Source: http://mn.gov/law-library-stat/archive/supct/9706/c2951218.htm
Timestamp: 2017-11-25 02:07:40
Document Index: 245634735

Matched Legal Cases: ['§ 542', '§ 541', '§ 336', '§ 336', '§ 336', '§ 336', '§ 302', '§ 548', '§ 16', '§ 542', '§ 1281']

DLH, Inc., petitioner, Appellant, vs. David A. Russ, Respondent, Mark Cohn, et al., Respondents. C2-95-1218, Supreme Court, June 19, 1997.
C2-95-1218
Took no part: Stringer, J.
DLH, Inc., petitioner,
David A. Russ,
Mark Cohn, et al.,
Summary judgment is proper when, after a motion for summary judgment is made and supported, the nonmoving party fails to present specific facts showing that there is a genuine issue of material fact necessitating a trial.
On June 13, 1986, the same day that David Russ signed his employment agreement with Damark, David and Diane Russ opened a joint checking account in the name of "Russ, Diane M or David A, BBA Ruwest." David Russ' social security number was used as the tax identification number for the account. Also on June 13, 1986, David Russ, Ruwest, Cohn, and an investment company called Central Investment Corporation (Central) entered into a Memorandum of Intent by which Central agreed to purchase 20% of the outstanding shares of Damark for $25,200 and to secure a line of credit for Damark. The parties contemplated that after the transaction, Ruwest and Cohn would each be 40% stockholders of Damark, and that the principals of Central would own 20% of the stock. Accordingly, a stock certificate was issued to Ruwest on June 13, 1986 for 400 shares of Damark. Three days later, a Certificate of Assumed Name for "Ruwest Company" was filed by Diane Russ. On June 17, 1986, Diane Russ signed a $400 check to Damark from Ruwest for "stock--RuWest."
After the transactions on December 15, 1986, Wade owned 30% of the Damark stock, Cohn owned 35%, and Ruwest owned 35%. However, when Wade prepared Damark's 1986 tax returns, he listed "Dave Russ," rather than Ruwest, as a 35% shareholder of Damark. A Schedule K-1 attached to Damark's 1987 U.S. Income Tax Return for an S Corporation -- Form 1120S -- prepared by a paid tax preparer in October 1989 for the period beginning January 1, 1987 and ending April 30, 1987 also lists David Russ as a Damark stockholder. The Schedule K-1 indicates that David Russ was a 33 1/3% owner of Damark and the holder of 333 shares. [1] But on Damark's application to elect S Corporation status, Ruwest is listed as owning 400 shares of Damark. Cohn stated that the preparers of the Schedule K-1 may have incorrectly assumed that David Russ owned the stock because Damark first employed them in mid-1988 and 1989 when David Russ was, in fact, a record shareholder.
In 1986, Damark lost $47,121 on sales of $1,330,777. During the period between January 1, 1987 and April 30, 1987, Damark lost $111,803 on sales of $774,034. In about March 1987, Wade developed an "exit strategy" to leave Damark. In his view, the company had never made any money and he saw no prospects of it doing so. Wade stated that his "exit strategy" was a calculated proposal to limit his loss to $120,000. On March 13, 1987, Wade entered into an Option Agreement with David Russ, Ruwest, and Cohn under which he agreed to sell all of his Damark stock to Damark for the aggregate sum of $1. Concerned about his securities pledged as collateral to the bank, Wade also agreed to pay $50,000 to the bank in exchange for an unsecured promissory note from Damark and release from his guarantee of Damark's liabilities to the bank.
Schedule E of Damark's 1987 U.S. Corporation Income Tax Return -- Form 1120 -- signed on April 4, 1988 by Cohn as president, indicates that David Russ and Cohn were each officers of Damark and each owned 25% of the Damark stock. This return does not list the name of a paid preparer. Because the preparer did not fill in the blanks for the dates the tax year began or ended, presumably the return was meant to cover the entire calendar year of 1987.
