Moody v. Stribling

• Decision Date: 25 May 1999
• Docket Number: No. 18,875.,18,875.
• Citation: 127 N.M. 630,985 P.2d 1210
• Parties: Jane MOODY, Plaintiff/Appellee, v. Thomas B. STRIBLING and Martha Stribling, Defendants/Appellants, v. Steven R. Stribling, Defendant/Cross-Appellant.
• Court: Court of Appeals of New Mexico

985 P.2d 1210

127 N.M. 630

Jane MOODY, Plaintiff/Appellee, v. Thomas B. STRIBLING and Martha Stribling, Defendants/Appellants, v. Steven R. Stribling, Defendant/Cross-Appellant.

No. 18,875.

Court of Appeals of New Mexico.

May 25, 1999.

Certiorari Denied July 6, 1999.

Alice Tomlinson Lorenz, Alan C. Torgerson, Miller, Stratvert, & Torgerson, P.A., Albuquerque, for Appellee.

J. Edward Hollington, J. Edward Hollington & Associates, P.A., Albuquerque, Diane P. Donaghy, Tijeras, for Appellants.

Paul Cohen, Albuquerque, for Cross-Appellant.

Certiorari Denied, Nos. 25,798, 25,802, July 6, 1999.

OPINION

WECHSLER, Judge.

{1} Tom and Martha Stribling appeal from a judgment in favor of Jane Moody finding that they breached their fiduciary duty to Jane and awarding her $324,604 in damages. They raise the following issues on appeal: (1) Jane was not the real party in interest; (2) the district court committed reversible error by failing to join necessary parties; (3) the district court improperly found that Tom and Martha owed Jane a fiduciary duty; (4) if Tom and Martha owed Jane a fiduciary duty, substantial evidence does not support that Tom and Martha breached that duty; (5) the district court improperly voided the Purchase and Option Agreement; and (6) if Tom and Martha owed a duty and breached it, the measure of damages was improper. Steven Stribling also appeals the judgment entered against Tom and Martha in favor of Jane alleging that the district court violated his due process rights in awarding improper damages to Jane. We affirm the judgment of the district court.

Facts

{2} Jane and Steven, as husband and wife, purchased two Supercuts franchises and formed S Corporations to hold title to each franchise. SJS Corporation (SJS) held the Las Cruces Supercuts which had been purchased in 1983 using joint assets. In 1989, Jane pledged her separate property as collateral to enable the couple to purchase a Supercuts franchise located in Texas. Jane and Steven formed SSI, Inc. (SSI) to hold the Texas franchise. Although Steven primarily handled the financial matters, Jane invested considerable separate assets in the businesses and other investments. Jane ran their household and cared for their son.

{3} In late 1991, Jane and Steven ran into serious financial difficulties most likely attributable to Steven's drug addiction but exacerbated by Jane's progressive loss of confidence in her ability to understand and make judgments about the couple's financial situation, which may have been related to Jane's problems with anxiety and depression. The Internal Revenue Service (IRS) prepared to levy tax liens on the businesses, and Jane and Steven owed considerable personal taxes as well. Additionally, the businesses were behind on state tax payments. Steven went to his parents, Tom and Martha, for assistance. Tom and Martha agreed to help Jane and Steven. Tom and Martha owned their own Supercuts franchises in New Mexico and elsewhere, and agreed to purchase and run Jane and Steven's franchises for five years. Tom and Martha obtained a loan for $260,000 for the purchase amount, but instead of giving the money to Jane and Steven outright, Tom and Martha placed the money in an account and had Phyllis Isbell, their business manager and bookkeeper, pay business debts of the two franchises and Jane and Steven's personal debts from the account. Both Tom and Martha also negotiated on behalf of Jane and Steven with federal and state tax authorities about the tax liability.

{4} Tom, Martha, Steven, and Jane executed a Buy-Back Agreement, prepared by an attorney contacted by Steven, which memorialized the assistance Tom and Martha were to provide Jane and Steven so they would not lose their home and the franchises. After execution of the Buy-Back Agreement, Tom and Martha's attorney-son, Tom Jr., reviewed the document and prepared new documents because he did not believe the agreement adequately protected his parents' interests. Although the new agreements which Tom Jr. prepared were not the same as the Buy-Back Agreement, Steven represented them to Jane as being the same.

