Elgin v. Alfa Corp.

• Decision Date: 17 April 1992
• Citation: 598 So.2d 807
• Parties: Julian ELGIN, et al. v. ALFA CORPORATION, et al. 89-1227.
• Court: Alabama Supreme Court

Page 807

598 So.2d 807

Julian ELGIN, et al. v. ALFA CORPORATION, et al.

89-1227.

Supreme Court of Alabama.

April 17, 1992.

Richard H. Gill, Robert D. Segall and Jim Vickrey of Copeland, Franco, Screws & Gill and Julian L. McPhillips, Jr. of McPhillips, DeBardelaben & Hawthorne, Montgomery, for appellants.

Robert A. Huffaker of Rushton, Stakely, Johnston & Garrett, Montgomery, for appellee Alfa Corp.

Robert W. Bradford, Jr. of Hill, Hill, Carter, Franco, Cole & Black, Montgomery, for appellees the Mutual Companies.

Thomas W. Thagard of Balch & Bingham, Montgomery, for appellees the Directors.

ON APPLICATION FOR REHEARING

KENNEDY, Justice.

The opinion of August 30, 1991, is withdrawn and the following is substituted therefor.

This appeal involves a shareholder's derivative action filed on behalf of three mutual insurance companies, Alfa Mutual General Insurance Company ("Alfa General"), Alfa Mutual Insurance Company ("Alfa Mutual"), and Alfa Mutual Fire Insurance Company ("Alfa Fire") by Julian Elgin, Robert O'Connell, and Lloyd Taylor. The action named as defendants the three mutual insurance companies, Alfa Corporation, 18 directors of each of the mutual companies (the directors of each of the mutual companies being the same persons), and Goodwyn Myrick, who is president of each of the mutual companies and president and chairman of the board of directors of Alfa Corporation, a corporation formed by the three mutual companies to sell insurance. Attached as Appendix A to this opinion is a diagram of the Alfa corporate structure.

The plaintiffs sought relief on behalf of the mutual companies, because, they allege, the directors of the mutual companies improperly loaned and/or directly transferred cash and assets from the mutual companies to Alfa Corporation.

In an amended complaint, Lloyd Taylor withdrew as a plaintiff, and George F. LaMunyon and William C. Lawson were added as plaintiffs.

Two circuit court judges were involved with this case before this appeal. The first trial judge ordered a stay of discovery on the merits of the case until he could rule on whether the plaintiffs met the standing requirements of Rule 23.1, A.R.Civ.P. That judge later recused, without ruling on whether the plaintiffs had met those requirements. The second trial judge, addressing the defendants' motion to dismiss, entered the judgment appealed from in this case. The trial court stated that the issue before it on the motion to dismiss was "whether Plaintiffs have standing to bring and maintain this suit [o]n behalf of the mutual companies." It proceeded to hold, based on evidence from "depositions of numerous witnesses" and "a multitude of exhibits," that, except for the fact that Lawson, O'Connell, and LaMunyon were policyholders of Alfa Mutual, the plaintiffs were deficient in every Rule 23.1 requirement for standing, and the trial court dismissed the complaint with prejudice.

When a trial court, in considering a motion to dismiss, considers matters outside the pleadings, the motion to dismiss is treated as a motion for summary judgment. Rule 12(c), A.R.Civ.P.; Thorne v. Odom, 349 So.2d 1126 (Ala.1977). We have specifically held this to be true in a shareholder's derivative action. Green v. Bradley Construction Co., 431 So.2d 1226 (Ala.1983). Accordingly, although the trial court worded its order in terms of dismissing the complaint, because it reached its determination by looking at matters outside the pleadings, such as the depositions and exhibits, we must review the judgment as a summary judgment. Rule 12(c), A.R.Civ.P.; Thorne; Green.

However, it is important to note that summary judgment was entered on the threshold matter of standing, rather than on the substantive merits of the plaintiffs' claim. Therefore, our discussion is limited to this context. ¹

The standard used to determine the propriety of a summary judgment is found in Rule 56(c), A.R.Civ.P. Stephens v. City of Montgomery, 575 So.2d 1095 (Ala.1991). When the trial court found that the defendants had made a prima facie showing that there was no genuine issue of material fact and that they were entitled to a judgment on the standing issue as a matter of law, the burden of proof shifted to the plaintiffs to establish the existence of a genuine issue To do this the plaintiffs had to rebut the defendants' prima facie showing by "substantial evidence." See Ala.Code 1975, § 12-21-12. In determining whether there is substantial evidence, we review the evidence in a light most favorable to the nonmovant (here, the plaintiffs) and resolve all reasonable doubts against the movant. Stephens, at 1097; Sanders v. Kirkland & Co., 510 So.2d 138 (Ala.1987). Substantial evidence is "evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved." West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala.1989).

of material fact and that summary judgment was, accordingly, improper under Rule 56(c).

