161 N.E.3d 1259
Ind. Ct. App.2020Background
- In 2014 McLean purchased an ownership interest in Greek’s Mobile Response Team, LLC (GMRT); tax returns reflected he held 50% after a later reallocation. No operating agreement was initially provided to him.
- Trisler used $41,000 of GMRT funds to acquire a separate Greek’s Carmel franchise; Koeppen used $4,000 of GMRT funds to make personal loan payments. McLean alleged these withdrawals were unauthorized.
- An operating agreement later produced (and an earlier document bearing a forged McLean signature) showed unanimous member approval was required to sell GMRT or its business. Despite McLean’s objections, Trisler and Koeppen voted to sell GMRT’s assets to Abes Restaurant Group (ARG) for $350,000.
- McLean sued individually and derivatively for breach of fiduciary duty, fraud, forgery, conversion, unjust enrichment, access to records, and related relief. The trial court entered default judgment on liability as a discovery sanction against defendants, leaving only damages to be tried.
- At the damages hearing defendants were barred from offering evidence for discovery violations. The trial court nonetheless granted defendants’ Rule 41(B) motion, dismissing McLean’s claims for lack of proven damages. McLean appealed.
- The Court of Appeals reversed: it held McLean could pursue direct claims under the Barth v. Barth exception for closely held entities, found the trial court erred in rejecting damages, awarded McLean $197,500 plus $21,193.84 in attorney’s fees for discovery sanctions, and remanded for possible CVRA remedies and related determinations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether McLean may pursue direct claims (not only derivative) | Barth exception applies because GMRT is closely held (three members), no risk of multiplicity, no creditors, and fair distribution unaffected | General rule bars shareholder personal suits for injuries to the corporation | Held: Barth II exception satisfied; McLean may proceed with direct claims |
| Whether McLean abandoned derivative claims or claims against most defendants at damages hearing | Did not abandon; intended to address derivative damages later | Argued plaintiff abandoned derivative claims and claims against many defendants | Held: McLean did not abandon derivative claims, but did abandon claims against all defendants except Trisler, Koeppen, and Rolling in Dough |
| Whether plaintiff proved damages so as to survive involuntary dismissal after default on liability | Default judgment admitted liability; uncertainty about amounts should be resolved against wrongdoers who possess the information; defendants failed to produce evidence of debts/offsets | Court cannot speculate about payment terms, intercompany loans, or liabilities; plaintiff failed to prove net damages with requisite certainty | Held: Trial court erred. Evidence and admitted allegations supported damages. Court awarded $175,000 (½ of $350,000 sale) for sale proceeds and $22,500 (½ of $45,000 withdrawals) for conversion, totaling $197,500 |
| Whether plaintiff is entitled to attorney’s fees for defendants’ discovery violations under Trial Rule 37 | Trial court previously ordered sanctions and awarded costs/fees; plaintiff requested $21,193.84 but trial court did not enter judgment for that amount | Defendants’ noncompliance justified or award would be unjust (implicit) | Held: Trial court erred in not entering the awarded fees; remanded to enter $21,193.84 in attorney’s fees for discovery sanctions |
Key Cases Cited
- Barth v. Barth, 659 N.E.2d 559 (Ind. 1995) (permits treating derivative claims as direct in closely held corporations when three-factor test satisfied)
- JKL Components Corp. v. Insul-Reps, Inc., 596 N.E.2d 945 (Ind. Ct. App. 1992) (information peculiarly within wrongdoer’s possession shifts burden to produce evidence of debts/liabilities)
- Babson Bros. Co. v. Tipstar Corp., 446 N.E.2d 11 (Ind. Ct. App. 1983) (uncertainty in proof of damages should be resolved against the wrongdoer)
- Progressive Ins. Co. v. Harger, 777 N.E.2d 91 (Ind. Ct. App. 2002) (default judgment deems the complaint’s factual allegations admitted)
- Siebert Oxidermo, Inc. v. Shields, 446 N.E.2d 332 (Ind. 1983) (substantive defenses are unavailable after entry of default)