Lussier v. Mau-Van Development, Inc.

• Decision Date: 21 July 1983
• Docket Number: MAU-VAN,No. 8309,8309
• Citation: 4 Haw.App. 359,667 P.2d 804
• Parties: Marcel LUSSIER, Plaintiff-Appellant, v.DEVELOPMENT, INC., Wilhelm Kainz, Nick Germani, Sophie Koenig, Curt Schlamann, Arnold Honigman and Gerry Helfrich, Defendants-Appellees.
• Court: Hawaii Court of Appeals

Page 804

667 P.2d 804

4 Haw.App. 359

Marcel LUSSIER, Plaintiff-Appellant, v. MAU-VAN DEVELOPMENT, INC., Wilhelm Kainz, Nick Germani, Sophie Koenig, Curt Schlamann, Arnold Honigman and Gerry Helfrich, Defendants-Appellees.

No. 8309.

Intermediate Court of Appeals of Hawai'i.

July 21, 1983.

Reconsideration Denied Aug. 22, 1983.

Syllabus by the Court

1. Where the attorney for the non-moving party fails to object to the court's hearing of the motion for summary judgment, actively participates in the oral arguments, fails to file any counter-affidavit despite being given the opportunity to do so, and fails to show any harm, the non-movant waives his right to the 10-day notice requirement under Rule 56(c), Hawaii Rules of Civil Procedure (HRCP) (1981).

2. The doctrine of corporate opportunity prohibits a director or officer from appropriating to himself a business opportunity which in fairness should belong to the corporation.

3. The doctrine of corporate opportunity is inapplicable if (1) the corporation is financially incapable of undertaking the opportunity and (2) before a director or officer seizes the opportunity for himself, he discloses the opportunity to the shareholders and obtains their consent to the acquisition of the opportunity and such action is not detrimental to corporate creditors.

4. A director or officer must use corporate funds for corporate purposes only or he will be liable for misappropriation, diversion, or conversion of corporate assets. When he is indebted to the corporation, the use of personal funds to acquire property, rather than to repay the debt to the corporation, does not constitute misappropriation, diversion, or conversion of corporate funds.

5. On a motion for a directed verdict, the evidence and the fair inferences therefrom must be considered in the light most favorable to the party against whom the motion is directed and if such evidence and inferences are of such character that reasonable persons in the exercise of fair and impartial judgment may reach different conclusions on the crucial issue, then the motion must be denied and the issue submitted to the jury.

6. The business judgment rule requires a shareholder who challenges a nonself-dealing transaction to prove that the corporate director or officer in authorizing the transaction (1) failed to act in good faith, (2) failed to act in a manner he reasonably believed to be in the best interest of the corporation, or (3) failed to exercise such care as an ordinarily prudent person in a like position would use in similar circumstances.

7. A corporate director or officer occupies a fiduciary relationship with the corporation and his duties to it include undivided, unselfish, and unqualified loyalty, unceasing effort never to profit personally at corporate expense, and unbending disavowal of any opportunity which would permit his private interests to clash with those of his corporation.

8. A director may not vote to approve a salary for his services as a corporate employee unless authorized by statute, articles of incorporation, or corporate by-laws. Where a director votes to approve his own salary, the action of the board of directors is not void but voidable by the corporation if the salary is unreasonable or fraud is involved.

9. Despite the fact that an action on a director-officer's compensation by the board of directors is unenforceable by reason of the participation of the director in question, the director-officer may recover or retain the salary, if it represents the reasonable value of his services on a quantum meruit basis.

10. In a shareholder's derivative action, exemplary or punitive damages are awardable, within the discretion of the trial court, where the acts complained of are done willfully, wantonly, or maliciously or are characterized by some aggravating circumstance.

11. A motion in limine is generally made before or at the beginning of a jury trial for a protective order against prejudicial questions, statements, and evidence and serves the useful purpose of raising and pointing out before trial certain evidentiary rulings the court may be called upon to make during the course of trial.

12. Where the motion in limine is denied and opposing counsel attempts to ask the questions challenged in the motion or offer the prejudicial evidence covered therein, a proper objection at that time is necessary to preserve the error for appellate review. An exception to the general rule is that where a hearing on the motion in limine was held and the trial court unequivocally ruled whether or not the challenged evidence would be admitted at trial, it is unnecessary for further objection to preserve such error for appellate review.

13. Ordinarily a prevailing party's opening statement is not a ground for reversal unless the adversary's substantive rights have been prejudiced.

14. An appeal from a final judgment brings up for appellate review all interlocutory orders dealing with issues in the case not appealable directly as of right.