Meanwhile, the Ruwest joint checking account opened by David and Diane Russ was closed on January 28, 1987. On April 30, 1987, Diane Russ, as "proprietor" of Ruwest, signed an agreement to transfer Ruwest's 400 shares of Damark stock to Cohn for $1,000. Cohn testified that Diane Russ told him that she initiated the sale because "[s]he needed the money." On the back of Ruwest's stock certificate is written the following:
The stock certificate indicates that the above statement was signed by Diane Russ in the presence of David Russ. Schedule D -- Capital Gains and Losses -- attached to David and Diane Russ' 1987 joint individual tax return reflects that Damark stock, which was acquired on March 1, 1986 for $1,900, was sold on April 30, 1987 for $1,000, thus representing a $900 loss. [2]
Cohn stated in an affidavit that he took possession of Ruwest's endorsed stock certificate and delivered it to Steven Timmer, Damark's corporate attorney and assistant secretary, whom Cohn had appointed as custodian of his Damark shares. Timmer stated in an affidavit that the agreement to transfer Ruwest's stock and the endorsed stock certificate were delivered to him "within a few days of April 30, 1987. Upon receipt of these documents, Timmer understood that he was to record the transfer in Damark's stock register and to issue a new stock certificate to Cohn. The Damark stock register reflects that a new certificate for 400 shares of Damark stock "From Ruwest to Mark A. Cohn per agreement dated 4/30/87" was issued on July 10, 1987.
David Russ continued to work full-time with Damark throughout 1987. That year, Damark lost $470,000 on sales of $4,852,000. As "an incentive [for David Russ] to use his best efforts to build and develop Damark's business," Cohn agreed to transfer 400 shares of his Damark stock to David Russ as of January 2, 1988. On that date, Damark issued a stock certificate to David Russ for 400 shares of Damark stock "per agreement of 1/2/88." A note from David Russ to his attorney dated January 18, 1988 instructed the attorney to "draw up Stock Agreement Between Mark & I * * * As of 1/1/88." On January 1, 1988, Damark had a negative book value of $369,310. A 1988 U.S. Corporation Income Tax Return prepared by Damark's paid tax preparer represented that David Russ and Cohn were each officers and each owned 24.5% of Damark's stock.
David Russ' financial statement dated July 15, 1992 indicates that as of that date, he owned 999,545 shares of Damark stock, worth $5,659,179. Cohn and Damark assert that by 1993, Damark had annual revenues of $364 million and a customer list of nearly 8 million. As the result of public offerings on the NASDAQ National Market System, Damark stock is now publicly traded. Cohn stated in his affidavit of March 8, 1994 that at the close of trading on March 7, 1994, the per share trading price of Damark stock was $29 1/4. [3]
The genesis of the lawsuit that is now before this court was when Kevin Lamson encountered David Russ in an unrelated matter. Lamson has an ownership interest in a company known as Merit Acquisition, which is in the business of buying judgments, defaulted bonds, notes, and mortgages. In May 1992, Warren Utz, a business partner of Lamson's, purchased a promissory note executed by Immedia Duplication Services, Inc. (Immedia) at a sheriff's sale in order to create a "windfall situation[ ]." It was a $350,000 promissory note, but Utz paid $600 for it. Lamson eventually became involved in litigation related to the bankruptcy of Immedia, which caused him to undertake some investigation of the business history and background of David Russ. Lamson stated that "the hair on the back of my neck stood up when I found out that they were ripping the assets out from underneath Warren Utz' security interest, so I started a fairly simple background research review of Mr. Russ * * *." Lamson learned that Russ owned an interest in Damark and had filed personal bankruptcy in 1987, but that his ownership interest, if any, in Damark had not been administered. Lamson stated that he again saw a business opportunity, so Merit Acquisition sent out offers to all of the bankruptcy claimants in Russ' bankruptcy. Merit Acquisition purchased approximately ten bankruptcy claims against David Russ' bankruptcy estate. The claims had a value of approximately $275,000 or more and were purchased for approximately $15,000. Upon Lamson's application, the bankruptcy court reopened the David Russ bankruptcy case on August 12, 1993.
