Brane v. Roth

• Decision Date: 20 April 1992
• Docket Number: No. 52A02-9102-CV-50,52A02-9102-CV-50
• Citation: 590 N.E.2d 587
• Parties: Paul H. BRANE, Kenneth Richison, Ralph Dawes, John Thompson, et al., Appellants-Defendants, v. Porter E. ROTH, et al., Appellees-Plaintiffs. 1 .
• Court: Indiana Appellate Court

Page 587

590 N.E.2d 587

Paul H. BRANE, Kenneth Richison, Ralph Dawes, John Thompson et al., Appellants-Defendants, v. Porter E. ROTH, et al., Appellees-Plaintiffs.

No. 52A02-9102-CV-50 ¹.

Court of Appeals of Indiana First District.

April 20, 1992.

Rehearing Denied June 1, 1992.

John F. Lyons, Anthony M. Stites, Ted S. Miller, Barrett & McNagny, Fort Wayne, for appellants-defendants.

Alan H. Lobley, Ice Miller Donadio & Ryan, Indianapolis, for appellees-plaintiffs.

RATLIFF, Chief Judge.

STATEMENT OF THE CASE

Paul H. Brane, Kenneth Richison, Ralph Dawes, and John Thompson (collectively "directors") appeal the award of $424,038.89 plus interest for Porter Roth, et al. (collectively "shareholders"), in an action against them as directors of the LaFontaine Grain Co-op ("Co-op"). We affirm.

ISSUES

We restate the issues as:

1. Did the trial court err in denying the directors' motion for dismissal for lack of evidence pursuant to Ind. Trial Rule 41(B)?

2. Did the court apply an improper standard of care to the directors?

3. Did the court err in admitting Exhibits 25A and 25B into evidence?

4. Is the trial court's decision clearly erroneous?

5. Did the court erroneously fail to set-off the damages award by $150,000 from a settlement award recovered by Co-op?

6. Did the court err in awarding prejudgment interest?

FACTS

This case involves a shareholders' action against the directors of a rural grain elevator cooperative for losses Co-op suffered in 1980 due to the directors' failure to protect its position by adequately hedging in the grain market. Paul Brane, Kenneth Richison, Ralph Dawes, and John Thompson were directors of Co-op in 1980. Eldon Richison was Co-op's manager that year who handled the buying and selling of grain. Approximately ninety percent of Co-op's business was buying and selling grain. The directors met on a monthly basis reviewing the manager's general report and financial reports prepared by Virginia Daihl, Co-op's bookkeeper. The directors also discussed maintenance and improvement matters and authorized loan transactions for Co-op. Requests for additional information on the reports were rare. The directors did not make any specific inquiry as to losses sustained in 1980.

The records show that Co-op's gross profit had fallen continually from 1977. After a substantial loss in 1979, Co-op's CPA, Michael Matchette, recommended that the directors hedge Co-op's grain position to protect itself from future losses. The directors authorized the manager to hedge for Co-op. Only a minimal amount was hedged, specifically $20,050 in hedging contracts were made, whereas Co-op had $7,300,000 in grain sales.

On February 3, 1981, Matchette presented the 1980 financial statement to the directors, indicating a net profit of only $68,684. In 1982, Matchette informed the directors of errors in his 1980 financial statement and that Co-op had actually experienced a gross loss of $227,329. The 1982 restatement was admitted over objections as Exhibit 25A. The directors consulted another accounting firm to review the financial condition of Co-op. CPA Rex E. Coulter found additional errors in Matchette's 1980 financial statement, which increased the gross loss to $424,038. Coulter's recalculation was admitted over objections as Exhibit 25B. Coulter opined that the primary cause of the gross loss was the failure to hedge.

The court entered specific findings and conclusions determining that the directors breached their duties by retaining a manager inexperienced in hedging; failing to maintain reasonable supervision over him; and failing to attain knowledge of the basic fundamentals of hedging to be able to direct the hedging activities and supervise

the manager properly; and that their gross inattention and failure to protect the grain profits caused the resultant loss of $424,038.89. The court ordered prejudgment interest of 8% from December 31, 1980 to the judgment date.

DISCUSSION AND DECISION

Issue One

Initially, the directors contend that the trial court erred in denying their motion for dismissal pursuant to T.R. 41(B). After the shareholders had completed their presentation of the evidence, the directors moved for a dismissal claiming that the shareholders had failed to present evidence that would entitle them to relief on their claim. The trial court denied the directors' motion to dismiss. In reviewing the denial of a motion for dismissal, we will not reverse the judgment unless it is clearly erroneous. Benefit Trust Life Insurance Co. v. Waggoner (1985), Ind.App., 473 N.E.2d 646, 648. We construe the trial court's findings liberally in support of the judgment and will find them clearly erroneous only when after reviewing the entire record, we are convinced that a mistake has been made. We examine the evidence favorable to the judgment and the reasonable inferences therefrom without reweighing the evidence. Id. We have reviewed the record and conclude that the trial court's denial of the T.R. 41(B) motion is not clearly erroneous.

