C Plus Northwest, Inc. v. Degroot

• Decision Date: 14 February 2008
• Docket Number: No. 3:06-cv-62.,3:06-cv-62.
• Citation: 534 F.Supp.2d 937
• Parties: C PLUS NORTHWEST, INC. and Richard A. Sjogren, Plaintiffs, v. Ryndert D. DeGROOT, George L. Vermillion, Karleen M. Heselwood, Dvh Transportation, LLC, DVH Logistics, LLC, DVH Leasing, LLC, and DVH Property Holdings, LLC, Defendants.
• Court: U.S. District Court — Southern District of Iowa

534 F.Supp.2d 937

C PLUS NORTHWEST, INC. and Richard A. Sjogren, Plaintiffs, v. Ryndert D. DeGROOT, George L. Vermillion, Karleen M. Heselwood, Dvh Transportation, LLC, DVH Logistics, LLC, DVH Leasing, LLC, and DVH Property Holdings, LLC, Defendants.

No. 3:06-cv-62.

United States District Court, S.D. Iowa, Central Division.

February 14, 2008.

COPYRIGHT MATERIAL OMITTED

Michael McDonough, Moyer & Bergman, PLC, Cedar Rapids, IA, Michael Mc-Donough, Moyer a Bergman, PLC, Cedar Rapids, IA, for Plaintiffs.

Thomas D. Waterman, Lane & Waterman, LLP, Davenport, IA, for Defendants.

ORDER

ROBERT W. PRATT, Chief Judge.

I. PROCEDURAL BACKGROUND

Trial in the above-captioned case commenced on October 15, 2007. The jury returned a verdict in favor of the Plaintiffs on October 18, 2007. The parties were represented well at trial, and the hard work and professionalism exhibited by counsel for both sides was apparent to the Court, as well as to the jurors. Specifically, the jury made the following findings:

1) On Plaintiffs' claim of Conspiracy in Count I, the jury returned a verdict in favor of C Plus Northwest Inc. ("C Plus") in the amount of $72,000, and in favor of Richard Sjogren ("Sjogren") in the amount of $21,000. The jury further awarded $50,000 in punitive damages to C Plus and $50,000 in punitive damages to Sjogren;

2) On Plaintiffs' claim of Breach of Fiduciary Duty to C Plus in Count II, the jury returned a verdict in favor of C Plus in the amount of $126,000, The jury further awarded $126,000 in punitive damages to C Plus;

3) On Plaintiffs' claim of Misappropriation of Trade Secrets in Count. III, the jury returned a verdict in favor of Plaintiffs, but awarded no compensatory or punitive damages to either C Plus or to Sjogren;

4) On Plaintiffs' claim of Intentional Interference with Current Business Re lations in Count IV, the jury returned a verdict in favor of C Plus in the amount of $150,000, but awarded zero compensatory damages to Sjogren. The jury further awarded $150,000 to C Plus and $150,000 to Sjogren in punitive damages;

5) On Plaintiffs' claim of Intentional Interference with Prospective Business Relations in Count V, the jury returned a verdict in favor of C Plus in the amount of $100,000 and in favor of Sjogren in the amount of $100,000. The jury further awarded $100,000 in punitive damages to C Plus and $100,000 in punitive damages to Sjogren.

Clerk's No. 76. Presently before the Court is Defendants' Post-Verdict Motion Regarding Entry of Judgment. Clerk's No. 82. Plaintiffs filed a resistance to the motion and Defendants replied. Defendants requested an oral argument on the motion. The Court finds, however, that, as with the trial work of counsel, the written briefs are of such a quality as to permit a full resolution of the matter. The Court does not believe that oral argument would substantially aid the Court in its analysis and the matter is, therefore, fully submitted.

II. FACTUAL BACKGROUND

Plaintiff Rick Sjogren is a transportation broker who has been in the brokerage business for over twenty years. A transportation broker essentially acts as a middleman between customers who need products moved and the trucking companies that have the equipment to move the products. Day One Trial Tr. at 136.¹ In 2003, Sjogren incorporated C Plus in Yakima, Washington. At about that time, Sjogren began negotiations to provide services for a very large account — Pinnacle Foods — and shortly thereafter, hired Karleen Heselwood ("Heselwood") as a bookkeeper for C Plus. Sjogren also began communications with two acquaintances of his, George Vermillion ("Vermillion") and Ryndert De-Groot ("DeGroot"), about the possibility of working together. In, 2004, Heselwood was appointed as secretary and treasurer of C Plus and assumed full control of the company's finances. Id. at 145. Vermillion was brought on to develop the Pinnacle account and others, and DeGroot was brought in to manage certain trucking aspects of the business. Both Vermillion and DeGroot became Vice Presidents, members of the board of directors, and shareholders of C Plus, eventually holding 12% and 24% of the corporations' shares, respectively. After Heselwood, Vermillion, and DeGroot joined the company, C Plus opened a second operations site in Keokuk, Iowa. Heselwood moved from the Yakima office to join DeGroot and Vermillion in the Iowa office in 2005. At the end of 2005, there developed a rift between the parties, and some discussions were held about dissolving C Plus² According to Sjogren, in January 2006, Vermillion, De-Groot, and Heselwood stopped providing him with financial information about the corporation and began conspiring to transfer C Plus business to the new DVH corporations, incorporated by Heselwood, De-Groot, and Vermillion in January 2006. In early March 2006, the Defendants began openly doing business as the DVH entities, purportedly with many customers, equipment, and property of C Plus.

