Marcuccilli v. Ken Corp.
| Decision Date | 22 April 2002 |
| Docket Number | No. 27A02-0105-CV-266.,27A02-0105-CV-266. |
| Citation | 766 N.E.2d 444 |
| Parties | Elizabeth MARCUCCILLI, et al., Appellants-Plaintiffs, v. KEN CORPORATION, et al., Appellees-Defendants. Elizabeth Marcuccilli, et al., Appellants-Plaintiffs, v. Hi Way Drive-In Theatre, Inc., et al., Appellees-Defendants. |
| Court | Indiana Appellate Court |
Casey D. Cloyd, John H. Brooke, Brooke & Cloyd, Muncie, IN, Attorneys for Appellants.
O. Wayne Davis, B. Keith Shake, Debra A. Mastrian, Henderson, Daily, Withrow & DeVoe, Indianapolis, IN, Attorneys for Appellees.
In this consolidated appeal,1 appellants-plaintiffs Elizabeth Marcuccilli et al. (collectively referred to as the minority shareholders) appeal the trial court's dismissal of their amended complaints against the appellees-defendants Hi-Way Drive-In Theatre, Inc., et al. (Hi-Way) and Ken Corporation (Ken Corp.), et al.
Specifically, the minority shareholders contend that dismissal was improper because the trial court erroneously determined that they were precluded from maintaining direct actions against the shareholder-appellees for various breaches of fiduciary duties in these closely-held corporations. The minority shareholders further maintain that they should have been permitted to proceed with certain derivative claims against the appellees under count two of their complaints.
In 1994, Hi-Way, an Indiana corporation engaged in real estate development, sold an 18.73-acre tract of land in Grant County to Lowe's and Kite Development for $200,000. Lowe's proceeded to buy a nearby parcel of land and then traded that tract in a like-kind exchange with the Ralph Marcuccilli Trust. Star Financial Bank, in turn, leased the tract from the trust to build a new bank branch.
James and Thomas Marcuccilli were the dominant and controlling shareholders, officers and directors of Hi-Way. Moreover, they held the same shareholder, officer and director positions in Ken Corporation, also an Indiana corporation. The Minority shareholders, Elizabeth Marcuccilli, Robert Marcuccilli, Judith Marcuccilli Stanley and Patricia Marcuccilli Stalker, are beneficiaries of the Ralph Marcuccilli Trust. V. Edgar Stanley II, Robert Marcuccilli and Stephen Stalker are co-trustees of that testamentary trust. The Marcuccilli Trust was a minority shareholder in both corporations.
James and Thomas eventually informed the Hi-Way minority shareholders that the corporation's parcel of land was sold to Lowe's for $200,000. However, neither James nor Thomas purportedly disclosed the remainder of the overall transaction terms, which could have resulted in compensation to other shareholders in an amount exceeding $500,000.
The minority shareholders alleged that since 1991, Ken Corp. had loaned James and Thomas money from the corporation on an annual basis. Those loans were purportedly extended to James and Thomas at an interest rate below the then-prevailing market rate. They eventually repaid the loans with the agreed-upon interest, although the loan transactions were never disclosed to the minority shareholders.
As a result of these activities, on November 18, 1997, the minority shareholders filed amended complaints2 against Hi-Way and Ken Corp., seeking declaratory relief and damages. This was the second amended complaint filed against Hi-Way and the first with respect to the claims brought against Ken Corp.
As to the action against Ken Corp., the allegation in Count I maintained that James, Thomas and other defendants breached their fiduciary duties to deal fairly and honestly with Ken Corp. and its remaining shareholders. The contention was made that many of the transactions involving that corporation had been concealed from the minority shareholders. As a result, the minority shareholders sought a declaratory judgment and an order from the trial court requesting, among other things, that James, Thomas, and all other defendants, be held to act as constructive trustees over profits, enrichments and properties that had been acquired in the transactions. The minority shareholders also requested punitive damages and asked that injunctive relief be granted against the defendants. Appellants' App. at 85.
Count II of the amended complaints, entitled, "Claim for Relief Minority Shareholder Derivative Action," also alleged breach of fiduciary duties on the part of James, Thomas and other defendants. Appellant's App. at 88, 245. The minority shareholders requested that Thomas and James be removed from the corporation and that judgment be awarded to Ken Corp. for compensatory damages, punitive damages and attorney's fees. They also requested an injunction and the appointment of an accounting firm to conduct an independent audit of Ken Corp. and the Marcuccilli Trust. Appellant's App. at 96-98.
