Farm Service Co-op., Inc. v. Goshen Farms, Inc.
| Decision Date | 10 December 1979 |
| Docket Number | No. 78-196,78-196 |
| Citation | 267 Ark. 324,590 S.W.2d 861 |
| Parties | FARM SERVICE COOPERATIVE, INC., Appellant, v. GOSHEN FARMS, INC., et al., Appellees. |
| Court | Arkansas Supreme Court |
Dickson & Ball, Fayetteville, for appellant.
Jones & Segers, Thomas Pearson, Fayetteville, for appellees.
Appellant Farm Service Cooperative, Inc. questions the propriety of a summary judgment dismissing its counterclaim against Goshen Farms, Inc. and cross-complaint against George Melbourn and Carl Rose. This pleading was filed in a suit brought by Goshen Farms, Inc. (hereafter referred to as Goshen) against Farm Service Cooperative, Inc. (hereinafter called Farm Service).
The questions at issue will be better understood if we first develop some of the background about which there seems to be no dispute. Goshen leased a dwelling house and four poultry houses, and the equipment therein, to Farm Service by written lease dated March 19, 1969 for a term of three years beginning April 2, 1969. Melbourn and Rose were the only two stockholders of Goshen. Each of them owned one-half of the outstanding capital stock. Melbourn was employed as general manager of Farm Service until his employment was terminated on or about August 15, 1970.
After the termination of the lease Goshen filed an action in the Circuit Court of Washington County (No. 8360) on May 17, 1972, seeking a declaratory judgment declaring the rights of the parties to the lease and recovery of damages for injury to the leased property allegedly done by Farm Service. By agreement of the parties, that part of Goshen's complaint seeking declaratory judgment was tried and a jury verdict adverse to Goshen was rendered on May 12, 1973. It was agreed by the attorneys for the parties that the portion of Goshen's complaint seeking recovery of damages would be deleted and that Farm Service would not plead prior adjudication if an action for damages to personal property should subsequently be filed.
On December 1, 1972, Melbourn had filed an action (No. 8749) against Farm Service claiming damages for the alleged breach of his contract of employment by Farm Service. This case was tried beginning February 3, 1975. A jury verdict in favor of Farm Service was returned on February 5, 1975, and judgment was entered pursuant to that verdict.
On May 24, 1974, Goshen Farms did file an action (CIV 74-351) in the Circuit Court of Washington County seeking to recover $6,000 damages for injury to personal property. This complaint was amended to increase the amount of damages sought to $7,500 on December 5, 1975. This case was set for trial on September 10, 1976, but it was dismissed without prejudice by Goshen Farms on September 2, 1976.
The present action was filed on January 17, 1977. In its complaint, Goshen again alleged that the use of the leased property and equipment by Farm Service caused extensive damage to the property and equipment, and that Farm Service had breached the lease contract by failure to comply with its agreement to return the leased premises, property and equipment to Goshen upon termination of the lease in the same condition they were at the time Farm Service took possession. Goshen sought damages of $7,500. Farm Service filed an answer, which was a general denial, reserving the right to amend and to file other pleadings if further investigation and discovery procedures warranted the filing of additional pleadings.
Farm Service did file its counterclaim and cross-complaint on April 6, 1977. It alleged that: Goshen was the alter ego of George Melbourn and Carl Rose; and that Melbourn and Rose, through their alter ego, Goshen, had instituted civil action against it for declaratory judgment and for damages on May 17, 1972; that Melbourn had brought his action against Farm Service on December 1, 1972; that on May 24, 1974, Melbourn and Rose, through their alter ego, Goshen, had instituted another action for damages against Farm Service, which it dismissed shortly before the designated trial date; that each action was terminated favorably to Farm Service and that each of them and the present action had been brought by Melbourn and Rose maliciously and without probable cause and for the purpose of harassing Farm Service; that Goshen had, through Melbourn, repeatedly made threats to institute additional civil actions against Farm Service; that Farm Service had been compelled to pay $20,455.12 in attorney's fees in connection with these actions and would be required to pay additional attorney's fees in defending this action; and that appellant was entitled to recover exemplary damages. Farm Service prayed for its attorney's fees, $10,000 exemplary damages and dismissal of the complaint.
