Tisch v. TischTisch v. Tisch
The summaries of the Colorado Court of Appeals published opinions constitute no part of the opinion of the division but have been prepared by the division for the convenience of the reader. The summaries may not be cited or relied upon as they are not the official language of the division. Any discrepancy between the language in the summary and in the opinion should be resolved in favor of the language in the opinion.
SUMMARY
No. 17CA1591, Tisch v. Tisch — Corporations — Officers and Shareholders — Piercing the Corporate Veil — Dividends and Distributions — Derivative Suits — Direct Suits; Civil Theft — Rights in Stolen Property
In this individual and shareholder derivative suit, a division of the court of appeals decides two issues of first impression in Colorado. First, the division holds that a majority shareholder‘s use of corporate profits for personal and other business reasons can be submitted to a fact finder and found to constitute “corporate distributions” available to all shareholders when no formal distribution is declared. Second, the division concludes that a minority shareholder has a proprietary interest in undeclared distributions sufficient to support an individual civil theft claim against the majority shareholder.
The division also concludes that (1) appellant waived the expert witness issue; (2) the trial court properly decided the alter ego issue; (3) the trial court properly directed a verdict on the statute of limitations affirmative defenses; and (4) sufficient evidence supports damages. In the cross-appeal, the division concludes that (1) expert fees were properly capped; (2) a contingent fee multiplier for attorney fees is not justified; and (3) the trial court properly entered summary judgment for appellant on the declaratory judgment claim. The division remands the case for the trial court to determine and award appellee reasonable appellate attorney fees related to civil theft.
Webb and Román, JJ., concur
¶ 2 This case asks us to decide two issues not previously resolved by Colorado appellate courts. First, can corporate profits, not
¶ 3 Gary raises five claims of error on appeal, and the Tisch siblings raise three claims of error in their cross-appeal. We affirm the jury‘s damages awards for the Tisch siblings and the trebling of damages under the civil theft statute. We also affirm the trial court‘s costs and attorney fees awards. Finally, we conclude that the Tisch siblings are entitled to their reasonable appellate attorney fees related to the civil theft claim and remand the case for that determination.
¶ 4 This is a dispute over a family business ― the Liquor Barn ― that was incorporated in 1975 by the parties’ father, Rudolph Tisch (father). In 1982, father gave each of his three children 1600 shares of the Liquor Barn stock and kept the remaining 10,500 shares of stock for himself. Between 1982 and 1991, Gary was the Liquor Barn‘s floor manager, and after 1991, Gary assumed responsibility for the company‘s books and for managing the inventory. The Tisch siblings worked sporadically at the business between 1991 and 1997, but they were never involved in the business’ operations.
¶ 5 Father divorced in 1991 and a domestic court entered a dissolution decree that required him to transfer an additional 10% ownership in the Liquor Barn — 1530 shares — to each of his three children. The children knew of this order, but father never transferred the additional shares. On November 17, 1997, father amended the articles of incorporation — without notice to his children and without a shareholder vote — to recapitalize the business. This amendment exchanged one share of common stock for 7/10 of a class A voting share and 3/10 of a class B nonvoting share. Consequently, each of the children‘s 1600 shares of
¶ 6 In December 2000, father assigned his stock in the Liquor Barn to Gary, and Gary managed the business. Gary held 10,500 class A voting shares and 1500 class B nonvoting shares, while the Tisch siblings each held 1500 class B nonvoting shares.
¶ 7 On November 19, 2003, Gary‘s attorney received a letter from the Tisch siblings’ attorney with an offer to sell each siblings’ 10% nonvoting shares of stock. No sale occurred.
¶ 8 Approximately one year later, the Tisch siblings, through counsel, demanded access to the Liquor Barn‘s financial and corporate records in connection with a dispute over father‘s estate. Gary made the records available, but the Tisch siblings never examined them because they could not afford to hire an accountant. They made similar inspection requests for the purpose of valuing their shares between 2004 and 2014, but they never examined the records because of financial constraints. After Eva Tisch received funds in connection with an estate dispute in 2011,
¶ 9 So, on April 3, 2015, the Tisch siblings made another request to examine the Liquor Barn‘s records, and this time they hired an accountant, Matthew Lausten, to conduct that examination. On April 29, 2016, they filed a complaint that asserted eight causes of action: (1) declaratory judgment; (2) accounting; (3) alter ego; (4) fraud; (5) an individual claim for civil theft; (6) a shareholder derivative claim for civil theft; (7) an individual claim for breach of fiduciary duty; and (8) a shareholder derivative claim for breach of fiduciary duty.
