Conkling v. Turner, 92-3370

CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)
Citation18 F.3d 1285
Docket NumberNo. 92-3370,92-3370
PartiesFed. Sec. L. Rep. P 98,177, 28 Fed.R.Serv.3d 1305, RICO Bus.Disp.Guide 8550 Richard L. CONKLING, Plaintiff-Appellant, v. Bert S. TURNER, et al., Defendants-Appellees.
Decision Date20 April 1994

Donald L. Beckner, Baton Rouge, LA, for plaintiff-appellant.

Tom F. Phillips, Fredrick R. Tulley, Harry J. Philips, Jr., E. Scott Hackenberg, Taylor, Porter, Brooks & Phillips, Baton Rouge, LA, for defendants-appellees.

Appeals from the United States District Court for the Middle District of Louisiana.

Before REYNALDO G. GARZA, KING and DeMOSS, Circuit Judges.

KING, Circuit Judge:

Plaintiff Richard L. Conkling ("Conkling") appeals a take-nothing judgment rendered against him based upon his claims for violations of the Racketeer Influenced and Corrupt Organizations Act 1 ("RICO"), breach of fiduciary duty, and breach of contract under Louisiana law. Finding no error with the trial court's resolution of the RICO and breach of contract claims, we affirm the district court's judgment in those regards. However, we find that the district court erred in granting summary judgment on the breach of fiduciary duty claims, as discussed below, and reverse and remand that portion of the case.

I. Background

This case has its origins in 1961, when defendant Bert S. Turner ("Turner") recruited Conkling to work for a corporation that Turner was forming with L.W. "Puna" Eaton, Jr. ("Eaton"). The corporation, Nichols Construction Corporation ("Nichols"), was formed on December 28, 1961. Conkling went to work for Nichols in January 1962. Conkling alleges that Turner represented at the time that he would give Conkling stock in Nichols and all later-formed entities if Conkling would make a long-term commitment to Nichols and that such stock would be redeemed at a fair price when Conkling's employment ended. Conkling claims he accepted this offer.

A. The Nichols Agreements

In November 1962, Turner had a document prepared (the "1962 agreement") which provided for the issuance of 10 shares, or 5%, of Nichols' stock to Conkling, and 10 shares each to two other minority shareholders, Carmen St. Clair ("St. Clair") and J.B. Millican ("Millican"). The 1962 agreement also provided that Turner and Eaton would each receive 85 shares, or 42.5%, of the Nichols stock. The price set forth in the document for the stock was $1,000 per share. Conkling, St. Clair, and Millican were each to give a $10,000 one-year note for his shares, and the document provided that Nichols would hold his shares until the notes were paid. Each of the parties executed the 1962 agreement.

Both Conkling and Turner testified that all parties agreed not to follow this agreement after it was executed. In fact, Turner and Eaton were apparently successful in obtaining financing after the 1962 agreement was executed, and purportedly paid only $500, rather than $85,000, for their shares. Conkling also claims that, several days after Turner presented this document, Turner gave Conkling his stock certificate for 10 shares, telling him that he was receiving the stock for services Conkling had previously performed for Nichols and that he would not have to pay the $10,000 note unless Nichols failed. Defendants stipulated that, according to Nichols' records, Conkling was issued 10 shares of Nichols' stock on November 15, 1962.

Six months later, in May 1963, Nichols redeemed Eaton's 85 shares at Turner's direction. According to Conkling, Turner engaged in questionable practices related to his negotiations with Eaton, including ordering the reporting of profits on certain Nichols jobs to be delayed and instructing Conkling to withhold a number of profitable jobs from Nichols' financial statement. Turner also allegedly misrepresented to Eaton the value of Nichols' equipment in order to avoid paying him a greater amount for redemption of his stock. Conkling alleged that the redemption of Eaton's stock increased his proportionate ownership of Nichols from 5% to 8.69565%.

In June 1963, Turner directed his lawyer to prepare another document (the "1963 agreement") which recited that Turner owned 100% of Nichols. This agreement set forth the terms for Conkling and the other minority shareholders to purchase an 8% interest in Nichols. The document also contained a right of first refusal and specific formula for redemption of any Nichols stock; however, that provision was subsequently deleted by agreement in August of 1966. Without telling Conkling anything beyond the contents of the document, Turner stood over Conkling as Conkling read and signed the document. Conkling argues that, as a result of Turner's concealment and misrepresentations, Conkling relinquished his 8.69565% interest and purchased an 8% interest in Nichols.

