Riggin v. Rea Riggin & Sons, Inc.

• Citation: 738 N.E.2d 292
• Decision Date: 14 November 2000
• Docket Number: No. 18A02-9909-CV-679.,18A02-9909-CV-679.
• Parties: Richard E. RIGGIN, Individually and as a Shareholder of Rea Riggin & Sons, Inc., Appellant-Plaintiff, v. REA RIGGIN & SONS, INC., Joann Riggin, John W. Riggin, Joetta Riggin, Sherry Riggin, Carl Riggin, Lloyd Riggin, and Herb Shideler, Appellees-Defendants.
• Court: Court of Appeals of Indiana

738 N.E.2d 292

Richard E. RIGGIN, Individually and as a Shareholder of Rea Riggin & Sons, Inc., Appellant-Plaintiff, v. REA RIGGIN & SONS, INC., Joann Riggin, John W. Riggin, Joetta Riggin, Sherry Riggin, Carl Riggin, Lloyd Riggin, and Herb Shideler, Appellees-Defendants.

No. 18A02-9909-CV-679.

Court of Appeals of Indiana.

November 14, 2000.

Russell T. Clarke, Jr., Emswiller, Williams, Noland & Clarke, Indianapolis, Indiana, Attorney for Appellant.

Jodie L. Ferise, Dennis Wenger & Abrell, Muncie, Indiana, Attorney for Appellees.

OPINION

SULLIVAN, Judge

Appellant, Richard Riggin (Richard), challenges the trial court's grant of summary judgment in favor of appellees Rea Riggin and Sons, Inc., JoAnn Riggin, John W. Riggin, Joetta Riggin, Sherry Riggin, Carl Riggin, Lloyd Riggin, and Herb Shideler (the Corporation). Richard also challenges the trial court's order that he pay the expenses of deposed witnesses and finding him in contempt when he failed to do so. He also challenges the trial court's denial of his motion for a continuance.

We affirm in part, reverse in part and remand.

The record reveals that Rea Riggin and Sons was founded by Rea and Nellie Riggin and their sons in 1927, and that the board of directors has always consisted of members of the Riggin family. At the time the motion for summary judgment was filed, Appellees JoAnn Riggin, John W. Riggin, Sherry Riggin, and Herb Shideler were members of the board of directors.¹ Rea Riggin and Sons has twenty-nine shareholders and 1149.53 shares outstanding. Richard Riggin owns 77.626 shares of the corporation.

On January 2, 1997, Richard Riggin filed a direct action and a shareholder derivative action against the Corporation. This complaint alleged breach of fiduciary duty, fraud, constructive fraud, unjust enrichment, and negligence, and requested an accounting and an inspection of corporate records. Subsequently, Richard filed a request to depose Merrill Greene, the Corporation's accountant. In response, on May 22, 1998, the Corporation filed a motion for a protective order regarding Richard's request. After a hearing on the protective order motion, the trial court ordered Richard to pay the expenses of Merrill Greene as a condition of allowing the deposition. Richard deposed Mr. Greene, but failed to pay the expenses. As a result, the Corporation filed a petition to find Richard in contempt.

On October 28, 1998, Arthur Robinson requested permission from the trial court to withdraw as Richard's attorney. In support of his request to withdraw, Mr. Robinson stated that he had become aware that he could be called as a witness at the contempt hearing, and Richard had requested he withdraw. Additionally, Mr. Robinson stated Richard was securing new representation. The trial court denied this motion. During the contempt hearing on October 30, 1998, Tom Brown entered his appearance as Richard's counsel. Also at the hearing, Mr. Robinson moved twice in open court for permission to withdraw as Richard's counsel. On the last motion, the court allowed Mr. Robinson to withdraw. Thereafter, Richard was found in contempt and remanded into the custody of the Delaware County Sheriff until he purged himself of contempt by paying Mr. Greene's expenses. The court then set a trial date of July 14, 1999.

On January 20, 1999, Mr. Brown filed a motion requesting permission to withdraw as Richard's attorney. This motion read in part: "this attorney only appeared in the case originally for a brief one hour segment to assist the attorney of record. That this attorney is not familiar with the case and does not have time available to adequately represent [Richard]. That no fee arrangement was made for full representation." Record at 370. The trial court initially denied Mr. Brown's motion, but later, on a motion to reconsider, granted him permission to withdraw.

On February 18, 1999, Richard informed the trial court that he was in the process of securing counsel. On May 28, 1999, Richard again informed the trial court that he would be obtaining an attorney. Still proceeding without legal counsel, Richard filed a motion for a continuance on June 3, 1999. This motion was denied, and on June 10, 1999, Richard filed a motion to reconsider which was also denied.

On June 8, 1999, the Corporation moved for summary judgment, and Richard filed a memorandum in opposition. Both sides designated evidence for the trial court to consider. On June 30, 1999, Richard informed the trial court that he had been unable to secure legal representation. A hearing on the motion for summary judgment was held on July 9, 1999. After the hearing, the trial court ordered summary judgment in favor of all defendants on all counts.

