Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-05-01981/USCOURTS-ca8-05-01981-0/pdf.json

Parties Involved:
Lindy Bostic
Appellee
Shannon Bostic
Appellee
Larry Goodnight
Appellant
Goodnight Farms
Appellant

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 05-1981

___________

Lindy Bostic, individually and *

derivatively in the name of and *

on behalf of Goodnight Farms, Inc., *

an Arkansas corporation; Shannon *

Bostic, individually and derivatively *

in the name of and on behalf of *

Goodnight Farms, Inc., an Arkansas * Appeal From the United States

corporation; * District Court for the

* Eastern District of Arkansas.

 Appellees, *

*

v. *

*

Larry Goodnight; Goodnight Farms, *

Inc., an Arkansas corporation; *

*

Appellants. *

___________

Submitted: January 12, 2006

Filed: April 24, 2006

___________

Before BYE, HEANEY, and COLLOTON, Circuit Judges.

___________

HEANEY, Circuit Judge.

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The Honorable James M. Moody, United States District Judge for the Eastern

District of Arkansas.

2

The dissolution process continues at this time.

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Larry Goodnight appeals from the district court’s1

 findings of fact and

conclusions of law. Specifically, he challenges the propriety and the accuracy of the

district court’s performance of an equitable accounting on the limited issue of selfdealing, following a jury determination that Goodnight had breached his fiduciary

duty to Goodnight Farms, Inc. (Goodnight Farms). We affirm.

BACKGROUND

Goodnight Farms was incorporated in Arkansas in February 2000 by Goodnight

and his wife, Julie Goodnight. It was formed as a cattle operation that would buy,

grow and feed, and then resell matured cattle for a profit. In January 2001, Lindy and

Shannon Bostic purchased a 50% interest in Goodnight Farms, and Larry and Julie

Goodnight retained the remaining 50% interest in the corporation. Under the new

ownership structure, each assumed a management role in the operation of Goodnight

Farms: Larry Goodnight served as president and sole director, Lindy Bostic as vicepresident, Shannon Bostic as secretary, and Julie Goodnight as treasurer.

The shareholders’ relationships soon soured. Due to disagreements regarding

the management of the corporation and following the Bostics’ discovery of

bookkeeping irregularities, the parties agreed to dissolve the corporation and signed

a dissolution agreement on April 16, 2002. The dissolution was in process2

 when, in

early 2003, the Bostics sued Goodnight alleging deceit, violation of federal and state

securities acts, and breach of fiduciary duty and corporate waste–a derivative claim

brought on behalf of Goodnight Farms. The Bostics requested monetary damages,

including attorneys’ fees and costs, and an equitable accounting of the corporate

funds. Goodnight filed an answer and asserted counterclaims against the Bostics for

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The Bostics’ federal securities act claim and Goodnight’s conversion claim

were disposed of before the case was submitted to the jury.

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conversion and breach of contract. Goodnight also requested monetary damages and

an equitable accounting.

Trial commenced in federal district court on October 4, 2004. During trial, the

district court informed the parties that it, not the jury, would perform the equitable

accounting on the self-dealing claim following the jury verdict. During the jury

instruction conference, Goodnight’s attorney expressed concern regarding the

potential for double damages on the breach of fiduciary duty claim. The district court

responded to Goodnight’s concern by instructing the jury not to include damages

related to self-dealing. 

Following a six-day trial, the jury found for Goodnight on the state securities

fraud act claim and his breach of contract counterclaim, but awarded no damages. The

jury found for the Bostics on the deceit and derivative breach of fiduciary duty claim

but awarded no damages, precluding any potential for double damages.3

 Both parties

subsequently submitted briefs on the issue of the accounting related to Goodnight’s

alleged self-dealing. 

On December 3, 2004, the district court entered findings of fact and conclusions

of law on the self-dealing issue. In its conclusions of law, the district court, relying

on Arkansas law, determined that Goodnight was a fiduciary of the corporation, and

therefore had the burden of demonstrating that the funds he withdrew from the

corporation and deposited into his personal account were expended for the benefit of

the corporation. It found that Goodnight failed to meet this burden and that he had

diverted $1,741,417.62 in corporate funds for his own benefit. Accordingly, the court

ordered Goodnight to pay the Bostics their 50% share of the diverted amount:

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$870,708.81. The district court further concluded that Goodnight was not entitled to

an accounting.

