Sutherland v. Sutherland

• Decision Date: 13 September 2011
• Docket Number: No. WD 72493.,WD 72493.
• Citation: 348 S.W.3d 84
• Parties: Martha S. SUTHERLAND, As Trustee of the Martha S. Sutherland Revocable Trust Dated August 18, 1976, Appellant,v.Mark SUTHERLAND, An Individual; Steven Pearson, an Individual; Perry Sutherland, An Individual; and Steven Scott, an Individual, and Sutherland Lumber Company of Kansas CITY, LLC., Respondents.
• Court: Missouri Court of Appeals

348 S.W.3d 84

Martha S. SUTHERLAND, As Trustee of the Martha S. Sutherland Revocable Trust Dated August 18, 1976, Appellant,

v.Mark SUTHERLAND, An Individual; Steven Pearson, an Individual; Perry Sutherland, An Individual; and Steven Scott, an Individual, and Sutherland Lumber Company of Kansas CITY, LLC., Respondents.

No. WD 72493.

Missouri Court of Appeals, Western District.

Sept. 13, 2011.

Stewart Kusper, for Appellant.Phillip Bledsoe, for Respondents.Before Division Three: JOSEPH M. ELLIS, Presiding Judge, VICTOR C. HOWARD, Judge and THOMAS H. NEWTON, Judge.JOSEPH M. ELLIS, Judge.

Appellant Martha Sutherland, as Trustee for the Martha Sutherland Revocable Trust, appeals from a judgment entered in the Circuit Court of Jackson County in favor of the defendants in a derivative action filed by Appellant against Mark Sutherland, Steven Pearson, Perry Sutherland, and Steven Scott and, nominally, against Sutherland Lumber Company of Kansas City LLC (“SLKC”). For the following reasons, the judgment is affirmed.

Appellant owns a membership interest in SLKC. Mark Sutherland and Pearson are the two managing members of SLKC and previously held managerial positions in its predecessor, Sutherland Lumber Company of Kansas City, L.P. (“SLKCLP”). Mark Sutherland, Pearson, and Perry Sutherland all also hold membership interests in SLKC and were limited partners in SLKCLP. Scott was an employee of Cimarron Lumber & Supply Company, Ltd., (“Cimarron”) which provided accounting, administrative, and wholesale buying services to SLKC and other members of the Sutherland family of companies.

In 1996, SLKCLP leased a piece of property in Liberty, Missouri for the operation of a retail store. That lease contained a provision granting SLKCLP a right of first refusal to purchase the property from the lessor if an offer were made by a third party. When the lessor received an offer on the property in 2001, SLKCLP elected not to exercise its right of first refusal and, instead, assigned that right to Cimarron, which purchased the property shortly thereafter. In 2002, the McDonald's Corporation approached Cimarron about purchasing a portion of the parking lot on the Liberty property to construct and operate a restaurant. SLKC, which had succeeded SLKCLP by then, agreed to terminate its lease on that portion of the parking lot, and Cimarron sold the specified portion of the Liberty property to McDonald's.

In July 2004, Appellant sent SLKC a formal demand to inspect SLKC's books and records. SLKC responded by asking Appellant to sign a confidentiality agreement prior to inspecting the books and records. Appellant refused to sign the confidentiality agreement and filed suit in the Circuit Court of Jackson County seeking access to the books and records. That case was ultimately settled.

In 2007, Appellant filed a derivative action against Mark Sutherland, Pearson, Perry Sutherland, and Scott and, nominally, against SLKC, asserting claims related to the company's handling of the Liberty property and the company's demand that she execute a confidentiality agreement to access the company records. That petition was subsequently dismissed because Appellant had failed to make a demand of SLKC's managing members before filing suit.

After her first petition was dismissed, Appellant demanded that SLKC pursue litigation on the grounds she had asserted in her dismissed petition. On July 19, 2007, a meeting of all the members of SLKC was held to consider Appellant's demand. Following discussion, the members voted against pursuing the litigation proposed by Appellant. The members also voted to ratify the actions of the general partners in assigning Cimarron the right of first refusal to the Liberty property. The members further voted to ratify SLKC's decision to demand a confidentiality agreement in association with Appellant's request to inspect the books and records of the company.

On May 9, 2008, Appellant filed the present derivative action in the Circuit Court of Jackson County. In the first count, Appellant claimed that Mark Sutherland and Pearson breached their fiduciary duty to SLKC and SLKCLP by causing the right of first refusal to the Liberty property to be transferred to Cimarron, for causing SLKC to later release its leasehold interest in the property sold by Cimarron to McDonald's without receiving compensation, and for causing SLKC to expend more than $100,000.00 to defend against Appellant's records request. In the second count, Appellant alleged waste on the part of Mark Sutherland and Pearson in expending corporate assets to defend against Appellant's records request. In count three, Appellant claimed that Perry Sutherland and Scott aided and abetted Mark Sutherland and Pearson in breaching their fiduciary duties. In her final count, Appellant claims that the defendants had conspired to commit the wrongdoing alleged in the petition.

