Sartori v. S & S Trucking, Inc., 05-429.

• Decision Date: 19 July 2006
• Docket Number: No. 05-429.,05-429.
• Citation: 139 P.3d 806,2006 MT 164
• Parties: Justin SARTORI, Plaintiff and Respondent, v. S & S TRUCKING, INC., a Montana corporation, and Anthony Stacy, Defendants and Appellants.
• Court: Montana Supreme Court

Page 806

139 P.3d 806

2006 MT 164

Justin SARTORI, Plaintiff and Respondent, v. S & S TRUCKING, INC., a Montana corporation, and Anthony Stacy, Defendants and Appellants.

No. 05-429.

Supreme Court of Montana.

Submitted on Briefs: April 19, 2006.

Decided: July 19, 2006.

Amy N. Guth, Attorney at Law, Libby, for Appellants.

John R. Quatman, Quatman & Quatman, Whitefish, for Respondent.

Justice W. WILLIAM LEAPHART delivered the Opinion of the Court.

¶ 1 Justin Sartori sued his business partner, Tony Stacy, for breach of corporate fiduciary duty with regard to their corporation, S & S Trucking, Inc. ("S & S"). Stacy answered the complaint and asserted a counter-claim. Although the District Court concluded that Sartori breached his fiduciary duties to S & S, the court did not grant damages and/or attorney fees to Stacy, and because the corporation's loan was under Sartori's name, the court ordered S & S dissolved unless Stacy paid off or refinanced the loan within a set time.

¶ 2 We restate the appeal issues as follows:

¶ 3 1. Did the District Court err in ordering corporate dissolution when it did not find that the corporation had been injured?

¶ 4 2. Did the District Court err in not awarding damages and/or attorney fees to S & S, even though it concluded Sartori breached his fiduciary duty to the corporation?

BACKGROUND

¶ 5 In 2003, Stacy, who worked as a truck driver, approached his friend, Sartori, also a trucker, about purchasing a hauling business. Sartori expressed interest in the proposal, and the two men applied for a business loan with First Interstate Bank in Eureka in order to make the purchase. Because Sartori had a good credit history and Stacy did not, the bank agreed to loan Sartori the money. The bank finalized the loan listing "JUSTIN M. SARTORI DBA: S & S TRUCKING" as the borrower. The loan was for a term of years in the amount of $78,493.68. Although the bank did not list Stacy as a borrower on the loan, he nonetheless pledged his logging truck and trailer as collateral. Sartori pledged twenty acres of real property that he owned with his wife.

¶ 6 On August 23, 2003, Stacy and Sartori signed the articles of incorporation for S & S, which the Secretary of State approved. While stock certificates were never actually issued, Stacy and Sartori agreed that they would be the only shareholders and would each own an equal number of shares. The partners designated Stacy as President and Sartori as Secretary/Treasurer, and hired Tanya Pluid as the office manager.

¶ 7 Within weeks after forming the corporation in September 2003, Stacy and Sartori began to realize that they had incompatible working styles. Several incidents occurred in which Sartori did not show up when or where Stacy expected. Stacy came to believe that Sartori was not pulling his weight and therefore proposed some changes in the way the parties initially agreed to pay out earnings from the company's income. Sartori refused to approve the changes and the relationship further deteriorated. Both men contacted attorneys to see about disentangling from the corporation. Eventually, Stacy scheduled a meeting for November 22, 2003, to iron out the parties' differences, but Sartori refused to attend once he decided the notice was for a board of directors meeting and that Stacy failed to notify him sufficiently in advance per the bylaws.

¶ 8 Prior to the November 22, 2003, meeting, Sartori engaged in a number of actions to undermine S & S, including incorporating a new trucking company, Brimstone Enterprise ("Brimstone"), on October 31, 2003. In addition, Sartori contacted the Eureka Post Office to have S & S's mail forwarded to Sartori's mail box; he transferred S & S's Department of Transportation ("DOT") number to Brimstone; he cancelled or transferred S & S's vehicle licenses; he contacted S & S's suppliers and cancelled or attempted to cancel S & S's accounts; he closed S & S's bank account; and he attempted to transfer S & S's insurance to Brimstone. Sartori also contacted businesses with whom S & S worked in an effort to transfer their business to Brimstone. For example, when Eureka Pellet Mill told Sartori that it was obligated to honor its contract with S & S, Sartori started getting up early in the morning and hauling sawdust to the Eureka Pellet Mill— on behalf of Brimstone—before Stacy arrived at work. S & S could no longer do interstate business until it received a new DOT number, as Sartori had transferred S & S's number to Brimstone. Sartori's actions caused S & S to incur other losses and expenses, including trailer rent, trailer repairs, trip permit fees, and cell phone fees.