In response, Goodnight filed motions: (1) to amend the district court’s findings

of fact and judgment, (2) for a new trial, and (3) to alter or amend the judgment. In

support of the motions, Goodnight argued that the district court erred in finding

against him on the self-dealing claim, that the district court erred in not crediting

Goodnight’s contributions toward the amount it awarded the Bostics, and that the

district court made several mistakes of fact. The district court denied Goodnight’s

motions. He now appeals.

ANALYSIS

Goodnight raises three issues related to the district court’s accounting. First,

he asserts that the district court erred in not allowing the jury to conduct the

accounting on the issue of self-dealing. Second, he argues that the equitable

accounting was inappropriate because the relief sought was legal rather than equitable.

Finally, he argues that if an accounting was appropriate, it should have credited his

contributions to the corporation.

“We review the district court’s factual findings for clear error and the legal

conclusions it draws from these factual findings de novo.” Clay v. Bd. of Educ., 90

F.3d 1357, 1361 (8th Cir. 1996). Goodnight alleges for the first time on appeal that

the district court’s performance of the accounting on the self-dealing claim violated

his constitutional right to a jury trial. The Seventh Amendment guarantees the right

to a trial by jury “[i]n [s]uits at common law.” U.S. Const. amend. VII. Nonetheless,

this right may be waived. See Fed. R. Civ. P. 38(d) (failure to timely serve and file

a jury demand “constitutes a waiver by the party of trial by jury”). Additionally, even

if a jury trial is properly demanded, a party may still waive its right to a jury trial by

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Goodnight’s attorney later reasserted his objection based on the potential for

double recovery: 

Your Honor, so I have made myself clear on the record, it looks like we

are trying to get the same case to the jury and then in front of the Court

for an accounting under various theories. And that concerns me that if

my client is found liable for any of it, that he’s going to get stuck with

a double recovery, not because you would make a mistake in that regard

but because we wouldn’t know what the jury included in their verdict.

 (J.A. at 155-56.)

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failing to “object to the submission of a case to the judge instead of a jury.” Allen v.

Barnes Hosp., 721 F.2d 643, 644 (8th Cir. 1983) (per curiam). 

Goodnight argues that he did not waive his right to jury determination on the

accounting issue because his trial counsel made the following statement: “What I’m

worried about, Your Honor, is asking the jury to award those [damages] under

something like common law or deceit and then submitting the fiduciary duty to you

for accounting, which is what is being proposed, and those being awarded twice.”

(J.A. at 153-54.) Goodnight neglects the fact that the stated objection was made to

specific items the Bostics proposed for consideration by the jury, not to the court’s,

rather than the jury’s, determination of the self-dealing issue. (See id. at 153

(Goodnight’s attorney states, “[t]hat’s what they are going to ask you to do in the

accounting. We can’t let the jury decide.”).) Furthermore, Goodnight’s objection was

to the potential for double recovery, not to the court’s decision to consider the claim.

(See id. at 154 (“The concern I guess that I have is that the jury is going -- on their

verdict form is going to write down a number, and we are not going to know what of

this it included and what it didn’t.”).4

) The district court addressed this objection by

instructing the jury not to award damages for the self-dealing claim, and by assuring

the parties that it would review the jury verdict to be certain that double damages were

not awarded. Since Goodnight’s objection was based on the potential for double

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damages rather than the Seventh Amendment, we find that Goodnight waived his right

to a jury trial on the self-dealing claim by failing to object to the submission of that

issue to the district court rather than the jury. Allen, 721 F.2d at 644.

Even if Goodnight had properly objected to the district court’s performance of

the accounting, we find no error in characterizing this claim as equitable under

Arkansas law. Arkansas law provides for shareholder derivative actions in equity to

recover the corporation’s property that was “wrongfully diverted” by one of the

corporation’s directors through the director’s breach of trust. Red Bud Realty Co. v.

