Weisbart v. Agri Tech, Inc., 00CA0594.

• Decision Date: 01 March 2001
• Docket Number: No. 00CA0594.,00CA0594.
• Citation: 22 P.3d 954
• Parties: Gary A. WEISBART, Plaintiff-Appellant, v. AGRI TECH, INC., a dissolved Colorado corporation; Morgan County Feeders, Inc., a dissolved Colorado corporation; Steven Polevoy; and Stuart Polevoy, Defendants-Appellees.
• Court: Colorado Court of Appeals

22 P.3d 954

Gary A. WEISBART, Plaintiff-Appellant, v. AGRI TECH, INC., a dissolved Colorado corporation; Morgan County Feeders, Inc., a dissolved Colorado corporation; Steven Polevoy; and Stuart Polevoy, Defendants-Appellees.

No. 00CA0594.

Colorado Court of Appeals, Div. I.

March 1, 2001.

Rehearing Denied March 29, 2001.

Isaacson, Rosenbaum, Woods & Levy, P.C., Edward T. Ramey, Denver, CO, for Plaintiff-Appellant.

No Appearance, for Defendants-Appellees Agri Tech, Inc. and Morgan County Feeders, Inc.

Arnold, Ross & Singer, LLP, Michael K. Singer, Sterling, CO, Hellring Lindeman Goldstein & Seigal, LLP, Robert B. Rosen, Newark, NJ, for Defendants-Appellees Steven Polevoy and Stuart Polevoy.

Opinion by Judge DAILEY.

Plaintiff, Gary A. Weisbart, appeals the judgment dismissing his action for indemnification against defendants Agri Tech, Inc. ("Agri Tech"), Morgan County Feeders, Inc. ("Morgan County Feeders"), and Steven and Stuart Polevoy ("the Polevoys"). We reverse and remand the cause with directions.

Plaintiff was a director and officer of, and a shareholder in, defendants Agri Tech and Morgan County Feeders, two now dissolved corporations. Defendants Polevoys were shareholders in the two corporations, who, upon liquidation of the corporations, received a substantial amount of the corporate assets.

Plaintiff instituted the present action against the defendants, seeking indemnity under Colorado statutes and Agri Tech's articles of incorporation for liability and expenses he incurred in another lawsuit in which he, Agri Tech, Morgan County Feeders, and others were sued by the Grynberg family in connection with a cattle investment program.

In that other lawsuit, a jury had found plaintiff, Agri Tech, and others (but not Morgan County Feeders) liable in negligence to the Grynbergs. On appeal, however, it was determined that, under the circumstances, none of the persons or entities sued by the Grynbergs could be held liable in negligence. The matter was remanded to the trial court to reconsider the parties' motions for attorney fees and costs. Grynberg v. Agri Tech, Inc., 985 P.2d 59 (Colo.App.1999), aff'd, 10 P.3d 1267 (Colo.2000).

Consequently, at this point, plaintiff is potentially responsible for paying his and/or others' attorney fees and costs in the Grynberg case.

The trial court dismissed plaintiff's complaint in the present action, after: (1) indicating that it was, in essence, turning defendants' motion to dismiss into a motion for summary judgment; and (2) reviewing the amended complaint, verdict forms, an instruction, and a few trial rulings in the Grynberg case. The trial court concluded that, as a matter of law, plaintiff had neither been sued nor originally held liable in the Grynberg case for actions undertaken in his capacity as a director or officer of Agri Tech and Morgan County Feeders.

On appeal, plaintiff argues that the trial court incorrectly applied the legal standards for assessing either C.R.C.P. 12(b)(5) motions to dismiss or C.R.C.P. 56 motions for summary judgment. Ultimately, he argues that the trial court misapplied both law and fact in ruling, at this stage of the case, that he was not eligible to proceed on a claim for indemnification. We agree.

I. Standards of Review

"In evaluating a Rule 12(b)(5) motion, courts may consider `only those matters stated in the complaint.'" Coors Brewing Co. v. Floyd, 978 P.2d 663, 665 (Colo.1999)(quoting Abts v. Board of Education, 622 P.2d 518, 522 (Colo.1980)). However, C.R.C.P. 12(b) provides that, "If, on a motion ... to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56."

Here, plaintiff has not claimed he was afforded an inadequate opportunity to discover materials or otherwise respond to the materials defendants provided from the Grynberg case. Consequently, the trial court did not err in considering those extraneous materials and treating defendants' motion as a motion for summary judgment. See Churchey v. Adolph Coors Co., 759 P.2d 1336 (Colo.1988)

.

That is not, however, to say that we agree with the effect that the trial court gave to those materials.