The demurrers of Goshen, Melbourn and Rose were overruled on May 12, 1977. Goshen's reply and the answer of Melbourn and Rose were consolidated in a pleading filed May 25, 1977. They denied that Melbourn and Rose, acting through their alter ego, Goshen, had, on May 17, 1972, commenced a civil action against Farm Service, but admitted that Goshen had, on May 17, 1972, commenced a civil action, and that, by an agreement between the attorney for Goshen and the attorney for Farm Service, the issue of damages to property was to be severed and handled in separate litigation.
On April 12, 1978, Goshen, Melbourn and Rose filed their motion for summary judgment on the counterclaim and cross-complaint filed against them by Farm Service, asserting that there was no justiciable issue of fact and that Goshen was not the alter ego of Melbourn and Rose. The motion was based upon the pleadings and judgments in all the actions previously mentioned, including those in the present action, all of which were made exhibits to the motion, along with the following:
1. The affidavit of F. H. Martin, the attorney of record for Goshen in the action filed against Farm Service on May 17, 1972, stating the agreement relating to the splitting of that cause of action, so the portion relating to the declaratory judgment on the lease agreement could be tried without prior adjudication being pleaded when the cause of action for damages to personal property was filed. The agreement was confirmed by letter to Martin from James F. Dickson, dated April 25, 1974.
2. The docket sheet in the case of Goshen against Farm Service (No. 74-351), showing an entry dated September 2, 1976, over the signatures of Thomas Pearson and Joseph William Segers, Jr., dismissing the action without prejudice.
3. Responses of Goshen, through its president George Melbourn, to interrogatories propounded to it by Farm Service in No. 74-351.
4. The affidavit of Carl Rose that he was one of the incorporators of Goshen, which was organized and incorporated in December, 1975 and early 1976, that shortly thereafter all the stockholders, except for himself and Melbourn, "passed out of the picture," and that, at the time of the filing of cause No. 8749 by Melbourn and at all times subsequent thereto, he and Melbourn were the only stockholders of Goshen; and that Goshen Farms, Inc. is a separate entity from him and Melbourn and that it is still in existence as a corporation.
In its response to the motion for summary judgment, Farm Service asserted that Goshen, Melbourn and Rose were not entitled to judgment as a matter of law upon the ground that the verified pleadings in the case, discovery depositions and interrogatories showed that there remained disputed questions of fact. The affidavit of Walter F. Losey, general manager of Farm Service, was filed with this response. In the affidavit, Losey stated that: after Melbourn was fired as general manager of Farm Service on August 15, 1970, he made numerous statements to Losey and others that he would get even with Farm Service, or words to that effect; that on November 20, 1977, Rose indicated to Farm Service that he was turning over the decision-making process of the corporation to Melbourn; after relating the allegations of the counterclaim and cross-complaint as to the various lawsuits, that no probable cause existed for the filing of the actions; and that Melbourn had also repeatedly made threats to institute additional civil actions against Farm Service.
The circuit court's order granting summary judgment dismissing the counterclaim and cross-complaint was based upon the following reasons:
The original Case No. 74-351 claimed damages for breach of contract in failing to vacate the premises and excessive damages to poultry equipment. The attorneys for the parties stipulated that the cause of action for damages to poultry equipment should be passed for trial at a future date. The cause of action seeking damages for breach of contract for failing to renew lease resulted in a verdict for defendant.
The contents of the Complaint show no indiscretion or malice expressed or implied. The doing of something a person has a legal and procedural right to do is no basis for malice.
The present suit by Goshen against Farm Service has no connection with the employment controversy between Farm Service Cooperative and George Melbourn. The fact that George Melbourn was a substantial stockholder in Goshen Farms, Inc., in itself is immaterial in piercing the corporate entity unless one of the following is alleged and proved:
(1) To prevent a contravention of governmental policy
(2) In case of a national emergency
(3) Fraud.
(4) Inequity of limited liability.
(5) Injustice to controlling shareholder.
(6) Oppression of a shareholder's interest.
(7) Jurisdictional and procedural factors.
None of these grounds have been alleged or proved nor is there any proof of them to justify piercing the corporate entity and holding George Melbourn and Carl Rose personally liable as to the counterclaim for malicious prosecution. The counterclaimant must allege and prove the original proceedings terminated in his favor, Coffelt v. Gordon, 239 Ark. 619, 390 S.W.2d 633. In...
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