{5} Tom and Martha controlled the $260,000 obtained to purchase the franchises. They made additional deposits to the account from store revenues and also deposited a small salary that Tom and Martha's corporations paid to Steven. They directed Isbell to make payments for Jane and Steven's business and personal debts from these funds. Isbell did so for several months until Jane and Steven separated. At that point, Martha indicated there were no funds remaining from the loan and directed Isbell to void a payment on Jane's vehicle. Funds from the account continued to pay for Steven's expenses. {6} Jane lost the businesses, her home, and her car. She sued Tom and Martha, their corporations, Tom Jr., and Steven for breach of fiduciary duty, breach of contract, and other claims. The district court, in a bench trial, found that Tom and Martha owed a fiduciary duty to Jane and that they breached that duty. The court awarded Jane $324,604 in damages. The district court did not find that Steven breached a fiduciary duty; thus he incurred no liability. Further, the district court did not find any liability on behalf of Tom and Martha's corporations or Tom Jr.

Real Party in Interest

{7} Tom and Martha contend that the district court erred in failing to grant their motion to dismiss on lack of standing and failure to join an indispensable party filed on the first day of trial. On appeal, as below, they argue that Jane was not the real party in interest under Rule 1-017(A) NMRA 1999 because SJS and SSI, not Jane, suffered any alleged injury which occurred. After argument, the district court denied the motion as untimely and also stated that it tentatively agreed with "the posture" presented by Jane that any alleged injury was to Jane, not to SJS and SSI.

{8} A real party in interest is one who owns the right being enforced or who is in a position to discharge the defendant from liability. See Edwards v. Mesch, 107 N.M. 704, 706, 763 P.2d 1169, 1171 (1988). According to Tom and Martha, they base their position on the proposition that when a corporation suffers injury, its shareholders cannot bring individual claims against a third party for the injuries. See Delta Automatic Sys., Inc. v. Bingham, 1999-NMCA-029, ¶ 14, 126 N.M. 717, 974 P.2d 1174. We agree with this general proposition. A corporation, not its individual shareholders, may bring claims "for injuries that derive from damage to the corporation." Id. ¶ 14. At oral argument Tom and Martha also referred us to our recent decision in Crumpacker v. DeNaples, 1998-NMCA-169, 126 N.M. 288, 968 P.2d 799, discussing Rule 1-017. We fail to see how Crumpacker helps Tom and Martha's position as we agree with them that only a real party in interest may pursue claims. We disagree, however, with Tom and Martha's characterization of the claims.

{9} Rather than alleging claims for damages to the corporation, Jane alleged claims for injuries she personally incurred for loss of property, namely breach of fiduciary duty owed to her and breach of contract. The property she claims to have lost includes the ownership of SJS and SSI. See Seckler v. Star Enter., 124 F.3d 1399, 1406 (11th Cir.1997) (upholding the plaintiff's right to bring cause of action when the plaintiff alleged that the defendant's failure to make a bona fide offer to sell a service station to his corporation caused the plaintiff to sell his house for less than its fair market value and that he suffered emotional distress as a result of the misrepresentations and breach); cf. Delta Automatic Sys., Inc., 1999-NMCA-029, ¶¶ 2, 16, 126 N.M. 717, 974 P.2d 1174 (affirming dismissal of shareholders' claims for failure to satisfy exception to rule that bars suits by shareholders for injuries to corporations). As such, the corporations are part of the damages; they did not suffer the damages alleged in the complaint. Jane was the real party in interest because only she, not SJS and SSI, could discharge Tom and Martha from their liability for breach of fiduciary duty owed to her. See Edwards, 107 N.M. at 706, 763 P.2d at 1171.

Joinder of Party Necessary for Just Adjudication

{10} Tom and Martha alternately argue that SJS and SSI were parties necessary for just adjudication under Rule 1-019 NMRA 1999, and the district court's failure to include them as parties was error. A motion to dismiss for failure to join an indispensable party under Rule 1-019 may be made at any time, including "at the trial on the merits." Rule 1-012(H)(2); cf. C.E. Alexander & Sons, Inc. v. DEC Int'l, Inc., 112 N.M. 89, 91, 811 P.2d 899, 901 (1991) (stating that Rule 1-019 motion may even be raised for first time on appeal). As a result, such a motion cannot be dismissed as untimely, but must be dismissed on the merits. While the district court erred in denying Tom and Martha's Rule 1-019 motion as untimely, it also denied the motion on the merits when it ruled that it tentatively agreed with "the posture" of arguments that SJS and SSI were not parties necessary for just adjudication. We review this decision for abuse of discretion. See C.E. Alexander & Sons, Inc.,112 N.M. at 91,811 P.2d at 901.

{11} When ruling on a Rule 1-019 motion, the district court conducts a "balancing test to determine whether a suit can continue without a party." C.E. Alexander & Sons, Inc., 112 N.M. at 91, 811 P.2d at 901. Rule 1-019(A) reads in pertinent part:

A. Persons to be joined if feasible. A person who is subject to service of process shall be joined as a party in the action if:

(1) in his absence complete relief cannot be accorded among those already parties; or

(2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may:

(a) as a practical matter impair or impede his ability to protect that interest; or

(b) leave any of the

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