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holding that stockholder asserted direct claims based on fact that if money were returned to corporation defendants would be unjustly enriched
Summary of this case from Stevanov v. O'ConnorOpinion
C.A. No. 16864.
Submitted: August 5, 1999.
Decided: November 4, 1999.
Craig B. Smith, Michele C. Gott and Kathleen M. Miller of Smith, Katzenstein Furlow, Attorneys for Plaintiff.
Thomas P. Preston and Jan A. T. van Amerongen, Jr. of Duane, Morris Heckscher, Attorneys for Defendants.
MEMORANDUM OPINION
Plaintiff, a shareholder in defendant Fischer Enterprises, individually and derivatively brings this action alleging breach of fiduciary duty, corporate waste, and aiding and abetting a breach of fiduciary duty. Specifically, she claims that defendants concocted and carried out a plan to unfairly cash her out of nominal defendant Fischer Enterprises. To achieve this end, defendants purportedly caused Fischer Enterprises to sell real estate for a grossly unfair price to another entity owned by defendants. Defendants then dissolved and liquidated Fischer Enterprises.
Defendants tacitly acknowledge plaintiff adequately states derivative claims in her complaint. Defendants, however, have moved to dismiss plaintiffs individual claims arguing that all plaintiffs claims are purely derivative in nature.
I find plaintiff can bring her claims individually because she alleges she suffered special injury distinct from that suffered by the other shareholders — all of which are defendants in this action and all of which allegedly unfairly conspired to eliminate plaintiffs continued involvement in Fischer Enterprises.
I. LEGAL STANDARD
In evaluating Defendants' Motion to Dismiss, I assume the truthfulness of all well-pleaded, nonconclusory allegations found in the Complaint and extend the benefit of all reasonable inferences that can be drawn from the pleading to the non-movant, plaintiff. To dismiss a claim, I must find plaintiff has either utterly failed to plead facts supporting an element of the claim or that under no reasonable interpretation of the facts alleged in the Complaint (including reasonable inferences) could plaintiff state a claim for which relief might be granted. Notwithstanding Delaware's permissive pleading standard, I am free to disregard mere conclusory allegations made without specific allegations of fact to support them.
Loudon v. Archer-Daniels-Midland Co., Del. Supr., 700 A.2d 135, 140 (1997).
Delaware State Troopers Lodge v. O'Rourke, Del. Ch., 403 A.2d 1109, 1110 (1979) ("A complaint should not be dismissed upon such a motion unless it appears to a certainty that under no set of facts which could be proved to support the claim would the plaintiff be entitled to relief.")
Wolf v. Assaf, Del. Ch., C.A. No. 15339, mem. op., 1998 WL 326662, at **1, Steele, V.C. (June 16, 1998).
II. BACKGROUND
A. Facts1. Generally
Plaintiff Joanne Fischer, a stockholder of nominal defendant Fischer Enterprises, Inc. ("Fischer Enterprises"), filed this individual and derivative action against Robert Fischer, Robert Fischer, Jr., Richard S. Fischer (plaintiffs ex-husband), Debra Fischer, Donna Fischer-Scrivo, Norman Hamstead (collectively the "individual defendants"), Cape Shore Associates ("Cape Shore"), Fischer Development Corp. and Fischer Investments, Inc. Each individual defendant, except Hamstead, holds stock in and serves as a director and officer of Fischer Enterprises. Hamstead serves as a director and officer but owns no stock.
In 1978, Fischer Enterprises purchased a large bay-front tract in Lewes, Delaware ("the Property"). Milford Fertilizer Company, a company formed and operated by the Fischer family, initially used the Property to support its operations. In 1990, the Fischer family sold the Milford Fertilizer Company business, but retained the Property.
The Property was ideal for development into a residential community. But rather than develop the Property itself, Fischer Enterprises sold the Property to Cape Shore, an affiliated enterprise in which the Fischer family owned a 50% interest through Fischer Development. IPM Properties, Inc. owned the remaining 50% interest.
Cape Shore bought the property for cash (which was distributed to the stockholders) and Fischer Enterprises took back a purchase money mortgage for $5,699,000.00. A nonrecourse note (the "Note") apparently evidenced the underlying transaction leaving Cape Shore and its general partners free from personal liability. Plaintiff alleges the transaction benefited the Fischer family at her expense and the expense of Fischer Enterprises. Plaintiff was the only stockholder of Fischer Enterprises who did not also have an ownership interest in Cape Shore.
The complaint refers to a "purchase money mortgage note" and the "Note" I assume, though no party attached documents to the complaint and the briefs, that the underlying transaction or loan agreement got documented by one paper denominated as a "purchase money mortgage nonrecourse note" which served as the filed for record document "collateriz[ing] . . . a second position in the real estate" in order to accommodate Cape Shore's first mortgage lender. I assume the customary two documents, a purchase money mortgage for record filing and a separate loan agreement or nonrecourse note do not exist as distinct, separate papers.
