DDR Computer Service Bureau, Inc. v. Davis

• Decision Date: 30 October 1980
• Docket Number: No. 2-180A4,2-180A4
• Citation: 411 N.E.2d 722
• Parties: DDR COMPUTER SERVICE BUREAU, INC., (Plaintiff and Counter-Defendant Below), and James F. Ries, Norman G. Dahlmann, and Michael Offerle, (Counter-Defendants Below), Appellants, v. Bernard M. DAVIS, (Defendant, Counter-Claimant Below), Appellee.
• Court: Indiana Appellate Court

Page 722

411 N.E.2d 722

DDR COMPUTER SERVICE BUREAU, INC., (Plaintiff and Counter-Defendant Below) and James F. Ries, Norman G. Dahlmann, and Michael Offerle (Counter-Defendants Below), Appellants, v. Bernard M. DAVIS, (Defendant, Counter-Claimant Below), Appellee.

No. 2-180A4.

Court of Appeals of Indiana, Fourth District.

Oct. 30, 1980.

Howard J. DeTrude, Jr., Peter G. Tramulonis and Lawson J. Clark, II (Kightlinger, Young, Gray & DeTrude), Clark & Alsip, Indianapolis, for appellants.

Charles E. Johnson and Wayne C. Bruness, Indianapolis, for appellee.

CHIPMAN, Judge.

This is a joint appeal. DDR Computer Service Bureau, Inc. (DDR), plaintiff below, appeals from an adverse judgment in its action for an accounting against corporate officer and director Bernard M. Davis. Counter-defendants James F. Ries, Norman G. Dahlmann and Michael Offerle appeal from an adverse judgment against them in favor of Bernard Davis on his counterclaim.

Affirmed in part, reversed in part.

The tortured history of this case begins in January of 1974 when Davis, a public accountant, approached Ries and Dahlmann with a business/investment proposition. Davis, who served as Ries' and Dahlmann's accountant for many years, needed a computer for his accounting practice. He proposed the formation of a computer service bureau as a Subchapter S corporation. The corporation would purchase a Singer computer as the primary asset. At first, the parties could take advantage of certain tax benefits by utilizing investment tax credits, accelerated depreciation and an operating loss. When the business became more profitable and tax benefits were used up, the corporation would change from Subchapter S to a regular corporate status.

In February 1974, DDR Computer Service Bureau, Inc. was formed. Davis, Ries, and Dahlmann became the corporation's only directors, officers and shareholders. Each man borrowed $20,000 to finance the company's new computer, which the parties agreed would be located at the office of Bernard M. Davis Company, Davis' private accounting practice. The computer was to be operated by Mr. Offerle, Mr. Davis' employee.

Other terms of the parties' agreement concerning the use of the DDR computer were disputed at trial; unfortunately, they did not choose to reduce their agreement to writing. According to Ries and Dahlmann, all data processing revenue generated by Davis from the use of DDR computer was to be placed in DDR accounts. However, according to Davis, he was to pay DDR for the use of the computer in his separate accounting practice and revenue generated from pre-DDR data processing accounts was to remain the income of the Bernard M. Davis Company; only new data processing business and any expanded business from pre-DDR clients was to become DDR revenue.

During the months after DDR's formation Ries and Dahlmann apparently became concerned because of Davis' alleged failure to provide them with an adequate financial accounting of corporate affairs. Then, in early spring 1975 Mr. Offerle informed Ries and Dahlmann that Davis had inexplicably withdrawn $13,000 from DDR and other DDR revenue was not being credited to the corporation's accounts. On May 22, 1975, Ries and Dahlmann held a special corporate meeting; Davis was not notified. ¹ At the meeting Ries and Dahlmann decided to remove the DDR computer from Davis' office. A few days later, with the assistance of Mr. Offerle, Ries and Dahlmann removed and relocated the computer without Davis' knowledge or consent.

DDR filed its complaint against Davis on November 12, 1975, seeking an accounting of corporate funds. Davis counterclaimed against DDR, Ries, Dahlmann and Offerle alleging damage to his separate public accounting practice resulting from the "unauthorized" removal of the DDR computer from his office. Following a jury trial the lower court entered judgment against DDR on its complaint and for Bernard Davis on his counterclaim in the amount of $330,000. Ries, Dahlmann, Offerle and DDR now appeal raising a number of issues for our review. Because of our disposition of this case, we need address only the following questions:

1) Whether the verdict against Ries, Dahlmann and Offerle on Davis' counterclaim is contrary to law and/or not supported by sufficient evidence, and

2) Whether the jury, in its verdict, ignored the complaint of DDR against Bernard Davis thereby depriving DDR of a judicial determination of its claim.

