Annеtte GALLIGAN, Charles Galligan, and Jennifer Galligan, Appellants (Plaintiffs Below) v. Thomas GALLIGAN and Larry Rice, Appellees (Defendants Below), Irish Park, Inc. and the Money Store Investment Corporation, Defendants Below, Golden Shamrock, Inc., Intervening Plaintiff Below.
No. 10S01-0004-CV-261
Supreme Court of Indiana
Feb. 2, 2001
741 N.E.2d 1217
In this case, there was both testimony of those familiar with toluene and other circumstantial evidence. Although not experts, both officers testified that, based on their observations and experience, the substance smelled and looked like toluene. The trial court could readily find that this inference was rationally based on the officers’ perceptions. Kelley, who had over six years of police experience, testified that the rag and bottle were paraphernalia associated with inhaling toluene. Knight, a fourteen-year officer, testified that police officers routinely identify toluene by smell and appearance because its volatility and difficulty in disposal make it hard to transport and test. This was sufficient to support the trial court‘s finding that the substance contained toluene.
Vasquez‘s intent to become intoxicated can also be inferred from the same evidence. Intent is a mental state that the trier of fact often must infer from the surrounding circumstances. Goodner v. State, 685 N.E.2d 1058, 1062 (Ind.1997). The police officers found items commonly used in glue sniffing and Vasquez was noticeably impaired when they arrived. A reasonable trier of fact could determine beyond a reasonable doubt that Vasquez had inhaled the substance with the intent to become intoxicated.
This evidence raises more than mere speculation or conjecture. Although it was perhaps not the best way to prove the case, our job is not to reweigh the evidence or judge the credibility of the witnesses. As a logical consequence of the evidence presented, the trial court could reasonably infer that Vasquez inhaled a product containing toluene with the intent to cause intoxication.2
Conclusion
The judgment of the trial court is affirmed.
SHEPARD, C.J., and DICKSON, SULLIVAN, and RUCKER, JJ., concur.
Kyle P. Williams, Jeffersonville, Indiana, Gary K. Kemper, Madison, Indiana, Attorneys for Appellees.
ON PETITION FOR TRANSFER
BOEHM, Justice.
This case deals with the effect of a corporation‘s failure to follow statutory requirements in a sale of substantially all of its assets.
Factual and Procedural Background
Irish Park, Inc. is an Indiana corporation operating a family-owned construction business. It was founded by Thomas R. Galligan in 1983. From its inception, Galligan has apparently owned fifty-two of the one hundred issued shares and his four children, Annette, Charles, Jennifer, and William, have owned twelve shares each. Galligan served as president and director of Irish Park until January 1996, when he resigned both positions, and Larry Rice, a long-time employee and member оf the board, became president. Galligan‘s ex-
By the end of 1996, Irish Park was struggling. It owed more than $750,000 in bank debt and had assets estimated to be worth only approximately $250,000. According to the minutes of a later meeting, this balance sheet severely impaired the company‘s ability to get new contracts. In January 1997, Galligan sold his Golden Shamrock shares to Rice for one dollar and the assumption by Golden Shamrock of some of Irish Park‘s obligations. At abоut the same time, Rice and Galligan started negotiations directed towards a sale of all of Irish Park‘s assets to Golden Shamrock.
On May 23, 1997, Galligan and Golden Shamrock entered into an agreement whereby Golden Shamrock would purchase all of Irish Park‘s assets and also real and personal property owned by Galligan individually. At that time, Galligan remained the majority shareholder of Irish Park, but was neither an officer nor a director of either Irish Park or Golden Shamrock. The transaction was closed on May 30, 1997. None of the actions required by the Indiana Business Corporation Law for a disposition of substantially all of Irish Park‘s assets were taken. There was no recommendation by the Board, no notice to shareholders, and no shareholder vote on the transaction. Indeed, it is not clear from the record who comprised the Board of Irish Park at that point. On August 15, 1997, three of the four minority shareholders, Annette, Charles, and Jennifer, filed suit against Irish Park, Galligan, and Rice for fraud, breach of fiduciary duty, conspiracy to misappropriate funds, and employment claims. The complaint was later amended to add allegations of self-dealing and a claim that the sale was ultra vires.