Issue Two

The directors contend that the trial court applied the wrong standard of care to their actions. The trial court utilized the standard of care set forth in IND.CODE Sec. 23-1-2-11. ² In 1980, I.C. Sec. 23-1-2-11 provided that a director shall perform his duties in good faith in the best interest of the corporation and with such care as an ordinarily prudent person in a like position would use in similar circumstances. The statute allows the director to rely upon information, reports, and opinions of the corporation's officers and employees which he reasonably believes to be reliable and competent, and public accountants on matters which he reasonably believes to be within such person's professional competence. Id. A director has no liability if he meets this standard of care. Id.

I.C. Sec. 23-1-2-11 was repealed and replaced by IND.CODE Sec. 23-1-35-1, which preserved the former standard of care but narrowed liability by adding that a director is not liable unless he has breached or failed to perform his duties and such breach or failure to perform constitutes willful misconduct or recklessness. I.C. Sec. 23-1-35-1(e); see also I.C. Sec. 23-1-35-1(a) and (e) Official Comments. The directors assert that I.C. 23-1-35-1 should be applied retroactively to this case.

Generally, statutes are not given retroactive effect unless expressly stated by the legislature. Indiana State Board of Dental Examiners v. Judd (1990), Ind.App., 554 N.E.2d 829, 832. Even when amendments are remedial, retroactive application is disfavored when existing rights would be infringed. Id. Because I.C. Sec. 23-1-35-1 narrows director liability, the statute affects existing rights shareholders had against directors. Therefore, we refuse to grant the directors' request to apply I.C. Sec. 23-1-35-1 retroactively. We find that the trial court applied the correct standard of care upon the directors as established in I.C. Sec. 23-1-2-11.

Issue Three

The directors argue that the trial court erred in admitting into evidence Exhibits 25A and 25B. Exhibit 25A is Matchette's figures reflecting Co-op's sales and costs for beans, corn, wheat, and oats for 1980 and 1981 after adjustments for errors. Exhibit 25B is a summary of Coulter's adjustments to Matchette's computation of Co-op's losses for 1980 and 1981. The directors contend that Exhibits 25A and 25B were hearsay and did not meet the business record exception because they were subsequently compiled solely for litigation. See Baker v. Wagers (1984), Ind.App., 472 N.E.2d 218, 222, trans. denied (report prepared specifically for litigation does not qualify under the business record exception). Another hearsay exception, past recollection recorded, is used when there is a summary of a mass of documentary evidence. Crawford v. State (1980), Ind.App., 401 N.E.2d 715, 717. A summary may be admitted where the books and records are in evidence, or in court, or available to the opposite party. Id.

Exhibit 25A is a summary with corrections of Matchette's working papers of his 1980 and 1981 audits based on Co-op's records. Also admitted into evidence at trial were Exhibits B and C. Exhibit B is Matchette's working papers of his 1980 audit of Co-op. Exhibit C consists of Matchette's working papers of his 1981 audit of Co-op. Because the underlying documents--Matchette's working papers--were admitted at trial and Co-op's records were available to the directors, Exhibit 25A was admissible under this exception.

Likewise, Exhibit 25B falls within the hearsay exception of past recollection recorded. Coulter testified that Exhibit 25B was based upon his examination of Co-op's records of transactions and liabilities in which he discovered additional losses that Matchette's audits had not calculated. Co-op's records were available to the directors. Although the directors further complain that Exhibits 25A and 25B do not comply with generally accepted accounting principles ("GAAP"), such deficiency goes to the weight of the evidence, not its admissibility. In fact, the court acknowledged in its finding no. 22 that the exhibits were not prepared in accordance with GAAP but stated that they were sufficient to determine the amount of damages. We do not find the court erred in admitting Exhibits 25A and 25B.

Issue Four

The directors allege in their statement of the issues that the court's findings were clearly erroneous. However, in their argument section, they fail to attack any specific findings entered by the court. The directors do refer to specific findings in their reply brief which they contend are erroneous. However, new arguments made in the reply brief are inappropriate and will not be considered on appeal. Graham v. State (1985), Ind.App., 480 N.E.2d 981, 988, trans. denied, cert. denied, 479 U.S. 1007, 107 S.Ct. 646, 93 L.Ed.2d 702 (1986).

The directors do argue in general that the trial court's decision is contrary to law because the...