As to the amended complaint filed by the minority shareholders against Thomas, James and the other defendants with respect to Hi-Way, it was maintained that except for the purchase price of $200,000 by Lowe's from Hi-Way of the 18.73 acres, all other "deal principles, parties and considerations relating to or arising from the Lowe's Deal" were concealed from them. Appellant's App. at 238. Thus, the minority shareholders asserted that such failures to disclose amounted to a breach of fiduciary duty to Hi-Way's shareholders. It was urged that those failures resulted in an unfairly low amount with regard to Hi-Way's real estate, thereby allowing more to be allocated to the other defendants that resulted in direct and indirect benefits to them. As a result, the minority shareholders requested relief similar to that requested in their action against Ken Corp.
On December 31, 1997, Hi-Way and Ken Corp. filed a motion to dismiss Counts I and II as to each of the amended complaints. Appellant's App. at 108, 269. They alleged that the plaintiffs, as beneficiaries of the Ralph Marcuccilli Trust, which trust is a shareholder of Ken Corp., improperly pled the case as if it were a direct action brought by the shareholders. Thus, they alleged that the minority shareholders were prohibited from maintaining an action in their individual capacities to redress those wrongs that affected the corporations. Appellant's App. at 109.
After hearing arguments on the motions, the trial court dismissed Count I on each of the amended complaints on December 7, 1998. In the orders of dismissal, the trial court noted the general rule that "shareholders are generally required to vindicate their rights in a single derivative action against the corporation." Appellant's App. at 222. It went on to note that the appellants failed to establish any exception to this rule. Appellant's App. at 222. As to Count II of the complaint, the trial judge concluded that the minority shareholders' derivative action could proceed. Thus, it stayed the proceeding for ninety days pending the report of a special litigation committee (committee) that was appointed to consider the merit and validity of the claims.
In each case, the committee ultimately reported that James and Thomas had violated certain fiduciary duties to the corporations. The committees recommended, however, that it was not in the best interests of Ken Corp. or Hi-Way to pursue the pending actions.
With respect to Hi-Way, the committee determined that even though the individual defendants had a conflict of interest and did not disclose material facts to Hi-Way's directors, officers and shareholders, the allocation of $200,000 to Hi-Way was fair to the corporation, and, thus, it was without any legal or equitable right or remedy. As to Ken Corp., the committee determined that the individual defendants violated their fiduciary duties by failing to make full disclosure regarding certain insider loans, that Ken Corp. had a legal or equitable right or remedy, but that it was within the corporation's best interest to dismiss the pending action because it had not sustained any damages. Appellants' App. at 170-72. Specifically, the committee determined that Ken Corp. had actually benefited from those "insider" loans. Appellant's App. at 171. Thus, the committee recommended that the claims under Count II be dismissed. Appellants' App. at 171-72, 339. After hearing arguments on these claims, the trial court dismissed Count II of each amended complaint on March 27, 2001. The minority shareholders now appeal the orders of dismissal in both cases.
The basic purpose of a motion to dismiss in accordance with Ind. Trial Rule 12(B)(6) is to test the legal sufficiency of the complaint to state a redressable claim. Am. Dry Cleaning & Laundry v. State, 725 N.E.2d 96, 98 (Ind.Ct.App.2000). A T.R. 12(B)(6) motion to dismiss for failure to state a claim upon which relief can be granted tests the legal sufficiency of a claim, not the facts supporting it. Id. In determining whether to dismiss a complaint for failure to state a claim, the facts, as alleged in the complaint, must be taken as true. Huff v. Biomet, Inc., 654 N.E.2d 830, 833 (Ind.Ct.App.1995). The complaint may not be dismissed unless it appears to a certainty on the face of the complaint that the complaining party is not entitled to any relief. Donahue v. St. Joseph County ex rel. Bd. of Comm'rs of St. Joseph County, 720 N.E.2d 1236, 1239 (Ind. Ct.App.1999). A trial court must review the complaint in a light most favorable to the non-moving party and with every intendment in the non-moving party's favor. Id. A complaint is sufficient if it states any set of allegations, no matter how inartfully pleaded, upon which the trial court could have granted relief. Runde v. Vigus Realty, Inc., 617 N.E.2d 572, 575 (Ind.Ct.App. 1993).
The minority shareholders first argue that the trial court erred in dismissing count I of their complaints against Thomas, James and the other defendants. Specifically, the minority shareholders assert that the claims advanced in the counts against Ken Corp....
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