¶ 10 Before trial, the court partially granted Gary‘s motion for summary judgment and dismissed the declaratory judgment and fraud claims as barred by applicable statutes of limitations. At a case management conference, the trial court capped expert fees at $35,000, and capped recoverable costs at $7000 under
¶ 11 The Tisch siblings presented their case primarily through Mr. Lausten, who by then had reviewed all of the Liquor Barn‘s financial
¶ 12 In particular, Mr. Lausten noted that insufficient receipts supported the QuickBooks expense entries and that the receipts that existed often did not identify the entity for which the expense had been incurred. He further noted that the Liquor Barn‘s records conflicted with the supporting documentation for intercompany transactions, expense reimbursements, and general operating expenses. Moreover, Mr. Lausten testified to strong indications that some of the Liquor Barn‘s inventory had been sold “off-book,” and he said that Gary would have been able to do this. In the end, he opined that Gary had received between $600,000 and $1.1 million
¶ 13 Gary testified and provided explanations for the discrepancies observed by Mr. Lausten. He said that as the sole director and majority shareholder, he had never made a distribution or declared a dividend; instead, he had focused his efforts on growing the business. He disputed Mr. Lausten‘s profit figures and described his efforts to remain competitive when laws changed that allowed retail liquor sales in grocery stores. The court precluded him from presenting his endorsed accounting expert, Catherine Moeller, because she admitted having altered the Liquor Barn‘s records after Mr. Lausten‘s initial review and had based her opinions on those altered records.
¶ 14 Gary raised the statute of limitations as an affirmative defense to civil theft and breach of fiduciary duty in his pleadings and in a motion for a directed verdict at the close of the evidence. He argued that the Tisch siblings either knew or reasonably should have known of their injuries in connection with previous requests to
¶ 15 After the jury‘s verdict, the court awarded the Tisch siblings treble damages on the civil theft claim and entered judgment against Gary and the Liquor Barn on April 20.2 Gary moved to amend the judgment, contending that the court erred in piercing the corporate veil and that this error would prejudice the Liquor Barn‘s creditors. He then filed a combined motion for new trial and relief from judgment, arguing, as relevant here, that the trial court erred in disqualifying his expert witness and in piercing the corporate veil.
II. Gary‘s Direct Appeal
¶ 17 Gary challenges the judgment on five grounds: (1) the court erroneously excluded his accounting expert; (2) the court erroneously found that the Liquor Barn and Gary were alter egos; (3) the court erroneously directed a verdict on his statute of limitations affirmative defense and wrongfully imposed treble damages for civil theft beyond the one-year statute of limitations; (4) the court erroneously submitted the individual civil theft claim to the jury because the Tisch siblings failed to show a sufficient property interest in undeclared distributions; and (5) insufficient evidence supported the jury‘s damage award. We reject his contentions and affirm the judgment.
¶ 18 Gary first contends that the trial court erroneously excluded his expert accountant‘s testimony based on her alteration of the Liquor Barn‘s financial records. He argues that the court was required to hold a hearing, under People v. Shreck, 22 P.3d 68, 70 (Colo. 2001), to assess the reliability of her testimony. He reasons that any inconsistencies went to the weight of her testimony and not to its admissibility.
¶ 19 Gary never asked the court for a Shreck hearing and he conceded in closing argument that the court had “properly ruled” that she should not be allowed to testify. Under these circumstances, we conclude that these issues were not preserved for our review. Vititoe v. Rocky Mountain Pavement Maint., Inc., 2015 COA 82, ¶ 60 (failure to raise issues waives them on appeal); see also In re Marriage of Robbins, 8 P.3d 625, 630 (Colo. App. 2000) (A party affects an express waiver “when [that] party states its intent to abandon an existing right.“).
B. Piercing the Corporate Veil
¶ 20 Gary next contends that the trial court erroneously found that he, as an individual, and the Liquor Barn were “alter egos.” He also
1. Additional Facts
¶ 21 Before trial, the parties agreed to try the alter ego claim to the court. At the end of the evidence, the court found as follows:
Well, I don‘t think it really matters, because whether it‘s an ex – if it‘s an alter ego, or it‘s not an alter ego, the claim‘s against this gentleman [Gary]. And he‘s the – the president, managing shareholder, whole – sole shareholder of any voting stock. So he is the alter ego, realistically. So I find he is the alter ego. Is there any – do you want to argue that with me?
¶ 22 Gary‘s counsel responded, “it – it‘s moot, Your Honor.” Counsel for the Tisch siblings disagreed it was moot, so the court made further findings:
I find the elements of alter ego. I find he is the alter ego, they‘re one and the same for the purp – for this purpose.
. . . .
He still has corporate shield and everything else. The corporation is a valid corporation. But he‘s – he is the sole controller of the corporation. . . . I‘m – you know, as to the purposes of this case, and given the parties in this case, and the way it‘s lined up, I am piercing the corporate shield as to him, in – as [to] these claimed damages.
