Foreclosure Freesearch, Inc. v. Sullivan

• Decision Date: 29 April 2009
• Docket Number: No. 4D08-2579.,4D08-2579.
• Citation: 12 So.3d 771
• Parties: FORECLOSURE FREESEARCH, INC., a Florida corporation, Appellant, v. Gregory SULLIVAN and Dominic Muttillo, Appellees.
• Court: Florida District Court of Appeals

12 So.3d 771

FORECLOSURE FREESEARCH, INC., a Florida corporation, Appellant, v. Gregory SULLIVAN and Dominic Muttillo, Appellees.

No. 4D08-2579.

District Court of Appeal of Florida, Fourth District.

April 29, 2009.

Rehearing Denied June 18, 2009.

L. Martin Reeder, Jr. and Dolly Voorhees Davis of Reeder of Reeder P.A., Jupiter, for appellant.

Diran V. Seropian of Cole, Scott & Kissane, P.A., West Palm Beach, for appellees.

WARNER, J.

The trial court enjoined a statutorily authorized appraisal process commenced by appellant to complete the reverse purchase of its stock from appellees. We reverse, as all of the elements necessary to support an injunction were not present.

In 1999, Bradford Geisen founded Foreclosure FreeSearch, Inc. ("FFS"), to run a website which provides customers with information regarding real estate foreclosures all over the country. Since its formation, Geisen has been FFS's majority shareholder and president. Appellees Gregory Sullivan and Dominic Muttillo ("M/S") became involved with FFS's operations at the outset. According to the stock certificates dated April 20, 2001, M/S each received 200,000 shares of FFS common stock and each became a 20% shareholder of FFS. FFS identified M/S as shareholders in its 2000 to 2003 tax returns and provided M/S with quarterly distributions and financial reports until December of 2004, at which point Geisen terminated M/S's involvement with FFS.

In June of 2005, FFS initiated a lawsuit against M/S seeking declaratory relief as to M/S's status as shareholders, alleging that M/S fraudulently induced FFS into treating them as shareholders when M/S had not paid consideration for shares, and requesting the court to rescind any shareholder agreement. M/S filed a counterclaim against FFS and a third-party claim against Geisen alleging breach of fiduciary duty, seeking unpaid dividends and quarterly financial information pursuant to the 2001 shareholder agreement between FFS and M/S, seeking judicial dissolution of FFS, seeking disclosure of FFS's corporate records, and making a claim of equitable estoppel against FFS for denying M/S's position as shareholders (count V of the counterclaim).

On M/S's motion, the court bifurcated the issue of whether M/S were shareholders of FFS from the remaining counts, as it constituted a threshold issue. Discovery on the remaining issues was stayed pending the determination of shareholder status.

The court scheduled the trial on the shareholder issue to begin on May 12, 2008. On April 8, 2008, Geisen, as majority shareholder, approved and adopted by written consent a reverse stock split thereby eliminating all shares held by minority shareholders. Geisen testified that the purpose of the reverse stock split was to put an end to the litigation in the fairest way possible for everyone involved. Based upon the filing with the Florida Secretary of State, every 249,000 shares of currently outstanding stock in FFS would be converted to one share of FFS. Fractional shares would be repurchased. Because M/S each owned 200,000 shares, their shares would be repurchased as fractional shares.

The reverse stock split triggered M/S's statutory appraisal rights under section 607.1302(1)(d), Florida Statutes, which entitles a shareholder whose stock is being repurchased in a reverse split to appraisal rights and to obtain payment of the fair market value of the stock.

Section 607.1322(1), Florida Statutes, provides: "If proposed corporate action requiring appraisal rights under s. 607.1302(1) becomes effective, the corporation must deliver" to all shareholders "a written appraisal notice and form." Accordingly, FFS mailed M/S written notice on April 8, 2008, which included the details of the reverse stock split, cited the applicable statutes, and described the documents attached, including financial statements and a March 26, 2008, valuation report prepared by Templeton & Company, LLP. The notice warned that failure to assert appraisal rights, by completing and returning the enclosed form within the statutory period, i.e., by May 21, 2008, constituted a waiver of the process. See § 607.1323(3), Fla. Stat. The notice concluded with the following:

Nothing in this letter constitutes a waiver by [FFS] or [Geisen] of any right to assert that you are not a shareholder of [FFS] or, even if you are determined by a court of competent jurisdiction to be a shareholder of [FFS], you are not entitled to appraisal rights under Florida law.

