Fleming v. International Pizza Supply Corp.

Decision Date20 September 1994
Docket NumberNo. 49A02-9310-CV-554,49A02-9310-CV-554
Citation640 N.E.2d 1077
PartiesKenneth W. FLEMING, Appellant-Defendant Below, v. INTERNATIONAL PIZZA SUPPLY CORP., et al., Appellee-Plaintiff Below.
CourtIndiana Appellate Court

David E. Wright, David R. Day, Ronald G. Sentman, Johnson, Smith, Densborn, Wright & Heath, Indianapolis, for appellant.

Alan S. Brown, Robert W. Wright, Locke Reynolds Boyd & Weisell, Indianapolis, for appellee.

STATON, Judge.

Kenneth W. Fleming ("Fleming") appeals the trial court's interlocutory order granting partial summary judgment in favor of Peter Jensen ("Jensen"), Harry Kim, International Pizza Supply Corp. and International Pizza Supply Company, Inc. Fleming presents two issues for our review, which we consolidate into one and restate as follows: whether Fleming's actions for breach of fiduciary duty and fraud are barred by Indiana Code 23-1-44-8.

We reverse and remand.

In October 1988, Fleming and Jensen formed a corporation called International Pizza Supply Corporation ("International Corp."). International Corp. issued 100 shares: Jensen owned seventy-five shares and Fleming owned twenty-five. Fleming was elected president and treasurer of International Corp., and served as its chief operating officer.

In May 1989, Jensen, Fleming and International Corp. entered a buy-sell agreement which provided a minimum price for Fleming's twenty-five shares of $150,000. An amendment to the buy-sell agreement increased the minimum price of Fleming's shares to $300,000.

In December 1990, Jensen entered an agreement with Harry Kim ("Kim") to sell the assets of International Corp. to a new company, International Pizza Supply Company, Inc. ("IPS Co."), 1 which would be owned by Jensen and Kim. Fleming was not aware of Jensen and Kim's negotiations or subsequent agreement until December 27, 1990, when Jensen offered to buy Fleming's twenty-five shares in International Corp. for $30,000. Fleming refused Jensen's offer.

On February 8, 1991, Jensen and his wife conducted a meeting of the directors of International Corp., during which Jensen was elected to replace Fleming as president. On February 19, 1991, Fleming was removed as a director. On February 20, 1991, International Corp. mailed notice of a special meeting of the shareholders to Fleming. The notice advised Fleming that the directors of International Corp. had approved the sale of substantially all of the assets of International Corp. to IPS Co.

On February 22, 1991, Fleming sent a letter to Jensen and International Corp. stating that he intended to demand payment for his shares in International Corp. and that he would not vote his shares in favor of the proposed sale of assets to IPS Co. Following this assertion of dissenter's rights by Fleming, the sale of assets to IPS Co. was approved by an affirmative vote of Jensen's 75 shares.

On March 15, 1991, International Corp. sent Fleming a notice of dissenter's rights, which stated that a negative value of $8520.74 was the fair market value of Fleming's shares as determined by the corporation. The corporation then offered Fleming $10.00 for his shares notwithstanding this negative value. On April 22, 1991, Fleming responded by demanding payment of $300,000 (less the $10.00 payment already received) for his shares in the corporation. 2

International Corp. filed a petition to determine the value of shares with the Marion Superior Court. Fleming filed an answer to this petition, along with counterclaims and third-party claims against International Corp., Jensen, Kim, and IPS Co. Counts I-III of Fleming's counterclaim relate to Fleming's employment contract with International Corp. In Counts IV-VI, Fleming alleges breach of fiduciary duties and fraud. Jensen filed a motion for partial summary judgment as to counts IV-VI of Fleming's counterclaim, which was granted by the trial court.

When reviewing the grant or denial of summary judgment, we use the same standard used by the trial court. Ramon v. Glenroy Construction Co., Inc. (1993), Ind.App., 609 N.E.2d 1123, 1127, trans. denied. Summary judgment is appropriate only when the evidentiary matter designated by the parties shows 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. Id.; Ind.Trial Rule 56(C). The movant bears the burden of establishing the propriety of summary judgment, and all facts and inferences to be drawn therefrom are viewed in a light most favorable to the non-movant. Ramon, supra.

In granting Jensen's motion for partial summary judgment, the trial court agreed with Jensen that Fleming's claims are barred by IC 23-1-44-8, which provides in relevant part:

(a) A shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder's shares in the event of, any of the following corporate actions:

* * * * * *

(3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange, including a sale in dissolution....

* * * * * *

(c) A shareholder:

(1) who is entitled to dissent and obtain payment for the shareholder's shares under this chapter; ...

may not challenge the corporate action creating ... the shareholder's entitlement.

According to the trial court and Jensen, IC 23-1-44-8(c) 3 provides the exclusive remedy for Fleming, a dissenting shareholder. Jensen relies heavily on the following language in the Official Comments to IC 23-1-44-8(c):

Subsection (c), which establishes the exclusivity of Chapter 44's dissenters' rights remedies, deletes [Revised Model Business Corporation Act] language stating that such rights are exclusive 'unless the action is unlawful or fraudulent with respect to the shareholder or the corporation'. Deletion of this section reflects a conscious response to the Indiana Supreme Court's decision in Gabhart v. Gabhart [ (1977), 267 Ind. 370, 370 N.E.2d 345].

Jensen contends that these comments clearly establish that Fleming's actions for breach of fiduciary duties and fraud are barred as a matter of law.

In Gabhart, supra, our supreme court analyzed Indiana Code 23-1-5-7(c) (repealed and replaced with IC 23-1-44-8) which provided that:

Every shareholder who did not vote in favor of such merger, consolidation, or exchange and who does not object in writing and demand payment of the value of his shares at the time and in the manner stated in this section shall be conclusively presumed to have assented to such merger, consolidation, or exchange.

Despite this language, the supreme court in Gabhart held that a minority shareholder was entitled to challenge a "freeze-out" merger 4 if the merger did not have a "valid purpose", i.e., a purpose intended to advance a corporate interest. Thus, IC 23-1-5-7 precluded dissenters from enjoining the corporate transaction only where the transaction had a valid purpose. Id. As noted in the Official Comments to IC 23-1-44-8(c),

Whether or not Gabhart correctly interpreted [IC 23-1-5-7]'s exclusivity provision, the Commission believed the decision created substantial uncertainty about whether and to what extent minority shareholders could seek to enjoin or undo corporate transactions authorized by statute and approved by the majority. Given the...

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  • Rexford Rand Corp. v. Ancel
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • June 30, 1995
    ...upon the minority shareholder a change which is not incident to any other corporate business goal." Fleming v. International Pizza Supply Corp., 640 N.E.2d 1077, 1080 n. 4 (Ind.App.1994) (citation omitted).4 A corporation that is administratively dissolved for failure to file its annual rep......
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