I. Summary Judgment on the Derivative Claims

Upon appeal, Richard contends that granting summary judgment in favor of the Corporation was error for several reasons. First, Richard claims that the trial court failed to follow the time limitations set forth in Ind. Trial Rule 56(C). Next, Richard claims the trial court improperly placed upon him the burden of proving he met the requirements of Ind. Trial Rule 23.1. He further claims the trial court erred by considering certain evidence the Corporation designated in support of its motion for summary judgment. Finally, Richard claims the trial court used an improper legal test in determining that he did not meet the requirements of T.R. 23.1.

A. Time Limits of Rule 56(C)

Richard first claims that the trial court erred by failing to comply with T.R. 56(C), which states in part, "The court shall conduct a hearing on the motion which shall be held not less than ten (10) days after the time for filing the response." Richard filed his response to the Corporation's motion for summary judgment on July 8, 1999. The hearing on the motion for summary judgment was held the next day.

In claiming that this was erroneous, Richard relies on Otte v. Tessman (1981), Ind., 426 N.E.2d 660. In Otte, our Supreme Court held that prejudice was presumed when a trial court failed to follow the time limits as set forth in the Trial Rules. Id. at 661. However, Otte was decided prior to the adoption of subsection 56(I) which provides that "[t]he Court, for cause found, may alter any time limit set forth in this rule." Richard acknowledges that T.R. 56(I) allows the trial court, for good cause, to alter the time limits set forth in T.R. 56. However, he contends that the rule presumes a party will request an alteration of the time limits. Support for such a contention cannot be found in the text of the rule. T.R. 56(I) does not require a motion by a party before the court may act. The rule simply states that the trial court may, for good cause, alter any time limit contained in the rule. T.R. 56(I). As trial in this case was set to begin in five days, we cannot say that the trial court did not have good cause to hold the hearing the day after Richard filed his response in opposition to the motion for summary judgment.²

B. Improper Burden of Proof

Next, Richard claims that the trial court erred when it placed upon him the burden of proving that he met the requirements for bringing a shareholder derivative action. Trial Rule 23.1 governs shareholder derivative actions and reads in part, "[t]he derivative action may not be maintained if it appears that the plaintiff does not fairly and adequately represent the interests of the shareholders or members similarly situated in enforcing the right of the corporation or association." T.R. 23.1 (emphasis added). In its Order of Summary Judgment, the trial court stated, "Richard E. Riggin ... has not met his burden of proof to show that he fairly and adequately represents the class of shareholders on whose behalf his actions must necessarily be." Record at 647.

Although T.R. 23.1 does not specifically state which party bears the burden, nor has any Indiana court ever decided this issue, federal courts interpreting F.R.C.P. 23.1 have held that the burden should rest with the defendant to show that the plaintiff is not a fair and adequate representative. Smallwood v. Pearl Brewing Co. (1974), 5th Cir., 489 F.2d 579, 592,cert. denied (1974), 419 U.S. 873, 95 S.Ct. 134, 42 L.Ed.2d 113; Guenther v. Pacific Telecom, Inc. (1988), D.C.Or., 123 F.R.D. 341, 344; Abeloff v. Barth (1988), D.C.Mass., 119 F.R.D. 332, 335. Due to the similarity between T.R. 23.1 and the corresponding Federal Rule, we will utilize federal law in interpreting T.R. 23.1. See Bowen v. Sonnenburg (1980), Ind.App., 411 N.E.2d 390, 397

.

The Corporation nevertheless insists that, in shareholder derivative actions, we should place upon the plaintiff the burden of showing whether he or she will be a fair and adequate representative of similarly situated shareholders. In support of this proposition, the Corporation cites Kaufmann v. Credithrift Financial, Inc. (1984), Ind.App., 465 N.E.2d 207. In Kaufmann, this court noted that in class actions brought pursuant to T.R. 23, "[t]he burden of proof that the class will be fairly and adequately represented rests with the plaintiff." Id. at 209. While acknowledging that T.R. 23 does not govern shareholder derivative actions, the Corporation nevertheless states that "no logical reason has been set forth for distinguishing between [class actions and shareholder derivative actions] with regard to burden of proof." Appellee's Brief at 21. We disagree. A careful comparison of Trial Rules 23 and 23.1 reveals substantial differences between the two.

In a class action, the trial court is required to hold a hearing before the action may be maintained. Bowen v. Sonnenburg, supra, 411 N.E.2d at 401; T.R. 23(C)(1). Rule 23 states in part, "One or more members of a class may sue ... as representative parties on behalf of all only if ... the representative parties will fairly and adequately protect the interests of the class." (Burns Code Ed.2000). The requirement is a condition of the right to sue. Thus, because...