M/S responded to the notice by filing an April 30, 2008, joint motion for temporary injunction in the case pending in circuit court "to prevent [FFS and Geisen] from taking any further action that will harm [M/S]" and "from proceeding with the reverse stock split contemplated in the notice" until the court makes a final determination on issues raised in M/S's complaint against FFS/Geisen. At a hearing in early May the court prodded the parties to resolve the issue. As a result, the parties stipulated that (1) M/S were each shareholders of 18.6% of FFS's stock as of December 31, 2000; (2) stock certificates reflecting M/S ownership of 200,000 shares each were issued in April 2001; (3) tax returns from 2000 to 2004 would not be amended; (4) compensation and other distributions paid to Geisen and M/S from 2000 to 2004 were lawful, and none of the parties would make any further claims of compensation or distribution for that period; and (5) the parties requested the court to dismiss FFS's complaint and count V of M/S's counterclaim. The court entered the order on the stipulation dismissing these claims with prejudice and directing the parties to proceed with discovery on the remaining issues of M/S's counterclaim.

Thereafter, M/S served on FFS a demand for production of most of the company's financial records since 2002. They claimed that the documents were necessary in order to perform a forensic accounting of the corporation in preparation to respond to the appraisal notice. The trial court granted the requests for production.

At the same time M/S filed a May 13, 2008, motion for temporary injunction seeking to enjoin the appraisal process. They claimed that they would suffer irreparable injury were the process to go forward while their counterclaims were still pending. If they lost their shares through the appraisal process, they would also lose their standing to assert a shareholder derivative action if their discovery revealed fraud committed by Geisen. After an evidentiary hearing in which M/S's accountants questioned the valuation report of Templeton & Co., the trial court entered a temporary injunction finding that the April 8, 2008, notice of appraisal rights was "void" because FFS was claiming at the time that M/S were not shareholders of the corporation. The court found that the criteria to grant a temporary injunction were met. From the order granting the temporary injunction, FFS appeals.

"The standard of review of trial court orders on requests for temporary injunctions is a hybrid." E.I. DuPont De Nemours & Co. v. Bassett, 947 So.2d 1195, 1196 (Fla. 4th DCA 2007). "To the extent the trial court's order is based on factual findings, we will not reverse unless the trial court abused its discretion; however, any legal conclusions are subject to de novo review." Id. (quoting Colucci v. Kar Kare Auto. Group, Inc., 918 So.2d 431, 436 (Fla. 4th DCA 2006)). "Although a trial court has broad discretion in granting injunctive relief, it is an extraordinary remedy that `requires a clear legal right, free from reasonable doubt.'" Net First Nat'l Bank v. First Telebanc Corp., 834 So.2d 944, 950 (Fla. 4th DCA 2003) (quoting Dania Jai Alai Int'l v. Murua, 375 So.2d 57, 58 (Fla. 4th DCA 1979)).

When reviewing the trial court's issuance of an injunction, this court must determine whether the movant established: "(1) that it will suffer irreparable harm unless the status quo is maintained; (2) that it has no adequate remedy at law; (3) that it has a substantial likelihood of success on the merits; and (4) that a temporary injunction will serve the public interest." Broward County v. Meiklejohn, 936 So.2d 742, 746 (Fla. 4th DCA 2006) (quoting Aerospace Welding, Inc. v. Southstream Exhaust & Welding, Inc., 824 So.2d 226, 228 (Fla. 4th DCA 2002)). Based upon this standard, we conclude that the injunction fails.

We begin with the adequacy of the remedy at law, as our ruling on this controls the result. The court considered the notice sent to advise of appraisal rights as invalid because FFS contested M/S's status as shareholders. We disagree. Because the notice was not "void" and the statutory procedure on appraisal rights protected M/S, an adequate remedy at law existed through the appraisal process.

Pursuant to section 607.1322(1), when a reverse stock split "becomes effective, the corporation must deliver a written appraisal notice and form ... to all shareholders ...." "Shareholder" includes a "record shareholder" which is "the person in whose name shares are registered in the records of the corporation ...." § 607.1301(7), (9), Fla. Stat.

M/S were shareholders within the meaning of the statute when the notice was sent. M/S attached to the joint motion for injunctive relief copies of stock certificates issued by FFS on April 20, 2001, which reflected that each held 200,000 FFS shares, and a copy of FFS's stock transfer ledger listing both movants as shareholders. They were shareholders of record on April 8, and the statute required the corporation to send them the statutory notice of their appraisal rights. Moreover, the parties stipulated that they were shareholders as of December 31, 2000, and the court incorporated the stipulation in its order of dismissal of FFS's declaratory judgment action. M/S cannot then turn around and claim that they were not shareholders or that their shareholder status was in doubt. When M/S made this agreement with FFS, they were aware that thirteen days remained in...