Jorgensen v. Water Works, Inc.

• Decision Date: 23 April 1998
• Docket Number: No. 97-1729,97-1729
• Citation: 218 Wis.2d 761,582 N.W.2d 98
• Parties: Duane S. JORGENSEN, and Sharon A. Jorgensen, Plaintiffs-Appellants, v. WATER WORKS, INC., James S. Barber, Doreen A. Barber, Gary W. Tesch, and Mary H. Tesch, Defendants-Respondents. d
• Court: Wisconsin Court of Appeals

Page 98

582 N.W.2d 98

218 Wis.2d 761

Duane S. JORGENSEN, and Sharon A. Jorgensen, Plaintiffs-Appellants, v. WATER WORKS, INC., James S. Barber, Doreen A. Barber, Gary W. Tesch, and Mary H. Tesch Defendants-Respondents. ^d

No. 97-1729.

Court of Appeals of Wisconsin.

Submitted on Briefs Jan. 22, 1998.

Opinion Released April 23, 1998.

Opinion Filed April 23, 1998.

[218 Wis.2d 765] On behalf of the plaintiffs-appellants, the cause was submitted on the briefs of Stephen D. Willett of Willett & Klein, S.C. of Phillips.

On behalf of the defendant-respondent, Water Works, Inc., the cause was submitted on the brief of H. James Tuchscherer of Nash, Podvin, Tuchscherer, Huttenburg, Weymouth & Kryshak, S.C. of Wisconsin Rapids.

On behalf of the defendants-respondents, James S. Barber, Doreen A. Barber, Gary W. Tesch, and Mary H. Tesch, the cause was submitted on the brief of Gary L. Dreier of First Law Group S.C. of Stevens Point.

Before VERGERONT, ROGGENSACK and DEININGER, JJ.

VERGERONT, Judge.

Duane and Sharon Jorgensen, shareholders in Water Works, Inc., appeal the summary judgment against them in favor of the corporation and the four other shareholders: Doreen and James Barber, and Gary and Mary Tesch. The Jorgensens contend that the trial court erred in deciding the motion for summary judgment before a receiver was appointed and they had the opportunity for discovery, and also erred in dismissing these claims: direct claim for breach of a fiduciary duty to them as minority shareholders; derivative claim (dismissed without prejudice); claim for judicial dissolution of the corporation; and claim for breach of contract.

We conclude that the trial court acted properly within its discretion in not postponing its decision on the motion for summary judgment. We conclude that summary judgment on two of the claims--the direct claim for breach of fiduciary duty and the claim for judicial dissolution--was in error because there were genuine issues of material fact on those claims. However, the trial court correctly granted summary judgment on the derivative claim; and, since the complaint did not state a claim for breach of contract, the Jorgensens are not entitled to a reversal and a trial on that claim based on the pleadings before us. We therefore affirm in part, reverse in part and remand.

BACKGROUND

The Jorgensens and the individual defendants are the shareholders of the corporate defendant, Water Works, Inc., a closely held Wisconsin corporation that operates an automatic motor vehicle washing facility in Wisconsin Rapids, Wisconsin. Water Works was incorporated in 1988 at which time 204 shares were issued to six persons: the Jorgensens; their daughter, Doreen Barber; her husband, James Barber; and two family friends, Gary Tesch and Mary Tesch. Each received thirty-four shares of Water Works stock and each became a director in the corporation. Duane Jorgensen was elected president; Sharon Jorgensen, Gary Tesch and James Barber were elected vice presidents; Mary Tesch was elected treasurer; and Doreen Barber was elected secretary.

After disagreements occurred between the Jorgensens and the other four shareholders, the Jorgensens filed this complaint in September 1996. The complaint described the formation of the company and the Jorgensens' financial investment in it. The complaint alleged that in 1995 it came to Duane Jorgensen's attention that certain of the officers and directors of the corporation were engaged in illegal activities on property owned by the corporation and were using the corporation's property for their own personal benefit. According to the complaint, Duane Jorgensen insisted this cease, and, as a result, the directors became deadlocked in the management of corporate affairs.

The complaint asserted three causes of action pertinent to this appeal. ¹ The first The second cause of action, against the four individuals only, asserted that they owed a fiduciary duty to the corporation and its minority shareholders, the Jorgensens, and that they breached their fiduciary duty by illegally and fraudulently, pursuant to a conspiracy, diverting corporate assets or using them for their own personal use and also breached their fiduciary duty by paying fees to themselves which are in fact dividends.

against the corporation, the Tesches and the Barbers, asserted that the deadlock was causing irreparable injury to the corporation and affairs of the corporation could no longer be conducted to the advantage of the shareholders generally; and the directors in control were acting in an illegal, oppressive and fraudulent manner. The Jorgensens requested judicial dissolution and appointment of a receiver.

