Davis v. Dorsey

Decision Date06 July 2007
Docket NumberCivil Action No. 2:06cv766-MHT.
Citation495 F.Supp.2d 1162
PartiesDonna Dorsey DAVIS, as an individual and derivatively upon behalf of I-65 Properties, Inc., Plaintiff, v. Richard M. DORSEY, Defendant,
CourtU.S. District Court — Middle District of Alabama

Lindsay B. Erwin, Meacham, Earley & Jones, PC, Columbus, GA, James Edward Roberts, Attorney at Law, Birmingham, AL, for Plaintiff.

Clifford Wayne Cleveland, Cleveland & Colley, P.C., Prattville, AL, for Defendant.

OPINION AND ORDER

MYRON H. THOMPSON, District Judge.

Plaintiff Donna Dorsey Davis brings this civil action individually and derivatively on behalf of 1-65 Properties, Inc. against defendant Richard M. Dorsey. Davis asserts various state-law claims regarding Dorsey's alleged mismanagement of 1-65 and mistreatment of her as minority shareholder.1 Davis asserts diversity jurisdiction under 28 U.S.C. § 1332. This case is now before the court on Dorsey's motion for summary judgment. For the reasons that follow, the motion will be granted in part and denied in part.

I. SUMMARY-JUDGMENT STANDARD

Summary judgment is appropriate "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). Under Rule 56, the party seeking summary judgment must first inform the court of the basis for the motion, and the burden then shifts to the non-moving party to demonstrate why summary judgment would not be proper. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see also Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115-17 (11th Cir.1993) (discussing burden-shifting under Rule 56). The non-moving party must affirmatively set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials in the pleadings. Fed.R.Civ.P. 56(e).

The court's role at the summary-judgment stage is not to weigh the evidence or to determine the truth of the matter, but rather to determine only whether a genuine issue exists for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In doing so, the court must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in favor of that party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

II. FACTUAL BACKGROUND

Viewed in the light most favorable to Davis, the admissible evidence reflects the following facts. Dorsey and Davis, who are siblings, have been the sole shareholders of 1-65 Properties, Inc. since that corporation was founded in 1990. Dorsey is the majority and controlling shareholder, with 70% ownership, and Davis is the minority shareholder, with 30 %. Dorsey is also president of the corporation and chair of the board of directors; Davis is vice-president.

I-65 was incorporated when Dorsey and his parents, who together owned and operated Dorsey Motor Sales, Inc., determined that the ownership of a vacant plot of land near Interstate 65 in Elmore County, Alabama should be transferred out of Dorsey Motor Sales and into the possession of a new entity. To that end, 1-65 Properties, Inc. was incorporated on October 1, 1990, at which point it immediately purchased the vacant land from Dorsey Motor Sales for $ 250,000. The property sale was fully seller-financed with a promissory note from 1-65 to Dorsey Motor Sales, at a 12 % interest rate, due and payable on demand.

Although the land was initially owned by Dorsey Motor Sales, a corporation in which Davis had no interest aside from the fact that it was wholly owned and operated by her parents and brother, Dorsey told Davis that their parents wanted to give them some of their inheritance early and had therefore determined that she should be a minority shareholder in I-65.

Davis did not initially object to her brother running I-65 exclusively. Dorsey and his father apparently had experience running Dorsey Motor Sales, whereas Davis pursued a career in education. Davis did make one request of Dorsey and her father regarding I-65: that they should inform her if she owed any money.

To date, the land I-65 purchased in 1990 remains almost entirely undeveloped and its only asset. I-65 has had very little revenue since its inception, and its expenses have been limited to basic maintenance and upkeep of the property. 1-65 has made no payments, neither toward interest nor equity, on the promissory note held by Dorsey Motor Sales. (Since Davis and Dorsey's parents' deaths, Dorsey has been the president and controlling shareholder of Dorsey Motor Sales.)

Several events have occurred since 1990 that appear to be relevant to Davis's claims. Shortly after I-65 obtained the property, Dorsey and his parents pursued a financial deal whereby Nissan would lease I-65's land and install a car dealership on the property. In 1991, and in preparation for the deal, Dorsey built a road through the property. However, the deal fell through and I-65 was never able to lease the land.

