Mueller v. Cedar Shore Resort, Inc.

• Decision Date: 20 March 2002
• Docket Number: No. 21866., No. 21852
• Citation: 2002 SD 38,643 N.W.2d 56
• Parties: Paul A. MUELLER and Mary Pat Mueller, Individually, and Paul A. Mueller and Mary Pat Mueller, by and on behalf of Cedar Shore Resort, Inc., Cedar Shore Development, Inc., and Al's Oasis, Inc., Plaintiffs and Appellants, v. CEDAR SHORE RESORT, INC.; Cedar Shore Development, Inc.; Edward G. Geddes, Individually and in his capacity as director of Cedar Shore Resort, Inc., Cedar Shore Development, Inc., DeETTE GEDDES, Individually and in her capacity as director of Cedar Shore Resort, Inc., Cedar Shore Development, Inc. and officer of Al's Oasis, Inc., Steven B. Mueller, Individually and in his capacity as director of Cedar Shore Resort, Inc., Cedar Shore Development, Inc., and officer of Al's Oasis, Inc.; Mark J. Mueller, Individually and in his capacity as officer of Al's Oasis, Inc.; Gopal Vyas, Individually and in his capacity as director of Cedar Shore Resort, Inc.; Steve Hansman, Individually and in his capacity as director of Cedar Shore Resort, Inc.; Marlene Billars, Individually and in her capacity as director of Cedar Shore Resort, Inc.; Darrel Viereck, Individually and in his capacity as director of Cedar Shore Resort, Inc.; AL's Oasis, Inc., Defendants and Appellees.
• Court: South Dakota Supreme Court

643 N.W.2d 56

2002 SD 38

Paul A. MUELLER and Mary Pat Mueller, Individually, and Paul A. Mueller and Mary Pat Mueller, by and on behalf of Cedar Shore Resort, Inc., Cedar Shore Development, Inc., and Al's Oasis, Inc., Plaintiffs and Appellants, v. CEDAR SHORE RESORT, INC.; Cedar Shore Development, Inc.; Edward G. Geddes, Individually and in his capacity as director of Cedar Shore Resort, Inc., Cedar Shore Development, Inc., DeETTE GEDDES, Individually and in her capacity as director of Cedar Shore Resort, Inc., Cedar Shore Development, Inc. and officer of Al's Oasis, Inc., Steven B. Mueller, Individually and in his capacity as director of Cedar Shore Resort, Inc., Cedar Shore Development, Inc., and officer of Al's Oasis, Inc.; Mark J. Mueller, Individually and in his capacity as officer of Al's Oasis, Inc.; Gopal Vyas, Individually and in his capacity as director of Cedar Shore Resort, Inc.; Steve Hansman, Individually and in his capacity as director of Cedar Shore Resort, Inc.; Marlene Billars, Individually and in her capacity as director of Cedar Shore Resort, Inc.; Darrel Viereck, Individually and in his capacity as director of Cedar Shore Resort, Inc.; AL's Oasis, Inc., Defendants and Appellees.

Nos. 21852, 21866.

Supreme Court of South Dakota.

Argued November 15, 2001.

Decided March 20, 2002.

Michael P. Reynolds of Barker, Wilson, Reynolds & Burke, Rapid City, South Dakota, Attorneys for appellants.

Thomas J. Welk, Jeffrey C. Clapper of Boyce, Murphy, McDowell, Sioux Falls, South Dakota, Attorneys for appellees, E. Geddes, D. Geddes, S. Mueller, M. Mueller, G. Vyas, S. Hansman, M. Billars, Cedar Shore Development, Inc.

Clair R. Gerry of Stuart, Gerry & Schlimgen, Sioux Falls, South Dakota, Attorneys for appellee Cedar Shore Resort, Inc.

John S. Theeler of Morgan, Theeler, Wheeler, Cogley & Petersen, Mitchell, South Dakota, Attorneys for appellee AL'S Oasis, Inc.

GILBERTSON, Chief Justice.

[¶ 1.] Paul A. and Mary Pat Mueller brought this action against Al's Oasis, Cedar Shore Resort, Inc. (CSR), and individually named directors and shareholders of the two companies. Plaintiffs appeal the trial court's grant of Defendants' motions for summary judgment on the issues of (1) minority shareholder oppression; (2) breach of fiduciary duty; (3) tortious interference with a business relationship or expectancy; (4) pro rata contribution on a promissory note; and (5) performance under a subscription agreement. Al's Oasis, CSR and the individual defendant directors and shareholders appeal the trial court's denial of Defendants' motion for severance. We affirm in part, reverse in part, and remand for further proceedings.

FACTS AND PROCEDURE

[¶ 2.] Paul Mueller, son of Al and Veda Mueller, is a minority shareholder in Al's Oasis, Inc. As with all of Al's children, Paul Mueller worked for the family business beginning as early as age five and continuing after college. He often worked without pay or at minimum wage to support what was considered to be a "family business." When Paul left the family business for law school, Paul's older sister, DeEtte, and her husband, Ed Geddes, returned from California to fill in the positions that Paul and Mary Pat, Paul's wife, had vacated. No promise was made to Paul or Mary Pat that jobs would be waiting for them when or if they returned. Paul did return to Oacoma after law school and established a small practice with a fellow classmate.