I. THE DAVIS COUNTERCLAIM

Counter-defendants Ries, Dahlmann and Offerle argue the verdict against them is contrary to law because Davis cannot recover for injury to his separate accounting practice merely upon a showing that certain procedural irregularities occurred during the corporate decision-making process, e.g. the failure to notify Davis of the special corporate meeting held May 22, 1975. They also contend there was insufficient evidence to support the damage award in this case.

In his brief Davis argues the basis of his counterclaim was not the violation of corporate statutory law, but tortious interference with a business expectancy, trespass and conversion. However, a review of the record demonstrates Davis is attempting to litigate these theories for the first time on appeal. No jury instructions were tendered or given on the theories of interference with a business, trespass or conversion. While we will affirm a judgment on any theory fairly presented to the trier of fact, this court will not justify a jury's verdict on unlitigated theories of recovery. Daly v. Nau, (1975) Ind.App., 339 N.E.2d 71.

Surprisingly, Davis tendered only seven instructions pertaining to his counterclaim. Davis' instructions 1 through 5 told the jury there were corporation statutes in force and violation of any of the statutes would constitute "tortious and wrongful conduct" on the part of the "counter- defendant." For example, Davis' instruction number 2 cited Ind. Code 23-1-2-11:

"DEFENDANT'S INSTRUCTION NO. 2

There was in force a statute of the State of Indiana which provided, insofar as applies in this case:

'The business of every corporation shall be managed by a board of directors ...'

'Meetings of the board of directors may be held at such time and place (either within or without this state) and upon such notice as may be provided in the articles of incorporation or the by-laws: Provided, however, That in lieu of such notice, a director may sign a written waiver of notice either before the time of the meeting, at the time of the meeting or after the time of the meeting.'

'Unless otherwise provided by the articles of incorporation or by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if prior to such action a written consent to such action is signed by all members of the board or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the board of committee.'

If you find from a preponderance of the evidence that counter-defendant violated the statute on the occasion in question, and that such violation was without excuse or justification such conduct would constitute tortious and wrongful conduct on the part of the counter-defendant."

Davis' instructions 1, 3, 4 and 5 were in the same form but cited other corporation statutes relating to procedures for special corporate transactions, removal of directors and holding of shareholder meetings.

The trial court clearly erred in giving Davis' instructions 1 through 5. Davis' position in this law suit was not that of a shareholder or director attempting to set aside or declare void action taken by corporate management. See, e.g. First Merchants National Bank & Trust Co. of Lafayette v. Murdock Realty Co., (1942) 111 Ind.App. 226, 39 N.E.2d 507; Hill Dredging Corp. v. Risley, (1955) 18 N.J. 501, 114 A.2d 697; Lycette v. Green River Gorge, Inc., (1944) 21 Wash.2d 859, 153 P.2d 873. Nor was he attempting to be reinstated as a corporate director or to recover corporate property. Instead, Davis sought damages for injury to his separate public accounting practice caused by the alleged wrongful removal and relocation of the DDR computer. While Davis was at the time a shareholder, director and president of DDR, his position as counterclaimant in this action was similar to that of any other party vis-a-vis the corporation. It is well established that third parties cannot take advantage of internal corporate procedural irregularities. Abbey Properties Co., Inc. v. Presidential Insurance Company, (1960) Fla.App., 119 So.2d 74; Rossing v. State Bank of Bode, (1917) 181 Iowa 1013, 165 N.W. 254; North Mississippi Savings & Loan Assoc. v. Confederate States Savings & Loan Assoc., (1964) Miss., 166 So.2d 119. Fletcher, Cyclopedia of the Law of Private Corporations § 2024 (rev.perm.ed.1976). In the present case there is lacking a sufficient legal nexus between the acts complained of, i.e. violation of the various corporate statutes cited in Davis' instructions, and the damage alleged to have resulted to Davis' separate accounting practice.

However, it appears Ries, Dahlmann and Offerle did not timely object to the jury instructions tendered by Davis. The only objections made were written challenges filed with the trial court some fifty-five days after the jury returned its verdict. Accordingly, any objections to the instructions have been waived. Ind.Rules of Procedure, Trial Rule 51(C). ²

Strangely enough, Davis argues on appeal that his instructions 1 through 5 did not apply to Ries, Dahlmann and Offerle, only to the corporate counter-defendant DDR. But to adopt this position would lead us to the rather anomalous conclusion that there were no jury instructions requested or given on the individual liability of Ries, Dahlmann and Offerle. Furthermore, we are less interested in Davis'...