Kaplus v. First Continental Corp.

• Decision Date: 22 April 1998
• Docket Number: No. 97-1494,97-1494
• Parties: 23 Fla. L. Weekly D1021 Rosalyn KAPLUS, Individually and on Behalf of First Continental Corporation, a Florida corporation, Appellant, v. FIRST CONTINENTAL CORPORATION, a Florida corporation, Hillel Meyers, an individual, Neil Meyers, an individual, and Robert Kaplus, an individual, Appellees.
• Court: Florida District Court of Appeals

Page 108

711 So.2d 108

23 Fla. L. Weekly D1021

Rosalyn KAPLUS, Individually and on Behalf of First Continental Corporation, a Florida corporation, Appellant, v. FIRST CONTINENTAL CORPORATION, a Florida corporation, Hillel Meyers, an individual, Neil Meyers, an individual, and Robert Kaplus, an individual, Appellees.

No. 97-1494.

District Court of Appeal of Florida,

Third District.

April 22, 1998.

Rehearing Denied June 10, 1998.

Andrew Hall and Associates, P.A., and Andrew C. Hall, and Christopher J. Dawes, and Sheri M. Gutsin, Miami, for appellant.

Buchbinder & Elegant, P.A. and Harris J. Buchbinder, Miami, for appellees.

Before SCHWARTZ, C.J., and GREEN and SHEVIN, JJ.

GREEN, Judge.

In this shareholder's derivative action, appellant, Rosalyn Kaplus, appeals the involuntary dismissal with prejudice of several of her causes of action against First Continental Corporation and its directors, Hillel Meyers, Neil Meyers, and Robert Kaplus. The lower court dismissed these actions based upon its determination that Rosalyn Kaplus lacked standing to complain about events which transpired prior to her legal ownership of the shares in this corporation.

At issue before us is whether Rosalyn Kaplus, who is the former wife of director, Robert Kaplus, and who acquired her shares in the corporation as equitable distribution in their marital dissolution proceeding has standing to bring this action to seek redress of certain allegedly wrongful acts committed prior to her legal ownership of the shares. Although this precise issue appears to be one of first impression in Florida, we conclude that she does have standing to proceed as her ownership of the shares devolved by operation of law. We therefore treat this appeal as a petition for certiorari, grant the writ and quash the order under review.

During the Kaplus marriage, Robert amassed a fortune by acquiring shares in some fifty corporations, including First Continental Corporation, a company which purchases, develops, sells and leases condominium time share units. Robert owned one-third of First Continental and was on its board of directors. Sometime in 1993, Robert and Rosalyn sought a dissolution of their marriage. It was during this time that the improprieties complained of in this action allegedly occurred. According to the allegations in Rosalyn's verified complaint, it was during the pendency of her dissolution action that First Continental provided various loans in excess of ten million dollars to other entities owned and/or controlled by appellees. These loans were allegedly made without documentation, collateral, or corporate resolutions. Further, these loans have allegedly never been repaid, nor has any interest been received from them and they otherwise disappeared from the corporation's books in 1994.

On April 7, 1995, just prior to the scheduled trial of their dissolution action, Robert and Rosalyn Kaplus entered into a settlement agreement for the equitable distribution of their marital assets. Rosalyn received, among other things, shares in all but two of the corporations that were part of the Kaplus marital estate. Pursuant to this agreement, Rosalyn received a one-sixth interest in First Continental. On April 10, 1995, the court approved the settlement agreement and incorporated it into the final judgment of dissolution between the parties. After entry of this final judgment, Rosalyn made demand on appellees that her one-sixth interest in First Continental be transferred to her and that the corporation address several of the wrongful acts complained of in this litigation. It is alleged that appellees then attempted to gift away the uncollected, due, and owing loan amounts by reclassifying them as "stockholder dividend distributions" without Rosalyn's approval and despite the fact that she was then legally entitled to a one-sixth ownership interest in First Continental. Rosalyn asserts that she never received her one-sixth share of the outstanding loan amounts and/or "stockholder dividend distributions." Rosalyn further alleged in this derivative action that appellees depleted the assets of First Continental by causing the corporation to:

(a) pay [appellees] excessive compensation unrelated to and in excess of the value of their services to First Continental;

(b) pay [appellees], or on their behalf, personal expenses having no connection to the business of First Continental; and

(c) pay Affiliated Entities excessive fees for services allegedly performed by these Affiliated Entities for, or on behalf of First Continental.

In response to Rosalyn's derivative action, the appellees made a motion to dismiss on the grounds, among other things, that Rosalyn lacked standing to challenge events which allegedly occurred before her legal ownership of the shares. The lower court granted this motion with prejudice as to those causes of actions in the amended complaint which were based on events which occurred prior to Rosalyn's legal ownership of the shares. This appeal followed.

In a derivative action, a stockholder seeks to sustain in his or her name, a right of action belonging to the corporation. See Provence v. Palm Beach Taverns, Inc., 676 So.2d 1022, 1024 (Fla. 4th DCA 1996) (citing James Talcott, Inc. v. McDowell, 148 So.2d 36, 37 (Fla. 3d DCA 1962)). "Accordingly, the corporation is the real party in interest with the stockholder being only a nominal plaintiff." Id. Section 607.07401, Florida Statutes (1993), also known as the "contemporaneous stock ownership rule," was enacted to prevent predatory strike suites and expressly provides when a shareholder has standing to bring a derivative action: "(1) A person may not commence a proceeding ... unless the person was a shareholder of the corporation when the transaction complained of occurred or unless the person became a shareholder through transfer by operation of law from one who was a shareholder at that time." The statute further provides that a shareholder includes one who is "a beneficial owner." § 607.07401(7), Fla. Stat. (1993). The purpose of this standing requirement is to ensure that derivative actions are brought only by those individuals who have a legitimate stake in the corporation so that its interests are adequately represented. See South End Improvement Group, Inc. v. Mulliken, 602 So.2d 1327, 1330 (Fla. 4th DCA 1992).

Because of the equitable nature of derivative actions, courts outside of Florida have liberally construed statutes similar to section 607.07401 to grant standing in a variety of factual settings without requiring "record" stock ownership. Id.; see also Hurt v. Cotton States Fertilizer Co., 145 F.2d 293, 295 (5th Cir.1944) (residuary legatee under will disposing of corporate stock had sufficient equitable interest to qualify as "stockholder" for purpose of bringing derivative action notwithstanding that executor retained power to sell stock to pay debts of estate); Edgeworth v. First Nat'l Bank of Chicago, 677 F.Supp 982, 991-93 (S.D.Ind.1988) (income beneficiary of trust, although not legal owner of shares, had...