15. In a shareholder's derivative action, where the attorney for the defendant corporation was a creditor of an organization in which the main defendant director had a one percent interest, where there was no joint representation, and where plaintiff shareholder made no showing of prejudice, there was no abuse of discretion by the trial court in denying the motion to disqualify defendant corporation's attorney.

16. Under Disciplinary Rule 5-102(B) which provides that if an attorney learns that he may be called as a witness other than on behalf of his client, he may continue representation until it is apparent that his representation may be prejudicial to his client, the moving party has the burden of demonstrating the likelihood that prejudice will or might result.

Robert A. Smith, Honolulu (Richard L. Rost, Wailuku, with him on the briefs), for plaintiff-appellant.

Ronald S. Adelman, Honolulu, for defendant-appellee Wilhelm Kainz.

Everett Walton, Wailuku (B. Martin Luna, Wailuka, with him on the brief; Ueoka & Luna, Wailuka, of counsel), for defendants-appellees Mau-Van Development, Inc., Nick Germani, Sophie Koenig, Curt Schlamann, Arnold Honigman and Gerry Helfrich.

Before BURNS, C.J., and HEEN and TANAKA, JJ.

TANAKA, Judge.

Plaintiff Marcel Lussier (Lussier) ¹ appeals from the adverse judgment entered in a shareholder's derivative action. We affirm in part and reverse in part.

The issues on appeal and our answers are:

1. Whether the trial court erred in granting partial summary judgment dismissing certain of Lussier's claims. No.

2. Whether the trial court erred in granting directed verdicts in favor of defendants-appellees. Yes and no.

3. Whether the trial court erred in denying Lussier's motion in limine to exclude evidence of his motives in filing the instant action. ² No.

4. Whether the trial court's failure to disqualify the law firm of Ueoka & Luna from acting as counsel for any defendant in the case is an independent ground for reversal of the judgment. No.

Defendant Mau-Van Development, Inc. (Mau-Van), a Hawaii corporation, was incorporated on August 12, 1976. Mau-Van is capitalized for $580,000 with 58,000 shares of $10 par value stock issued and outstanding. There are 18 shareholders of Mau-Van, most of whom are Canadian citizens or nationals residing in Canada.

Mau-Van purchased Lots 15 and 16, two parcels of land in Kihei, Maui, for $1,100,000. Lot 16 is a 3.78-acre parcel on which the 127-unit Kihei Alii Kai condominium project (the Project) was built. After the completion of the Project, Mau-Van intended to develop a commercial complex on Lot 15, a one-acre parcel.

In furtherance of the Project, in September 1977, Mau-Van obtained from the Honolulu Federal Savings and Loan Association (Honfed) an interim construction loan commitment of $5,600,000 and a permanent "take-out" loan commitment of $6,000,000. On September 6, 1977, the State Real Estate Commission issued the Preliminary Horizontal Property Regimes (Condominium) Public Report for the Project, thus permitting sale of the Project units prior to construction.

On March 15, 1978, the building permit was issued for the Project. On April 21, 1978, there was a closing of the Honfed interim construction loan. The formal ground breaking ceremony was held on May 4, 1978 and construction of the Project began. In August 1979, the Project was substantially completed and the Project escrow began closings of the units sold.

On August 29, 1979, Lussier filed a shareholder's derivative action. Lussier is the owner of 3,500 shares of stock and a director and secretary of Mau-Van. He alleges that he is bringing the derivative action "on behalf of himself and other minority shareholders, including Franz Giegerl (holder of 6,000 shares), Jo-Ann Schwarzinger (holder of 2,000 shares), Walter Walcher (holder of 2,000 shares), and Elwin Evans (holder of 1,500 shares)."

The amended complaint filed on September 24, 1980 names seven defendants: (1) Mau-Van; (2) Wilhelm Kainz (Kainz), shareholder, director, president, and general manager; (3) Nick Germani (Germani), shareholder; (4) Sophie Koenig (Koenig), shareholder; (5) Curt Schlamann (Schlamann), shareholder, director, and vice president; (6) Arnold Honigman (Honigman), shareholder and director; and (7) Gerry Helfrich (Helfrich), shareholder and former director. ³ Lussier charges Kainz, as dominant director and officer of Mau-Van, with breach of fiduciary duty, mismanagement, appropriation of corporate opportunity for personal profit, use of corporate funds for personal gain, and malicious and oppressive acts entitling plaintiff to punitive damages. Germani and Koenig, as shareholders, together with Kainz, are alleged to have reaped profits from the purchase and sale of certain Project units which rightfully belong to the corporation. Directors Schlamann and Honigman are alleged to have been "dominated, influenced, and controlled" by Kainz...