Knauf Fiber Glass, GMBh v. Stein
| Decision Date | 22 October 1993 |
| Docket Number | No. 03S05-9310-CV-1145,03S05-9310-CV-1145 |
| Citation | 622 N.E.2d 163 |
| Court | Indiana Supreme Court |
| Parties | KNAUF FIBER GLASS, GMBh, Appellant, v. Sidney STEIN, Trustee of Ashcraft Trucking, Inc., and Neil Shook, Trustee of Glyn Ashcraft and Carolyn Ashcraft, Appellees. |
Robert T. Thopy, McNeely, Sanders, Stephenson & Thopy, Shelbyville, Michael R. Fruehwald, Barnes & Thornburg, Indianapolis, Patrick W. Harrison, Beck & Harrison, Columbus, for appellant.
Robert Garelick, Steven M. Crell, S. James Fishman, Mantel, Cohen, Garelick, Reiswerg & Fishman, Indianapolis, Richard S. Eynon, Barbara Stevens, Columbus, for appellees.
When a major customer induces a business corporation to expand its operations in anticipation of additional purchases, does the major customer owe a duty to the shareholders of the corporation who guarantee loans necessary to the expansion? We hold there is generally no such duty, that damage suffered by the shareholders on the guarantee is derivative of damages suffered by the corporation itself.
When Ashcraft Trucking, Inc., and its owner Glyn Ashcraft went bankrupt in 1985, the trustees in bankruptcy sued Knauf Fiber Glass Corporation ("KFG"). According to the trustees, Glyn's business and personal bankruptcies were the result of promises KFG made but did not keep. There were four theories of liability: breach of contract, promissory estoppel, fraud, and constructive fraud. After a lengthy trial, the jury returned a verdict in favor of the Trucking Company trustee in the amount of $2.027 million and in favor of Glyn Ashcraft's trustee in the amount of $1.722 million. Knauf Fiber Glass appealed. The Court of Appeals reversed the Trucking Company judgment and remanded for a new trial on damages; it affirmed the judgment for Glyn Ashcraft's trustee. Knauf Fiber Glass v. Stein (1993), Ind.App., 615 N.E.2d 115. We grant transfer to consider KFG's challenge against the Glyn Ashcraft judgment.
Ashcraft Trucking Company began operation at Shelbyville, Indiana, in 1970. Glyn Ashcraft has always been its president and sole shareholder. The Company's initial fleet consisted of four or five operating tractors and twelve to fourteen trailers. During its early years, Ashcraft Trucking's best customer was CertainTeed, a Shelbyville fiberglass manufacturing plant. CertainTeed was sold to appellant KFG in early 1978.
In 1979, KFG expanded its production, and KFG president Theis Knauf asked Glyn Ashcraft if he was interested in hauling more fiberglass. Glyn indicated it would be difficult to obtain financing for additional tractors, and he expressed concern that the resulting obligation might eventually force him out of business. Theis agreed to assist in securing the necessary financing.
Ashcraft Trucking obtained financing for the new trucks through the White Motor Credit Corporation. It was able to do so because (a) Glyn executed a personal guaranty, (b) KFG prepared a letter committing fifty percent of its outbound loads to Ashcraft Trucking for the year 1979, and (c) KFG entered into an escrow agreement with White Motor Credit Corporation which provided, among other things, that if goods were shipped, amounts which became due to Ashcraft Trucking would be paid into an escrow account and applied to the loan. Ashcraft purchased the new trucks and hauled the additional loads of fiberglass for KFG. The financial condition of Ashcraft Trucking improved dramatically.
On April 20, 1983, KFG sent a letter to Ashcraft Trucking notifying it of plans to increase production at the Shelbyville plant, doubling KFG's shipping volume. The notice invited Ashcraft Trucking to reply by April 27 and indicated that if Ashcraft Trucking was interested in additional business KFG proposed to split the added volume equally between Ashcraft Trucking and another trucking firm for 1983 and 1984. At that time, Ashcraft was hauling approximately 330 truckloads per month for KFG.
