Michael Kent Smith v. Thomas L. Taulman, II
20 N.E.3d 555
Ind. Ct. App.2014Background
- Kent and Taulman were majority shareholders/managers of closely held T.K.O. Enterprises; business expanded into related entities (T.K.O. Commercial, SCS, GTS, T.K.O. South).
- In December 2009 a shareholders’ meeting approved a reallocation of shares that reduced Kent’s ownership; shortly thereafter TruGreen awarded a lucrative contract and Kent was fired in July 2010.
- Kent sued (Dec. 2011) claiming: breach of fiduciary duty and fraud arising from alleged nondisclosures at the Dec. 21, 2009 meeting; defamation; wrongful termination in breach of fiduciary duty; and shareholder derivative claims (below-market leases and ghost employees).
- Extensive document production occurred, but depositions revealed additional responsive materials; Kent filed a motion to compel additional discovery (including access to defendants’ computers) while defendants moved for summary judgment shortly after agreeing to produce more documents.
- Trial court granted summary judgment for defendants and denied Kent’s motion to compel; the Court of Appeals held the denial of the motion to compel was an abuse of discretion as to certain claims, reversed those parts of summary judgment, affirmed other parts, and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether trial court abused discretion by denying motion to compel additional discovery | Kent: pending discovery (emails, handwritten notes, computers) was relevant to fraud and fiduciary-duty claims and he was diligent | Defs: discovery disputes resolved; further discovery not likely to change outcome | Court: abused discretion — discovery was relevant and Kent was diligent; reverse summary judgment on fiduciary-duty (Dec. 21 meeting) and fraud claims against Taulman and employees |
| Whether Taulman breached fiduciary duty by firing Kent / whether defamation claim stands | Kent: termination and statements were pretextual and part of scheme; defamation — false statement about work ethic | Taulman: admissible affidavit shows legitimate, good-faith reasons for termination; statement truthful | Court: defendants negated elements; Kent failed to designate contrary evidence — affirmed summary judgment for defendants on termination fiduciary claim and defamation |
| Whether employees (McClellan, Hurley, Meunier, Smith) breached fiduciary duties at Dec. 21 meeting | Kent: employees participated in withholding material info constituting breach/fraud | Defs: employees were not shareholders at meeting and owed no fiduciary duties to Kent; only shareholders owe mutual disclosure duties | Court: employees owed no shareholder fiduciary duties — affirmed summary judgment on fiduciary claims; fraud claims against employees remain reversed for further proceedings |
| Whether derivative claims (below-market leases; ghost employees) survive summary judgment | Kent: leases and alleged ghost-payments harmed the corporations, warranting derivative relief | Defs: evidence showed rent paid amounts or business reasons; movants argued Kent failed to meet derivative procedural/pleading requirements or show unfair transactions | Court: defendants failed to negate elements (e.g., fair rental value, ghost-employment disproportionality); summary judgment improper as to these derivative claims — reversed and remanded |
Key Cases Cited
- Hughley v. State, 15 N.E.3d 1000 (Ind. 2014) (Indiana imposes a high bar on movants at summary judgment — must affirmatively negate opponent's claim)
- Jarboe v. Landmark Cmty. Newspapers of Ind., Inc., 644 N.E.2d 118 (Ind. 1994) (summary judgment movant must negate opponent's claim)
- Mut. Sec. Life Ins. Co. v. Fidelity & Deposit Co., 659 N.E.2d 1096 (Ind. Ct. App. 1995) (generally improper to grant summary judgment when discovery pending unless discovery unlikely to produce material facts)
- TP Orthodontics, Inc. v. Kesling, 15 N.E.3d 985 (Ind. 2014) (Business Judgment Rule does not protect reckless or willful misconduct)
- G & N Aircraft, Inc. v. Boehm, 743 N.E.2d 227 (Ind. 2001) (requirements and purpose of shareholder derivative actions)
- Dreaded, Inc. v. St. Paul Guardian Ins. Co., 904 N.E.2d 1267 (Ind. 2009) (movant must negate an element to obtain summary judgment; nonmovant must designate contrary evidence)
- Cressy v. Shannon Cont’l Corp., 378 N.E.2d 941 (Ind. Ct. App. 1978) (shareholders in close corporation owe each other duty to disclose all essential information)