Tisch v. Tisch

• Decision Date: 21 March 2019
• Docket Number: Court of Appeals No. 17CA1591
• Citation: 439 P.3d 89
• Parties: Daniel E. TISCH and Eva R. Tisch, Plaintiffs-Appellees and Cross-Appellants, v. Gary D. TISCH and the Liquor Barn, Ltd., Defendants-Appellants and Cross-Appellees.
• Court: Colorado Court of Appeals

439 P.3d 89

Daniel E. TISCH and Eva R. Tisch, Plaintiffs-Appellees and Cross-Appellants,

v.Gary D. TISCH and the Liquor Barn, Ltd., Defendants-Appellants and Cross-Appellees.

Court of Appeals No. 17CA1591

Colorado Court of Appeals, Division III.

Announced March 21, 2019

Aitken Law, LLC, Sharlene J. Aitken, Denver, Colorado; Mills Schmitz Halstead & Zaloudek, LLC, Michael F. Mills, Denver, Colorado, for Plaintiffs-Appellees and Cross-Appellants

Stinson Leonard Street LLP, Perry L. Glantz, Ryan M. Sugden, Anna Day, Greenwood Village, Colorado, for Defendants-Appellants and Cross-Appellees

Opinion by JUDGE FREYRE

¶1 In this individual and shareholder derivative action involving a closely held corporation, defendants — the Liquor Barn, Ltd.; and Gary D. Tisch as the officer, director, and controlling shareholder (collectively Gary) — appeal the jury’s verdict in favor of plaintiffs and minority shareholders, Daniel E. Tisch and Eva R. Tisch (Tisch siblings). The jury found that Gary had committed civil theft against the Tisch siblings individually and against the Liquor Barn by using the Liquor Barn profits for his private use. It awarded the Tisch siblings $300,000 in damages for civil theft and the Liquor Barn, on whose behalf the Tisch siblings brought a derivative action, zero damages for civil theft. The jury also found that Gary had violated his fiduciary duty to the Liquor Barn and the Tisch siblings. It awarded $150,000 in damages to the Tisch siblings and zero damages to the Liquor Barn for breach of fiduciary duty. The trial court entered judgment against Gary and the Liquor Barn. The court then awarded the Tisch siblings treble damages, totaling $900,000 for the civil theft claim, under section 18-4-405, C.R.S. 2018; $43,837.40 in costs; and $150,000 in attorney fees.

¶2 This case asks us to decide two issues not previously resolved by Colorado appellate courts. First, can corporate profits, not formally declared as distributions but used by the controlling shareholder for personal and other business matters, be found by a fact finder to constitute "distributions" to which minority shareholders are entitled a portion? We answer that question "yes" and in doing so affirm the trial court’s decision to submit this issue to the jury. Second, can undeclared distributions provide a basis for a minority shareholder to bring an individual claim for civil theft against the majority shareholder? We again answer this question "yes" and hold that minority shareholders have a proprietary interest in undeclared distributions that can form the basis for an individual civil theft claim.

¶3 Gary raises five claims of error on appeal, and the Tisch siblings raise three claims of error in their cross-appeal. We affirm the jury’s damages awards for the Tisch siblings and the trebling of damages under the civil theft statute. We also affirm the trial court’s costs and attorney fees awards. Finally, we conclude that the Tisch siblings are entitled to their reasonable appellate attorney fees related to the civil theft claim and remand the case for that determination.

I. Background

¶4 This is a dispute over a family business — the Liquor Barn — that was incorporated in 1975 by the parties’ father, Rudolph Tisch (father). In 1982, father gave each of his three children 1600 shares of the Liquor Barn stock and kept the remaining 10,500 shares of stock for himself. Between 1982 and 1991, Gary was the Liquor Barn’s floor manager, and after 1991, Gary assumed responsibility for the company’s books and for managing the inventory. The Tisch siblings worked sporadically at the business between 1991 and 1997, but they were never involved in the business’ operations.

¶5 Father divorced in 1991 and a domestic court entered a dissolution decree that required him to transfer an additional 10% ownership in the Liquor Barn — 1530 shares — to each of his three children. The children knew of this order, but father never transferred the additional shares. On November 17, 1997, father amended the articles of incorporation — without notice to his children and without a shareholder vote — to recapitalize the business. This amendment exchanged one share of common stock for 7/10 of a class A voting share and 3/10 of a class B nonvoting share. Consequently, each of the children’s 1600 shares of common voting stock were cancelled, and each child was re-issued 1500 shares of class B nonvoting common stock, while father retained all the class A voting stock.

