Yanow v. Teal Industries, Inc.

• Decision Date: 10 July 1979
• Court: Connecticut Supreme Court
• Parties: Bernard N. YANOW v. TEAL INDUSTRIES, INC., et al.

Page 311

422 A.2d 311

178 Conn. 262

Bernard N. YANOW v. TEAL INDUSTRIES, INC., et al.

Supreme Court of Connecticut.

Argued Feb. 13, 1979.

Decided July 10, 1979.

Daniel Shepro, Bridgeport, for appellant (plaintiff).

Gordon A. Evans, New Haven, for appellees (defendants).

Before COTTER, C. J., and LOISELLE, BOGDANSKI, LONGO and PETERS, JJ.

LONGO, Associate Justice.

This action in the nature of both a shareholder's derivative suit and an individual action was brought by the plaintiff, Bernard N. Yanow, against Teal Industries, Inc. (Teal), a Connecticut corporation, and Martin B. Gentry, Jr., who, at relevant times, was an officer and director of Teal, seeking an accounting, damages and nullification of a merger between Teal and Mallard Manufacturing Company (Mallard), of which Yanow was a 10 percent shareholder. The complaint, discussed more fully infra, alleged in four counts that Teal and Gentry had committed a series of corporate wrongs resulting in damage to Yanow individually and to Mallard.

The defendants, in addition to denying the substantive allegations of the complaint, pleaded nine special defenses directed to the capacity and standing of the plaintiff to initiate and maintain the action. Insofar as they are pertinent to this appeal, those defenses alleged that (1) Yanow's exclusive remedy upon the merger of Teal and Mallard as a dissatisfied former stockholder of Mallard was to be paid the value of his shares, following an appraisal of their value as provided in General Statutes §§ 33-373 and 33-374, which exclusive remedy Yanow was alleged to have waived; (2) Yanow's complaint failed to state any nonderivative causes of action on which relief could be granted and the wrongs he alleged the defendants had committed could properly be remedied only in a derivative suit; and (3) Yanow had no standing to bring suit on the derivative causes of action alleged because derivative actions may be brought only by shareholders of the corporation that is injured, and Yanow was not, at the time the action was brought, a shareholder of Mallard, as Mallard no longer existed. These three special defenses were denied by Yanow, and the defendants then moved for summary judgment on each of the special defenses, addressed to the four counts of the complaint, on the grounds that the affidavits and other documentary proof submitted by them demonstrated that no genuine issue of material fact existed as to the plaintiff's lack of standing and capacity to bring the action and as to the exclusivity of the plaintiff's appraisal remedy, and that the defendants were, therefore, entitled to judgment as a matter of law.

The court granted the defendants' motions for summary judgment based on the special defenses, and the plaintiff has appealed to this court from the judgment rendered.

The allegations of the complaint, as made more specific, which are, for the purposes of a summary judgment, assumed to be true; Barrett v. Southern Connecticut Gas Co., 172 Conn. 362, 379, 374 A.2d 1051 (1977); together with the affidavits and exhibits filed in connection with the summary judgment motions, and the defendants' answer, reveal the following: For some time prior to October 31, 1971, the effective date of the Teal-Mallard merger, the plaintiff was the owner of 350 shares of stock of Mallard, representing almost 10 percent ownership of Mallard. During this period, Gentry was an officer of Teal and Mallard, and Teal owned and controlled the operations and activities of Mallard. Through Teal, Gentry dominated and controlled the business operations of Mallard. Gentry and Teal caused unfair transactions among Mallard, Teal, Gentry and others controlled by Gentry, depressing the value of the plaintiff's shares of Mallard so that the defendants could purchase the stock for less than its fair market value, depriving the plaintiff of the value of his Mallard stock, and depriving Mallard of valuable assets, income and corporate opportunities. More specifically, in count one of the complaint, it was alleged that, through their control and domination of Mallard, the defendants had breached their fiduciary duties and obligations to the plaintiff, individually, by causing nineteen unfair transactions ¹ between themselves and others controlled by Gentry to their benefit only and without disclosure to the plaintiff of the details of the transactions. It was further alleged that Teal benefited by paying little or no salary to its officers and employees which were, in effect, Mallard's and that its profits were made essentially on goods manufactured by Mallard which could have been sold by Mallard. In count two, a breach of duty to Mallard arising out of most of the above transactions was alleged. The plaintiff again claimed that the merger was effectuated without corporate purpose and with the sole intention of freezing him out. Count three alleged that the defendants caused the merger without a business purpose, without full disclosure to the plaintiff, and with the intent to deprive the plaintiff of his shareholding in Mallard in order to benefit the defendants. In count four, the plaintiff alleged that Gentry, in his capacity as director and officer of Mallard, knew of special facts concerning Mallard's financial condition and affecting the value of the plaintiff's stock, which were not disclosed to the plaintiff, and that Gentry caused the merger to deprive the plaintiff of his shares and to avoid paying the plaintiff the fair market value of his shares.

