GALACTIC EMPLOYER SERVICES v. McDORMAN

• Decision Date: 11 July 2003
• Citation: 880 So.2d 434
• Parties: GALACTIC EMPLOYER SERVICES, INC. v. Clarence McDORMAN and Thomas "Slate" McDorman.
• Court: Alabama Court of Civil Appeals

880 So.2d 434

GALACTIC EMPLOYER SERVICES, INC. v. Clarence McDORMAN and Thomas "Slate" McDorman.

2020094.

Court of Civil Appeals of Alabama.

July 11, 2003.

Certiorari Denied October 10, 2003.

Leatha Gilbert of Gilbert & Cook, PC, Birmingham, for appellant.

Don F. Wiginton, Birmingham, for appellees.

Alabama Supreme Court 1021789.

CRAWLEY, Judge.

Galactic Employer Services, Inc. ("Galactic"), appeals from the trial court's summary judgment in favor of Clarence McDorman ("Clarence") and Thomas "Slate" McDorman ("Slate"). We affirm.

Zeyad Awwad was hired as the chief executive officer of Matrix, Inc., a corporation that provided "e-commerce" solutions and computer-network support and that designed Internet Web pages. Before he was hired by Matrix, Awwad had been serving a sentence in a federal penitentiary, and, at the time of his hiring, he was on work release. Clarence, who was the chairman of Matrix's board of directors, conducted an investigation into Awwad's background before Awwad was hired.¹ After Awwad was hired, Matrix entered into an agreement with Galactic for Galactic to provide payroll services for Matrix. Galactic eventually received an insufficient-funds notice on a draw it had made from Matrix's account. However, Galactic continued providing its payroll services to Matrix based on Awwad's alleged representation to Blan Marriott, the president of Galactic, that Matrix would provide payment for its payroll debt. Some payments on that debt were subsequently made by Matrix, as well as by Clarence and by Slate, the vice president of Matrix. Awwad was eventually fired after it was discovered that he had misused Matrix's funds and had created significant debt. The debt owed to Galactic remained unpaid.

Galactic initially sued Slate; Matrix; Sean Andrews, a shareholder in Matrix; Awwad; and other fictitiously named defendants, seeking compensatory and punitive damages on claims of breach of contract, unjust enrichment, fraud, misrepresentation, and civil conspiracy. Slate and Andrews both filed motions to dismiss that were denied; then, they each filed an answer. Andrews was subsequently dismissed as a defendant by a joint stipulation. Service was not perfected on Matrix, and Galactic's claims against it were dismissed, without prejudice. Galactic subsequently filed an application for entry of default against Awwad. The trial court entered a default judgment against Awwad in the amount of $20,120.54.

Galactic amended its complaint to include Clarence as a defendant and to add counts alleging negligence, wantonness, joint enterprise, and vicarious liability, and it sought to pierce the corporate veil; it amended its complaint a second time to dismiss its breach-of-contract claim against Clarence and Slate. Clarence and Slate filed motions for a summary judgment, with supporting evidentiary materials; in response, Galactic filed oppositions to the motions for a summary judgment, with supporting evidentiary materials. On Galactic's motion, the trial court reinstated Matrix as a defendant, and Matrix filed an answer. Galactic also filed a cross-motion for a summary judgment.

The trial court entered an order granting a summary judgment to Clarence and Slate, specifically finding "that said defendants owed no legal duty to the plaintiff under the undisputed facts of this case." Galactic's claims against Matrix remained pending. Matrix filed no response to Galactic's motion for a summary judgment, and the trial court entered a summary judgment in favor of Galactic and against Matrix in the amount of $33,124.20, based on Galactic's breach-of-contract claim. Galactic then appealed to this court from the trial court's summary judgment in favor of Clarence and Slate.

Galactic raises a number of arguments contending that it raised sufficient evidence to support the various fraud and negligence claims it asserted against Clarence and Slate. Our review of a summary judgment is de novo.

"In reviewing the disposition of a motion for summary judgment, `we utilize the same standard as the trial court in determining whether the evidence before [it] made out a genuine issue of material fact,' Bussey v. John Deere Co., 531 So.2d 860, 862 (Ala.1988), and whether the movant was `entitled to a judgment as a matter of law.' Wright v. Wright, 654 So.2d 542 (Ala.1995); Rule 56(c), Ala. R. Civ. P. When the movant makes a prima facie showing that there is no genuine issue of material fact, the burden shifts to the nonmovant to present substantial evidence creating such an issue. Bass v. SouthTrust Bank of Baldwin County, 538 So.2d 794, 797-98 (Ala.1989). Evidence is `substantial' if it is 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.' Wright, 654 So.2d at 543 (quoting West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala. 1989)). Our review is further subject to the caveat that this Court must review the record in a light most favorable to the nonmovant and must resolve all reasonable doubts against the movant. Wilma Corp. v. Fleming Foods of Alabama, Inc., 613 So.2d 359 (Ala.1993); Hanners v. Balfour Guthrie, Inc., 564 So.2d 412, 413 (Ala.1990)."