¶6 In December 2000, father assigned his stock in the Liquor Barn to Gary, and Gary managed the business. Gary held 10,500 class A voting shares and 1500 class B nonvoting shares, while the Tisch siblings each held 1500 class B nonvoting shares.

¶7 On November 19, 2003, Gary’s attorney received a letter from the Tisch siblings’ attorney with an offer to sell each siblings’ 10% nonvoting shares of stock. No sale occurred.

¶8 Approximately one year later, the Tisch siblings, through counsel, demanded access to the Liquor Barn’s financial and corporate records in connection with a dispute over father’s estate. Gary made the records available, but the Tisch siblings never examined them because they could not afford to hire an accountant. They made similar inspection requests for the purpose of valuing their shares between 2004 and 2014, but they never examined the records because of financial constraints. After Eva Tisch received funds in connection with an estate dispute in 2011, the Tisch siblings had the financial means to determine the value of their stock.

¶9 So, on April 3, 2015, the Tisch siblings made another request to examine the Liquor Barn’s records, and this time they hired an accountant, Matthew Lausten, to conduct that examination. On April 29, 2016, they filed a complaint that asserted eight causes of action: (1) declaratory judgment; (2) accounting; (3) alter ego; (4) fraud; (5) an individual claim for civil theft; (6) a shareholder derivative claim for civil theft; (7) an individual claim for breach of fiduciary duty; and (8) a shareholder derivative claim for breach of fiduciary duty.

¶10 Before trial, the court partially granted Gary’s motion for summary judgment and dismissed the declaratory judgment and fraud claims as barred by applicable statutes of limitations. At a case management conference, the trial court capped expert fees at $35,000, and capped recoverable costs at $7000 under C.R.C.P. 16(b)(11). It permitted either side to seek relief from the caps by motion.

¶11 The Tisch siblings presented their case primarily through Mr. Lausten, who by then had reviewed all of the Liquor Barn’s financial records. Mr. Lausten noted that the Liquor Barn’s gross revenues steadily increased between 2004 and 2016, but that these revenues had not translated into increased profits. After further examination, Mr. Lausten identified several other businesses owned by Gary and found that the Liquor Barn had paid for many of these other business’ expenses over the years. He opined that the Liquor Barn profits, which had been used by Gary personally or for his other businesses, should be reclassified as shareholder distributions and booked as retained earnings or distributed as dividends.

¶12 In particular, Mr. Lausten noted that insufficient receipts supported the QuickBooks expense entries and that the receipts that existed often did not identify the entity for which the expense had been incurred. He further noted that the Liquor Barn’s records conflicted with the supporting documentation for intercompany transactions, expense reimbursements, and general operating expenses. Moreover, Mr. Lausten testified to strong indications that some of the Liquor Barn’s inventory had been sold "off-book," and he said that Gary would have been able to do this. In the end, he opined that Gary had received between $600,000 and $1.1 million beyond his reported salary from 2010-2016 and that this additional income should be reclassified as shareholder distributions. After conducting a comparative analysis, he opined that the Liquor Barn lost profits of $2,172,436 over a fifteen-year period.

¶13 Gary testified and provided explanations for the discrepancies observed by Mr. Lausten. He said that as the sole director and majority shareholder, he had never made a distribution or declared a dividend; instead, he had focused his efforts on growing the business. He disputed Mr. Lausten’s profit figures and described his efforts to remain competitive when laws changed that allowed retail liquor sales in grocery stores. The court precluded him from presenting his endorsed accounting expert, Catherine Moeller, because she admitted having altered the Liquor Barn’s records after Mr. Lausten’s initial review and had based her opinions on those altered records.

¶14 Gary raised the statute of limitations as an affirmative defense to civil theft and breach of fiduciary duty in his pleadings and in a motion for a directed verdict at the close of the evidence. He argued that the Tisch siblings either knew or reasonably should have known of their injuries in connection with previous requests to inspect the Liquor Barn’s records. The trial court disagreed and entered a directed verdict for the Tisch siblings, finding that no jury would conclude that the suit was filed outside the statute of limitations. The court also ruled against Gary on the alter ego claim, which had been tried to the court, finding that Gary and the Liquor Barn were alter egos of one another.¹

¶15 After the jury’s verdict, the court awarded the Tisch siblings treble damages on the civil theft claim and entered judgment against Gary and the Liquor Barn on April 20.² Gary moved to amend the judgment, contending that the court erred in piercing the corporate veil and that this error would prejudice the Liquor Barn’s creditors. He then filed a combined motion for new trial and relief from judgment, arguing, as relevant here, that the trial court erred in disqualifying his expert...