After a hearing on March 16, 1994, the bankruptcy court issued an order approving the sale to DLH "as is, where is, with no representations or warranties, all right, title and ownership interest in Damark International, Inc. or its stock which is currently property of the bankruptcy estate," and all of the estate's claims and causes of action against David Russ, Cohn, Ruwest, or Damark relating to the ownership and/or transfer of stock in Damark owned by David Russ or Ruwest. The approved sale price was $350,000. At the motion hearing, the court stated:
I think what the Trustee is saying to the buyer is "whatever I have, and I believe in good faith that I have some claims, I am selling to you." And that's really all that is going on here, and I can't tell you the number of times I've approved that kind of sale where the Trustee is unsure -- unable to determine exactly what the interest is or what a litigation might determine. Trustee sells it to whoever wants to buy it, and if DLH was stupid enough to pay $350,000.00 for it, so be it.
On March 25, 1994, DLH filed a verified complaint against David Russ, Cohn, and Damark, seeking a declaratory judgment that on March 16, 1994, DLH became the legal and equitable owner of 1.54 million shares of Damark stock. DLH also sought damages of $46,200,000 for conversion of the stock or, in the alternative, an order directing replevin of the 1.54 million shares in the possession or control of David Russ, Cohn, and Damark. DLH alleged that David Russ had an ownership interest in Damark stock which "had been previously concealed" by Russ when he filed his bankruptcy petition. DLH also alleged that after his bankruptcy filing, David Russ transferred Damark stock to Cohn and Damark, and that both Cohn and Damark had knowledge at the time of these transfers that David Russ was not the rightful owner of the stock. Additionally, DLH sought an order enjoining David Russ, Cohn, and Damark from selling, transferring, or otherwise disposing of the stock or its proceeds. [4]
After a hearing, the district court granted David Russ' and Cohn and Damark's motions for summary judgment. The court reasoned that DLH could have no greater rights than the bankruptcy trustee. The court then concluded that the bankruptcy trustee had no cause of action for replevin or conversion because David Russ did not own Damark stock prior to filing bankruptcy and because there had been no evidence to demonstrate that David Russ had any right to possess such stock at the time he filed bankruptcy. Therefore, the court concluded, DLH had no cause of action for replevin or conversion. Rather, the court noted, the only possible cause of action available to either the bankruptcy trustee or possibly DLH would have been a fraudulent transfer action.
DLH appealed to the court of appeals, and a divided panel affirmed. DLH, Inc. v. Russ, 544 N.W.2d 326, 331 (Minn. App. 1996). The court of appeals determined that even if David Russ was the actual owner of Ruwest's Damark stock, DLH had no basis for a conversion claim because the record showed that the stock was sold before David Russ filed bankruptcy. Id. at 329. The court held that an actionable conversion did not occur when David Russ sold the stock prior to bankruptcy because the bankruptcy trustee inherited David Russ' property rights when he filed bankruptcy, and David Russ did not possess a cause of action for conversion against himself to pass to the trustee. Id. at 330. The court noted that the bankruptcy trustee could have brought a fraudulent transfer action, but that this action was not assignable to DLH, and, in any event, DLH did not plead fraud in its complaint. Id. The court also concluded that DLH did not inherit a claim to turn over the assets of the bankruptcy estate under 11 U.S.C. § 542(a) (1982) because the Damark stock never became part of the bankruptcy estate. DLH, 544 N.W.2d at 330. Finally, the court held that the statute of limitations issues were moot because DLH had no valid conversion claim and did not plead fraud. Id. at 331.
The overriding issue in this case is whether the district court erred in entering summary judgment in favor of David Russ, Cohn, and Damark. Rule 56 of the Minnesota Rules of Civil Procedure is designed to implement the stated purpose of the rules--securing a just, speedy, and inexpensive determination of an action--by allowing a court to dispose of an action on the merits if there is no genuine dispute regarding the material facts, and a party is entitled to judgment under the law applicable to such facts. In re Estate of Bush, 302 Minn. 188, 211, 224 N.W.2d 489, 503 (1974) (citation omitted). Accordingly, rule 56 provides that summary judgment is proper when the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any, submitted "show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law." Minn. R. Civ. P. 56.03. When a motion for summary judgment is made and supported, the nonmoving party must "present specific facts showing that there is a genuine issue for trial." Minn. R. Civ. P. 56.05. If the nonmoving party does not so respond, "summary judgment, if appropriate, shall be entered" against the nonmoving party. Id.
