John Degeorge & Digiorgio's Sportswear, Inc. v. Degeorge
| Decision Date | 16 December 2014 |
| Docket Number | No. A-13-1071.,A-13-1071. |
| Parties | JOHN DEGEORGE AND DIGIORGIO'S SPORTSWEAR, INC., APPELLANTS, v. TIMOTHY DEGEORGE ET AL., APPELLEES. |
| Court | Court of Appeals of Nebraska |
Appeal from the District Court for Douglas County: J. MICHAEL COFFEY, Judge. Affirmed.
Brett Ryan, of Watson & Ryan, P.L.C., for appellants.
Scott D. Jochim and Steven Ranum, of Croker, Huck, Kasher, DeWitt, Anderson & Gonderinger, L.L.C., for appelees.
John DeGeorge and Digiorgio's Sportswear, Inc. (Digiorgio's), appeal an order of the district court for Douglas County granting a motion to dismiss filed by the appellees, Timothy DeGeorge, Anthony DeGeorge, and Christopher Tribulato Christopher). John alleged to bring this action both individually and derivatively, as a minority shareholder of Digiorgio's, against the other shareholders and officers of the company. The district court dismissed the complaint on the basis of finding that John had failed to make a sufficient demand upon the defendants detailing the causes of action to be pursued and specifying the facts upon which the charges were based. John appeals from the court's ruling. We find no merit to John's assertions on appeal, and we affirm.
This case was resolved on a motion to dismiss. As a result, the record on appeal comprises only the pleadings of the parties, as well as attachments thereto, and a transcription of the very brief hearing on the motion.
John is the owner of 34 percent of the outstanding shares of stock in Digiorgio's, a Nebraska corporation. Timothy and Anthony are each owners of 27 percent of the outstanding shares of stock in Digiorgio's, while Christopher is the owner of 12 percent of the outstanding shares of stock in Digiorgio's. Timothy, Anthony, and Christopher are all employees and officers in Digiorgio's.
John alleges that since 2008, the defendants have "frozen" him out from participation in the operation or management of Digiorgio's. He alleges that he made "repeated verbal and written requests," but that they "have failed and refused to provide [him] access to the books and corporate records from 2010 to the present."
John alleges the defendants have engaged in a variety of misconduct, including not maintaining proper and accurate books, not providing notice of meetings and actions, failing to provide an accounting, wasting assets and diverting them to personal use, and fraud.
In October 2012, John's counsel sent a letter to Digiorgio's and addressing "Mr. DeGeorge." In that letter, John asserted that he had been "frozen out of the company" and that "the other owners are violating the fiduciary duty that they owe to Mr. DeGeorge." John asserted that there had been "misappropriations and waste of company funds to the detriment of its shareholders."
In the October 2012 letter, John indicated that it was to "serve as a formal demand pursuant to Neb. Rev. Stat. § 2[1]-2072 for all financial information relevant to Digiorgio's . . . from January 1, 2009 to the present." He specified that he was requesting "income and expense statements; balance sheets; federal and state tax returns; a list of company assets and liabilities; depreciation schedules;" and Internal Revenue Service forms, as well as "any business valuations or other documents that attempt to value the company." John gave the letter's recipient a deadline of October 19 and indicated that if he had not received a response by that date, he would "proceed with a lawsuit to force [the recipient] to do so."
John apparently did not receive a response to his October 2012 letter, and in June 2013, he filed an "Amended and Substituted Complaint." In the complaint, he made the assertions set forth above and alleged causes of action for declaratory judgment, conversion, accounting, dissolution of the corporation, fraud, money had and received, breach of fiduciary duty, and appointment of a receiver.
The defendants filed a motion to dismiss the amended complaint. The defendants alleged that John had failed to make a sufficient demand pursuant to Neb. Rev. Stat. § 21-2072 (Reissue 2012) in order to properly plead a derivative claim on behalf of Digiorgio's. The defendants also alleged that the complaint lacked sufficient specificity to set forth a proper claim for fraud.
