Masinter v. WEBCO Co., No. 14349

• Court: Supreme Court of West Virginia
• Writing for the Court: MILLER
• Citation: 262 S.E.2d 433,164 W.Va. 241
• Parties: Edwin B. MASINTER, etc., et al. v. WEBCO COMPANY et al.
• Docket Number: No. 14349
• Decision Date: 29 January 1980

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262 S.E.2d 433 164 W.Va. 241 Edwin B. MASINTER, etc., et al.
v.
WEBCO COMPANY et al. No. 14349. Supreme Court of Appeals of West Virginia. Jan. 29, 1980.

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Syllabus by the Court

1. Even if the trial judge is of the opinion to direct a verdict, he should nevertheless ordinarily hear evidence and, upon a trial, direct a verdict rather than try the case in advance on a motion for summary judgment.

2. While the officers and directors of a business corporation are accorded a rather broad latitude in the conduct of the affairs of the corporation, they occupy a fiduciary relationship toward it and its shareholders. The same fiduciary relationship exists on the part of the majority shareholders of a business corporation toward its minority shareholders.

3. A violation of the fiduciary relationship may result from oppressive conduct, which is conduct that departs from the standards of good faith and fair dealing which are inherent in the concept of a fiduciary relationship.

4. An attempt to "freeze or squeeze out" a minority shareholder from deriving any benefit from his investment in a private business corporation, without any legitimate business purpose, may constitute oppressive conduct.

Lewis, Ciccarello, Masinter & Friedberg, G. Nicholas Casey, Jr. and Paul M. Friedberg, Charleston, for appellants.

[164 W.Va. 242] Campbell, Woods, Bagley, Emerson, McNeer & Herndon, R. G. McNeer and Selden S. McNeer, Jr., Huntington, for WEBCO.

Jenkins & Fenstermaker and John E. Jenkins, Jr., Huntington, for Cohen and Webb.

Robert M. Levy and Randall L. Trautwein, Huntington, for Twentieth Street Bank.

MILLER, Justice:

This case is an appeal from a summary judgment granted against the plaintiff, Edwin B. Masinter, who is a minority shareholder in a close corporation. ¹ The central question is whether a cause of action exists in this jurisdiction for oppressive conduct.

We have traditionally recognized that a summary judgment constitutes a decision that there are no genuine issues of material fact between the parties, and therefore a trial on the merits is foreclosed. For this reason, we have viewed summary judgment with suspicion and have evolved the rule that, on appeal, the facts must be construed in a light most favorable to the losing party. Gavitt v. Swiger, W.Va., 248 S.E.2d 849 (1978); Johnson v. Junior Pocahontas Coal Co., W.Va., 234 S.E.2d 309 (1977); Oakes v. Monongahela Power Co., W.Va., 207 S.E.2d 191 (1974); Hines v. Hoover, 156 W.Va. 242, 192 S.E.2d 485 (1972); State ex rel. Payne v. Mitchell, 152 W.Va. 448, 164 S.E.2d 201 (1968).

In our landmark case on summary judgment, Aetna Casualty and Surety Co. v. Federal Insurance Co., 148 W.Va. 160, 133 S.E.2d 770 (1963), Judge Haymond set forth

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a number of rules to guide the trial court in determining whether to grant summary judgment, among which was this rule: "Even (if) . . . the trial judge is of [164 W.Va. 243] the opinion . . . (to) direct a verdict . . . he should nevertheless ordinarily hear evidence and upon a trial direct a verdict rather than to try the case in advance on a motion for summary judgment." (148 W.Va. at 172, 133 S.E.2d at 778). In 6 J. Moore, Federal Practice § 56.16 (1979), a variety of cases are cited which conclude that summary judgment should not be utilized in complex cases, particularly where issues involving motive and intent are present. In § 56.17(60) of Moore, there is a discussion of the applicability of summary judgment in a shareholder's action.

In complex cases, the tendency on a summary judgment motion is to rely on the facts developed through discovery as constituting all of the relevant facts in the case. This may lead to inaccurate factual assessment. A party may often undertake very little discovery or limit the discovery to certain critical areas with the knowledge that he has the requisite proof available without the necessity of any further discovery. Frequently, discovery depositions of the parties or their key witnesses do not reflect all relevant facts. This is because these depositions are taken by adverse counsel and the deponents do not care to volunteer information and, therefore, they give limited answers to the questions. While discovery procedures are useful to develop the facts of a case, there is no requirement that all facts must be developed through discovery, and certainly no grounds for the assumption that they have been developed by discovery.