Following a lengthy trial, the jury returned verdicts in favor of the defendants on all claims. The trial court denied Appellant's post-trial motions and entered judgment in accordance with the jury's verdicts. Appellant brings four points on appeal.

In her first point on appeal, Appellant claims that the trial court erred in giving the jury instructions number 11, 18, and 24. Those instructions all stated:

A fiduciary is presumed to have discharged his duties with due care and good faith and in the honest belief that he was acting in the best interests of the limited liability company, absent a showing that he put his personal interests ahead of the interest of the limited liability company.

“Whether a jury was properly instructed is a question of law this Court reviews de novo.” Hayes v. Price, 313 S.W.3d 645, 650 (Mo. banc 2010). “When reviewing claimed instructional error, we view the evidence most favorably to the instruction, disregard contrary evidence, and reverse where the party challenging the instruction shows that the instruction misdirected, misled, or confused the jury, and there is a substantial indication of prejudice.” Twin Chimneys Homeowners Ass'n v. J.E. Jones Constr. Co., 168 S.W.3d 488, 498 (Mo.App. E.D.2005). “[I]f the instruction is supportable by any theory, then its submission is proper.” Bach v. Winfield–Foley Fire Prot. Dist., 257 S.W.3d 605, 608 (Mo. banc 2008). “Instructional errors are reversed only if the error resulted in prejudice that materially affects the merits of the action.” Id.

Appellant contends that instructions 11, 18, and 24 should have been rejected by the trial court because they did not accurately set forth the business judgment rule. “The business judgment rule protects the directors and officers of a corporation from liability for intra vires decisions within their authority made in good faith, uninfluenced by any other consideration than the honest belief that the action subserves the best interests of the corporation.” Betty G. Weldon Revocable Trust v. Weldon, 231 S.W.3d 158, 171 (Mo.App. W.D.2007) (internal quotation omitted). This rule has been codified, as it relates to limited liability companies, in § 347.088.1, ¹ which provides that directors and officers of a limited liability company shall not be liable for business decisions that they believe in good faith are in the best interests of the limited liability company. The business judgment rule precludes the courts of this State from interfering with the decisions of corporate officers and directors absent a showing of fraud, illegal conduct, an ultra vires act, or an irrational business judgment. Ironite Products Co. v. Samuels, 985 S.W.2d 858, 862 (Mo.App. E.D.1998); Jackson v. St. Regis Apartments, Inc., 565 S.W.2d 178, 183 (Mo.App. E.D.1978).

In arguing that the challenged instructions do not accurately reflect the business judgment rule, Appellant does not challenge the legal accuracy of the language of the instruction and the presumption espoused therein. Instead, Appellant notes that, under Missouri case law, “[i]n an equitable action to recover profits, once the corporation's transaction with a director, officer, or entity in which he or she has an interest has been established, the burden shifts to the officer or director who must show that he or she did not obtain secret profits and that the transaction was conducted fairly, honestly and openly.” Zakibe v. Ahrens & McCarron, Inc., 28 S.W.3d 373, 382 (Mo.App. E.D.2000); see also Jackson, 565 S.W.2d at 182 (In a class action alleging oppression by majority shareholders, “[i]f there had been proof of the existence of such personal transactions with the corporation, the directors or majority shareholders involved would have incurred the burden of proving that they had gained no unconscionable or secret profits as a result and that they had dealt with the corporation fairly, honestly and in good faith.”). Appellant claims that it was error to submit a business judgment instruction where no instruction was given on this shifting of the burden.

Appellant cites no case law indicating that a business judgment rule instruction cannot be given without also instructing a jury on the burden shift that may occur in an equitable action to recover profits, and our research has uncovered none. Moreover, Appellant has failed to demonstrate prejudice resulting from the challenged instructions. Appellant contends that the evidence more than sufficiently rebutted the presumption set forth in the challenged instructions. If that was indeed the case, the jury presumably followed the instruction and rejected the presumption.

Furthermore, Instruction 9 directed the jury:

On plaintiff Martha Sutherland's claim for breach of fiduciary duty your verdict must be for plaintiff Martha Sutherland and against defendant Mark Sutherland if you believe:

First, that defendant Mark Sutherland participated in the decision on behalf of SLKC, L.P. to not exercise its right to purchase the Liberty property and have Cimarron purchase the property; and

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