¶ 23 Gary moved to amend the judgment, but he only argued that the alter ego determination was erroneous because an equitable result would not be achieved by piercing ― he never argued the court‘s ruling constituted inside reverse veil piercing.
2. Standard of Review and Relevant Law
¶ 24 Piercing the corporate veil and imposing liability for corporate obligations on the shareholders is an equitable remedy. Gorsich v. Double B Trading Co., 893 P.2d 1357, 1362 (Colo. App. 1994). Whether to exercise the equitable remedy and pierce the corporate veil is a mixed question of law and fact. See Stockdale v. Ellsworth, 2017 CO 109, ¶ 17. “We defer to the trial court‘s findings of fact if they are supported by the record, but [we] review the trial court‘s legal conclusions de novo.” Id. (quoting People v. Marquardt, 2016 CO 4, ¶ 8).
¶ 25 Generally, a duly formed corporation is a separate legal entity, distinct from its officers and shareholders. Micciche v. Billings, 727 P.2d 367, 372 (Colo. 1986). However, the corporate form may be disregarded by piercing the corporate veil when the corporation is merely the alter ego of the shareholder. In re Phillips, 139 P.3d 639, 644 (Colo. 2006). Traditional piercing of the corporate veil imposes liability on individual shareholders for the obligations of the corporation. Id. Reverse piercing of the corporate veil holds the corporation liable for the debts of a corporate insider. Id. at 645.
¶ 26 To determine whether sufficient unity of interest exists to establish alter ego, courts consider several factors, including whether
(1) the corporation is operated as a distinct business entity, (2) funds and assets are commingled, (3) adequate corporate records are maintained, (4) the nature and form of the entity‘s ownership and control facilitate misuse by an insider, (5) the business is thinly capitalized, (6) the corporation is used as a “mere shell,” (7) shareholders disregard legal formalities, and (8) corporate funds or assets are used for noncorporate purposes.
3. Application
¶ 28 We perceive no error in the trial court‘s decision to pierce the corporate veil because ample record evidence supports that decision. First, the record shows that (1) Gary commingled his personal funds with the Liquor Barn‘s funds and with his other companies’ funds in a way that made it unclear which funds belonged to whom; (2) Gary‘s individual position as the controlling and sole voting shareholder facilitated his misuse of the Liquor Barn‘s funds (as evidenced by the Liquor Barn paying his personal expenses, personal loans, and the expenses of his other companies); (3) Gary kept inadequate corporate records, including insufficient receipts and insufficient descriptions in QuickBooks; (4) the Liquor Barn was thinly capitalized because it had little to no retained
¶ 29 Second, the record shows that Gary used the corporate fiction to defeat the Tisch siblings’ rightful claims to distributions and, thus, that justice requires recognizing the substance of the relationship between Gary and the Liquor Barn over the corporate form. Indeed, the evidence demonstrates that Gary paid personal loans with corporate funds, and that he diverted the Liquor Barn‘s profits to his other companies. By classifying these payments from the Liquor Barn to himself as nondistributions, he avoided paying the Tisch siblings their 20% interest.
¶ 30 Third, we conclude that piercing the corporate veil achieves an equitable result. Because Gary commingled his funds with the Liquor Barn‘s, it is unclear which funds belong to Gary individually and which belong to the Liquor Barn. Therefore, the Tisch siblings should be able to collect from both. Further, there are no innocent shareholders who would be harmed by enforcing the judgment
C. Time Bars and Basis for Direct Civil Theft
¶ 31 Gary next contends that the statute of limitations bars the civil theft and breach of fiduciary duty claims. Alternatively, as to civil theft, he argues that, even if not barred, the Tisch siblings had no “proprietary interest” in the diverted funds since he never declared a distribution. Therefore, he reasons, no basis for civil theft exists. We are not persuaded.
¶ 32 Gary argues three errors related to the statute of limitations: (1) excluding letters from 2003 and 2004; (2) directing a verdict on his affirmative defense; and (3) awarding treble damages for civil theft that occurred outside the one-year statute of limitations. We perceive no error in the court‘s rulings.
a. Standard of Review and Preservation
¶ 33 We review a trial court‘s decision to exclude evidence for an abuse of discretion. In re Estate of Fritzler, 2017 COA 4, ¶ 6. A court abuses its discretion if its decision is manifestly arbitrary, unreasonable, or unfair, or if it misapplies the law. Id.
¶ 34 We review a trial court‘s ruling on a directed verdict de novo. MDM Grp. Assocs., Inc. v. CX Reinsurance Co., 165 P.3d 882, 885 (Colo. App. 2007). Such a motion can be granted only if the evidence compels the conclusion that reasonable jurors could not disagree because no evidence received at trial, or inference therefrom, could sustain a verdict against the moving party. Id. The trial court must view the evidence in the light most favorable to the nonmoving party. Id.