Much case law and commentary has focused on defining what constitutes a genuine issue of material fact which presents the need for a trial. In 1986, the United States Supreme Court issued a "trilogy" of opinions interpreting the Federal Rules of Civil Procedure which are instructive on this point, particularly in light of the fact that the relevant language of the state and federal rules is identical. See Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). In Matsushita, the Court stated that "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" Matsushita, 475 U.S. at 587. In Liberty Lobby, the Court held that there is no genuine factual issue for trial "unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." 477 U.S. at 249. The Court held that the district court's inquiry is "whether there is a need for a trial--whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 250. The Court noted that this standard "mirrors the standard for a directed verdict" under the federal rules; if there can be but one reasonable conclusion as to the verdict, a directed verdict is appropriate, but if reasonable minds could differ as to the import of the evidence, a directed verdict is inappropriate. Id. at 250-51. "[T]he inquiry under each is the same," the Court stated, "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52.
We have never explicitly held that the standard for granting summary judgment in Minnesota mirrors the standard for directing a verdict, nor do we feel compelled to do so. [5] We have held, however, that summary judgment is inappropriate when reasonable persons might draw different conclusions from the evidence presented. Illinois Farmers Ins. Co. v. Tapemark Co., 273 N.W.2d 630, 634 (Minn. 1978). [6] In Murphy v. Country House, Inc., we stated that a "genuine issue" of material fact for trial "must be established by substantial evidence." 307 Minn. 344, 351, 240 N.W.2d 507, 512 (1976). We went on to state that what constitutes "substantial evidence" is not defined, "but it has been applied to require evidence sufficient to avoid a directed verdict at trial." Id. We concluded that "substantial evidence" "refers to legal sufficiency and not quantum of evidence." Id. We pointed out that the function of the district court on a motion for summary judgment is not to weigh the evidence. Id. We note that several decisions of the Minnesota Court of Appeals have cited Murphy for the proposition that a "genuine issue" must be established by evidence sufficient to avoid a directed verdict at trial. [7]
We recognize the differences between a summary judgment and a directed verdict. A summary judgment motion is usually made before trial and decided on the pleadings, depositions, answers to interrogatories, admissions, affidavits, and documentary evidence, if any, while directed verdict motions are made at trial and decided on all of the evidence that has been admitted in the course of trial. See Liberty Lobby, 477 U.S. at 251 (quoting Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731, 745 n.11 (1983)). At trial, cross-examination is available, the judge has the opportunity to observe witnesses, and documents can be explained. Accordingly, the district court should only grant a directed verdict when the court would be obligated to set aside a contrary verdict by the jury as being manifestly against the entire evidence because reasonable persons could draw only one conclusion from the evidence presented. Coleman v. Huebener, 269 Minn. 198, 203, 130 N.W.2d 322, 325 (Minn. 1964) (citations omitted).
The district court's function on a motion for summary judgment is not to decide issues of fact, but solely to determine whether genuine factual issues exist. See Nord v. Herreid, 305 N.W.2d 337, 339 (Minn. 1981) (citing Anderson v. Twin City Rapid Transit Co., 250 Minn. 167, 186, 84 N.W.2d 593, 605 (1957)). We reiterate that the court must not weigh the evidence on a motion for summary judgment. See Murphy, 307 Minn. at 351, 240 N.W.2d at 512; Fairview Hosp. & Health Care Servs. v. St. Paul Fire & Marine Ins. Co., 535 N.W.2d 337, 341 (Minn. 1995). However, when determining whether a genuine issue of material fact for trial exists, the court is not required to ignore its conclusion that a particular piece of evidence may have no probative value, such that reasonable persons could not draw different conclusions from the evidence presented.