The third cause of action, against only the Tesches, asserted that the Tesches used the corporate assets for their own benefit, unjustly enriched themselves and engaged in illegal activities on corporate grounds while using corporate assets. When this activity was discovered, the complaint alleged, the Tesches entered into a conspiracy to remove the Jorgensens from their positions as officers and directors in an attempt to continue to engage in the illegal activities.

After filing an answer and deposing Duane and Sharon Jorgensen, the defendants moved for summary judgment. In support of their motion, they submitted portions of Duane Jorgensen's deposition as well as the affidavit of Mary Tesch. We summarize the pertinent portions of the deposition, and, because we are reviewing summary judgment against the Jorgensens, we do so in the light most favorable to the Jorgensens, drawing all reasonable inference in their favor. See generally Grams v. Boss, 97 Wis.2d 332, 338, 294 N.W.2d 473, 476-77 (1980).

The written business plan submitted to the bank by the shareholders when the corporation was first formed states that Duane Jorgensen would be in charge of management and that the six shareholders would be permanent directors. There was also verbal agreement among the shareholders that Duane Jorgensen would oversee management as long as he lived. Payments were made to every shareholder once a week since 1989, although Duane Jorgensen did not know how those payments were described in the corporation's books. He saw no difference between a dividend and a director's fee, or between a dividend and compensation for being an officer. Each year the shareholders sat down and decided the amount of the weekly payments based on the profits.

Duane averred that he did not receive a payment because he had problems with Social Security. Sharon did not have problems with Social Security so she received the payment for both of them. She received $925 per week in the beginning of 1995 and it dropped to $725 per week beginning in June 1995. This weekly payment was what he and Sharon lived on. The Jorgensens were voted off the board of directors and their payments were discontinued at the meeting on July 12, 1996, and they were not allowed to have any say in how the corporation was run or in the distribution of money. Duane Jorgensen was voted off the board of directors because the others said he was bullying them and Sharon Jorgensen was voted off so they could stop the payment that went to her for both of them. Duane Jorgensen considers that payments to the other four without paying him and Sharon anything to be a misapplication of corporate assets. He has no other evidence of misapplication of corporate assets. The company is still operating and he knows of no problems with creditors. He is unaware of any 50/50 tie vote of the directors, but he believes there is a deadlock because Mary Tesch and the other defendant shareholders will not communicate with him.

In opposition to the motion for summary judgment, the Jorgensens submitted their counsel's affidavit which asked that a receiver be appointed to conduct discovery and explained why one was needed. At some time, not entirely clear from the record, the Jorgensens moved for appointment of a receiver. The court scheduled that motion and the motion for summary judgment for the same date, March 12, 1997. At the hearing, the trial court addressed the summary judgment motion first. The court dismissed the first cause of action--requesting a receiver

                and dissolution--with prejudice on the ground that no factual material had been presented to show that the statutory criteria of § 180.1430, STATS., were met. 2  The court concluded[218 Wis.2d 770]  that under Read v. Read, 205 Wis.2d 558, 556 N.W.2d 768 (Ct.App.1996), the Jorgensens could not bring any of the claims in their own names for their personal benefit but only as a derivative action on behalf of the corporation.  The court then concluded that the Jorgensens did not comply with the notice requirements of § 180.0742, STATS., for a derivative action.  The court dismissed the second and third causes of action, but without prejudice, so that the Jorgensens could bring a derivative action on proper notice
                

DISCUSSION

A party is entitled to summary judgment if the party's pleadings and affidavits show that there is no genuine issue as to any material fact and the party is entitled to a judgment as a matter of law. Section 802.08(2), STATS. When reviewing the trial court's decision on a motion for summary judgment, we apply the standards set forth in § 802.08, in the same manner as the trial court. Grams, 97 Wis.2d at 338, 294 N.W.2d at 476-77. We initially examine the pleadings to determine whether a claim has been stated and whether a material issue of fact is presented. Id. If the complaint states a claim and the pleadings show the existence of factual issues, we examine the moving party's submissions to determine whether the moving party has made a prima facie case for summary judgment. Id. If the moving party has done so, we examine the submissions of the opposing party to determine whether there exists disputed material facts, or undisputed material facts from which reasonable alternative inferences may be...