¶ 36 Initially, we reject the Tisch siblings’ contention that the directed verdict and treble damages issues were not preserved. The record reflects that the trial court directed a verdict on the statute of limitations affirmative defense over Gary‘s objection. And, it shows that Gary raised the statute of limitations as an affirmative defense to treble damages in his amended answer and in the proposed case management order. Therefore, we address these issues.
b. Analysis
¶ 37 We begin with Gary‘s contention that the statute of limitations barred submission of the civil theft claim to the jury because our resolution of this issue necessarily resolves the evidentiary issue. Gary relied on the Tisch siblings’ previous requests to inspect the Liquor Barn‘s books and, in particular, letters from 2003 and 2004,
¶ 38 Even considering the contents of the two letters, we conclude that no evidence establishes that the Tisch siblings knew or reasonably should have known of Gary‘s alleged mismanagement or
¶ 39 Moreover, Gary has not cited, nor are we aware of, any Colorado authority holding that a minority shareholder has an affirmative duty to examine corporate records to discover potential violations by a majority shareholder. Cf. Left Hand Ditch Co. v. Hill, 933 P.2d 1, 5 (Colo. 1997) (“Shareholders have a common law right to inspect the books and records of the corporation.“) (emphasis added); Van Schaack Holdings, Ltd. v. Van Schaack, 867 P.2d 892, 897-98 (Colo. 1994) (explaining that majority shareholders have an affirmative duty to disclose material facts relating to the value of stock to minority shareholders, but saying nothing about a minority shareholder‘s duty to discover information independently).
¶ 40 Because we conclude that the trial court properly directed a verdict on the statute of limitations affirmative defense, we need not decide whether it erred in precluding the admission of the letters under CRE 408. Even if we assumed the court erred, Gary has not explained how the letters were relevant, except to the statute of limitations, an argument that we have already rejected. See CRE 402 (“Evidence which is not relevant is not admissible.“); Neher v. Neher, 2015 COA 103, ¶ 33 (“An appellate court can affirm a trial court‘s ruling for any reason supported by the record, even if that reason was not argued to, or addressed by, the trial court.“).
¶ 41 Finally, we conclude that the treble damages award was not barred by the one-year statute of limitations. As relevant here, a party who prevails on a civil theft claim “may recover two hundred
(1) The following civil actions, regardless of the theory upon which suit is brought, or against whom suit is brought, shall be commenced within one year after the cause of action accrues, and not thereafter:
(d) All actions for any penalty or forfeiture of any penal statutes[.]
¶ 42 Gary argues that Mr. Lausten‘s receipt of the corporate records on April 15, 2015, started the one-year limitations period and required the Tisch siblings to file their civil theft claim by April 15, 2016, in order to seek treble damages. He reasons that this undisputed evidence conclusively establishes that the Tisch siblings knew or reasonably should have known of the facts underlying their civil theft claim on April 15, and that their claim, filed on April 29, 2016, was time barred. See
¶ 43 Mr. Lausten testified that he received the corporate records in April 2015, but Gary‘s counsel never asked timing-related questions on cross-examination, such as when Mr. Lausten began reviewing the records, when he first noticed evidence of mismanagement, or when he first discovered evidence to support civil theft. Further, although Gary‘s counsel attempted to elicit the Tisch siblings’ suspicions of Gary‘s mismanagement during the prior estate proceedings, both siblings denied any suspicions of mismanagement and said they first learned of mismanagement
¶ 44 On this record, we conclude that Gary failed to produce sufficient evidence of a period during which the Tisch siblings knew or reasonably should have known “of the general nature of damage and that the damage was caused by [Gary‘s] wrongful conduct.” Colburn v. Kopit, 59 P.3d 295, 297 (Colo. App. 2002). Gary does not cite, nor are we aware of, any authority holding that an expert‘s mere receipt of records establishes reasonable knowledge or begins the running of the statute of limitations.
¶ 45 Accordingly, we discern no error in the trial court‘s award of treble damages.
2. Sufficient Evidence Supports Individual Civil Theft Claim
a. Standard of Review
¶ 47 Although the parties briefed the issue based on denial of Gary‘s partial summary judgment motion, “[a] denial of a motion for summary judgment is not a final determination on the merits and, therefore, is not an appealable order.” Karg v. Mitchek, 983 P.2d 21, 25 (Colo. App. 1998). Nor is such a denial appealable after a final judgment. Id.
¶ 49 Here, Gary preserved this argument when he reraised it during trial and sought a directed verdict on the civil theft claim. The court denied the motion and the question whether the Tisch siblings alleged a sufficient basis for civil theft was submitted to the jury.
