DeWoody v. Rippley, 2-96-164-CV

• Decision Date: 29 August 1997
• Docket Number: No. 2-96-164-CV,2-96-164-CV
• Citation: 951 S.W.2d 935
• Parties: Michael DeWOODY and Paul DeWoody, Individually and Derivatively on behalf of Cable Advertising Networks, Inc., Appellant, v. Mark RIPPLEY, James Masters, Douglas Fugate, Michael Dunlap, Marilyn Denise Dunlap, and Cable Advertising Networks, Inc., Appellee.
• Court: Texas Court of Appeals

Page 935

951 S.W.2d 935

Michael DeWOODY and Paul DeWoody, Individually and Derivatively on behalf of Cable Advertising Networks, Inc., Appellant, v. Mark RIPPLEY, James Masters, Douglas Fugate, Michael Dunlap Marilyn Denise Dunlap, and Cable Advertising Networks, Inc., Appellee.

No. 2-96-164-CV.

Court of Appeals of Texas Fort Worth.

Aug. 29, 1997.

Rehearing Overruled Oct. 2, 1997.

Steven D. Goldston, Pace & Goldston, Shannon B. Schuster, Calhoun & Stacy, P.L.L.C., Dallas, for Appellant.

Mark C. Hill, Haynes and Boone, L.L.P., Dallas, Robert J. Myers, Robert John Meyers & Associates, San Antonio, for Appellee.

Before DAY, LIVINGSTON, and RICHARDS, JJ.

OPINION

LIVINGSTON, Justice.

I. Introduction

Appellants, Michael DeWoody and Paul DeWoody (the "DeWoodys") individually and derivatively on behalf of Cable Advertising Networks, Inc. ("CAN") challenge the trial court's entry of a summary judgment in favor of appellees, the defendants in the court below. In January 1996, the trial court entered a summary judgment in favor of the appellees finding no disputed issues of material fact and determining that the appellees were entitled to judgment as a matter of law on all of the plaintiffs' individual and derivative claims.

Because appellees' motion for summary judgment failed to address the new claims added in the DeWoodys' amended petition and also failed to conclusively demonstrate appellees' entitlement to judgment as a matter of law on all claims addressed, we reverse the trial court's grant of summary judgment and remand for trial on the merits.

II. Factual Background

A. The Leaver Suit

In early 1991, the DeWoodys, along with appellees, James Masters, Mark Rippley, and Douglas Fugate owned 100% of CAN's stock. Michael DeWoody owned 20%, and his father, Paul DeWoody, owned 5%. Masters, Rippley and Fugate each owned 25%. Michael DeWoody, Masters, Rippley, and Fugate were also CAN's employees, officers, and directors.

In the fall of 1991, Jonathan Leaver purportedly purchased a minority interest in CAN. Over the next year, Leaver, Masters, Rippley, and Fugate allegedly conspired to fraudulently divest the DeWoodys of their interest in CAN. The conspirators were allegedly aided in their plan by the DeWoodys' accountant, Michael Dunlap, who supplied Leaver with confidential information about the DeWoodys' financial difficulties.

In July 1992, the DeWoodys entered into a contract with Leaver to sell him two million of their shares in CAN for $210,000, an amount substantially below the market value of the stock. This purchase would have given Leaver a controlling interest in CAN. After signing the agreement, but before purchasing the DeWoodys' stock, Leaver asked Masters, Rippley, and Fugate to issue three million shares of CAN stock for $210,000 to Celeb Capital Corporation ("Celeb"), a company controlled by Leaver. At an August 6, 1992 CAN board meeting, Masters, Rippley and Fugate voted in favor of the issuance. Michael DeWoody opposed the stock issuance to no avail. Leaver now purportedly owned a controlling interest in CAN.

The next morning, Michael DeWoody arrived at his office to find a resignation letter from Dunlap stating that he had accepted a job offer from Leaver to serve as CAN's Chief Financial Officer. Michael DeWoody was then removed as a CAN director at a shareholders' meeting on August 17, 1992. After the August 17 meeting, the DeWoodys filed suit individually and derivatively against Leaver and appellees alleging that they conspired to take over CAN and to destroy the DeWoodys' interest in it (the "Leaver Suit"). During this litigation, Leaver and appellees were all originally represented by the law firm of Hopkins & Sutter.

