigerated Express then set up its offices in Haines City, and on September 2, 1975, Boggs and the investors, as "all of the Shareholders and Directors" of Hughes Refrigerated Express, adopted a resolution ratifying the actions of their agents with regard to the August 25 closing.

In October 1975, plaintiff instituted this action against Boggs, the eleven investors, Hughes Refrigerated Express, and Exchange Bank of Central Florida.² As amended, the complaint alleges that Boggs breached a fiduciary duty owed to plaintiff and diverted plaintiff's corporate opportunity to acquire the ICC certificate and asserts that, as a result, Boggs and the investors hold the Hughes Refrigerated Express stock in constructive trust for plaintiff. The plaintiff demands transfer of the stock to it upon its payment of the purchase price, demands an accounting and payment to it of all profits generated from use of the certificate, and asks for damages. Plaintiff also sought to void the loan agreement with Exchange Bank, but the action against the bank was dismissed on February 14, 1977 for lack of personal jurisdiction. See 426 F.Supp. at 1096-97, 1102. The investors and Hughes Refrigerated Express (but not Boggs) have now moved for summary judgment.

DISCUSSION

Summary judgment may be granted

". . . if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976), cert. denied, 429 U.S. 1038, 97 S.Ct. 732, 50 L.Ed.2d 748 (1977).

The record in this case consists of twenty-one depositions and numerous documentary exhibits. Having surveyed this record, I have concluded that the first part of Rule 56(c) — requiring absence of material issues of fact — is dispositive of this motion. The Third Circuit has repeatedly emphasized the importance of a total absence of material factual issues. See, e. g., Ettinger v. Johnson, 556 F.2d 692, 696-97 (3d Cir. 1977); Costlow v. United States, 552 F.2d 560 (3d Cir. 1977). See also Adickes v. S. H. Kress & Co., 398 U.S. 144, 153-61, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Of course, the presence of factual issues will not bar summary judgment if they are not material to the controlling legal issues of the case. Tarasi v. Pittsburgh National Bank, 555 F.2d 1152, 1156 (3d Cir. 1977), petition for cert. filed, 46 U.S.L.W. 3054 (U.S., Aug. 4, 1977) (No. 77-195). But if the fact question is material, "summary judgment may not be granted where there is the slightest doubt as to the facts." Tomalewski v. State Farm Life Insurance Co., 494 F.2d 882, 884 (3d Cir. 1974). I have concluded that the investors and Hughes Refrigerated Express (the moving defendants) have failed to meet this standard and that summary judgment therefore must be denied.

Recognizing that their liability is, in a sense, derivative of that of Boggs, the moving defendants have attacked plaintiff's case on two levels. First, they contend that on this record Boggs is not liable and that they cannot be found liable as a result. Second, they contend that, even if Boggs is liable, there is no basis for imposing liability on the investors or Hughes Refrigerated Express. I shall discuss each of these arguments in turn.

A.

The moving defendants assert that Boggs cannot be held liable for two reasons. First, they contend that Boggs was not under a fiduciary duty to plaintiff with regard to acquisition of the Hughes certificate. Second, they contend that at the time Boggs acquired the certificate for himself, acquisition of the certificate was not a corporate opportunity of plaintiff.

Boggs' fiduciary relationship to plaintiff, if any, must result from the nature of his employment with plaintiff. Since this is a diversity action, the substantive law governing that relationship — as well as that governing all other aspects of this case — must be determined in accordance with Pennsylvania choice-of-law rules. See Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Griffin v. McCoach, 313 U.S. 498, 61 S.Ct. 1023, 85 L.Ed. 1481 (1941). Generally, those rules mandate that the substantive law of the jurisdiction predominantly concerned with a legal issue before the court should be applied to that issue. Jurisdictional concern is determined by a qualitative analysis of the contracts which each jurisdiction has with the transaction involved, focusing on the policies underlying each jurisdiction's laws with respect to that transaction and on the significance of each jurisdiction's factual contacts with the case insofar as they relate to the furtherance of that jurisdiction's legal policies. See Cipolla v. Shaposka, 439 Pa. 563, 267 A.2d 854 (1970); Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964); Lenherr Estate, 455 Pa. 225, 314 A.2d 255 (1974) (plurality opinion); Suchomajcz v. Hummel Chemical Co., 524 F.2d 19, 23 (3d Cir. 1975). The Pennsylvania Supreme Court adopted this choice-of-laws approach in its 1964 Griffith decision, and application of this rule has been somewhat uneven in cases decided since that time. See, e. g., Cipolla, supra. Generally, however, the Pennsylvania analysis seems to be in accord with that of the Second Restatement of Conflict of Laws (1971). See Suchomajcz, supra, at 23. With respect to determining what fiduciary duties arise out of an employment relationship, the most significant contacts seem to be those of the jurisdiction where the employment relationship is centered. This is especially...