¶ 50 Directed verdicts are disfavored. Langlois v. Bd. of Cty. Comm‘rs, 78 P.3d 1154, 1157 (Colo. App. 2003). A directed verdict should be entered only where the evidence, considered in the light most favorable to the nonmoving party, “compels the conclusion that reasonable people could not disagree and that no evidence, or legitimate inference from the evidence, has been presented upon
b. Relevant Law
¶ 51 Section
¶ 52 A “proprietary interest” is an ownership interest in the subject property. See Webster‘s Third New Int‘l Dictionary 1819 (2002)
¶ 53 On the one hand, an alleged victim‘s status as a creditor of a debtor defendant, without more, does not establish that such person has a proprietary interest in any specific property. See, e.g., People v. Rotello, 754 P.2d 765 (Colo. 1988) (landlord did not own money that represented payment for beverages sold to others, even though rent was calculated based on gross income tenant allegedly had failed to report); Kelley v. People, 157 Colo. 417, 419, 402 P.2d 934, 935 (1965) (where the defendant was not an employee for the collection of funds and was not obligated to hold specific funds for the purpose of paying the gasoline company for gasoline he sold, the defendant merely owed money to the company and his nonpayment did not constitute theft).
¶ 54 But on the other hand, once a dividend is declared, a shareholder has the right to that money in his or her individual capacity. Erdman v. Yolles, 233 N.W.2d 667, 669 (Mich. Ct. App. 1975); see Cowin v. Bresler, 741 F.2d 410, 415 (D.C. Cir. 1984) (“Wrongful withholding of dividends, for example, gives rise to an individual cause of action. . . . Because dividends are an incident of stock ownership, an action to compel the payment of dividends will not inure to the benefit of the corporation . . . .“); 12B Fletcher Cyclopedia of the Law of Corporations § 5922, Westlaw (database updated Sept. 2018) (“A shareholder may sue the corporation or its officers to recover a dividend after it has been declared, since the shareholder then has a right to the money in an individual capacity.“). But what is a shareholder‘s interest in corporate profits misappropriated by a person who could have declared a distribution?
¶ 55 Of course, a corporate shareholder may not bring a direct action against a director or other third party whose action causes harm to the corporation. Instead, either the corporation itself, or a shareholder acting on behalf of the corporation in a derivative action under C.R.C.P. 23.1, must pursue such a claim. See Box v. Roberts, 112 Colo. 234, 238, 148 P.2d 810, 812 (1944); River Mgmt. Corp. v. Lodge Props. Inc., 829 P.2d 398, 403 (Colo. App. 1991). Still, in limited circumstances, a shareholder may bring a personal
¶ 56 In Erdman, 233 N.W.2d at 668, four hairdressers each owned a 25% interest in their corporation. The plaintiff stopped working at the business, but he retained his 25% interest in it. Id. After the plaintiff‘s departure, the other three shareholders liquidated corporate investments, which had been made during the plaintiff‘s active service, and distributed the proceeds among themselves as
¶ 57 Similarly, in Lengsfield v. Commissioner, 241 F.2d 508, 509 (5th Cir. 1957), an income tax deficiency case involving majority shareholders who were close relatives and drew large salaries from the corporation, the tax court was tasked with deciding whether monthly payments from the corporation to these shareholders constituted “distributions of corporate earnings,” taxable to the recipients, or whether they were “gratuities paid with donative intent,” not subject to taxation. Id. at 509-10. The tax court
¶ 58 As well, in Murphy v. Country House, Inc., 349 N.W.2d 289, 292 (Minn. Ct. App. 1984), the Minnesota Court of Appeals relied in part on Erdman to hold that corporate profits paid as bonuses to select shareholders of a closely held corporation in years of surplus profits constituted dividends to which all shareholders were entitled their proportionate share. Noting the absence of record evidence establishing any link between performance and the payment of the alleged bonuses, the court found that “the corporation instead distributed ‘bonuses’ only when fiscal reports showed sufficient income in the prior years.” Id. It held that “[a]lthough the Board neither classified the payments as dividends nor distributed the
¶ 59 Courts in other jurisdictions have similarly held that distributed corporate profits not formally declared as dividends in fact constituted dividends and formed the basis for a direct claim. See, e.g., Hanson v. Kake Tribal Corp., 939 P.2d 1320, 1322 (Ala. 1997) (payments under a financial security plan to select shareholders constituted a “dividend” to which all shareholders were entitled); Alliegro v. Pan Am. Bank, 136 So. 2d 656, 659-61 (Fla. Dist. Ct. App. 1962) (“[T]he mere fact that the distributions are not called ‘dividends’ by the board of directors of the corporation does not detract from such distributions being dividends.“); see also Stephenson v. Plastics Corp. of Am., 150 N.W.2d 668, 676 (Minn. 1967) (“In determining whether a transaction constitutes a ‘dividend,’ consideration must be given to the context in which the term dividend is used; the consequences that turn upon the answer to the question; and the facts of the particular case.“).
