Steelvest, Inc. v. Scansteel Service Center, Inc.

• Decision Date: 11 April 1991
• Docket Number: No. 90-SC-144-DG,90-SC-144-DG
• Citation: 807 S.W.2d 476
• Court: United States State Supreme Court — District of Kentucky
• Parties: STEELVEST, INC., d/b/a Steel Suppliers, Inc. and William N. Lucas, Appellants, v. SCANSTEEL SERVICE CENTER, INC., H & M Investors, Thomas P. Scanlan, Sr., Manning Equipment, Inc., Manning Truck Modification, Inc., J. William Manning, Sr., Bert R. Huncilman & Son, Inc., Roger Lynn Huncilman, and First National Bank of Louisville, Appellees.

Page 476

807 S.W.2d 476

STEELVEST, INC., d/b/a Steel Suppliers, Inc. and William N.

Lucas, Appellants, v. SCANSTEEL SERVICE CENTER, INC., H & M Investors, Thomas P.

Scanlan, Sr., Manning Equipment, Inc., Manning Truck

Modification, Inc., J. William Manning, Sr., Bert R.

Huncilman & Son, Inc., Roger Lynn Huncilman, and First

National Bank of Louisville, Appellees.

No. 90-SC-144-DG.

Supreme Court of Kentucky.

April 11, 1991.

As Corrected April 16, 1991.

Alan N. Linker, Robert V. Waterman, Morris, Garlove, Waterman & Johnson, K. Gregory Haynes, Virginia H. Snell, Wyatt, Tarrant & Combs, Louisville, for appellants.

Robert L. Ackerson, Jeffrey C. Sauer, Ackerson, Nutt, Blandford, Yann and Kiser, Louisville, for appellees, Scansteel Service Center, Inc., H & M Investors, and Thomas P. Scanlan, Sr.

Manning Equipment, Inc., Manning Truck Modification, Inc., and J. William Manning, Sr., not represented by counsel.

Eugene L. Mosley, Miller, Mosley, Clare & Townes, Louisville, for appellees, Bert R. Huncilman & Son, Inc. and Roger Lynn Huncilman.

James R. Cox, Hirn, Reed, Harper & Eisinger, Louisville, for appellee, First Nat. Bank of Louisville.

REYNOLDS, Justice.

This is an appeal from an opinion of the Kentucky Court of Appeals which affirmed an earlier judgment of the Jefferson Circuit Court granting the appellees summary judgment.

Appellee, Thomas P. Scanlan, Sr. (Scanlan), was employed by Steel Suppliers, Inc. (Steel Suppliers), a company engaged in the warehousing and distributing structural steel, for some thirty years and had acted as president and a director. On November 21, 1984, appellant, Steelvest, Inc. (Steelvest), a corporation owned by appellant, William N. Lucas, purchased the assets of Steel Suppliers for approximately $5 million. After this purchase Steelvest continued Steel Suppliers, Inc. as a separate, unincorporated division under the same name. At Lucas's request, Scanlan agreed to stay on as president and general manager of Steel Suppliers. He also subsequently became a director of Steelvest and a member of its executive committee.

Scanlan's employment with Steel Suppliers continued for eleven months after the purchase by Steelvest. It is undisputed that during these eleven months of employment Scanlan was formulating a plan to start and incorporate his own steel business which would be in direct competition with Steelvest. Toward this end, Scanlan sought the advice of counsel, contacted potential investors, and sought financing, none of which activities he disclosed to any representative of Steelvest. He further recruited two chief executive officers of major clients of Steelvest to be investors in his new company.

Scanlan resigned from his employment with Steel Suppliers and Steelvest on October 15, 1985. One day prior to this, on October 14, Scanlan had completed most of the necessary arrangements for setting up his new business, including the signing of documents for the purchase of property to be used as the site for the business. Immediately after Scanlan's resignation from Steelvest, he, along with the other investors, incorporated appellee, Scansteel Service Center, Inc. (Scansteel), which began actual operations soon thereafter. Nine office and supervisory employees of Steelvest resigned to take employment with Scansteel. Soon after Scanlan resigned and Scansteel was formed, Steelvest began experiencing financial difficulties which eventually forced it to file for bankruptcy on November 12, 1987.

On June 2, 1986, appellants instituted this action against appellees alleging a breach of fiduciary duties by Scanlan and a conspiracy on the part of the investors and the bank which provided the financing for the formation of Scansteel. After extensive discovery, Scanlan and the other party defendants filed separate motions for summary judgments which were granted by the circuit court. These decisions, as consolidated, were affirmed by the Court of Appeals. Appellants were granted discretionary review by this Court.

