Young v. General Acceptance Corp.
| Decision Date | 22 November 2000 |
| Docket Number | No. 53A04-9911-CV-498.,53A04-9911-CV-498. |
| Citation | 738 N.E.2d 1079 |
| Parties | Rodney E. YOUNG, Jason R. Banach, Karen T. Banach, Ted E. Hall, and Michael E. Hall, on behalf of themselves and all others similarly situated, Appellants-Plaintiffs, v. GENERAL ACCEPTANCE CORPORATION, Malvin L. Algood, Russell E. Algood, Rollin M. Dick, Eugene L. Henderson, Donald E. Brown, James J. Larkin, John G. Algood, Janet Algood, Shirley Cook, Jeffrey J. Algood Irrevocable Trust, David R. Algood Irrevocable Trust, Stuart R. Algood Irrevocable Trust, and Conseco, Inc., Appellees-Defendants. |
| Court | Indiana Appellate Court |
Eric Allan Koch, Applegate, McDonald & Koch, P.C., Bloomington, Indiana, Timothy J. Storm, Storm & Gottesman, Chicago, Illinois, Attorneys for Appellants.
Thomas A. Withrow, O. Wayne Davis, B. Keith Shake, Henderson, Daily, Withrow & DeVoe, Indianapolis, Indiana, Geoffrey M. Grodner, Lonnie D. Johnson, Mallor, Clendening, Grodner & Bohrer, LLP, Bloomington, Indiana, Joseph H. Yeager, David K. Herzog, Michael J. Valaik, Baker
& Daniels, Indianapolis, Indiana, Attorneys for Appellees.
Rodney E. Young, Jason E. Banach, Karen T. Banach, Ted E. Hall and Michael E. Hall, on behalf of themselves and all others similarly situated (referred to collectively as the "common shareholders") sued General Acceptance Corporation ("GAC"), Malvin L. Algood, Russell E. Algood, Rollin M. Dick, Eugene L. Henderson, Donald E. Brown, James J. Larkin, John G. Algood, Janet Algood, Shirley Cook, the Jeffrey J. Algood Irrevocable Trust, the David R. Algood Irrevocable Trust, the Stuart R. Algood Irrevocable Trust, and Conseco, Inc. (referred to collectively as the "defendants") for breach of fiduciary duties, violation of the Indiana Control Shares Acquisition Statute and appraisal rights under the Indiana Dissenters' Rights Statute arising from the merger of GAC with a wholly-owned subsidiary of Conseco. The defendants moved for summary judgment, and the common shareholders filed a cross-motion for summary judgment. The trial court granted the defendants' motion and denied the common shareholders' motion. The common shareholders now appeal.1 We affirm.
The common shareholders raise the following restated issues for our review:
1. Whether the trial court properly dismissed Count XI2 of the common shareholders' complaint alleging violation of the Control Shares Acquisition Statute for failure to state a claim; and
2. Whether the trial court properly granted summary judgment on Counts I through X of the common shareholders' complaint on finding that the Indiana Dissenters' Rights statute barred such claims and also that the claims asserted were derivative and should have been asserted by GAC.3
Prior to 1988, Malvin Algood and Russell Algood operated several businesses, including car dealerships. In 1988, they founded GAC, a "specialized consumer finance company" which funded and serviced high risk installment contracts primarily secured by automobiles. Malvin served as the chairman of the Board of Directors and as chief executive officer, and Russell served as president and chief operating officer of GAC. GAC is a publicly traded company. GAC had a $100 million line of credit with General Electric Capital Corporation ("GECC"), which provided the majority of GAC's working capital for buying auto loans.
On April 10, 1997, there were 6,022,000 shares of GAC common stock issued and outstanding. Of those, 1,793,100 shares, or approximately thirty percent, were held by public shareholders. The remainder of the shares were held by Malvin, Russell, and six other Algood family members or family trusts. On April 10, GAC shares closed at $3.25 per share.
On April 11, 1997, a Stockholders' Agreement and Securities Purchase Agreement were entered into between Conseco, GAC, Capitol American Life Insurance Company ("CALI"), and the Algood defendants. CALI is a wholly-owned subsidiary of Conseco. The Stockholders' Agreement was entered into for the purpose of establishing the composition of GAC's Board of Directors, limiting the manner by which the Algood defendants' stock could be transferred, and establishing the terms of an acceptable tender offer by Conseco. The execution of the Stockholders' Agreement was a condition to CALI's acquisition of GAC securities pursuant to the Securities Purchase Agreement also entered into on that date. For our purposes, the relevant portions of the Stockholders' Agreement provided that:
1. The GAC Board of Directors was increased in size from five to six members;
2. Until the debentures represented by the Securities Purchase Agreement were no longer outstanding, the Algood defendants would vote their shares to elect or appoint two persons designated by Conseco to GAC's Board of Directors; and
3. As long as the Algood defendants owned more than ten percent of the issued and outstanding shares of GAC stock, CALI would vote all of its shares to elect or appoint one person designated by the majority stockholders to GAC's Board of Directors.
