Geer v. Cox
| Decision Date | 03 January 2003 |
| Docket Number | No. 01-2583-JAR.,01-2583-JAR. |
| Citation | 242 F.Supp.2d 1009 |
| Parties | Lewis F. GEER, Plaintiff, v. William D. COX, et al., Defendants. |
| Court | U.S. District Court — District of Kansas |
James M. Crabtree, Lenexa, KS, James G. Flynn, Des Moines, IA, for Plaintiff.
Matthew J. Salzman, Erik P. Klinkenborg, Stinson Morrison Hecker LLP, Kansas City, MO, Timothy M. O'Brien, Cheryl L. Reinhardt, Shook, Hardy & Bacon L.L.P., Overland Park, KS, Gregory M. Bentz, Shughart Thomson & Kilroy, PC, Kansas City, MO, Thomas L. Flynn, Matthew T. Cronin, David L. Charles, Belin Lamson McCormick, Zumbach Flynn, Des Moines, IA, William F. Logan, Foland & Wickens, P.C., David R. Buchanan, Scott A. Hunter, Brown & James, P.C., Kansas City, MO, David R. Buchanan, Scott A. Hunter, Brown & James, P.C., Kansas City, MO, for Defendants.
MEMORANDUM ORDER AND OPIION GRANTING IN PART AND DENYING IN PART DEFEDANTS' MOTIONS TO DISMISS AND STRIKE
In a "Class Action and Derivative Complaint" ("Complaint"), plaintiff, as a shareholder of TransFinancial Holdings, Inc. ("TransFinancial"), seeks to assert derivative causes of action concerning the liquidation sale of assets by Crouse Cartage Company ("Crouse"), a subsidiary of TransFinancial, to RLR Investments and R & L Transfer ("R & L"). All of the proceeds from the sale were paid to Crouse's secured creditors, Central States Pension Funds ("Pension Fund") and Bankers Trust Company ("the Bank"). Plaintiff names as defendants TransFinancial; directors Cox, Laborde, O'Neil, Hill and Steward ("Individual Defendants"); the Pension Fund; the Bank; and R & L. All of the defendants have filed motions to dismiss: TransFinancial moves to dismiss Count I for failure to state a claim under Fed.R.Civ.P. 12(b)(6) (Doc. 37); the Individual Defendants move to dismiss Counts II and III for failure to comply with Rule 23.1 (Doc. 34) as well as to strike portions of the Complaint (Doc. 36); the Bank and the Pension fund move to dismiss Counts II and III under Rule 12(b)(6) (Docs. 44 and 32); R & L moves to dismiss for failure to state subject matter jurisdiction and verify the complaint (Doc. 40). Plaintiff has filed a consolidated response to all six motions (Doc. 51). For the reasons set forth below, the Court grants the motions of TransFinancial and the Bank and the Pension Fund; denies the motions of the Individual Defendants; and partially grants the motion of R & L, with leave to amend.
Crouse is a subsidiary of TransFinancial, a Delaware corporation headquartered in Lenexa, Kansas. Plaintiff, each member of the putative, uncertified plaintiff class and each Individual Defendant is a shareholder of TransFinancial. Individual Defendants were officers and/or directors of TransFinancial and are being sued in that capacity. Individual Defendants were not officers or directors of Crouse.
TransFinancial is a holding company that operated three industry segments: transportation, financial services and industrial technology. TransFinancial conducted its operations in the transportation industry through its wholly-owned subsidiary, Crouse. In 1999, total assets for TransFinancial's transportation segment constituted 61% of its consolidated total assets and 94% of its consolidated operating revenues.
On or about July 5, 2000, TransFinancial, Crouse, other subsidiaries and the Bank entered into an Amended and Restated Secured Loan Agreement (the "Loan Agreement"). The Bank acknowledged that the Pension Fund held a mortgage lien in real property owned by Crouse.
Crouse ceased operations on or about September 16, 2000. As part of a liquidation outside bankruptcy, on or about October 20, 2002, Crouse entered into an agreement to sell certain assets, including its real estate, equipment, and other personal property, to RLR Investments and R & L for $23.5 million. All of the proceeds from the sale by Crouse were distributed to the Pension Fund and the Bank, both of which were secured creditors of Crouse.