South, 131 S.W. 340, 344-45 (Ark. 1910). As president of Goodnight Farms,

Goodnight owed a fiduciary duty to the corporation and its shareholders. See A&P’s

Hole-in-One, Inc. v. Moskop, 832 S.W.2d 860, 863 (Ark. App. 1992). “The duty to

account has been specifically applied to corporate officers who control a corporate

enterprise and its funds.” Id. “An accounting is an equitable remedy designed to

provide a means for compelling one, who because of a confidential or trust

relationship has been entrusted with property of another, to render an account of his

actions and for the recovery of any balance found to be due.” Id.; see also Red Bud

Realty, 131 S.W. at 347 (holding that director who diverted corporate funds to pay his

personal debts must “account” for the corporation’s funds that he diverted). 

Goodnight asserts that the district court erred by relying on A & P’s Hole-InOne, based on Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962). Goodnight argues

that Dairy Queen held that if a plaintiff includes equitable and legal claims in the same

cause of action, an equitable claim for an accounting is rendered legal for purposes of

determining the right to a jury. As such, Goodnight further argues that A&P’s Holein-One is not constitutionally sound because it conflicts with Dairy Queen. We find

Goodnight’s interpretation of Dairy Queen unpersuasive. There, the plaintiff sought

an equitable accounting for damages resulting from an alleged breach of contract, and

in that case, the trial court had denied the petitioner’s demand for a jury trial based on

its determination that the action was “‘purely equitable’ or, if not purely equitable,

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whatever legal issues that were raised were ‘incidental’ to equitable issues, and, in

either case, no right to trial by jury existed.” Dairy Queen, 369 U.S. at 470. 

The Supreme Court held that the petitioner was entitled to trial by jury on the

factual issues regarding the breach of contract claim. Id. at 480. The Court did not,

however, hold that the petitioner was also entitled to a jury trial on its claim of

equitable relief, but rather that “the legal claims involved in the action must be

determined prior to any final court determination of respondents’ equitable claims.”

Id. at 479-80 (emphasis added). In Ross v. Bernhard, 396 U.S. 531 (1970), the

Supreme Court considered the right to a jury trial in actions involving both legal and

equitable issues in the context of a shareholder derivative suit. There, the Court

affirmed the right in a derivative suit to a jury determination of issues common to the

legal and equitable claims joined in the same action, but declined to expand Dairy

Queen to include the right to a jury trial on the “other” equitable claims. 396 U.S. at

537-38, 542-43 (citing Dairy Queen, 369 U.S. 469). Accordingly, “where a single

action involves both legal and equitable claims, the court must conduct a jury trial of

the legal claims first.” Perkins v. Spivey, 911 F.2d 22, 34 (8th Cir. 1990) (interpreting

Dairy Queen, 369 U.S. 469, and Beacon Theatres, Inc. v. Westover, 359 U.S. 500

(1959)); see also Lytle v. Household Mfg., Inc., 494 U.S. 545, 550 (1990)

(recognizing that “Beacon Theatres emphasized the importance of the order in which

legal and equitable claims joined in one suit would be resolved”). 

Here, the district court conducted a jury trial of the legal claims before it

performed the equitable accounting. Furthermore, the jury found that Goodnight had

breached his fiduciary duty to the corporation. The district court did not err in

characterizing the accounting as an equitable, rather than legal, remedy under

Arkansas law.

Finally, Goodnight alleges that, if it was proper for the district court to perform

the accounting, then this court should remand and order the district court to perform

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an accounting of all of the corporation’s assets and debts. This accounting would

include consideration of contributions Goodnight made to the corporation, and funds,

if any, that the Bostics owe the corporation. Goodnight misinterprets the purpose of

the accounting performed by the district court. The accounting it performed was

essentially a calculation of restitution owed to the corporation by Goodnight based on

his diversion of corporation funds for his own benefit. Goodnight presented no

evidence of self-dealing by the Bostics. 

Goodnight requests an accounting that is part of the dissolution process, in

which all of the debts and accounts of the corporation are settled and then the

remaining assets are distributed to the shareholders according to their interest in the

corporation. It is during that process Goodnight’s contributions to the corporation will

be accounted for. See Ark. Code Ann. § 4-27-1405(A)(1)-(5). The district court did

not err in limiting the accounting to only those funds that Goodnight diverted from the

corporation for his own benefit.

CONCLUSION

For the above-stated reasons, we affirm the district court.

______________________________

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