In response to the complaint, Galligan, as majority shareholder, sent a notice to all the shareholders of a special shareholder meeting to be held March 11, 1998. The purpose of this meeting was stated to be the removal of thе board, election of a new board, and ratification of the asset sale. On March 10, the minority shareholders served a “Shareholders’ Notice Asserting Dissenters Right,” addressed to Galligan, Jo Ann, Rice, and Irish Park, in which they objected to the asset sale and sought to assert their dissenters’ rights pursuant to
After these corporate actions were taken, the defendants filed a motion for partial summary judgment, contending that the plaintiffs were limitеd to dissenters’ rights under the doctrine set forth in Fleming v. International Pizza Supply Corp., 676 N.E.2d 1051, 1056-57 (Ind.1997). The plaintiffs responded with their own motion for partial summary judgment asking the court to rule that: (1) Rice was an officer or director of Irish Park at the time of the asset sale; (2) the asset sale was voidable because of Rice‘s conflict of interest; (3) Rice breached his fiduciary duties as an officer and director of Irish Park and Galligan breached his fiduciary duty as a majority shareholder; (4) Rice‘s conduct was willful and reckless; and (5) the asset sale was not in compliance with the requirements for a major asset sale by an Indiana corporation. The trial court granted the defendants’ motion for partial summary judgment and denied the plaintiffs‘. The Court of Appeals affirmed the denial of plaintiffs’ motion for partial summary judgment, but reversed the trial court‘s grant of defendants’ motion for partial summary judgment. Galligan v. Galligan, 712 N.E.2d 1028 (Ind.Ct.App.1999).
On appeal, the standard of review of a summary judgment motion is the same as that used in the trial court: summary judgment is appropriate only where the evidence shows there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Ind. Trial Rule 56(C); Shell Oil Co. v. Lovold Co., 705 N.E.2d 981, 983-84 (Ind.1998). All facts and reasonable inferences drawn from those facts are construed in favor of the non-moving party. Id.; Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 667 (Ind.1997). The review of a summary judgment motion is limited to those materials designated to the trial court. T.R. 56(H); Rosi v. Business Furniture Corp., 615 N.E.2d 431, 434 (Ind.1993).
I. Defendant‘s Motion for Partial Summary Judgment
The trial court granted defendants’ motion for partial summary judgment on the grounds that “the plaintiffs’ claim in this case is for a statutory appraisal proceeding under
A. Fleming v. International Pizza Supply Corp.
In Fleming, this Court held that, “in a merger or asset sale, the exclusive remedy available to a shareholder seeking payment for the value of the shareholder‘s shares is the statutory appraisal procedure.” 676 N.E.2d at 1056. This was based on
[W]е generally agree that the expression “corporate action to which the dissenter objects” as used in
Ind.Code § 23-1-44-8 includes not only the merger or asset sale itself but genuine issues of breach of fiduciary duty and fraud affecting the value of the shares at the time of the transaction. While we acknowledge that the appraisal remedy does not provide for the individual liability of majority shareholders or the recovery of punitivedamages, we believe that those are the policy choices made by the legislature in adopting Ind.Code § 23-1-44-8(c) and are clearly within the legislature‘s prerogative.
B. The Requirements for an Asset Sale
Fleming applies only to corporate actions that trigger dissenters’ rights. Among those is a sale of “substantially all” of the corporate property “other than in the usual and regular course of business.”