¶ 9 On December 18, 2003, Sartori sued Stacy for breach of corporate fiduciary duty and demanded judicial dissolution of S & S. Stacy answered the complaint and filed a counter-claim alleging that Sartori engaged in deceit, intentional interference with a business contract, intentional interference with prospective economic advantage, defamation, and breach of fiduciary duty. The District Court conducted a bench trial and found that "Sartori did everything in his power to sabotage S & S after he quit the company on November 17, 2003," and therefore had breached his fiduciary duty to the business. Although the District Court stripped Sartori of his interest in the company and his positions as a director and an officer, the court rejected Stacy's proposal to keep S & S in business under its current corporate identity. The court disagreed with Stacy's contention that the loan should stay in place under Sartori's name until S & S paid it in full, because, while the court explicitly found that Sartori's actions were "tortious," it did not believe "tying up Sartori's credit and property for the next five years" was an appropriate remedy. Thus, the court ordered Sartori removed as a shareholder and director of S & S, and awarded him no compensation for his interest in the corporation. Further, the court held that unless Stacy and/or S & S paid off or refinanced the bank loan by July 1, 2005, action would be taken to dissolve the corporation.

¶ 10 The court grounded its decision in § 35-1-938, MCA, which provides that a corporation is subject to judicial dissolution in a proceeding by a shareholder if a deadlock exists. The court noted that neither Stacy nor Sartori disputed that the requisites for judicial dissolution had been met.

STANDARD OF REVIEW

¶ 11 In reviewing a district court's conclusions of law, our standard of review is plenary and we must determine whether the court's interpretation of the law is correct. Leichtfuss v. Dabney, 2005 MT 271, ¶ 21, 329 Mont. 129, ¶ 21, 122 P.3d 1220, ¶ 21.

¶ 12 When reviewing an award of damages, the standard of review is whether the trial court abused its discretion. Sletteland v. Roberts, 2000 MT 382, ¶ 36, 304 Mont. 21, ¶ 36, 16 P.3d 1062, ¶ 36 (citing Edington v. Creek Oil Co. (1984), 213 Mont. 112, 127, 690 P.2d 970, 978).

DISCUSSION

¶ 13 1. Did the District Court err in ordering corporate dissolution when it did not find that the corporation had been or was threatened with injury?

¶ 14 The District Court dissolved S & S pursuant to § 35-1-938(2), MCA, which states that a district court may dissolve a corporation in a proceeding by a shareholder if it is established that:

(a) the directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally because of the deadlock;

(b) the directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent;

(c) the shareholders are deadlocked in voting power and have failed, for a period that includes at least two consecutive annual meeting dates, to elect successors to directors whose terms have expired; or

(d) the corporate assets are being misapplied or wasted.

(Emphases added.) The District Court determined that dissolution of S & S was appropriate pursuant to subsection (a).

¶ 15 Stacy maintains on appeal that, rather than dissolving the corporation, the District Court, using its power under § 35-1-939, MCA, should have simply removed Sartori as a shareholder and director of the corporation. While Stacy appears to concede that he and Sartori were unable to break their management deadlock as to corporate affairs, he argues that the court failed to find any harm to the corporation per the statutory language. Stacy stresses the fact that S & S is now a twelve-employee company that has thrived in the wake of Sartori's departure. Since there has been no corporate injury, Stacy argues, there can be no dissolution.

¶ 16 In making this argument, Stacy ignores relevant statutory language. Section 35-1-938(2)(a), MCA, provides that the court may order dissolution if "irreparable injury to the corporation is threatened or being suffered or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally because of the deadlock." (Emphases added.) Stacy and Sartori were S & S's only shareholders. Although the corporation may not have suffered irreparable injury, the District Court found that the management deadlock led Sartori to take numerous steps to sabotage the corporation. As a result, the business and...