Trietsch v. Circle Design Group, Inc.

• Decision Date: 19 June 2007
• Docket Number: No. 49A04-0603-CV-153.,49A04-0603-CV-153.
• Citation: 868 N.E.2d 812
• Parties: Marvin M. TRIETSCH, Appellant-Plaintiff, v. CIRCLE DESIGN GROUP, INC., Kerry Smith, Rita J. Smith, Jeffery L. Wylie, and William R. Stella, as Members of the Board of Directors of Circle Design Group, Inc., and as Individuals, Appellees-Defendants.
• Court: Indiana Appellate Court

868 N.E.2d 812

Marvin M. TRIETSCH, Appellant-Plaintiff, v. CIRCLE DESIGN GROUP, INC., Kerry Smith, Rita J. Smith, Jeffery L. Wylie, and William R. Stella, as Members of the Board of Directors of Circle Design Group, Inc., and as Individuals, Appellees-Defendants.

No. 49A04-0603-CV-153.

Court of Appeals of Indiana.

June 19, 2007.

Steven H. Johnsonbaugh, Indianapolis, IN, Attorney for Appellant.

Lante K. Earnest, Charles R. Whybrew, Tabbert Hahn Earnest & Weddle, LLP, Indianapolis, IN, Attorneys for Appellees.

OPINION

KIRSCH, Judge.

Marvin M. Trietsch ("Trietsch") appeals the trial court's grant of summary judgment in favor of defendants Circle Design Group, Inc. ("CDG") and its board of directors, Kerry Smith, Rita J. Smith, Jeffery L. Wylie, and William R. Stella (collectively the "Directors"). We restate Trietsch's issue and its various subparts as: whether the trial court properly granted summary judgment in favor of CDG and the Directors on Trietsch's claims, which allege violations of Indiana's dissenter's rights statutes, breaches of fiduciary duties, and conversion.

We affirm.

FACTS AND PROCEDURAL HISTORY

In Trietsch's view, this case "arises out of the willful and intentional efforts of four of the five shareholders in a small closely held corporation to wrongfully deprive the fifth shareholder [Trietsch] of his 21.2% ownership interest in [CDG]." Appellant's Br. at 3. The relevant history is that in 1982, Trietsch and the Directors incorporated CDG, a closely-held corporation. Over the next twenty years, Trietsch was a full-time employee of CDG and also served as an officer and director of the corporation. On July 1, 2002, CDG held a special board of directors meeting, and on July 2, 2002, the Directors terminated Trietsch's employment with CDG; however, he remained one of the five shareholders of the corporation.

On September 1, 2004, CDG issued a notice to shareholders of an upcoming shareholder meeting to be held on September 16, 2004. The notice indicated that on the agenda for the September 16 meeting was the "sale of substantially all of the assets of the Company." Appellant's App. at 128. The notice did not state anything regarding the right of shareholders to dissent at the meeting or otherwise mention dissenters' rights under Indiana law.

Prior to the date of the meeting, on or around September 10, 2004, Trietsch received an offer from CDG to purchase his shares for $118,000.00 over ten years, which CDG opined represented the fair value of Trietsch's stock. CDG's opinion of the stock's fair value was based upon a "limited valuation report" prepared by Somerset Accountants and Advisors ("Somerset") at CDG's request. Id. at 130-33. Trietsch rejected the offer.

At the September 16 meeting, the Directors voted to sell substantially all of CDG's assets to a company called 345, Inc. ("345"). Rita Smith was the sole owner, officer and director of 345. Kerry Smith, Wylie, and Stella were employees of 345, but had no ownership interest in the company, nor were they officers or directors of it. Trietsch attended the September 16 meeting and voted against the proposed sale to 345. Immediately after the meeting, CDG sold substantially all of its assets to 345 pursuant to an Agreement for Purchase and Sale of Assets;¹ in exchange, 345 executed a promissory note in the amount of $345,904 in favor of CDG.

The parties continued to exchange correspondence through their attorneys regarding the matter of Trietsch's stock, its value, and compliance or noncompliance with Indiana's business corporation law and dissenter's rights statutes. Trietsch propounded various discovery requests upon CDG and the Directors, seeking corporate and personal financial information. In response, CDG sent various corporate documents to Trietsch including balance sheets, profit and loss statements, articles of incorporation, bylaws, annual reports, tax asset detail reports, and an accounts receivable aging summary. In November 2004, CDG sent to Trietsch a promissory note for $118,000.00 and the first payment of that note. CDG also requested that if Trietsch disagreed, he should, pursuant to statute, provide CDG with a written statement of his estimate of the fair value of the stock. Shortly thereafter, Trietsch returned the check and note to CDG.