The May 30 sale of Irish Park‘s assets to Golden Shamrock did not comply with corporate law in several respects. Galligan did not have the authority to sell the corporation‘s assets. He was not an officer of the corporation and the bylaws specifically required that “all written contracts and agreements to which the Corporation shall be a party shall be executed in its name by the President or Vice Presidents and attested by the Secretary or an Assistant Secretary.” More importantly, the requirements of
C. Ratification
The defendants effectively concede that the initial sale did not conform to the requirements of the Indiana Business Corporation Law. They аrgue that the asset sale was ratified on March 11, 1998, and that the plaintiffs are therefore limited to statutory dissenters’ rights. We agree that the March 11 meeting ratified the earlier sale.
Any corporate action that is defectively undertaken may be ratified by subsequent action. Cf. Indiana Trust Co. v. International Bldg. & Loan Ass‘n, 165 Ind. 597, 607, 76 N.E. 304, 307 (1905). In May 1998, Galligan, as the majority shareholder,1 sent each shareholder a notice of a “Special Meeting of Shareholders, Irish Park, Inc.” The notice listed as one of the meeting‘s purposes “[t]o consider the ratification of the sale of Irish Park assets to Larry Rice d/b/a Golden Shamrock on May 30, 1997.” This satisfied the statutory notice requirement for the meeting. Then, at the meeting held on March 11, 1998, Galligan replaced the current board of directors and officers with himself as the sоle director and chairman. Finally, the minutes state:
The Chairman stated that Golden Shamrock, Inc. had made an offer to purchase the assets of Irish Park along with two buildings, six acres of land and various pieces of heavy equipment which are the personal property of Thomas R. Galligan. The sale of assets had become necessary when the Internal Revenue Service stated that it would levy upon Irish Park‘s assets on June 2, unless over $76,000.00 of delinquent withholding taxes were repaid on that date. In addition, the Corporation had lost its ability to bond construction projects. Without its bonding capacity, the Corporation was unable to liquidate its exist-
ing bank debt. All of the shareholders having personally guaranteed cоrporate debt, it was believed that immediate liquidation of the corporate bank debt was in the best interest of the Corporation as well as the shareholders.
Because Galligan was the sole director, this satisfied the requirement of a recommendation by the board. Finally, the motion was voted on and a majority of the issued shares—Galligan‘s fifty-two percent—voted in favor of the transaction, thus satisfying the final requirement of the Code. Generally, at this point, as Fleming held, the minority shareholders are limited to dissenters’ rights and may not challenge the validity of the asset sale.
D. Dissenters’ Rights
The analysis would normally end here because there has been a valid asset sale and
Within ten days after approval by the shareholders or within ten days after the corporate transaction if no vote was taken, the corporation must send those entitled to dissent a notice that must:
(1) state where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and requires that the person asserting dissenters’ rights certify whether or not the person acquired beneficial ownership of the shares before that date; (4) set a date by which the corporation must receive the payment demand, which date may not be fewer than thirty (30) nor more than sixty (60) days after the date the subsection (a) notice is delivered; and (5) be accompanied by a copy of this chapter.
The dissenting shareholders must then demand payment, certify whether they acquired beneficial ownership of the shares before the date the transaction was first announced to the media or shareholders, and deposit the certificates according to the terms set forth in the notice sent by the corporation.
As soon as the corporate action is taken, the corporation must pay the corporation‘s estimate of the “fair value” of the deposited shares to every shareholder who complies with the above requirements.
A dissenting shareholder who disagrees with the valuation placed on the shares may notify the corporation of the shareholder‘s estimate of the fair value of the shares and demand payment.
