John B. Kugler v. Ron Nelson
160 Idaho 408
| Idaho | 2016Background
- John B. Kugler and defendants (Powers, Nelson, Kenison, Armstrong, Powers Candy Co.) were shareholders of H & M Distributing, a closely held Idaho corporation; Powers was majority shareholder and president.
- In mid-2010 Nelson left employment; parties proposed a Settlement Agreement: H & M would repurchase 27 shares from Nelson; Powers would buy 20 shares from Nelson; a mutual release was included. A special shareholders meeting July 6, 2010 approved the transactions over Kugler’s dissent.
- Kugler sued in April 2013 asserting four causes of action: improper redemption of Nelson’s stock; Nelson’s breach of duty/employment contract/fraud; Powers Candy’s allegedly unpaid purchases of vehicles/inventory; and wrongful removal of Kugler as director.
- Defendants moved for summary judgment; the district court granted it, ruling Kugler’s claims were derivative and he failed to comply with Idaho’s derivative-action requirements (I.C. §30-1-742 and I.R.C.P. 23(f)); the court also awarded attorney fees to defendants; Kugler appealed.
- The Idaho Supreme Court affirmed: it held Kugler’s claims were principally derivative, Idaho law does not recognize a futility exception to the demand requirement, Kugler waived his counsel-disqualification challenge, and the attorney-fee award under Idaho Code §12-120(3) was proper; appellate fees were also awarded to defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Kugler’s claims are derivative or individual | Kugler contended his claims were direct and not subject to derivative-action prerequisites | Defendants argued the claims attack corporate injuries and are derivative | Court: Claims are derivative (stock redemption, officer misconduct, asset transfers); director-removal claim lacked pleaded individualized damages and was dismissed as derivative |
| Whether Kugler was excused from making demand due to futility | Kugler argued demand on H & M would have been futile so no demand required | Defendants argued Idaho law requires demand; futility is not an exception | Court: Idaho does not recognize a futility exception to statutory demand; Rule 23(f) pleading on demand/futility required and not satisfied |
| Whether the district court abused its discretion denying motion to disqualify opposing counsel | Kugler claimed trial court abused discretion by denying disqualification | Defendants maintained denial was correct (and errors not preserved) | Court: Kugler failed to brief/argue the issue properly on appeal; claim waived |
| Whether attorney fees award was lawful and amount proper | Kugler argued fees could not be awarded under certain grounds and disputed increase for delays | Defendants argued fees were authorized (contracts and §12-120(3)) and increase was reasonable | Court: Affirmed fees under Idaho Code §12-120(3) as action arose from commercial transactions; amount increase not an abuse; awarded appellate fees to defendants |
Key Cases Cited
- McCann v. McCann, 152 Idaho 809 (describing derivative action and minority-direct action exception)
- McCann v. McCann, 138 Idaho 228 (discussing statutory demand and legislature’s rejection of futility exception)
- Orrock v. Appleton, 147 Idaho 613 (explaining Rule 23(f) demand/futility pleading requirement and policy behind demand rule)
- Chandler v. Hayden, 147 Idaho 765 (summary-judgment standard)
- Idaho Transp. Dep’t v. Ascorp, Inc., 159 Idaho 138 (application of Idaho Code §12-120(3) to commercial transactions)
- Carrillo v. Boise Tire Co., Inc., 152 Idaho 741 (defining commercial transaction for §12-120(3) purposes)
- Charney v. Charney, 159 Idaho 62 (standard for appellate review of discretionary awards)