Pursuant to the Securities Purchase Agreement (which is not a part of the record), CALI made a $10 million dollar investment in GAC by purchasing $10 million in 12% subordinated convertible notes. These notes were convertible, at any time at the option of CALI and upon ten days written notice to GAC, into shares of GAC common stock. Also on April 11, 1997, GAC issued approximately $3.5 million in 12% subordinated convertible notes to several members of the Algood family in exchange for certain promissory notes previously given by GAC to those family members in an equivalent amount. Finally, the GAC Board of Directors increased the number of Directors from five to six pursuant to the Shareholder Agreement. On July 8, 1997, defendants Rollin Dick and James Larkin were added to the Board of Directors pursuant to that provision of the Shareholder Agreement allowing Conseco to designate two Directors.
On September 16, 1997, Conseco agreed to guarantee $10 million of GAC's indebtedness to GECC and GECC agreed to restructure GAC's existing credit agreement. In exchange for the Guaranty, GAC executed and delivered $10 million in 12% subordinated convertible notes to Conseco. As further consideration for the Guaranty, GAC issued warrants to Conseco for the purchase of 500,000 shares of authorized but unissued common stock at $1.00 per share. To compensate for the corresponding reduction in conversion price of the 12% convertible subordinated notes previously issued on April 11, 1997, to CALI and the Algood family, an additional number of shares of authorized but unissued common stock were reserved for issuance to the holders of those notes. Also, GAC borrowed $1.5 million from members of the Algood family and executed and delivered a comparable amount of 12% convertible subordinated notes to them, subordinate to GAC's indebtedness to GECC and Conseco. Six million additional shares of authorized but unissued common stock were reserved for issuance pursuant to those notes.
On March 11, 1998, GAC entered into an agreement with Conseco whereby Conseco reaffirmed its $10 million Guaranty of GAC's indebtedness to GECC, and GAC sold to Conseco or its affiliate sixteen million shares of GAC's authorized but unissued common stock at a price of $0.25 per share, for a total purchase price of $4 million. The purchase price for the 500,000 shares of common stock previously reserved for Conseco pursuant to the warrants issued September 16, 1997, was reduced from $1.00 per share to $0.25 per share. Also, to compensate for the reduction in the conversion price of the previously issued 12% convertible subordinated notes, fifty-three million shares of authorized but unissued common stock were reserved for issuance to the holders of those notes, which total includes the six million shares previously reserved. Finally, the shares of common stock and 12% convertible subordinated notes then owned by members of the Algood family were transferred to Conseco or its affiliates. Thus, Conseco acquired 3,814,000 shares of common stock in GAC at $0.30 per share.
Thereafter, Conseco made a merger proposal between GAC and CIHC, a wholly-owned subsidiary of Conseco, to GAC's Board of Directors, proposing that all shares of common stock then held by persons other than Conseco would be canceled and exchanged for the right to receive $0.30 per share. GAC then announced an August 31, 1998, shareholders meeting to vote on the proposed merger.
On August 19, 1998, the common shareholders filed a "Class Action Complaint" against the defendants, alleging twelve counts:
1. Four counts of breach of the fiduciary duty of loyalty against members of GAC's Board of Directors in connection with the April 1997, September 1997, November 1997, and March 1998 transactions as described above;
2. Four counts of breach of the fiduciary duty of due care against members of GAC's Board of Directors in connection with the April 1997, September 1997, November 1997, and March 1998 transactions;
3. One count of breach of the fiduciary duty of loyalty to GAC against members of the Algood family, who were the controlling shareholders in GAC;
4. One count of breach of fiduciary duty of loyalty to GAC against controlling shareholder Conseco;
5. One count of violation of Indiana Code chapter 23-1-42, the Control Shares Acquisition statute; and
6. One count alleging Dissenters' Rights and seeking appraisal.
The common shareholders also sought a preliminary injunction to preserve the status quo by preventing Conseco from voting its shares and also preventing GAC from recognizing the votes of Conseco's shares at the August 31, 1998 shareholders' meeting pending the outcome of their class action suit. After a hearing, the trial court denied the common shareholders' motion for preliminary injunction. Thereafter, the merger proceeded.
The defendants filed ...
To continue reading
Request your trial
-
Shepard v. Meridian Ins. Group, Inc.
...8(c) bars any request for additional relief, including injunctive relief, in those circumstances. See Young v. General Acceptance Corp., 738 N.E.2d 1079, 1091-92 (Ind.App.2000) (dissenting shareholders could pursue in an appraisal proceeding their claim for alleged fraud in proxy statement ......
-
William R. Lee Irrevocable Trust v. Lee (In re Lee), 17-1582
...the event of a merger. See Fleming v. Int'l Pizza Supply Corp. , 676 N.E.2d 1051, 1054–57 (Ind. 1997) ; Young v. Gen. Acceptance Corp. , 738 N.E.2d 1079, 1090–93 (Ind. Ct. App. 2001), affirmed in part and vacated in part , 770 N.E.2d 298 (2002) ; Settles v. Leslie , 701 N.E.2d 849, 853 (Ind......
-
Carroll v. Hilliard
... ... Western Ohio Pizza, Inc. v. Clark Oil & Ref. Corp., 704 N.E.2d 1086 (Ind.Ct.App. 1999), trans. denied. We first ... Sua sponte findings control only as to the issues they cover and a general judgment will control as to the issues upon which there are no findings ... ...
-
Reed v. Beachy Const. Corp.
...or where the undisputed material facts are capable of supporting conflicting inferences on such an issue. Young v. General Acceptance Corp., 738 N.E.2d 1079, 1088 (Ind.Ct.App.2000),reversed in part on other grounds, 770 N.E.2d 298 (Ind.2002). Even if the facts are undisputed, summary judgme......