During the period from 1966 to 1971, Gentry offered to the plaintiff increasing amounts for the purchase of his shares, which offers were not accepted by the plaintiff. The shares were valued, for the fiscal year ending October 31, 1971, at $9221.

On October 31, 1971, Mallard completed a "short form" merger into Teal under the provisions of §§ 33-364 et seq. of the General Statutes. In accordance with §§ 33-370, 33-373 and 33-374, Gentry timely notified the plaintiff of the merger, sent him a copy of the merger agreement, notified him of the statutory procedures for dissenting shareholders, and informed him that the fair market value of his stock would be determined within sixty days of the effective date of the merger. The plaintiff dissented from the merger, demanding an appraisal of the fair market value of his shares, but did not complete the appraisal remedy prescribed by statute, and never retired and exchanged his Mallard shares for cash. General Statutes §§ 33-373, 33-374.

In sustaining the plaintiff's motions for summary judgment, the court found that (1) as to the merger, the remedy of the plaintiff was terminated by his failure to follow the exclusive share appraisal remedy set forth in General Statutes § 33-373(c); (2) as to counts one, three and four, the complaint stated only derivative causes of action that could be pursued only by a nominal plaintiff who was a shareholder of Mallard, and, as the plaintiff was not a shareholder of Mallard at the time the action was commenced, he lacked standing and capacity to sue; and (3) as to count two, the claim was only derivative, and could not be sued upon by one not a shareholder at the time of the institution of the action, invoking the same "continuous ownership" requirement relied upon to sustain the summary judgment as to the other counts of the complaint. The plaintiff has assigned error in the trial court's granting of the defendants' three motions for summary judgment.

I

A

"The party moving for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which under applicable principles of substantive law, entitle him to judgment as a matter of law. To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact." Dougherty v. Graham, 161 Conn. 248, 250, 287 A.2d 382, 384 (1971); see Town Bank & Trust Co. v. Benson, 176 Conn. 304, 306, 407 A.2d 971, 972 (1978). If appropriate, a judgment shall be rendered if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is thus entitled to judgment as a matter of law. Practice Book, 1978, § 384; see United Oil Co. v. Urban Redevelopment Commission, 158 Conn. 364, 260 A.2d 596 (1969). A "material fact" is simply a fact which will make a difference in the result of the case; id., 379, 260 A.2d 596; and a summary disposition should be rendered in the limited instances where the evidence is such that no room for disbelief could exist in the minds of the jury and in circumstances which would require a directed verdict for the moving party. Spencer v. Good Earth Restaurant Corporation, 164 Conn. 194, 198, 319 A.2d 403 (1972). As, generally speaking, summary judgment is an attempt to dispose of cases in a manner which is speedier and less expensive for all concerned than a full-dress trial; Town Bank & Trust Co. v. Benson, supra; the function of the trial court is only to determine whether there is a genuine issue as to any material fact, but not to decide that issue if it does exist until the parties are afforded a full hearing. Practice Book, 1978, § 384; Michaud v. Gurney, 168 Conn. 431, 433, 362 A.2d 857 (1975). Issue finding, rather than issue determination, is the key to the procedure.

B

With these considerations in mind, we turn to the present controversy. The court rendered no finding and, although we may consult its memorandum of decision to ascertain the legal conclusions upon which the court based its judgment; Treat v. Town Plan & Zoning Commission, 145 Conn. 136, 140, 139 A.2d 601 (1958); we are confined to an examination of the pleadings and affidavits to determine whether they show that there is no genuine issue as to any material fact and that the defendants were entitled to judgment as a matter of law....