¶ 60 In their complaint, the Tisch siblings alleged that Gary had drained the Liquor Barn‘s profits through unauthorized loan payments, payments on personal credit cards, and payments to himself as an hourly employee, vendor, and officer. They asserted that Gary exercised complete control over these distributions, that these funds constituted profits that Gary distributed to himself although they were entitled to a 20% share, and that Gary acted with the intent to permanently deprive them of their interest in these profits.
¶ 61 First, we reject Gary‘s contention that civil theft was not cognizable because he had the sole discretion, as the majority shareholder, to authorize distributions, but he never did so. Instead, we agree with the trial court and the authorities cited above that whether the diversion of corporate profits constitutes a distribution is a question of fact. Here, the court instructed the jury that a distribution was a “direct or indirect transfer by [a] corporation of money or other property, . . . to or for the benefit of any of its shareholders in respect of any of its shares” that could be “in any form, including a declaration or payment of a dividend; a
¶ 62 We further conclude that the Tisch siblings had a distinct, proprietary interest in their share of these undeclared distributions that allowed them to bring an individual claim against Gary for civil theft. Compare Rhino Fund, LLLP v. Hutchins, 215 P.3d 1186, 1195 (Colo. App. 2008) (“An action will lie for the conversion of money where there is an obligation to return or otherwise particularly treat specific money.“) (emphasis added), with Huffman, 205 P.3d at 509 (explaining that an employee with stock options has no presently enforceable property right for a civil theft claim where the stock options are not presently enforceable); Ladd v. Ladd Constr., LLC, No. TTDCV074007051S, 2008 WL 4416048, at *1 (Conn. Super. Ct. Sept. 15, 2008) (“If a member or manager of a limited liability company commits a tortious act while on company business, he may be personally liable to an injured party.“); Moore v. Me. Indus. Servs., Inc., 645 A.2d 626, 630 (Me. 1994) (concluding that where the majority shareholders paid dividends only to themselves and excluded a minority shareholder from receiving dividends from a line of credit, the minority shareholder had a direct cause of action against the majority shareholders); Erdman, 233 N.W.2d at 669 (the failure to share distributions of profits constituted a proper basis for a direct action by the minority shareholder).
¶ 63 “The distinction between derivative and direct claims turns primarily on whether the breach of duty is to the corporation or to the shareholder(s) and whether it is the corporation or the shareholder(s) that should appropriately receive relief.” In re Ionosphere Clubs, Inc., 17 F.3d 600, 605 (2d Cir. 1994). Particularly for closely held corporations, it is important for the fact finder to determine whether diverted funds are actually distributions, because if only a derivative suit is permitted, the damages recovered simply revert to the wrongdoer. See Lynch v. Patterson, 701 P.2d 1126, 1130 (Wyo. 1985) (awarding damages to
¶ 64 Finally, we are not persuaded by Gary‘s argument that no civil theft occurred because his actions were done “with authorization.” The Tisch siblings never disputed Gary‘s authority to declare or not declare dividends. They simply alleged that his decision to use the Liquor Barn profits for personal and other business matters constituted a distribution that entitled them to a share of the funds distributed. Because a majority shareholder must share dividends with minority shareholders, Gary was not authorized to keep 100% of the distributions of the Liquor Barn‘s profits, and his decision to do so constituted civil theft. See Erdman, 233 N.W.2d at 669 (once dividends are declared a shareholder has a right to his or her portion of dividends).
¶ 65 In the end, and because Gary had the power to make distributions and declare dividends, we conclude that whether the diverted profits constituted a distribution in which the Tisch siblings had a proprietary interest was a question for the jury.
D. Sufficiency of Damages
¶ 66 Gary next contends that insufficient evidence supports the jury‘s total $450,000 damages award. Alternatively, he contends that the civil theft claim should be modified so that the Tisch siblings receive 20% of the $300,000 damage award. We discern no error.
1. Standard of Review
¶ 67 Determining the amount of damages is within the jury‘s discretion. Palmer v. Diaz, 214 P.3d 546, 552 (Colo. App. 2009). “[A]bsent an award so excessive or inadequate as to shock the judicial conscience and to raise an irresistible inference that passion, prejudice, corruption or other improper cause invaded the trial, the jury‘s determination of the fact is considered inviolate.” Higgs v. Dist. Court, 713 P.2d 840, 860-61 (Colo. 1985) (quoting Hurd v. Am. Hoist & Derrick Co., 734 F.2d 495, 503 (10th Cir. 1984)). An appellate court “will not disturb an award of damages unless it is completely unsupported by the record.” Averyt v. Wal-Mart Stores, Inc., 265 P.3d 456, 462 (Colo. 2011). That said, “a
¶ 68 We reject the Tisch siblings’ assertion that Gary did not preserve this issue because “the reasonableness of an award is always subject to judicial scrutiny in the post-trial and appellate stages of a case.” Averyt, 265 P.3d at 462.