We review de novo a summary judgment, Vail/Arrowhead, Inc. v. District Court, 954 P.2d 608 (Colo.1998), recognizing that it is appropriate only where there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Compass Insurance Co. v. City of Littleton, 984 P.2d 606 (Colo.1999).

In analyzing a summary judgment motion, we view all facts in the light most favorable to the nonmoving party, see Redmond v. Chains, Inc., 996 P.2d 759 (Colo. App.2000)

; we give the nonmoving party the benefit of all favorable inferences that may reasonably be drawn from the evidence; and we resolve all doubts as to the existence of a material fact against the moving party. Schold v. Sawyer, 944 P.2d 683 (Colo.App. 1997).

Whether a fact is or is not material depends, in part, upon the substantive legal basis for a claim. Here, plaintiff's indemnification claim is based on Colorado statutes.

II. Colorado Corporate Indemnification Statutes

The Colorado Business Corporation Act, § 7-101-101, et. seq., C.R.S.2000, includes provisions regarding both permissive and mandatory indemnification for corporate directors and officers. See Waskel v. Guaranty National Corp., 23 P.3d 1214 (Colo.App. 2000)

.

Under certain circumstances a corporation may, and under other circumstances it must (unless limited by its articles of incorporation), indemnify a person who was made a party to a proceeding "because the person is or was a director." Sections 7-109-102 & 7-109-103, C.R.S.2000. Furthermore, unless otherwise provided in the articles of incorporation, a corporation similarly may or must indemnify an officer to "the same extent as a director." Sections 7-109-107(1)(a) & 7-109-107(1)(b), C.R.S.2000.

Unless otherwise provided in the articles of incorporation, a director or officer of a corporation may apply to a court for an order of indemnification, either because indemnification is required or because the director or officer "is fairly and reasonably entitled to indemnification in view of all the relevant circumstances." Sections 7-109-105 & 7-109-107, C.R.S.2000. Agri Tech's articles of incorporation expressly obligated it, under the circumstances enumerated in the permissive indemnification statute, § 7-109-102, to indemnify a person "who was or is a party" to a proceeding "by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture."

Morgan County Feeders' articles of incorporation were silent on the issue of indemnification.

The trial court found, as a matter of law, that plaintiff was not eligible for indemnification since he had not been sued by the Grynbergs "because" or "by reason of the fact that" he "is or was" a director or officer of Agri Tech or Morgan County Feeders. The court reasoned that plaintiff "was sued, and the jury found him liable, because he was acting on behalf of [another entity], not on behalf of Agri Tech and certainly not on behalf of Morgan County Feeders."

III. "Because" or "By Reason of the Fact That"

The interpretation of statutes and written documents presents a question of law subject to de novo review. Ryals v. St. Mary-Corwin Regional Medical Center, 10 P.3d 654 (Colo.2000)(statute); In re Trusts Created by Ferguson, 929 P.2d 33 (Colo.App.1996)(documents).

In interpreting §§ 7-109-102, 7-109-103, and 7-109-107, and Agri Tech's articles of incorporation, our task is to ascertain and give effect to the intent of, on the one hand, the General Assembly, and, on the other hand, the corporation and its shareholders. See State v. Nieto, 993 P.2d 493 (Colo.2000)

(statute); Waskel v. Guaranty National Corp., supra (articles of incorporation).

The terms "because" and "by reason of the fact that" have the same meaning. See Webster's Third New International Dictionary 194 (1986)(defining "because" as "for the reason that"). See also 1 Model Business Corporation Act Annotated § 5 (1971)(using phrase "by reason of the fact"); 2 Model Business Corporation Act Annotated §§ 8.51(a) & 8.52 (3d ed. 1998/1999 Supp.) (substituting the word "because" for the phrase "by reason of the fact that").

At issue here is whether these terms are qualified in some manner, and, if so, in what way. In other words, does the right to seek indemnity depend upon whether the person was made a party to a proceeding "solely," "primarily," "in significant part," or "in any part," because he or she may have been a director or officer?

Like Agri Tech's articles of incorporation, the statutes are silent with respect to this question. Because, in our view, the statutes here are capable of bearing more than one reasonable construction, we may consider matters beyond the text of the statutes to ascertain the intent of the General Assembly. See State v. Nieto, supra. We may, for instance, consider the object sought to be attained by the statutes. Section 2-4-203(1)(a), C.R.S.2000.

Indemnification statutes "encourage capable and responsible individuals to accept positions in corporate management, secure in the knowledge that expenses incurred by them in upholding their duties will be borne by the corporation." 13 W. Fletcher, Cyclopedia of the Law of Private Corporations § 6045.10 at 379 (rev.perm. ed.1995). "Today, when both the volume and the cost of litigation have increased dramatically, it would be difficult to persuade responsible persons to...