In response to the notice, Glyn Ashcraft wrote KFG on April 26, indicating that in order to handle the increased delivery Ashcraft Trucking would need an additional thirty to thirty-five tractors and fifty trailers. Thereafter, Glyn contacted White Motor Credit Corporation to discuss financing for forty-five new tractors at a cost of $2.6 million. White Motor required essentially the same terms as those used for the 1979 loan. On September 15, 1983, representatives of the White Motor Credit Corporation, Ashcraft Trucking Company, and KFG met to discuss the prospects of future business between Ashcraft Trucking and KFG. Representatives of KFG confirmed previous statements about the expected doubling of Ashcraft Trucking business to between 600 and 700 loads per month.
On October 19, 1983, KFG sent a letter to Ashcraft Trucking which read in pertinent part Knauf Fiber Glass would like Ashcraft Trucking to be in a position to handle an average of 455 loads per month. The seasonality effect could result in a low of 410 and a high of 500.
Our commitment is of course contingent on your company remaining competitive with both rates and service.
Record at 3295. In November 1983, White Motor Credit Corporation approved the $2.6 million loan to Ashcraft Trucking. Glyn Ashcraft signed a personal guaranty, the 1979 escrow agreement was amended to reflect the new obligation, and Ashcraft Trucking purchased forty-five new trucks and fifty new trailers.
After taking possession of the new tractors and trailers, however, Ashcraft Trucking's business with KFG did not increase. Rather, it declined to a little over 200 loads per month. KFG's Harold Waters informed Glyn Ashcraft that although KFG had the capacity to increase business to Ashcraft Trucking to 455 loads per month, KFG decided to distribute available loads among three or four other carriers. Despite efforts to replace the lost KFG business, Ashcraft Trucking sustained heavy economic losses. In January 1985 the Company filed for Chapter 11 reorganization; the case was later converted to a Chapter 7 liquidation. Thereafter, creditors of Ashcraft Trucking sued Glyn Ashcraft on the personal guarantees, and he and his wife Carolyn Ashcraft filed a joint petition for bankruptcy in July 1985. *
Sidney Stein was appointed as trustee over the bankruptcy estate of Ashcraft Trucking Company and Neil Shook was appointed as trustee over the bankruptcy estate of Glyn Ashcraft. As successors in interest, the trustees filed this civil action against KFG.
KFG argues...
To continue reading
Request your trial
-
Conk v. Richards & O'Neil, Llp
..."that a shareholder may not maintain an action in his or her own name to redress an injury to the corporation." Knauf Fiber Glass, GMBh v. Stein, 622 N.E.2d 163, 165 (Ind.1993). The possibility of an individual shareholder's claim, however, was also recognized by the Supreme Court of Indian......
-
Mullen v. Cogdell
... ... Knauf Fiber Glass, GmbH v. Stein (1993), Ind.App., 615 N.E.2d ... ...
-
Marvin D. Putzier, Hometown Hardware, Inc. v. Ace Hardware Corp.
...as a result of the actions of third parties. See Yanow v. Teal Indus., Inc., 422 A.2d 311, 321 (Conn. 1979); Knauf Fiber Glass, GMBh v. Stein, 622 N.E.2d 163, 165 (Ind. 1993); Barger v. McCoy Hillard & Parks, 48S S.E.2d 215, 219 (N.C. 1997); Adair v. Wozniak, 492 N.E.2d 426, 428 (Oh. 1986);......
-
Boland v. Engle, 96-1929
...a shareholder from "maintain[ing] an action in his or her own name to redress an injury to the corporation." Knauf Fiber Glass, GMBh v. Stein, 622 N.E.2d 163, 165 (Ind.1993). But see Barth, 659 N.E.2d at 562-63 (allowing some exceptions for closely-held corporations). Those ICA claims, ther......