The district court entered an order granting the motion to dismiss. Relying on Kubik v. Kubik, 268 Neb. 337, 683 N.W.2d 330 (2004), the court held that the October 2012 letter "does not comport with the requirements [for a sufficient demand letter] in that while it identifies a Mr. DeGeorge as the individual to be sued it provides no detail regarding the causes of action allegedand fails to state specific facts upon which the charges are based." The court noted that the defendants had "previously been given an opportunity to file an amended complaint" and dismissed the complaint, this time, with prejudice. This appeal followed.
John has assigned four errors allegedly committed by the district court. First, John asserts that the court erred in not finding that no demand was required for an action for accounting. Second, he asserts that the court erred in not finding that demand is excused because demand would have been futile. Third, he asserts that the court erred in ruling that he did not make a sufficient demand. Finally, he asserts that the court erred in dismissing individual claims.
The lower court's dismissal of this action was based upon John's failure to send a proper demand pursuant to § 21-2072 and the Nebraska Supreme Court's holding in Kubik v. Kubik, supra.
Section 21-2072 specifies that "[n]o shareholder may commence a derivative proceeding until . . . [a] written demand has been made upon the corporation to take suitable action." In Kubik v. Kubik, supra, the Nebraska Supreme Court adopted the principle that, to be legally sufficient, this demand notice and request should set forth the persons to be sued and should describe all the causes of action which it is intended to assert. In addition, the demand must clearly state the corporate wrongs complained of and should state any facts upon which its charges were based. Id.
John first asserts that the district court should have found that, with respect to his action for accounting, there was no need for him to send a demand pursuant to § 21-2072. John points this court to Anderson v. Clemens Mobile Homes, 214 Neb. 283, 333 N.W.2d 900 (1983), as the sole support for his contention that he, as a minority shareholder, is not required to send a demand when he is bringing an action for accounting. John asserts that the district court's failure to accept his argument in this regard is "[o]ne of the more baffling rulings by the District Court." Brief for appellant at 8. We disagree and conclude that John misinterprets the sole authority upon which he relies for this assertion.
In Anderson v. Clemens Mobile Homes, supra, the minority shareholder in a two-shareholder corporation brought an accounting action against the majority shareholder. The Supreme Court rejected the majority shareholder's assertion that the minority shareholder could not maintain an action for accounting without proceeding as a derivative action and first seeking to persuade the officers and directors of the corporation to bring the action. The court's holding, however, was premised on the notion that there were only two shareholders and that the minority shareholder was excused from the general rule's requirement that he first demand action by the officers and directors because he was "not required to make such an effort if it would have been unavailing." Id. at 287, 333 N.W.2d at 904. Because there were only two shareholders, the court concluded that "[o]ne cannot seriously contend that [the majority shareholder] would have caused an action to be brought requiring that he account to the corporation." Id.
Although John is correct that the court held in Anderson v. Clemens Mobile Homes, supra, that the minority shareholder in that case was not required to send a demand before maintaining an accounting action, the holding was not that such a demand is not required for accounting actions. Rather, the holding was that on the specific facts of that case the demand was excused because it would have been futile. We also note that Anderson v. Clemens Mobile Homes, supra, was decided in 1983, 12 years before § 21-2072 became effective.
We conclude that John's assertion that demand in this case was excused simply because he sought an accounting is meritless.
John next asserts that the district court erred in not finding that demand was excused in this case because it would have been futile. He argues that the appellees' actions and the circumstances of the case demonstrate that demanding the appellees to act would have been futile. We find no error.
In Kubik v. Kubik, 268 Neb. 337, 683 N.W.2d 330 (2004), the Nebraska Supreme Court recognized that a shareholder is not required to make a demand if it would be unavailing. Similarly, in Association of Commonwealth Claimants v. Hake, 2 Neb. App. 123, 507 N.W.2d 665 (1993), this court recognized that a derivative action can be brought without satisfying the demand requirement if it would have been futile to make demand. In such a situation, the petition must state with particularity the facts which excuse demand. Id.
In Association of Commonwealth Claimants v. Hake, supra, we also recognized other authority supporting the notion that demand may be excused where shareholders seek to bring a derivative claim alleging wrongdoing by the board of directors. See, Nussbacher v. Continental Ill. Nat. B. & T. Co., Chicago, 518 F.2d 873 (7th Cir. 1975), overruled by ...
To continue reading
Request your trial