Hendrick v. Hendrick

• Court: Rhode Island Supreme Court
• Writing for the Court: BOURCIER, J.
• Citation: Hendrick v. Hendrick, 755 A.2d 784 (R.I. 2000)
• Decision Date: 10 July 2000
• Docket Number: No. 97-627-Appeal, No. 98-436-Appeal.
• Parties: Paul HENDRICK, in his capacity as trustee v. Joyce C. HENDRICK, Executrix of the Estate of Jeffrey P. Hendrick et al.

755 A.2d 784

Paul HENDRICK, in his capacity as trustee v. Joyce C. HENDRICK, Executrix of the Estate of Jeffrey P. Hendrick et al.

Nos. 97-627-Appeal, 98-436-Appeal.

Supreme Court of Rhode Island.

July 10, 2000.

Present WEISBERGER, C.J., LEDERBERG, BOURCIER, FLANDERS, and GOLDBERG, JJ.

Bret Jedele, Amato A. Deluca, Providence, for plaintiff.

Lauren E. Jones, Providence, John C. Tibbitts, Daniel P. Carter, Warwick, for defendant.

OPINION

BOURCIER, J.

In these consolidated appeals, Joyce Hendrick, individually and as executrix of the estate of her late husband, Jeffrey Hendrick, seeks review of two Superior Court final judgments that served to dismiss her eight counterclaims and/or crossclaims asserted against various parties, both plaintiff and defendant, that include the Exeter Country Club, Inc., its officers, directors, stockholders and certain trustees.¹ Those asserted claims alleged, in general terms, breach of fiduciary obligations and duties and majority stockholder oppression. They also sought dissolution of the corporation, or alternatively, the corporate buyout of Joyce's approximately 30 percent shareholder interest in the corporation pursuant to G.L. 1956 §§ 7-1.1-90 and 7-1.1-90.1.

I Case Facts and Travel

The appellate Gordian knot we have before us was created and solidified in the following fashion: Exeter Country Club, Inc. (ECC) is a closely held corporation owned by the Hendrick family and authorized under Rhode Island law to carry on the business of a golf course in the Town of Exeter. As of 1986, Paul Hendrick was a majority stockholder in ECC, and his two sons, Jeffrey and Peter, owned minority interests in ECC. On January 17, 1986, Jeffrey and Peter entered into a reciprocal stock purchase agreement (the purchase agreement), whereupon the death of one brother, the survivor-brother would automatically, by way of such purchase agreement, purchase certain identified ECC stock held by the decedent-brother, through the use of proceeds from life insurance policies held on the life of that decedent-brother.² The agreement named both Paul and Rolland Jones (Jones), an insurance agent, as trustees to administer the purchase-agreement transaction. Pursuant to that agreement, the trustees were required to hold Jeffrey's and Peter's shares of stock designated in the purchase agreement in trust, receive the life insurance policies proceeds, deliver the designated stock to the survivor-brother, and deliver the stock purchase proceeds from the purchase-agreement transaction to the particular decedent-brother's executor or representative.

In late December 1990, ECC underwent a process of corporate recapitalization through the issuance to the respective family shareholders of nine shares of Class B nonvoting stock for each Class A voting stock or Class B stock then owned by the shareholders. Additionally, Paul and his wife, Elizabeth, made subsequent gifts to both Peter and Jeffrey of a percentage of the newly issued stock. As a result of the corporate recapitalization and the parental gifts, Jeffrey's Class B equity shares in ECC increased from 1,858 to approximately 22,000 shares. There was some immediate disagreement between the Hendrick family members as to whether the newly issued and newly received shares were to be governed by the 1986 stock purchase agreement executed between Peter and Jeffrey. Legal counsel for trustee Jones opined in an August 1992 letter that because the purchase agreement predated the recapitalization, the recapitalized new shares were not within the parameters of the purchase agreement. On the other hand, ECC's corporate counsel, several years later, reached the opposite conclusion, advising ECC, its directors and the trustees that the purchase agreement was intended to encompass all shares held by Jeffrey at the time of his death.

In June 1993, while Jeffrey was still alive but seriously ill, an attempt was made by ECC and the trustees, through counsel, to revise or amend the 1986 purchase agreement to include those new Class B shares in the purchase agreement, but Joyce, now acting as Jeffrey's "attorney-in-fact," refused to allow the purchase agreement to be modified to include the new shares. Despite this continuing feud over the scope of the purchase agreement, after Jeffrey's death on December 22, 1993, the trustees designated by the purchase agreement attempted a valuation of all shares then owned by Jeffrey and set a purchase closing date in September 1994 for the transfer of all of those shares to Peter. Joyce, the executrix of Jeffrey's estate, disputed the trustees' valuation and purchase attempt of the additional Class B stock owned by Jeffrey, disagreed with the price valuation on that stock as determined by ECC's accountant, and did not attend the scheduled stock-purchase closing. Subsequently, no attempt was made by the trustees to transfer any of Jeffrey's interest in ECC, although under the purchase agreement the original 1,858 shares could have been transferred by the trustees without the presence or permission of Joyce.