E. Irish Park‘s Failure to Comply with the Dissenters’ Rights Statute
Although the March 11, 1998 ratification of the asset sale complied with the statutory requirements for a sale of substantially all of a corporation‘s assets, see
There was, however, a material flaw in the corporation‘s performance under the dissenters’ rights statute. Once the proposed sale was ratified and the shareholders gave their notice of dissent, it then became the corporation‘s obligation to supply a dissenters’ notice in accordance with
F. The Effect of Non-Compliance
As a result of the corporation‘s failure to send the notice required by section 12(b) of the dissenters’ rights statute, the clock prescribed by
The issue thus becomes the proper remedy for these failures. Although the dissenters’ rights statute expressly provides a remedy when the dissenters fail to follow its requirements,
The Court of Appeals held “that Galligan and Rice are not entitled to hold Plaintiffs to the remedy provisions of
The defendants contend that despite the corporation‘s disregard for statutory requirements the dissenters are limited to their dissenters’ rights as articulated in Fleming. This result is also unsatisfactory because it provides little incentive for corporations and their managers to comply with the statute. If a failure to send the dissenters’ notice as required by
We conclude that the proper resolution of these conflicting considerations is to restrict the shareholders to their dissenting shareholder rights as to the underlying transaction, but also to recognize that they may proceed with a separate claim against the persons responsible for a breach of statutory duty with respect to the dissenters’ rights proceeding. Otherwise stated, dissenters’ rights are the exclusive remedy afforded for actions or omissions in a
Damages for a breach of the statutory duty to provide dissenters’ rights would presumably include any loss incurred from delay in consummating the dissenting shareholders’ proceeding or otherwise occasioned by the failure to comply with the statute. If the corporation is solvent there will normally be no damages in addition to the amount recoverable by the exercise of dissenters’ rights. However, if the corporation‘s financial capacity to make full payment of the fair value has been impaired by reason of the delay, the shortfall may be a component of those damages. Here, the plaintiffs requested dissenting shareholder rights despite the corporation‘s failure to comply with the notice requirements. If the corporation‘s minutes are to be believed, the value of the shares may ultimately prove to have been zero at all relevant times. Thus, in this case, there may be no consequences of the failure to comply with corporate law, but that is an issue for the trial court.
The 1986 wholesale revision of Indiana corporate law included a number of provisions that were intended to limit the liability of directors of Indiana corporations. We find nothing, however, in that statute that abrogates the basic principle that directors who breach duties to the corporation or to shareholders may be held accountable. Nor do we believe that this recognizes a “new” cause of action for breach of the statutory duties imposed by the Indiana Business Corporation Law. Rather, we simply apply the commonly accepted principle that the directors may be liable for disregarding a statutory mandate to these unusual facts, where the directors failed to take the steps necessary to enjoy the safe harbor provided by the dissenters’ rights statute.
No party has raised the issue of the requisite scienter for director liability, but we note that the Indiana Business Corporation Law has explicitly addressed that issue in
In sum, the shareholders accept the risk of loss from various causes, including competition, natural disasters, and a variety of business judgments. But the risk that the corpоrate law will be ignored is not one of them. A shareholder has a right to assume that the corporation will be operated in conformity with the statute. The statute is quite clear that directors who recklessly or willfully disregard statutory directives may be liable. Those provisions, like the dissenters’ rights provisions, are built into the structure the shareholder accepts by buying a share in an Indiana corporation.
G. Attorney‘s Fees
We also note that the statute itself provides an additional deterrent to disregarding its procedures. Although the statute does not specifically address what happens when the corporation fails to comply with the requirements of notice and other steps set forth in sections 10 through 18,
The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) against the corporation and in favor of any and all dissenters if the court finds the corporation did not substantially comply with the requirements of
sections 10 through18 of this chapter; or (2) against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily,vexatiously, or not in good faith with respect to the rights provided by this chapter.
This provides an incentive to obey the statute in the initial transaction, because in addition to having to pay the fair value of dissenters’ shares, the corporation may be liable for fees and expenses of counsel and experts for both sides.
H. Interest
Because the corporation caused the delay in the dissenters’ rights proceedings, the response time for dissenters has been delayed until the corporation abides by the statute. The statute also provides for interest on the unpaid balance of fair value from the date of tender of the shares to the corporation to judicial resolution of a valuation dispute.