On December 16, 2004, Trietsch filed a four-count lawsuit against CDG and the Directors, stemming from the sale of CDG to 345. Count I alleged that Trietsch suffered damages as a result of the sale of CDG's assets; Count II alleged that CDG failed to follow the proper procedures for the sale as required by Indiana's dissenter's rights statutes; Count III alleged that the sale to 345 constituted an improper loan to the Directors; and Count IV asserted a claim for conversion and sought attorneys fees.

About a month later, on January 17, 2005, CDG issued another notice of shareholder meeting to be held on January 28, 2005. This notice included a notice of dissenters' rights and listed on its agenda ratification of the sale of assets that occurred on September 16, 2004. On January 27, Trietsch's counsel sent a letter to CDG's counsel advising that Trietsch was reserving all his rights, claims, and remedies against CDG and the Directors (collectively the "Defendants"), and made a demand for payment of his interest. Trietsch appointed a proxy to attend the January 28 meeting for him, and the proxy voted against ratification of the prior sale of assets to 345.

On February 4, 2005, Defendants' counsel sent a letter to Trietsch, via his counsel, which included: (1) a dissenter's notice; (2) a request that Trietsch's demand for payment be sent to CDG's counsel; (3) a form for making that demand; (4) a copy of Indiana's dissenter's rights statutes; and (4) a notice that Trietsch's demand was due on or before March 8, 2005. Appellant's Br. at 20. On February 8, 2005, CDG and the Directors tendered a check to Trietsch in the amount of $118,000.00, which they stated represented CDG's estimate of the fair value of Trietsch's shares. Trietsch accepted the tender in the amount of $118,000.00,² but expressly stated that he was "reserving his rights" to demand payment of his value of the shares, less the $118,000.00 already paid, along with any other damages that might be available. Appellant's App. at 446. Trietsch did not thereafter provide CDG with what he believed constituted the fair value for his shares, explaining that it was "impossible" for him or his expert to arrive at an estimate of fair value without more detailed financial data from the CDG and the Directors.³ Id.

On September 14, 2005, the Defendants filed a motion for summary judgment. In it, they asserted that the undisputed evidence showed that (1) Trietsch waived any right to receive any additional payment from CDG because he failed to provide CDG with a demand of his estimate of fair value; (2) Trietsch may not recover damages for CDG's alleged violations of Indiana's dissenter's rights statutes; (3) Trietsch may not recover damages relating to the sale of assets set forth in the sale agreement because he is limited to the exercise of dissenter's rights; and (4) Trietsch's conversion claims fail because CDG did not exercise unauthorized control over Trietsch's property. In October 2005, Trietsch filed a response to the Defendants' motion and a summary judgment motion seeking judgment in his favor. The trial court conducted a hearing in November 2005 and took the matter under advisement.

Meanwhile, throughout most of 2005, the parties were engaging in a discovery dispute over what documents CDG and the Directors should be required to produce. The greatest dispute concerned the production of the Directors' personal financial records, such as tax returns and records of personal investment accounts. Ultimately, the trial court sided with the Directors and ordered that they were not required to produce any documents related to their personal financial affairs. Appellant's App. at 702-03.

In February 2006, the trial court issued an order summarily granting Defendants' motion for summary judgment. Id. at 10. Trietsch now appeals.

DISCUSSION AND DECISION

On appeal, the standard of review of a summary judgment motion is the same as that used in the trial court: summary judgment is appropriate only where the evidence shows there is no genuine issue of material fact, and the moving party is entitled to a judgment as a matter of law. Ind. Trial Rule 56(C); Tobin v. Ruman, 819 N.E.2d 78, 83-84 (Ind.Ct.App.2004), trans. denied (2005); Galligan v. Galligan, 741 N.E.2d 1217, 1221 (Ind.2001). All facts and reasonable inferences drawn from those facts are construed in favor of the nonmoving party. Galligan, 741 N.E.2d at 1221. The review of a summary judgment motion is limited to those materials designated to the trial court. Id.; T.R. 56(H).

I. Dissenters' Rights Statutes

In large part, this case rises and falls on the application of Indiana's dissenters' rights statutes, IC 23-1-44-1 to -20. Those statutes impose obligations both on the corporation and on the shareholder who seeks to dissent to a proposed corporation action, such as a merger or sale of assets; they also impose consequences for a party's failure to comply with the obligations. The trial court granted summary judgment in favor of Defendants on the four counts of Trietsch's complaint. We must determine the appropriateness of that action. We begin by reviewing the dissenters' rights statutory scheme.

The sale of all or substantially all of a corporation's assets triggers dissenters' rights. IC 23-1-44-8. When a proposed corporate action that triggers dissenters' rights is to be voted on at a shareholder meeting, the meeting notice must advise the shareholders that they "are or may be entitled" to dissent. IC 23-1-44-10. However, failure to do so is not necessarily fatal; corporate action that was defectively undertaken may be ratified by subsequent action. Galligan, ...