Hobson v. American Cast Iron Pipe Co., 690 So.2d 341, 344 (Ala.1997).

I. Did Clarence and Slate Owe a Duty to Galactic?

Before addressing the various issues raised by Galactic, we must first consider the basis on which the trial court entered its summary judgment—that Clarence, a director, and Slate, an officer, owed no duty to Galactic. Our review of the law on this subject reveals that Alabama caselaw provides two differing theories pursuant to which an officer or director may be personally liable, or owe a duty, to third parties.

A. Officer and Director Liability for Personal Participation in a Tort.

The first line of cases provides that "`[a] corporate agent who personally participates, albeit in his or her capacity as such agent, in a tort is personally liable for the tort.'" Ex parte McInnis, 820 So.2d 795, 798-99 (Ala.2001)(quoting Sieber v. Campbell, 810 So.2d 641, 645 (Ala.2001)).² Our review of those cases indicates that the courts, although not explicitly stating the basis for liability, have held officers and directors personally liable for their active participation in an intentional tort. In McInnis, supra, the corporate officers or directors were sued for allegedly tortious conduct in formulating, manufacturing, labeling, and distributing a product that allegedly caused a wrongful death; in Sieber, supra, the plaintiff's complaint against the corporate officers and directors alleged breach of contract, fraudulent assertion of a corporate existence, misrepresentation, suppression, and promissory estoppel. See also Bethel v. Thorn, 757 So.2d 1154 (Ala.1999) (alleging promissory fraud, fraudulent misrepresentation, and fraudulent suppression); Inter-Connect, Inc. v. Gross, 644 So.2d 867 (Ala.1994) (alleging conversion, trespass, conspiracy, and disclosure of trade secrets); Ex parte Charles Bell Pontiac-Buick-Cadillac-GMC, Inc., 496 So.2d 774 (Ala.1986) (alleging fraud); Crigler v. Salac, 438 So.2d 1375 (Ala.1983) (alleging conversion, fraud, conspiracy, negligence of a warehouseman, and wantonness of a warehouseman in committing fraud and converting personal property); Alabama Music Co. v. Nelson, 282 Ala. 517, 213 So.2d 250 (1968) (alleging conversion); Roan v. McCaleb, 264 Ala. 31, 84 So.2d 358 (1955) (alleging conversion); Tennessee Chem. Co. v. Cheatham, 217 Ala. 399, 116 So. 420 (1928) (alleging breach of contract and conversion).

This theory of officer or director liability has been applied in at least two cases in which the plaintiffs asserted claims of negligence—Crigler, supra, and Southeastern Construction Co. v. Robbins, 248 Ala. 367, 27 So.2d 705 (1946). However, in both of those cases a special fiduciary relationship existed between the plaintiffs and the corporate officer or director. The negligence claim asserted in Crigler, negligence of a warehouseman, arose out of the fiduciary relationship created under our bailment laws. Section 7-7-204, Ala.Code 1975, provides for a negligence cause of action against a warehouseman, which the defendant corporation in that case was, pursuant to § 7-7-102(1)(h), Ala.Code 1975. Similarly, in Southeastern Construction a fiduciary relationship was recognized to exist between the officers and directors of a dissolved corporation and its shareholders and creditors.

B. No Duty Owed by Officers and Directors to Creditors.

The second theory present in Alabama caselaw indicates that this state is one of a number of jurisdictions that generally do not provide for officer or director liability to creditors,³ such as Galactic, for negligent or ultra vires acts, on the basis that there is no duty owed to the creditor.⁴ In Jefferson Pilot Broadcasting Co. v. Hilary & Hogan, Inc., 458 F.Supp. 310 (M.D.Ala. 1978), the United States District Court for the Middle District of Alabama stated:

"It appears to be the law in Alabama that an officer, director, or controlling stockholders of a corporation generally are not liable to corporate creditors for negligent or ultra vires actions which affect the ability of the corporation to pay its debts. See Tennessee Chemical Co. v. Cheatham, 217 Ala. 399, 116 So. 420 (1928)(`"Directors, agents and officers of a corporation are trustees for its stockholders, but not for its creditors, and this whether the corporation is solvent or insolvent,"' quoting O'Bear Jewelry Co. v. Volfer & Co., 106 Ala. 205, 17 So. 525 [(1895)]); Force v. Age-Herald Co., 136 Ala. 271, 33 So. 866 (1902); 19 Am.Jur.2d, Corporations § 1350 (1965).... The only ground upon which officers and directors can be liable to creditors is if they `fraudulently divert or destroy the corporate assets, which are subject to the payment of corporate debts.' Force, supra, 136 Ala. at 278,

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