2. Analysis
¶ 69 Gary asserts that no evidence shows that he stole $300,000 in distributions from the Tisch siblings because no evidence established the portion of hypothetical lost profits that should have been distributed as dividends. We disagree and conclude that he misapprehends the jury‘s findings. The jury found that Gary took funds for himself and his other companies, which it concluded constituted “distributions,” and that he failed to share 20% of those distributions with the Tisch siblings.
¶ 70 Mr. Lausten performed a comparative analysis to estimate the Liquor Barn‘s total lost profits. Based on these comparisons, he opined that the Liquor Barn experienced $2,172,436 in lost profits over a fifteen-year period. Twenty-percent of that amount —
¶ 71 Nor are we persuaded that the $300,000 award for civil theft should be reduced to $60,000 — or 20% of the total award. We disagree that the $300,000 award represents total distributions because the record shows total lost profits of approximately $2.2 million. Therefore, the $300,000 award reasonably reflects the portion of total profits that the jury believed the Tisch siblings should have received as a distribution.5
III. Cross-Appeal
¶ 72 The Tisch siblings raise three contentions in their cross-appeal: (1) the cap on expert witness fees was arbitrary; (2)
A. Expert Witness Fee Cap
¶ 73 The parties originally submitted a proposed case management order that did not include a fee cap. According to the minute orders, the trial court conducted a one-hour hearing on this proposed order. However, the Tisch siblings did not designate this hearing transcript as part of the record on appeal. See Colo. Dep‘t of Pub. Health & Env‘t v. Bethell, 60 P.3d 779, 787 (Colo. App. 2002) (concluding that the appellant is responsible for designating the record on appeal, and if we do not receive a complete record we presume it supports the trial court‘s conclusions). Following the hearing, the parties submitted a revised proposed case management order containing a cap on expert witness fees and general litigation costs. Without the hearing transcript, we cannot determine the parties’ positions on this revision or whether the court or the parties provided any justification for imposing these caps.
Any limitations on awardable costs:
Expert fees are capped at $35,000.00 per side, through trial. General litigation costs are capped at a total of $7,000.00 per side, including deposition and transcript costs, filing fees, copy costs, exhibits, appearance fees.
State the justifications for any modifications in the foregoing C.R.C.P. 26(b)(2) limitations:
Ordered by the judge.
¶ 75 Although not reflected in the order, the parties agree that the trial court orally told them that if either party sought to raise the limits on awardable costs, that party should file a motion to do so. Neither party requested an increase in the cap.
¶ 76 After the court entered judgment, the Tisch siblings submitted a bill of costs requesting $52,670.60 for their expert witness, without referencing the $35,000 cap or requesting relief from it. The Tisch siblings now complain that the cap was arbitrary. We conclude that they are not entitled to relief because they never availed themselves of the remedy provided by the court.
¶ 77 Trial courts have “considerable discretion in determining whether to award costs and what amount to award.” Valentine v. Mountain States Mut. Cas. Co., 252 P.3d 1182, 1187 (Colo. App. 2011); see Novel v. Am. Guar. & Liab. Ins. Co., 15 P.3d 775, 780 (Colo. App. 1999). An order awarding costs will stand absent a showing of a clear abuse of discretion. Gf Gaming Corp. v. Taylor, 205 P.3d 523, 526 (Colo. App. 2009). Similarly, as to expert witness fees, whether to award expert fees and in what amount are within the sound discretion of the trial court. Clayton v. Snow, 131 P.3d 1202, 1203 (Colo. App. 2006); Steele v. Law, 78 P.3d 1124, 1128 (Colo. App. 2003). We construe court rules de novo and, absent ambiguity, apply the language therein as written. See Northstar Project Mgmt, Inc. v. DLR Grp., Inc., 2013 CO 12, ¶ 12.
¶ 78 Under
2. Analysis
¶ 79 The relevant portion of
The proposed [case management] order shall state any modification to the amounts of discovery permitted in
C.R.C.P. 26(b)(2) , including limitations of awardable costs, and the justification for such modifications consistent with the proportionality factors inC.R.C.P. 26(b)(1) .
(Emphasis added.)