B. The Nichols Affiliates

Over the years, Nichols prospered and new companies were formed by Turner. The original Nichols shareholders had an oral agreement to share proportionate ownership in any direct affiliates or spin-off companies of Nichols. The relative ownership relationship for the affiliate companies was to be based upon the original ownership ratio of Nichols. The following companies, formed as affiliates, spin-offs, or alleged affiliates of Nichols, form the basis of Conkling's complaint.

1. National Maintenance, International Maintenance, TSMC, BTL, TL, and Crest

In 1970, Nichols spun off a corporation to conduct maintenance work previously done in Nichols' name and transferred almost $1,000,000 worth of assets to the newly formed company, named National Maintenance Corporation ("National Maintenance"). Conkling purchased an 8% interest in National Maintenance in accordance with the relative ownership agreement between the original Nichols founders. Similarly, International Maintenance Corporation ("International Maintenance") was formed in 1971, and, although no stock was issued until 1977, Conkling was able to purchase an 8% interest in that company as well.

In 1971, TSMC Company ("TSMC") was formed as a partnership designed to be supported exclusively by income from rental of construction equipment to Nichols' affiliates on a cost-plus basis. Conkling received an 8% interest in this partnership. T.L. Company ("TL") and BTL Company ("BTL") were also partnerships whose revenues came from the rental of construction equipment to Nichols and affiliates on a cost-plus basis. Conkling purchased 8% interests in each in 1978 and 1980, respectively. Crest, Inc. ("Crest") was formed as a Texas corporation to pursue construction opportunities in that state. Conkling acquired an 8% interest in Crest in August of 1974.

2. TIL

In October of 1981, Turner formed Turner Investments, Ltd. ("TIL"), wholly owned by Turner and his family, to hold his interests in Nichols and another related company. It subsequently became the chief operating company over Nichols and its affiliates, consolidating executive management, data processing, and accounting personnel for these companies. TIL billed Nichols and its affiliates for its services, and Conkling asserted that the billings were excessive.

3. Blast, Trebco, and IPS

In August of 1975, Turner formed Blast Corporation ("Blast"), which subsequently entered the residential construction market under the name S & S Homes, Inc. ("S & S"). Turner supposedly told Conkling that Blast was a mere shell, and Conkling did not purchase an interest in the company. After sustaining losses, S & S was changed back to Blast, and the company was purchased by Nichols in August of 1977.

Trebco Corporation ("Trebco") was formed in September of 1983 to perform non-union industrial construction and maintenance work in Texas. Conkling claims that Turner concealed Trebco so that he would not be able to purchase an interest in the company. Turner directed Nichols to lend up to $600,000 to Trebco for working capital, but the company was relatively unsuccessful, reporting heavy operating losses. Trebco was subsequently sold to Nichols on October 9, 1984, although the stock certificate effecting the transfer was backdated to November 1, 1983.

Nichols also spun off its entire pipe fabrication division and formed International Piping Systems, Ltd. ("IPS") in July of 1982. In the process, Nichols also transferred approximately $200,000 worth of assets to the newly-formed company. The stock in IPS was originally issued to TIL, Turner's family-owned company, although Conkling claims he was told it would be issued to Nichols. During the time the IPS stock was owned by TIL, Nichols guaranteed $7,000,000 in bonded indebtedness on behalf of IPS and loaned money to the company. Conkling alleges that, in December of 1983, when he discovered that the IPS stock had been issued to TIL, rather than to Nichols, he brought the ownership issue to Turner's attention, and Turner fired him. All of the stock in IPS was subsequently acquired by Nichols in April of 1984 for the same price as had been paid by TIL.

4. Harmony

On the same day Blast was formed, in August of 1979, Turner also formed Harmony Corporation ("Harmony"). Turner has apparently admitted that he concealed the creation of Harmony from Conkling. The stock in Harmony was issued originally to unrelated parties, but was subsequently acquired by Nichols and then Turner. Conkling learned of Turner's ownership of Harmony and made repeated requests to purchase an interest in the company. Although Turner takes the position that Conkling was never entitled to purchase his relative ownership interest in Harmony, he allowed Conkling to purchase 5,161 shares on March 14, 1980, for $1.00 per share. Conkling understood that this quantity of shares would make him an 8.69565% owner of the company. However, later that day, an additional 33,450 shares of Harmony were issued to Harmony's president, C.N. "Bones" McLellan, Jr. ("McLellan"), thus diluting Conkling's interest. McLellan testified that he was told he...

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