Appellants contend that the trial court's granting of the summary judgments with respect to all of appellees was improper. The central question raised by appellants is whether there was sufficient evidence that Scanlan breached any fiduciary duties to appellants by planning and organizing a directly competitive business. It is clear that all other issues and claims respecting the other appellees are dependent upon the resolution of this issue of Scanlan's alleged fiduciary breach.

Initially, we note that the separate opinions and orders granting appellees' motions for summary judgment were based upon and applied the expanded summary judgment standards announced in three recent United States Supreme Court decisions. ¹

In recent cases Kentucky courts have generally cited and followed the decision in Paintsville Hospital Co. v. Rose, Ky., 683 S.W.2d 255 (1985) ², which set the standard for summary judgment in this state and is a standard which is clearly at variance with those declared in the three United States Supreme Court opinions. In Paintsville Hospital it was determined that summary judgment is proper only where the movant shows that the adverse party cannot prevail under any circumstances. Recent decisions by the Kentucky Court of Appeals indicate instances where that court has applied a standard of summary judgment more restrictive than Paintsville Hospital standard, ³ along with cases which have applied ⁴ or appear to have applied ⁵ the more relaxed and expanded summary judgment standard announced in the three recent United States Supreme Court decisions. This case presents an opportunity to restate our position on summary judgment and dispel any ambiguity that may exist in Kentucky law on this matter.

SUMMARY JUDGMENT PRACTICE IN KENTUCKY COURTS

The relevant Kentucky rule relating to summary judgment, CR 56.03, authorizes such a judgment "if the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."

The benchmark case of Paintsville Hospital v. Rose, supra, specifically held that the proper function of summary judgment is to terminate litigation when, as a matter of law, it appears that it would be impossible for the respondent to produce evidence at the trial warranting a judgment in his favor. We further declared that such a judgment is only proper where the movant shows that the adverse party could not prevail under any circumstances. Finally, in that opinion, we recognize that summary judgment is not a substitute for trial nor is it the functional equivalent of a motion for directed verdict.

While it has been recognized that summary judgment is designed to expedite the disposition of cases and avoid unnecessary trials when no genuine issues of material fact are raised, see, Dossett v. New York Mining and Manufacturing Co., Ky., 451 S.W.2d 843 (1970), this Court has also repeatedly admonished that the rule is to be cautiously applied. See, Rowland v. Miller's Adm'r, Ky. 307 S.W.2d 3 (1956). The record must be viewed in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor. Dossett v. New York Mining and Manufacturing Co., supra; Rowland v. Miller's Adm'r, supra. Even though a trial court may believe the party opposing the motion may not succeed at trial, it should not render a summary judgment if there is any issue of material fact. Puckett v. Elsner, Ky., 303 S.W.2d 250 (1957). The trial judge must examine the evidence, not to decide any issue of fact, but to discover if a real issue exists. It clearly is not the purpose of the summary judgment rule, as we have often declared, to cut litigants off from their right of trial if they have issues to try. See, Bonded Elevator, Inc. v. First National Bank of Louisville, Ky., 680 S.W.2d 124 (1983); Hill v. Fiscal Court of Warren County, Ky., 429 S.W.2d 419 (1968); Williams v. Ehman, Ky., 394 S.W.2d 905 (1965); Rowland v. Miller's Adm'r, supra.

SUMMARY JUDGMENT PRACTICE IN FEDERAL COURTS

Federal Rule of Civil Procedure 56(c), which corresponds to Kentucky CR 56.03, similarly states that a summary judgment is proper "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."

In the past, the Federal Rules of Civil Procedure have consistently authorized motions for summary judgment upon the proper showing of the lack of a genuine triable issue of material fact. Nevertheless, it is equally clear that prior to 1986 federal courts were generally reluctant to grant motions for summary judgment and in most instances denied them if there was even the slightest doubt as to an issue of fact. ⁶ Only where the record, taken as a whole, could not lead a reasonable, rational trier of fact to return a verdict for the nonmoving party, was there considered to be no genuine issue for trial, and thus that a summary judgment was warranted. First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968).

During the 1985-86 term, however, the United States Supreme Court issued three opinions which have had a profound effect on summary judgment practice in federal courts and encourage greater use of summary judgments to dispose of litigation. ⁷ These three cases, as noted, are Celotex Corp. v. Catrett, supra; Anderson v. Liberty Lobby Inc., supra; and Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., supra. While it is not necessary or required that we discuss each one of these cases specifically, it is comparatively worth noting some of the general principles concerning summary judgments announced in ...