¶ 80 We begin with the rule‘s plain language, which requires a justification for limits placed on awardable costs consistent with the proportionality factors in Rule 26(b)(1). The rule‘s use of the word “shall” indicates that a justification is mandatory. See Tubbs v. Farmers Ins. Exch., 2015 COA 70, ¶ 10. Neither side identifies whether or where this justification occurred. The better practice would be to include the justification in the case management order. Nevertheless, we presume it occurred at the case management conference, given the statement “Ordered by the judge” and that consideration of these proportionality factors produced a cap
¶ 81 Additionally, we find significant the court‘s oral ruling permitting either side to seek relief from the caps, which recognizes the reality that estimates are not always correct and that the caps may be insufficient. Even so, the Tisch siblings never requested relief from the expert witness cap, either before judgment or in their bill of costs. Therefore, we discern no abuse of discretion in the trial court‘s refusal to award expert witness fees beyond the $35,000 cap. See Hallenbeck v. Granby Ditch & Reservoir Co., 160 Colo. 555, 573, 420 P.2d 419, 429 (1966) (“The record fails to reveal that the objector filed any such motion or that one was ever filed by anyone. After having been given the opportunity by the trial court
B. Contingent Fee Multiplier
¶ 82 The Tisch siblings next contend that the trial court should have based the attorney fees award on the treble damages amount, rather than on the jury‘s verdict, and they urge us to adopt a contingent fee multiplier. We decline their invitation to mandate a contingent fee multiplier and affirm the court‘s attorney fees award.
1. Standard of Review and Law
¶ 83 We review the reasonableness of an attorney fee award for an abuse of discretion. Planning Partners Int‘l, LLC v. QED, Inc., 2013 CO 43, ¶ 12. A court abuses its discretion when its ruling is manifestly arbitrary, unreasonable, or unfair, and we will not overturn a trial court‘s determination of a reasonable attorney fee award unless it is patently erroneous and unsupported by the evidence. Id.
¶ 84 An award of attorney fees must be reasonable. Tallitsch v. Child Support Servs., Inc., 926 P.2d 143, 147 (Colo. App. 1996). In awarding attorney fees, the trial court may consider (1) the amount
2. Application
¶ 85 Relying on Spensieri v. Farmers Alliance Mutual Insurance Co., 804 P.2d 268, 270 (Colo. App. 1990), the trial court noted that the existence of a contingent fee agreement was one factor to consider in determining reasonable attorney fees. It also noted that the lodestar amount “carries with it a strong presumption of reasonableness.” Id. After considering the Tisch siblings’ contingent fee agreement, the lodestar amount of $133,223.22, and “all other circumstances,” the court concluded that “the most reasonable way to calculate an award of attorney‘s fees here is to
¶ 86 The Tisch siblings cite no Colorado case law, nor have we found any, either requiring a trial court to give any greater effect to a contingency agreement in setting a reasonable fee or to apply a contingency percentage to a punitive award. Clearly, the trial court considered the contingent nature of the representation when increasing the lodestar amount. Thus, because the award is supported by the record, we discern no abuse of discretion. Tallitsch, 926 P.2d at 147.
C. Summary Judgment on Declaratory Relief
¶ 87 Finally, the Tisch siblings challenge the trial court‘s ruling granting Gary summary judgment on their declaratory judgment claim. That claim alleged improprieties in the number of owned shares and the division of voting and nonvoting stock stemming from father‘s failure to abide by the 1991 dissolution order and father‘s recapitalization of the business in 1997. The Tisch siblings claim they never knew their shares were converted to nonvoting
¶ 88 The trial court concluded that this claim was barred by the statute of limitations. It relied on language in a 2003 letter from their attorney to Gary stating, “The parties recognize that the 10% non-voting stock may be subject to a discount for lack of control, lack of marketability, et cetera . . . .” We discern no error in the court‘s ruling.
1. Standard of Review and Law
¶ 89 We review a trial court‘s ruling on a summary judgment motion de novo. Gibbons v. Ludlow, 2013 CO 49, ¶ 11. Summary judgment is appropriate when “there is no genuine issue as to any material fact,”
¶ 90 Any action to recover a liquidated debt or an unliquidated, determinable amount of money and for enforcement of rights set forth in any instrument must be commenced within six years of its accrual date.
2. Application
¶ 91 The parties do not dispute the contents of the letter or that the Tisch siblings were copied on it. As well, Gary attached copies of the original 1982 stock certificates to his summary judgment motion. They show that the Tisch siblings each received 1600 shares of stock, and that each certificate was signed by Daniel as secretary of the corporation.
¶ 92 The Tisch siblings also admitted, in their amended complaint, that they knew about the 1991 separation agreement, which entitled each of them to an additional 10% stock in the Liquor Barn. Thus, the 2003 letter‘s language identifying the Tisch siblings’
D. Appellate Attorney Fees
¶ 93 The Tisch siblings request their appellate attorney fees, claiming that Gary‘s appeal of the civil theft judgment was frivolous. We disagree because, although we have affirmed the trial court‘s rulings, we do not find that Gary‘s arguments are entirely without legal merit. Nevertheless, the Tisch siblings are entitled to reasonable appellate attorney fees under the civil theft statute.
¶ 94 The judgment is affirmed, and the case is remanded for the determination of reasonable appellate attorney fees related to the civil theft claim.
JUDGE WEBB and JUDGE ROMÁN concur.