Plaintiff asserts three causes of action concerning Crouse's sale of its assets: Count I, a direct claim against TransFinancial and the Individual Defendants alleging that the sale by Crouse constituted substantially all of TransFinancial's assets without TransFinancial shareholder approval in violation of § 271 of the Delaware Corporation Code; Count II, restating Count I as a derivative claim against all defendants except TransFinancial, on behalf of TransFinancial; and Count III, a derivative claim against all defendants except TransFinancial alleging that the sale by Crouse without TransFinancial shareholder approval constituted conversion. Plaintiff seeks to impose a constructive trust on the proceeds from the sale.
Rule 12(b)(6) standards
The court will dismiss a cause of action for failure to state a claim only when it appears beyond a doubt that the plaintiff can prove no set of facts in support of the theory of recovery that would entitle him or her to relief,1 or when an issue of law is dispositive.2 The court accepts as true all well-pleaded facts, as distinguished from conclusory allegations,3 and all reasonable inferences from those facts are viewed in favor of the plaintiff.4 The issue in resolving a motion such as this is not whether the plaintiff will ultimately prevail, but whether he or she is entitled to offer evidence to support the claims.5
Plaintiff submits evidence regarding the sale of the Crouse assets in the form of an affidavit from Gary Lutin, an advisor to TransFinancial shareholders. It is well established that "[a] motion to dismiss for failure to state a claim upon which relief can be granted must be converted into a motion for summary judgment whenever the district court considers matters outside the pleadings." Fed. R.Civ.P. 12(b)(6). Courts have broad discretion in determining whether or not to accept materials beyond the pleadings.6 Reversible error may occur, however, if the district court considers matters outside the pleadings but fails to convert the motion to dismiss into a motion for summary judgment.7 None of the parties contend that the Court should convert the motion into one for summary judgment, and the Court therefore refuses to consider matters outside of the pleadings submitted by plaintiff at this time.
The Court finds it is appropriate, however, to consider the Loan Agreement attached to the Bank's motion to dismiss. It is accepted practice that, "if a plaintiff does not incorporate by reference or attach a document to its complaint, but the document is referred to in the complaint and is central to plaintiffs claim, a defendant may submit an indisputably authentic copy to the court to be considered on a motion to dismiss."8 "If the rule were otherwise, a plaintiff with a deficient claim could survive a motion to dismiss simply by not attaching a dispositive document upon which the plaintiff relied."9 Plaintiff refers to the Loan Agreement throughout his Complaint.
TransFinancial motion to dismiss direct action.
TransFinancial argues that Count I should be dismissed under Fed.R.Civ.P. 12(b)(6), arguing that the essence of Count I of the Complaint is that the sale by Crouse of its assets without obtaining TransFinancial shareholder approval violated § 271 and as such, plaintiffs direct claim is not cognizable under Delaware law. Specifically, TransFinancial argues that a shareholder may bring direct actions for injuries done to them in their individual capacities and that plaintiff does not and cannot allege a distinct injury separate and apart from any alleged injury to the shareholders as a whole. TransFinancial contends it was a fatal error for plaintiff to admit that its claims are "typical of the claims of other members of the Class and plaintiff has the same interests as other members of the Class." Plaintiff counters that he was deprived of his individual right to vote for or against the disposition of substantially all of the corporate assets, and that § 271 may be maintained as a direct action.
Section 271 of the Delaware Corporation Code provides in pertinent part:
Every Corporation may at any meeting of its board of directors ... sell, lease, or exchange all or substantially all of its property and assets... upon such terms and conditions and for such consideration ... as its board of directors ... deems expedient and for the best interests of the corporation, when and as authorized by resolution adopted by the holders of the outstanding stock of the corporation entitled to vote thereon ...
State law determines whether a shareholder may maintain a direct, nonderivative action.10 Delaware law distinguishes between direct individual and derivative actions based on "the nature of the wrong alleged and the relief, if any, which could result if plaintiff were to prevail." 11 Thus, if the relief sought flows primarily to the corporation, the action must be brought as a derivative action on behalf of the corporation.12 In analyzing whether the complaint states a derivative or direct claim, the court must look to the nature of the alleged wrong rather than the designation used by plaintiff.13 A plaintiff may maintain a direct action if the shareholder complains of an injury distinct from that suffered by other shareholders, or a wrong involving one of the shareholder's contractual rights as a shareholder.14
TransFinancial cites Atwood Grain & Supply Co. v. Growmark, Inc.,15 in support of its argument. In that case, the court interpreted Delaware law when shareholders attempted to bring a direct action against the corporation alleging that the board's unilateral sale of company assets without shareholder approval was not in the best interest of the corporation or its shareholders.16 The court distinguished between direct and derivative actions as follows:
Shareholders may bring direct actions ... for injuries done to...
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