504 P.3d 1069
Kan. Ct. App.2021Background
- MCAC (a closely held physician corporation) sued former presidents Drs. Bassell and McKay (filed March 2018), alleging they took excess compensation (breach of fiduciary duty and civil conspiracy). Fraud and conversion claims were dismissed pretrial.
- MCAC's governance was informal: shareholders had equal shares; presidents (first Bassell, then McKay) traditionally set salaries; bylaws allowed action by unanimous written consent and inspection rights for shareholders.
- Dr. Babiash began receiving company financial/disbursement records in 2014 and became an officer/director by Dec. 2015; several other nonculpable doctors were directors by Feb. 16, 2016.
- MCAC alleged concealment of excess pay; CPAs later compiled wage comparisons showing large disparities; MCAC sought damages of several million dollars.
- The district court denied defendants' summary judgment and JMOL motions on statute-of-limitations grounds, excluded a statute-of-limitations jury instruction (granting MCAC JMOL on that defense), and the jury found both defendants liable and awarded damages.
- On appeal, the Kansas Court of Appeals reversed and remanded for a new trial because the district court applied the wrong legal standard under K.S.A. 60-513(d) and should have submitted the statute-of-limitations (adverse-domination/ascertainability) question to the jury; summary-judgment denials were upheld.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Statute of limitations — adverse domination / disinterested-majority tolling | MCAC: injury not reasonably ascertainable until 2017 when records were reviewed | Bassell/McKay: a disinterested nonculpable director majority (by Feb 16, 2016 or Dec 2015) and officer Babiash had access to records, so SoL began earlier | Court: District applied wrong (subjective) test; there was an objective fact question (ascertainability and existence of disinterested majority) for the jury; reversed and remanded for new trial |
| Denial of summary judgment / JMOL on SoL | MCAC: factual disputes and concealment preclude dismissal | Defendants: undisputed facts show SoL bars claims | Court: Reasonable factual disputes existed; denial correct, but the SoL defense should have been submitted to jury |
| Ratification / authorization / estoppel (Bassell) | MCAC: no ratification; Bassell failed to disclose and acted in bad faith | Bassell: presidential authority and board inaction ratified/authorized compensation | Court: Omission of instruction not prejudicial here because jury found nondisclosure and bad faith; on retrial instruction depends on evidence produced |
| Civil conspiracy (McKay) | MCAC: circumstantial evidence shows conspiracy to misappropriate compensation | McKay: no direct evidence of a meeting of the minds; JMOL warranted | Court: Enough circumstantial evidence (joint access to and control of records; efforts to limit access) for reasonable juror to infer meeting of minds; JMOL properly denied |
Key Cases Cited
- Resolution Trust Corp. v. Scaletty, 257 Kan. 348 (Kan. 1995) (endorsing disinterested-majority formulation of adverse domination)
- Resolution Trust Corp. v. Thomas, 837 F. Supp. 354 (D. Kan. 1993) (pre-1996 case using a more subjective adverse-domination analysis)
- Siruta v. Siruta, 301 Kan. 757 (Kan. 2015) (standard of review for summary judgment/judgment as matter of law)
- GFTLenexa, LLC v. City of Lenexa, 310 Kan. 976 (Kan. 2019) (summary judgment standards and resolving reasonable-inference disputes)
- Dawson v. BNSF Railway Co., 309 Kan. 446 (Kan. 2019) (standard for judgment as a matter of law and reasonable-inference instruction)
- Puckett v. Mt. Carmel Regional Medical Center, 290 Kan. 406 (Kan. 2010) (instruction required when evidence supports party’s theory)