After purchasing the Property, Cape Shore failed to make loan payments. Plaintiff alleges these failures were of no import to defendants because they owned interest in both Cape Shore and the mortgagee, Fischer Enterprises. Unremarkably, defendants took no action against Cape Shore.
In 1993, the Fischer family, through Fischer Investments, gained a 100% ownership interest in Cape Shore by buying out IPM Properties.
In December 1995, the Fischer family concocted a plan to eliminate the plaintiff from Fischer Enterprises at an unfair price while, through the same series of transactions, enriched Cape Shore. Specifically, the plaintiff claims that the defendants caused Fischer Enterprises to sell the "Note" to Cape Shore at the "grossly unfair price" of $904,000. The shareholders of Fischer Enterprises each received a pro rata share of this sum. Defendants then caused Fischer Enterprises to be dissolved and liquidated. Fischer Enterprises filed a Certificate of Dissolution with the Delaware Secretary of State on December 28, 1995. Excepting the plaintiff, all the other shareholders of Fischer Enterprises transferred their pro rata portion of the proceeds from the sale of the note to Cape Shore. Plaintiff, however, had no interest in Cape Shore and was simply cashed out for $55,241.95.
Compl., paras. 19-20; see references to the "Note," para. 16.
Plaintiff argues the amount paid by Cape Shore for the Property was "a grossly depressed price" because the principal and accrued interest on the Note prior to the sale totaled approximately $6,224,932. She also states in her complaint that the equity in the property securing the Note was at least $1,826,972 after accounting for a first mortgage on the property.
Compl., para. 19-20.
Compl., para. 20.
2. Uniquely Pertaining to Defendant Richard S. Fischer
In 1989, plaintiff and defendant Richard S. Fischer divorced. They entered into a settlement agreement before the entry of the divorce decree. Defendants allege that language in that separation agreement operates as a full release of Richard S. Fischer from any liability he may owe to plaintiff. Accordingly, they argue Richard S. Fischer should be dismissed from this action.
B. Plaintiffs claims and Defendants' partial motion to dismiss
In Count I of her complaint, Plaintiff claims that the individual defendants' breached their duties of care, loyalty and good faith owed to Fischer Enterprises and to plaintiff in that the individual defendants' actions unjustly enriched Cape Shore and the Fischer family while injuring Fischer Enterprises and plaintiff individually.
In Count II of her Complaint, plaintiff alleges that the individual defendants wasted corporate assets of Fischer Enterprises causing injury to her as a stockholder of Fischer Enterprises. In Count III of her Complaint, plaintiff alleges that defendants Cape Shore, Fischer Development, and Fischer Investment have aided and abetted the individual defendants' breach of their fiduciary duties.
Plaintiff asserts these claims individually and derivatively. She seeks the costs and expenses of this action, damages (presumably money damages), and any "further relief as the Court finds just and appropriate under the circumstances."
CompI., p. 11.
Defendants have filed a motion' seeking dismissal of all claims plaintiff attempts to bring in her individual capacity and all claims against plaintiffs ex-husband, defendant Richard S. Fischer.
III. ANALYSIS
A. Does plaintiff state individual claims?
Defendants allege that I must dismiss plaintiffs claims of breach of fiduciary duties, corporate waste, and aiding and abetting brought in her individual capacity because these claims must be brought as derivative claims. In support of this argument, defendants cite News International v. Warner Communications, Inc . for the proposition that plaintiffs claims are "classic derivative claims and may not be brought individually." Defendants also state that in determining whether a claim is derivative or individual, "one must look to the nature of the wrong alleged, not to Plaintiffs labels or characterization." In my opinion, defendants exaggerate the scope of News International, but are right on point in asking me to "look to the nature of the wrong alleged."
Del. Ch., C.A. No. 7420, Walsh, V.C., (April 10, 1985).
Defs.' Br., 6.
In re Tri-Star, Del. Ch., C.A. No. 9477, mem. op at 4, Jacobs, V.C. (June 14, 1990), aff'd in part, rev'd in part, Del. Supr., 634 A.2d 319 (1993).
In Boyer v. Wilmington Materials, Inc., Vice Chancellor Lamb allowed the plaintiff to sue individually after defendants conducted an asset sale with the principal purpose to eliminate plaintiff and one other stockholder from continued participation in the ownership and management of the business at issue. Vice Chancellor Lamb noted "[t]hat [plaintiff] suffered an injury distinct from that of defendants is clear and requires little discussion." "Where a shareholder has suffered special injury resulting from a fiduciary's failure to ensure that a sale of the corporation was entirely fair, such shareholder is entitled to relief." Logically, this standard would also apply to the sale of the Property in the present case because that sale, followed by the dissolution of Fischer Enterprises, is tantamount to the sale of a corporation.