[¶ 3.] Al Mueller repeatedly refused Paul's demands for a formal employment contract in any area of the business, including its legal representation. Al Mueller did not sign contracts with any of his employees and he was concerned that doing so with Paul would create resentment among the siblings. At this time, however, all of the children were gifted a substantial share of the corporation, given employment (aside from Paul), salaries, and benefits. Paul did receive a $75,000 salary as compensation for the legal work done for Al's Oasis and for his service on the Board of Directors, but not for direct employment as was the case with his siblings. [¶ 4.] In 1985, Governor William Janklow appointed a tourism task force to determine how best to capitalize on the tourism trade in South Dakota. Dave Sweet, the developer that Paul had helped recruit to join with Al's Oasis to build the Oasis Inn, and Paul's brother, Steve, were both on the task force. When Sweet's plan for a destination resort in the Missouri River Basin fell through, the Mueller family received encouragement from the Governor's office to pursue the resort development concession. Paul spearheaded the effort by starting the Oasis Management Group (OMG) with Mary Pat, DeEtte and Ed Geddes, Steve Mueller, and Steve's wife Jeannie. Each couple was one-third owner. Paul was unanimously elected President and OMG obtained the lease and concession to build Cedar Shore Resort on April 15, 1992.

[¶ 5.] Project financing was the next logical step. Paul developed a detailed business plan, which enabled Norwest Bank to approve and grant OMG a $5.5 million loan. Outside investors, however, were still essential. Therefore, to keep the family's control from being diluted, the six members of OMG formed a separate management company called Cedar Shore Development, Inc. (CSD). Paul was elected President of this corporation, as well. OMG merged with CSR and, by April 1, 1993, eight equity investors had brought $600,000 to the project. Four of the investors joined the CSR Board of Directors, bringing the total number of directors to seven, and Paul was again elected President.

[¶ 6.] Without any formal employment contract, Paul and Mary Pat both continued working full-time on the project, essentially without compensation.¹ But in June 1994, Paul received word that his brother-in-law and fellow shareholder, Ed Geddes, was meeting secretly with other shareholders to have Paul removed as president of CSR. When confronted, Ed denied these allegations. The other shareholders' concern over this family rivalry prompted them to propose that the Mueller family shareholders either buy them out or that they swap their 64 percent stock in CSR for the complaining shareholders' 24 percent stock, thus wresting control of the project from the feuding family members. Paul and Mary Pat elected to buy out the three complaining investors' shares, which resulted in more family animosity.

[¶ 7.] On August 22, 1994, at a special meeting of CSD called by DeEtte, Ed and Steve, Paul was removed as President and stripped of all involvement in the management company. Paul was, however, able to continue working on the project through CSR until January 10, 1995, when Paul was also removed as President of CSR. No reason was given for this action. As a result, Paul voluntarily resigned from CSR's Board. Additionally, Mary Pat was removed as Corporate Secretary because the Board believed she would be unable to serve objectively after Paul's removal. Thereafter, Ed Geddes assumed the role of President and the Board canceled the management contract between CSR and CSD.

[¶ 8.] When CSR turned to Al's Oasis for a much-needed capital infusion of $1.5 million, Al and Veda Mueller agreed to the contribution but Al demanded that Paul pay back all of the personal "loans" he had received from Al in the past. Paul and Mary Pat had been allowed to charge groceries and clothes to Al's Oasis over a period of years, which resulted in an unpaid balance of $140,000. Al Mueller paid this debt. He also paid debts related to Paul's law practice when it closed. Paul believed these loans had been repaid ten years earlier by his receipt of a smaller distribution of stock than that of his siblings. DeEtte and Ed, however, believed the lesser stock distribution was the result of Paul no longer working within the family business. They contacted a lawyer insisting that all of Paul's distributions received since the 1960's be applied toward "debt repayment." Finally, on April 25, 1995, the Al's Oasis Board of Directors terminated Paul's "employment" for "nonperformance." The family simply maintained that no management positions were available, that Paul was overqualified for all other positions, and that he was incapable of working due to his diabetes.

[¶ 9.] The trial court granted summary judgment to Defendants CSR, Al's Oasis and the individually named directors and shareholders. Paul and Mary Pat raise the following issues for appeal:

1. Whether the trial court was correct in determining no genuine issue of material fact existed with respect to Paul and Mary Pat's claim of minority shareholder oppression by Al's Oasis and CSR.

2. Whether the trial court was correct in determining no genuine issue of material fact existed with respect to Paul and Mary Pat's claim that the individually named majority shareholders breached the fiduciary duties owing to Paul and Mary Pat as minority shareholders in a close corporation.

3. Whether the trial court was correct in determining no genuine issue of material fact existed with respect to Paul and Mary Pat's claim that the individually named directors tortiously interfered with their business relationships or expectancies in Al's Oasis and CSR.

4. Whether the trial court was correct in determining no genuine issue of material fact existed with respect to the counterclaim by the defendant directors, Steven Mueller and Edward Geddes, for Paul and Mary Pat's pro rata contribution on the marina promissory note.

5. Whether the trial court was correct in determining no genuine issue of material fact existed with respect to CSR's counterclaim for Paul and Mary Pat's payment due pursuant to a stock subscription agreement.

Alternatively, Defendants raise one issue for appeal:

6. Whether the trial court was clearly erroneous in denying Defendant CSR's motion for severance on grounds that trying the cases of Al's Oasis and CSR together would be unfairly prejudicial.

STANDARD OF REVIEW

[¶ 10.] In reviewing the trial...