Rifkin v. Steele Platt

• Decision Date: 20 June 1991
• Docket Number: No. 89CA1950,89CA1950
• Citation: 824 P.2d 32
• Parties: Robert C. RIFKIN, Gerald N. Kernis, Gary S. Kortz and The Boiler Room, Inc., a Colorado corporation, Plaintiffs-Appellees and Cross-Appellants, v. STEELE PLATT, Fas-Wok, Inc., a Colorado corporation, Tropic-Isle Cafe, Inc., a Colorado corporation, Island Bay Juice Company, a Colorado corporation and Wall Street Bar and Grill, Inc., a Colorado corporation, Defendants-Appellants and Cross-Appellees. . V
• Court: Colorado Court of Appeals

Page 32

824 P.2d 32

Robert C. RIFKIN, Gerald N. Kernis, Gary S. Kortz and The

Boiler Room, Inc., a Colorado corporation, Plaintiffs-Appellees and Cross-Appellants, v. STEELE PLATT, Fas-Wok, Inc., a Colorado corporation,

Tropic-Isle Cafe, Inc., a Colorado corporation, Island Bay

Juice Company, a Colorado corporation and Wall Street Bar

and Grill, Inc., a Colorado corporation,

Defendants-Appellants and Cross-Appellees.

No. 89CA1950.

Colorado Court of Appeals,

Div. V.

June 20, 1991.

Brega & Winters, P.C., Lawrence A. Manzanares, Denver, for plaintiffs-appellees and cross-appellants.

Canges & Iwashko, P.C., Nina A. Iwashko, Denver, for defendants-appellants and cross-appellees.

Opinion by Judge PLANK.

Defendants, Steele Platt and Fas-Wok, Inc. (sellers), appeal the judgment of the trial court in favor of the corporate plaintiff The Boiler Room, Inc. (the corporation). Plaintiffs cross-appeal the award of damages. We affirm in part and remand for further proceedings consistent with this opinion.

This matter involves the sale of the controlling shares of the corporation, which owns a restaurant of the same name located in the Tivoli Shopping Center in Denver, Colorado. Plaintiffs include the corporation and its present principal shareholders, Robert C. Rifkin, Gerald N. Kernis, and Gary G. Kortz (buyers). Sellers are the former controlling shareholders.

Buyers and sellers executed a Stock Purchase Agreement to effectuate the sale of the corporation. After the closing, the buyers discovered inaccuracies in financial representations made in the agreement. Consequently, they filed suit against the sellers asserting claims of breach of contract, breach of good faith, breach of fiduciary duty, and unjust enrichment.

The complaint alleged, in part, that Platt, as officer and director of the corporation, had misappropriated funds from it and that certain assets on the balance sheet were actually owned by Platt or other entities that he controlled. Sellers counterclaimed seeking rescission of the agreement.

After a trial to the court, judgment was entered in favor of the buyers on the breach of contract claim and the corporation on the breach of fiduciary duty claim. The court also awarded attorney fees pursuant to the agreement. Sellers do not appeal that part of the judgment concerning the breach of contract claim.

I.

Sellers first contend that the trial court erred in awarding the corporation damages for breach of fiduciary duty for conduct which occurred prior to buyers' acquisition of stock. They cite Bangor Punta Operations, Inc. v. Bangor & Aroostook R. Co., 417 U.S. 703, 94 S.Ct. 2578, 41 L.Ed.2d 418 (1974) in support of this argument. We agree that Bangor Punta raises issues which must be resolved in this matter.

In Bangor Punta, the new shareholders of the corporation, in the name of the corporation, sought damages from the former shareholders for violations of state and federal law which occurred before the sale. The United States Supreme Court held that the corporation could not maintain the action for wrongs that occurred before the new shareholders' acquisition of the shares. The court reasoned that the real parties that would gain from a successful lawsuit would be the new shareholders. It presumed that the purchase price that they paid reflected the prior wrongdoings. Thus, the shareholders would improperly receive a windfall if allowed to recover damages.

Here, it is undisputed that the acts which constituted Platt's breach of fiduciary duty occurred prior to the buyers' acquisition of stock in The Boiler Room. However, the parties dispute whether the purchase price reflected the prior wrongdoings. The trial court did not make a finding on this issue. Therefore, we remand it to the trial court for further findings. See El Dorado Bancshares v. Martin, 701 F.Supp. 1515 (D.Kan.1988).

If on review the court finds that the price, in fact, reflected Platt's wrongdoings, it must dismiss the breach of fiduciary duty claim. If, on the other hand, it finds that the purchase price of the shares did not reflect the wrongdoings, then the corporation's previous damage award may stand.

Plaintiffs contend that the court considered this issue in its finding that The Boiler Room would not be unjustly enriched by the award of damages for breach of fiduciary duty. Our review of the findings discloses otherwise. The court did not make that finding on the basis of the holding and analysis of Bangor Punta.

II.

Sellers next argue that Platt did not breach a fiduciary duty because his actions were protected by the business judgment rule. We consider this issue in the event the trial court, on retrial, determines that the corporation has standing to assert the breach of fiduciary duty claim.

Although a director owes a fiduciary duty to the corporation, Unicure v. Thurman, 42 Colo.App. 241, 599 P.2d 925 (1979), he or she is accorded wide discretion in making decisions for the corporation, and generally, if a director acts in good faith, such actions will not form a basis for imposing liability on that director. Rywalt v. Writer Corp., 34 Colo.App. 334, 526 P.2d 316 (1974). However, even if a director is acting in good faith, the use of corporate funds for one's personal benefit without repayment to the corporation constitutes a breach of fiduciary duty. Unicure Inc. v. Thurman, supra. In addition, it is not a legitimate corporate activity to give away corporate resources or divert funds from the corporation to officers and directors without lawful reason. Harold Co. v. Bonfils, 315 F.Supp. 497 (D.Colo.1970), rev'd on other grounds, 472 F.2d 1081 (10th Cir.1972).

Here, the trial court found that Platt breached his fiduciary duty by operating his corporations for his own personal gain and benefit and with disregard for their individual corporate identities. It found that he transferred funds between the corporations "willy nilly." The trial court's findings on this issue are supported by evidence in the record, and thus, they will not be disturbed. See Johnson v. Smith, 675 P.2d 307 (Colo.19...