Finally, a trial court's entry of a summary judgment is a nondiscretionary ruling, and no presumption of correctness attaches to that ruling; accordingly, our review of the evidence properly presented in the record is de novo. ² Hightower & Co. v. United States Fidelity & Guaranty Co., 527 So.2d 698 (Ala.1988).

Rule 23.1 provides:

"In a derivative action brought by one or more shareholders or members to enforce a right of a corporation or of an unincorporated association, the corporation or association having failed to enforce a right which may properly be asserted by it, the complaint shall be verified and shall allege that the plaintiff was a shareholder or member at the time of the transaction of which he complains or that his share or membership thereafter devolved on him by operation of law. The complaint shall also allege with particularity the efforts, if any, made by the plaintiff to obtain the action he desires from the directors or comparable authority and, if necessary, from the shareholders or members, and the reasons for his failure to obtain the action or for not making the effort. The derivative action may not be maintained if it appears that the plaintiff does not fairly and adequately represent the interests of the shareholders or members similarly situated in enforcing the right of the corporation or association. The action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to shareholders or members in such manner as the court directs."

Because in holding that the plaintiffs did not have standing, the trial court found that the plaintiffs were deficient in each of the foregoing requirements of Rule 23.1, we will examine each of these requirements as it relates to the facts of this case and the arguments of the parties.

The "Contemporaneous Ownership" Requirement of Rule 23.1

The requirement of Rule 23.1 that the plaintiff allege he was a "shareholder or member ³ at the time of the transaction of It is undisputed that O'Connell, LaMunyon, and Lawson were policyholders of Alfa Mutual both when the complaint was filed and when the transactions complained of occurred. Accordingly, as to Alfa Mutual, those three plaintiffs met that requirement.

which he complains" is referred to as a requirement of "contemporaneous ownership" or "substantive standing." Shelton v. Thompson, 544 So.2d 845 (Ala.1989). We have previously held that "contemporaneous ownership" also requires, in addition to being a policyholder at the time complained of, that the plaintiff be a policyholder at the time of filing the derivative suit. Green, at 1229.

Elgin argues that he should be "equitably excused" from the Rule 23.1 contemporaneous-ownership requirement. The evidence indicates that Elgin was an Alfa Mutual policyholder at the time of the transactions complained of but that he was not at the time suit was filed. Alfa had, in the interim, "nonrenewed" his policies.

Because the derivative action has been historically and is to this day is an equitable action, Elgin's argument that he should be excused from the Rule 23.1 contemporaneous-ownership requirement merits scrutiny. See, Foss v. Harbottle, 2 Hare 461, 67 Eng.Rep. 189 (Ch. 1843); Dodge v. Woolsey, 59 U.S. (18 How.) 331, 15 L.Ed. 401 (1856); Hawes v. Oakland, 104 U.S. 450, 26 L.Ed. 827 (1882); Tuscaloosa Manufacturing Co. v. Cox, 68 Ala. 71 (1880).

The record indicates that until January 1988, Elgin had been a member of the Montgomery County Farm Bureau, which allowed him to be a member of the Alabama Farmers Federation. Members of the Alabama Farmers Federation are eligible to apply for insurance coverage provided by the mutual companies. Elgin was an Alfa Mutual policyholder during the time of the events complained of.

On January 18, 1988, the Montgomery County Farm Bureau held a meeting and expelled Elgin from its membership. Then, as previously stated, Alfa Mutual "nonrenewed" his policies. The evidence indicates that Elgin's complaints about the transactions underlying this action were known to Alfa Mutual before the nonrenewal. Elgin's attorney had written Myrick a letter requesting information relating to the transactions involved. Also, Elgin had expressed to the Montgomery County Farm Bureau his reservations about the transactions made the basis of the complaint in this action. Finally, there was testimony from an Alfa Corporation executive to the effect that Elgin's complaints were a basis of his nonrenewal.

Elgin argues that, as a matter of equity, prospective derivative action defendants should not be allowed to preempt a derivative suit by divesting the complaining shareholder or policyholder involuntarily of the necessary status to bring the action, i.e., the status of "contemporaneous ownership." Elgin contends that he was nonrenewed for the sole purpose of depriving him of standing to bring...