After the Nissan deal fell through, CD & 0, LLC, a limited liability company owned by Dorsey and his wife and controlled by Dorsey, purchased several parcels of land nearby or adjacent to I-65's property. Although the record is somewhat murky on this point, it appears that I-65 obtained purchase options on the adjacent property, which it then sold to CD & O so that CD & O could purchase the property instead. CD & O's land purchases occurred in 1991.

At some point after the Nissan deal fell through, I-65 entertained another possible arrangement that involved opening a Cracker Barrel restaurant on the property. These negotiations, too, never amounted to an agreement.

In 1999, I-65 obtained a billboard permit and began a billboard-leasing agreement with TD & O, Inc., another company owned and controlled by Dorsey. TD & O leases the billboard from I-65 for $ 600 per year and subleases it to an advertising company, Lamar Advertising, for $ 5,400 per year. The billboard deal apparently continues to this day.

In 1999 or 2000, Davis gave her husband John H. Davis, Jr. power of attorney regarding her interest in I-65. Around this time the Davises began to take a more active interest in the affairs of I-65. Davis's husband sought information and documentation regarding the corporation on her behalf from Dorsey and from I-65's accountant, J. Alan Taunton. Dorsey and Taunton replied and provided most of the information Davis's husband requested.

During the course of that communication, the Davises suggested that the corporation look into refinancing the terms of the promissory note to obtain an interest rate more favorable than 12%. Dorsey replied that he could not see how the seller-financing constituted a conflict of interest on his part, but that he had no objection to Davis obtaining commercial-mortgage financing at a lower interest rate. It is undisputed, however, that Davis did not follow up on this idea and did not actively seek to change the terms of the financing arrangement.

The Davises' inquiries continued in 2003. Taunton, at Dorsey's direction, sent Davis copies of I-65's income tax returns for the previous five years.

In December 2005, a board or shareholders meeting appears to have been the catalyst for the instant litigation. When the Davises arrived at the meeting, Dorsey was present along with an attorney, who tape-recorded the meeting. Davis's husband was told he was not permitted inside the meeting, so Davis entered alone. At that point, Dorsey handed Davis several documents and told her that she owed him over $ 500,000. Dorsey told Davis that 65 was heavily in debt, and that Davis, as 30 % shareholder of the corporation, was responsible for her share. After Davis left the meeting, she was "in a state of shock and scared and petrified." Davis Depo. (doc. no. 43-2) at 69.

Frightened that she could lose her home, Davis called Dorsey and asked him if she could sell him her I-65 stock in exchange for one dollar and forgiveness of the debt. Dorsey told Davis that "it sounded good to him," id., but that he would need to check with his attorney and accountant. Approximately one week later, having not heard back from her brother and having consulted an attorney, Davis faxed Dorsey a letter rescinding her verbal offer. Dorsey replied with a letter of his own, suggesting that "it is time to stop fighting and move ahead with our lives." Def. Ex. 16 (doc. no. 22-17).

Apparently that did not occur. Davis's attorney followed up with a request for additional information and documentation regarding I-65, and Taunton sent a letter offering Davis "anything she asks for that we may have relative to this company." Def. Ex. 17 (doc. no. 22-18). This lawsuit soon followed.

III. DISCUSSION

Davis, both individually and derivatively on behalf of I-65, brings seven state-law claims against Dorsey: oppression and squeeze-out; breach of fiduciary duty to shareholder; breach of fiduciary duty to I-65; negligence; willful and wanton conduct; conversion; and fraud. Dorsey asserts several challenges to these claims: lack of subject-matter jurisdiction; statute of limitations; Davis's failure to bring all her claims derivatively on behalf of the corporation; non-compliance with Federal Rule of Civil Procedure 23.1; and the claims' lack of merit as a matter of law.

The court will begin by addressing the threshold question of subject-matter jurisdiction. Next, the court will assess each of Davis's claims and Dorsey's defenses to them.

A. Jurisdiction

Having previously denied Dorsey's motion to dismiss for lack of subject-matter jurisdiction, the court again rejects his jurisdictional challenge, this time with the following comments.

Davis has properly invoked diversity...

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