After filing the Leaver Suit, the DeWoodys allege they became the targets of retaliatory litigation and corporate maneuvering designed to financially cripple them. The DeWoodys contend that Leaver and appellees filed frivolous counterclaims against them in the Leaver Suit, knowing the claims to be without merit. On October 9, 1992, Leaver filed suit against Pendragon Oil Company, a general partnership owned by the DeWoodys, in the Southern District of New York alleging misrepresentation in connection with two oil projects. After the DeWoodys successfully obtained a transfer of this suit to Texas, it was dismissed with prejudice. In late 1992 or early 1993, after having reincorporated CAN in Delaware, Leaver and appellees approved and instituted a reverse stock split, reducing the DeWoodys' stock ownership to below one share, and giving CAN the authority to acquire the DeWoodys' stock for $80,000, an amount drastically below the fair market value. ¹ Leaver and appellees then approved the filing of a suit by CAN against the DeWoodys in Delaware in an attempt to sequester the DeWoodys' stock. This suit was latter dismissed by the Delaware court sua sponte. Finally, a 1993 attempt to place CAN into bankruptcy in New York was dismissed as a bad faith filing. ²

After eight months of contesting the bankruptcy filing, the Leaver Suit continued. Appellees terminated Hopkins & Sutter and asserted individual and derivative claims against Hopkins & Sutter and Leaver. On the advice of new counsel, appellees gave the DeWoodys their Hopkins & Sutter legal file. The DeWoodys then amended their pleadings to include individual and derivative claims on behalf of CAN against Hopkins & Sutter.

On May 27, 1993, the DeWoodys settled their individual claims against Dunlap. In a document entitled "Covenant Not to Execute," Dunlap agreed to pay the DeWoodys 50% of the proceeds from any claims he might have against Hopkins & Sutter should a judgment be obtained against him in the Leaver Suit. Additionally, the DeWoodys agreed to indemnify Dunlap to the extent that any judgment obtained against him exceeded 50% of what he collected as a result of his claims against Hopkins & Sutter. In late 1993, at Dunlap's request, the DeWoodys executed an "Agreed Judgment" against Dunlap for 1.5 million dollars ostensibly to assist Dunlap in documenting his damages in his trial against Hopkins & Sutter. The DeWoodys allege that Dunlap's lawyer later asked them to release the agreed judgment verifying that the release would not impact their original Covenant Not to Execute and assignment of 50% of the proceeds.

The trial court appointed a receiver for CAN on May 6, 1994, and apparently vested him with the authority to pursue CAN's claims against other parties. The trial court later clarified its receivership order stating that the receiver was not obligated to pursue any claims on CAN's behalf. The trial court also enjoined the DeWoodys and appellees from interfering with the receiver's actions. Additionally, the trial court declared both CAN's September 1991 and August 1992 stock issuances to Leaver and Celeb void. The court reinstated the distribution of CAN stock to the pre-Leaver levels; Masters, Rippley and Fugate, 25% each; Michael DeWoody, 20%; and Paul DeWoody, 5%.

On July 20, 1994, the DeWoodys nonsuited all claims against Masters, Rippley, and Fugate without prejudice. The DeWoodys contend that they were fraudulently induced into nonsuiting Masters, Rippley, and Fugate after they concealed the full extent of their participation in the Leaver take-over scheme and assured the DeWoodys that their interest in CAN would be protected.

Because the DeWoodys and Masters, Rippley, and Fugate now had similar derivative claims pending against Hopkins & Sutter in the Leaver Suit, and they again collectively owned 100% of CAN's stock and were its sole directors, discussions began between the DeWoodys and Master, Rippley, and Fugate to determine how to bring CAN's claims directly. On October 25, 1994, at a CAN board of directors meeting, Masters, Rippley, and Fugate suggested that the DeWoodys nonsuit their derivative claims in the Leaver Suit. The ostensible purpose of this suggestion was to facilitate CAN's adoption of the derivative claims previously brought by Masters, Rippley, and Fugate. ³ The DeWoodys contend that, based on the assurances made at this meeting, they nonsuited their derivative claims in the Leaver Suit on November 3, 1994.

With trial set to begin November 7, 1994, however, Hopkins & Sutter opposed the filing of CAN's direct claims in the Leaver Suit because discovery deadlines had expired. In an attempt to circumvent these discovery deadlines, Masters, Rippley, and Fugate proposed a resolution requiring unanimous approval before CAN could file claims in its own right against Hopkins & Sutter. They allegedly asked the DeWoodys to withhold their consent so the majority shareholders could pursue CAN's claims derivatively and thereby avoid the discovery roadblock. No vote was taken on this scheme at the meeting and the directors agreed to further investigate what course of action should be taken in regard to CAN's claims at a later date.

The DeWoodys then nonsuited their claims against CAN without prejudice to pursue their individual claims against Hopkins & Sutter and Leaver. On October 24, 1994, appellees obtained a severance of their "derivative" and individual claims against Hopkins & Sutter from the DeWoodys' remaining individual claims in the Leaver Suit.

In November 1994, the DeWoodys' trial began on their individual claims against Hopkins & Sutter and Leaver, who had since fled the country. The jury deadlocked and the DeWoodys entered into a settlement agreement with Hopkins & Sutter. For a monetary settlement of their individual claims, the DeWoodys agreed to assign to Hopkins & Sutter any proceeds "paid, transferred, or issued" to the DeWoodys as shareholders if CAN subsequently recovered from Hopkins & Sutter. A copy of the assignment was supplied to appellees.

At a shareholders' and directors' meeting on January 13, 1995, a resolution was again proposed requiring unanimous consent of the shareholders and directors before any suit could be brought by CAN. The...