Del. Ch., C.A No. 12549, V.C. Lamb (Jan. 20, 1999).
Id., slip op. at 43.
Id., slip op. at 42.
Defendants ask me to distinguish the present case from Boyer . They argue Boyer is inapplicable here as Boyer involved the selling of corporate assets to another corporation that continued in the same business, for the sole purpose of eliminating certain shareholders. As long as specific injury to specific shareholders exists, I find that slight factual twist to be inconsequential. Accordingly, I find defendants' attempt to distinguish Boyer from the present case unpersuasive.
Special injury is established:
[W]here there is a wrong suffered by plaintiff that was not suffered by all stockholders generally or where the wrong involves a contractual right of the stockholders, such as the right to vote.
In re Tri-Star Pictures, Inc., Litig., Del. Supr., 634 A.2d 319, 330 (1993).
It is the first part of this definition that is relevant here. As the conjunction "or" divides the passage, plaintiff need not plead a violation of a contractual right — she need only plead that she suffered a wrong not suffered by all stockholders generally. I find she has done so.
Finally, if I were to dismiss plaintiffs individual claims, I would place plaintiff in the awkward position of continuing a purely derivative action with any relevant relief benefiting Fischer Enterprises alone. An eventual victory for plaintiff, therefore, would achieve little since the individual defendants own an overwhelming interest in Fischer Enterprises. The pleaded fundamental wrong alleged underlies both the asserted individual and the derivative claims. Equity's appropriate focus should be the alleged wrong, not the nature of the claim which is no more than a vehicle for reaching the remedy for the wrong. As equity will not suffer a wrong without a remedy, I must permit plaintiffs individual claims to proceed.
B. Does the 1989 separation agreement between Richard S. Fischer and plaintiff mandate the dismissal of Richard S. Fischer from this action?
Defendants argue that language in a 1989 separation agreement ("Agreement') between plaintiff and Richard S. Fischer requires that I dismiss defendant Richard S. Fischer. Specifically, defendants cite the release language in Section 25 of the Agreement purporting to:
forever discharge . . . any and all rights, titles and interest or claims in or against the property . . . of the other or against the estate of the other, of whatever nature and wheresoever situate, which she or he now has or any time hereafter may have against the other . . . .
Defendants argue the Agreement is clear on its face and is unmistakably forward-looking in nature.
Plaintiff responds by first noting that the parties reached the Agreement solely to provide for the division of martial property upon divorce. Plaintiff also states she is not now seeking to assert any readjustment or modification to her equitable share in their former marital property.
How broad is the scope of the release in the Agreement? In determining the scope of a general release, I am to examine the intent of the parties as expressed in the terms of the instrument, keeping in mind the facts and circumstances surrounding the release.
Adams v. Jankouskas, Del. Supr., 452 A.2d 148, 156 (1982); Clum v. Daisy Concrete, Inc., Del. Super., 578 A.2d 684, 685 (1989); Fox v. Christina Square Assoc., L.P., Del. Super., C.A. No. 91L-04-6-1-MT, 1994 WL 146023 at **5, Alford, J. (April 5, 1994) (stating, "courts construe releases to affect the general intent of the parties").
"A release should be construed from the standpoint of the parties at the time of execution, and in light of their relations, and their situation, at the time when it was formulated, and of circumstances which surrounded the transaction." Ordinarily, a release covers only matters expressed in the contract that are in existence at the time of the release. Demands arising after the signing of the release are not as a rule discharged unless "expressly embraced therein or falling within the fair import of the terms employed."
76 C.J.S. Releases § 38 at p. 670, quoted in Egan Sons Air Conditioning Co. v. General Motors Corp., Del. Super., 1988 WL 47314 at **6, Gebelein, J. (April 27, 1988).
Egan Sons Air Conditioning Co., at **6, citing, 76 C.J.S. Release at § 53.
Egan Sons Air Conditioning Co., at **6, citing, 76 C.J.S. Release at § 53; Levitt v. Bouvier, Del. Supr., 287 A.2d 671 (1972).
The Family Court approves settlement agreements in accordance with the principles of equity. The parties designed the Agreement to cover the division of marital property and potential disputes related to the marital estate. Plaintiff now alleges that her ex-husband, as an officer and a director, breached fiduciary duties owed to her as a shareholder of Fischer Enterprises. Despite the fact that plaintiff gained her position as a shareholder by way of the property division articulated in the Agreement, plaintiffs claim in this action does not question the equitable division of the marital property nor does it touch upon the marital relationship. It is apparent from the overall language of the Agreement that the parties never intended the release to discharge a claim arising outside the marital relationship. The release does not bar plaintiffs claim against Robert S. Fischer.
IV. CONCLUSION
For the foregoing reasons defendants' motion to dismiss is denied.
IT IS SO ORDERED.
________________ Vice Chancellor