According to Sjogren, he was, for all practical purposes, left "holding the bag" as to C Plus' liabilities. Many carriers wanted payment and some filed claims against C Plus' bond, exceeding the maximum bond amount.³ Day One Trial Tr. at 212. Sjogren testified that a "huge balance" of $220,000 to $240,000 in freight bills was left outstanding, and that some checks were returned for insufficient funds because the bank froze C Plus' accounts. Id. at 214. In order to protect his reputation and stay in business, Sjogren claims to have personally gone to every entity with an outstanding invoice or that had a check declined for insufficient funds, and personally guaranteed payment. Id. Indeed, Sjogren claims to have paid off over $200,000 in C Plus debts using either his own money or using funds from a new company incorporated on January 18, 2006, C Plus NW Transportation, Inc. ("Transportation Inc.").

III. LAW AND ANALYSIS

Defendants assert several arguments as to why some of the jury verdicts and awards must be set aside. Specifically, Defendants assert the following: 1) several of the jury's awards are duplicative and must be set aside to avoid a double recovery; 2) the awards to Sjogren personally must be set aside in their entirety because the only harm suffered by Sjogren was derivative of harm to C Plus; 3) the, jury's award of $0 in actual and punitive damages on the misappropriation of trade secrets claim requires entry of judgment for Defendants on that claim; 4) the jury award on the intentional interference with current business relations claim and the jury award on the intentional interference with prospective business relations claim must be set aside because Plaintiffs failed to prove that the Defendants' predominant purpose was to financially harm or destroy Plaintiffs' business; and 5) the punitive damage award to Sjogren on the intentional interference with current business relations claim must be set aside in light of the jury's award of $0 in compensatory damages. The Court will address each argument in turn.

A. Personal Awards to Sjogren

Defendants argue that the jury's awards in favor of Plaintiff Sjogren individually must be vacated because Sjogren has failed to prove the breach of any independent duty owed to him, and has failed to show that he suffered any compensable injury distinct from other shareholders. Sjogren counters that he provided ample evidence at trial to permit the jury to conclude that he suffered a separate and distinct injury, and that the individual awards in his favor should be sustained.

"As a matter of general corporate law, shareholders have no claim for injuries to their corporations by third parties unless within the context of a derivative action." Cunningham v. Kartridg Pak Co., 332 N.W.2d 881, 883 (Iowa 1983). "There is, however, a well-recognized exception to the general rule: a shareholder has an individual cause of action if the harm to the corporation also damaged the shareholder in his capacity as an individual rather than as a shareholder." Id. Entitlement to the exception can be proved in one of two ways: 1) by demonstrating that some "special duty" was owed to the shareholder; or 2) by showing that injury to the shareholder is "separate and distinct from that suffered by the other shareholders." Id. Here, Plaintiff Sjogren claims that he meets the second prong of the exception, i.e., that he suffered an injury separate and distinct from that suffered by the other shareholders. Specifically, Plaintiff asserts that, because of the Defendants' actions, he had to pay off debts owed by C Plus, had to pay the $10,000 surety bond, and suffered harm to his reputation and a resultant loss of business. See Pls.' Resistance Br. at 6-7; see also Clerk's No. 60 at 1-2.

On the facts presented at trial, the Court cannot say that Sjogren suffered a separate and distinct injury, such that he may recover individually. All of Sjogren's claimed individual damages derive exclusively from the damage to C Plus. It was the Defendants' tortious conduct toward C Plus that caused C Plus' corporate debts to remain unpaid. Sjogren's attempts to pay those debts to salvage his own reputation is entirely derivative of the damage to the corporation, as is any actual resultant harm to Sjogren's reputation, even to the extent that a sullied reputation interfered with his ability to profit with his new corporation. Indeed, the Court notes that Sjogren's assertions of personal harm fall within the type of claim typically the subject of only a derivative action:

Without identifying it as such, other courts and commentators follow a categorical approach in distinguishing between individual and derivative shareholder actions. Essentially, this approach relies on stare decisis, but may also expand prior precedent by identifying an action as the "kind of action" that is appropriately brought either derivatively or individually. Either way, this approach generates or recognizes one set of actions which give...