The problem in the present case is that the trial court accepted the discovery depositions as constituting the entire factual case. It ignored the fact that most of the material allegations of the complaint were denied by the defendants' answer. The summary judgment motion filed by the defendants did not attempt to isolate the issues and point out why there was no dispute. As Judge Haymond stated in Aetna Casualty and Surety Co., supra : "The question to be decided on a motion for summary judgment is whether there is a genuine issue of fact [164 W.Va. 244] and not how that issue should be determined." (148 W.Va. at 171, 133 S.E.2d at 777). Here, this distinction was entirely overlooked.

In 1949, the plaintiff Masinter and the defendants, David Cohen and J. Mack Webb, formed a corporation called M. & D., Inc., for the primary purpose of operating a pawnshop in Huntington, Cabell County. Each of the three individuals contributed the same amount of money to capitalize the corporation and each received an equal number of shares. At this time and subsequently, Masinter was in the retail business in Charleston, Kanawha County.

At a later time, Masinter, Cohen and Webb formed another corporation called WEBCO Company, which absorbed M. & D., Inc. The three individuals continued to be equal shareholders in WEBCO and broadened the original business into a retail merchandise store, operating in Huntington under the trade name, Mack & Dave's.

Until 1973, Masinter, Cohen and Webb were the sole owners of WEBCO stock, the only members of its board of directors, and served as the officers of the corporation. Masinter acted as the secretary. While he still operated his retail business in Charleston, he met during this time with Cohen and Webb on a regular basis and participated in the corporate decisions. While no dividends were paid, all three received salaries from the corporation as officers. ²

Until 1973, WEBCO, from the standpoint of corporate meetings and the keeping of minutes, operated in a relatively informal fashion. The three individuals freely exchanged information and advice, reached business decisions informally, and later prepared corporate minutes to reflect these decisions.

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[164 W.Va. 245] In 1970, as a result of an urban renewal project in the City of Huntington, the business site of WEBCO became subject to eminent domain proceedings. After considerable study, the three men decided to relocate the corporate business in downtown Huntington.

In order to accomplish the relocation, it was necessary for the corporation to borrow.$1.2 million. Financing was arranged through the defendant, The Twentieth Street Bank in Huntington, with the federal Small Business Administration (SBA) participating in the loan. As a part of the financial arrangement, it was required that all assets of WEBCO, as well as the shares of the shareholders, be pledged as security for the loan. An apparent further condition was the personal guarantee of each of the three individuals on the corporate loan note. Despite urgings by both Cohen and Webb, Masinter refused to personally guarantee the loan. It is at this point that the harmonious relationship among the three began to deteriorate.

In the Fall of 1973, the.$1.2 million loan was formally obtained with the personal guarantees of Cohen and Webb, but without that of Masinter. During this time Masinter gave a written notice that he was opposed to further borrowing by the corporation beyond the.$1.2 million because of his belief that there would be adverse cash flow problems in the corporation.

At a formal meeting of the board of directors of WEBCO held at the end of 1973, Cohen and Webb voted to remove Masinter from the board and to terminate him as secretary. As a consequence, Masinter's salary was eliminated. From this point, Masinter asserts he was excluded from direct participation in the corporate business, although he was furnished some monthly financial information.

While the record is not absolutely clear, it appears that without formal notice to Masinter, the corporation, through its board, determined that an additional $700,000 loan was necessary, a loan resolution was adopted without a formal meeting of the board. This [164 W.Va. 246] new loan was obtained from The Twentieth Street Bank with SBA participation. Webb had become a director of the bank prior to the time of the $700,000 loan and made the loan arrangements.

This new loan agreement provided that no dividends, bonuses, or advances could be paid, nor loans made, to the shareholders of the corporation during the term of the loan without the approval of the lenders. The agreement also required the pledge of the corporate assets and stock and provided that a default in the repayment of the $700,000 loan would automatically constitute a default on the original.$1.2 million loan.

In 1975, WEBCO opened a retail outlet in Charleston for musical and electronic equipment. Masinter alleges that this action was for the specific purpose of injuring his retail business in Charleston.

As a result of the foregoing, Masinter filed suit in the Circuit Court of Cabell County. His complaint requested two forms of relief: a dissolution of the corporation under W.Va.Code, 31-1-81 (1931), ³

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and damages as a result [164 W.Va. 247] of the alleged oppressive conduct on the part of the defendants.

After the parties had undertaken some discovery, the defendants moved for summary judgment. The Circuit Court referred the...