I. Summary
In this case, the plaintiffs can proceed in court to force Irish Park to comply with the dissenters’ rights statute. As Fleming held, shareholders’ claims for fraud in the underlying transaction, including the breach of fiduciary duty claims, may be evaluated as part of the dissenters’ rights proceeding to the extent any fraud or breach caused a decline in the value of their shares. 676 N.E.2d at 1058. But, as Fleming held, these claims may not be pursued as independent actions. Id. at 1056. The plaintiffs can also seek to recover attorney‘s fees and any other expenses, if they can show that these fees and costs were caused by Irish Park‘s failure to follow the mandate of the dissenters’ rights statute, and interest. Finally, if damages can be shown tо have been caused by a breach of a statutory duty with respect to the dissenters’ rights proceedings, the plaintiffs may bring a separate claim against the persons responsible.
II. Plaintiffs’ Motion for Partial Summary Judgment
The Court of Appeals affirmed the trial court‘s denial of the plaintiffs’ motion for partial summary judgment on five issues including: (1) whether Rice was an officer and director of Irish Park at the time of the asset sale, (2) whether the asset sale between Irish Park and Golden Shamrock was voidable for conflict of interest, (3) whether Galligan and Rice breached their fiduciary duties as majority shareholder and officer and director, respectively, (4) whether Rice‘s conduct was reckless and willful giving rise to personal liability under the Indiana Code, and (5) whether the asset sale was in accordance with the Indiana Code.
First, the issue of whether Rice was an officer and director at the time of the asset sale is not appropriate for summary judgment. Summary judgment is proper when there are no genuine issues of any material fact and the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56. On a summary judgment motion, the court cannot weigh evidence to determine its credibility. National City Bank v. Shortridge, 689 N.E.2d 1248, 1251 (Ind.1997). In this case, although the plaintiffs designated evidence that Rice was an officer and director, namely, Rice‘s signature on the Irish Park corporate tax return and the lack of records indicating Rice‘s resignation, Rice designated deposition testimony that he resigned as an оfficer and director of Irish Park in January of 1997. This raises a genuine issue of fact. To the extent Rice‘s status is material to any issue in the case, it remains for trial.
Plaintiffs next claim that the asset sale to Golden Shamrock was voidable because Rice was an officer and director of Irish Park and also owned Golden Sham-
Similarly, the issues of whether Rice breached his fiduciary duties to the shareholders as an officer and director and whether his conduct was willful and reckless as described in
The plaintiffs also contend that as a matter of law Galligan breached his fiduciary duty to them as minority shareholders. Although it is true that the majority shareholder owes fiduciary duties to the minority shareholders under Indiana law, Barth v. Barth, 659 N.E.2d 559, 561 (Ind.1995), the facts in this case do not establish as a matter of law that Galligan breached his duties as a fiduciary by failing to act in the best interests of the shareholders and the corporation. He may have caused the corporation to take action that did not comply with statutory requirements, but there is no showing by undisputed facts that he failed to act in the interests of the corporation and its shareholders. We affirm the trial court‘s denial of summary judgment on this issue. Moreover, if, as Galligan apparently claims, the shares were worthless by the time of the transaction, there may well be no damages even if there were breaches of corporate protocol.
Finally, plaintiffs seek summary judgment on whether the sale of assets was in accordance with the Indiana Code.
Conclusion
The trial court‘s grant of defendants’ motion for summary judgment is affirmed as to the corporation, but vacated as to the other defendants. The trial court‘s denial of plaintiffs’ motion for summary judgment is affirmed. This case is remanded for proceedings consistent with this opinion.
SHEPARD, C.J., and DICKSON and RUCKER, JJ., concur.
SULLIVAN, J., concurs in part with separate opinion.
SULLIVAN, Justice, concurring in part.
I concur in the majority‘s opinion except for its recognition of a private cause of action for breach of a statutory duty with respect to dissenters’ rights proceedings. I believe that under common law principles of agency and contract, shareholders have sufficient protection in such situations. See Official Comments to