On November 9, 1994, Paul commenced an action in the Washington County Superior Court against Joyce, Jeffrey's estate and Peter,³ seeking specific performance of the stock purchase agreement. Joyce responded to that complaint by denying that specific performance should be ordered, and filed a counterclaim against Paul in his individual capacity and as trustee, and a crossclaim against Peter, alleging certain breaches of fiduciary duty towards her and waste of corporate assets as a result of actions taken by both Paul and Peter. Over the later course of the litigation, ECC, trustee Jones, later his executrix, Alice Jones⁴ and Elizabeth Hendrick, Paul's wife, all were added as parties in the case.⁵ The Hendrick family feud not only expanded, but also spilled out of the courtroom into the everyday operations of the corporation, with ever-increasing animosity. In December 1994, ECC declared no dividends on its stock for the year, but instead voted to give Paul a bonus of $65,000 and to give Peter a bonus of $85,000, while Joyce received a bonus amount of only $2,500. The Internal Revenue Service, upon review, subsequently disallowed $40,000 of that bonus amount paid to the ECC corporate officers during 1994.

In March 1995, Paul proceeded on his complaint for a declaratory judgment relating to the purchase agreement. On May 18, 1995, after trial, a Superior Court trial justice issued a declaratory judgment declaring that the January 17, 1986, purchase agreement was unambiguous on its face and did not by its terms include the shares in ECC that Jeffrey had subsequently acquired. He declared that the purchase agreement provided for the sale and purchase of only the original 1,858 shares held by Jeffrey on January 17, 1986, and not to the recapitalization shares and the stock gifts Jeffrey received after that agreement was executed.⁶ He ordered those 1,858 shares to be transferred, and severed Joyce's counter and crossclaims for later trial. After the transfer of the 1,858 shares to Peter, pursuant to the May 18, 1995 declaratory judgment, Joyce was left owning approximately 31 percent of the Class B nonvoting shares in ECC. Unfortunately for Joyce, her status as a powerless minority shareholder was merely the beginning of her travails with ECC. In August 1995, Joyce was fired from her position as ECC's bookkeeper after eighteen years of service, for what she claimed was her refusal to convey her remaining stock to ECC and what ECC characterized as her creation of a hostile workplace environment. She also found herself thwarted in her attempts to gain sufficient access to review ECC's corporate books and records. Finally, in January 1996, ECC purchased a $400,000 parcel of land which, although not adjacent or directly beneficial to ECC's property, apparently fronted certain parcels owned jointly by Peter and his wife and son, a transaction that Joyce asserted benefited Peter individually and not the corporation.

On September 2, 1997, the defendants in Joyce's counterclaims and crossclaims moved for summary judgment on Joyce's claims relating to the breach of fiduciary duties owed to her and the issue of excessive bonuses paid to the directors and officers of ECC. While that summary judgment motion was pending, Joyce moved, and was granted leave, to amend both her counterclaims and crossclaims. Upon amendment, her counterclaims and crossclaims alleged common law breach of fiduciary duty on the part of the trustees and ECC by failing to act impartially in their attempts to coerce Joyce into modifying the stock purchase agreement to include all shares owned by Jeffrey at the time of his death; malicious prosecution and abuse of process⁷ relating to the specific performance and declaratory-relief civil action filed by Paul against her; oppressive conduct by ECC toward her as a minority shareholder by its failure to declare stock dividends while granting excessive bonuses to its officers and directors, as well as the termination of her eighteen-year long-standing employment relationship with ECC and finally, denying her access to necessary ECC corporate books and records, in violation of § 7-1.1-46. Joyce also alleged shareholder derivative type-claims, asserting that the $400,000 land purchase by ECC was for the primary benefit only of Peter and not the corporation and that the above-described excessive bonuses paid to Paul and Peter operated as a financial drain on the corporate assets. Contained within each count in Joyce's claims were allegations based in part upon § 7-1.1-90.1 as well as common law, and allegations that the acts described in each count amounted to "illegal, oppressive or fraudulent" conduct pursuant to § 7-1.1-90. Her prayers for relief included a demand in the form of a buyout of her corporate shares at fair value by ECC, or, in the alternative, a court-ordered forced liquidation sale of ECC, pursuant to §...