With this background, we must consider what evidence a nonmoving party must present in order to demonstrate that there is a genuine issue of material fact which presents the need for a trial. Again, the Supreme Court "trilogy" is instructive. In Matsushita, the Court interpreted language in the federal rule paralleling Minn. R. Civ. P. 56.05, and held that the nonmoving party must "do more than simply show that there is some metaphysical doubt as to the material facts." 475 U.S. at 586. The Court held that the nonmoving party, an antitrust plaintiff, must show that the inference of conspiracy was "reasonable," rather than merely possible, in light of the competing inferences. Id. at 588. In Liberty Lobby, the Court stated that summary judgment may be granted against a nonmoving party whose evidence is "merely colorable," or "is not significantly probative." 477 U.S. at 249-50. The Court also stated that "the mere existence of a scintilla of evidence in support of the [nonmoving party/]plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the [nonmoving party/]plaintiff." Id. at 252. In Celotex, the Court held that when the nonmoving party bears the burden of proof on an element essential to the nonmoving party's case, the nonmoving party must make a showing sufficient to establish that essential element. [8] 477 U.S. at 322-23.
Several of this court's holdings are consistent with the language in Matsushita, Anderson, and Celotex. In Bob Useldinger & Sons, Inc. v. Hangsleben, our court cited with approval the proposition that a "metaphysical doubt" as to a factual issue will not defeat a summary judgment motion. 505 N.W.2d 323, 328 (Minn. 1993). In Nicollet Restoration, Inc. v. City of St. Paul, we held that a moving party is entitled to summary judgment when "there are no facts in the record giving rise to a genuine issue for trial as to the existence of an essential element of the nonmoving party's case." 533 N.W.2d 845, 847-48 (Minn. 1995) (citing Celotex, 477 U.S. at 322); see also Lubbers v. Anderson, 539 N.W.2d 398, 401 (Minn. 1995) (summary judgment mandatory for the defendant when "the record reflects a complete lack of proof on an essential element of the plaintiff's claim").
From a reading of our precedents and an understanding of the Supreme Court's analysis in the "trilogy," we conclude that while the Supreme Court uses different language, the import of its analysis is the same--the party resisting summary judgment must do more than rest on mere averments. As a result, we need not specifically adopt the language of the trilogy. We have a long line of authority by which we have established the standard with regard to how a district court determines if summary judgment is appropriate in a particular case. Accordingly, we hold that there is no genuine issue of material fact for trial when the nonmoving party presents evidence which merely creates a metaphysical doubt as to a factual issue and which is not sufficiently probative with respect to an essential element of the nonmoving party's case to permit reasonable persons to draw different conclusions.
Having discussed the appropriate standard for summary judgment, we turn to the issue of whether the district court properly granted summary judgment against DLH on its conversion claim. Conversion is an action at law. Boyum v. Massachusetts Investors Trust, 215 Minn. 485, 488, 10 N.W.2d 379, 381 (Minn. 1943). It is defined as an act of willful interference with personal property, done without lawful justification by which any person entitled thereto is deprived of use and possession. Larson v. Archer-Daniels-Midland Co., 226 Minn. 315, 317, 32 N.W.2d 649, 650 (1948); see also Humphreys v. Minnesota Clay Co., 94 Minn. 469, 471-72, 103 N.W. 338, 339 (1905). DLH's theory of recovery on the conversion claim is as follows. DLH claims that David Russ owned 400 shares of Damark stock when he filed for bankruptcy on July 10, 1987, and that on that date David Russ' ownership interest automatically passed to the bankruptcy estate. See 11 U.S.C. § 541(a) (1982 & Supp. 1987); Drewes v. Schonteich, 31 F.3d 674, 676 (8th Cir. 1994). DLH claims that it subsequently acquired an ownership interest in 400 shares of Damark stock from the bankruptcy trustee. DLH asserts that a conversion occurred when David Russ, Cohn, and Damark refused DLH's March 17, 1994 demand for the stock certificates. DLH concedes that if David Russ had no legal or equitable ownership interest in the Damark stock when he filed for bankruptcy on July 10, 1987, then "DLH loses" because the bankruptcy trustee would have had no ownership interest in Damark stock to sell to DLH.
In support of their motions for summary judgment, David Russ, Cohn, and Damark have submitted evidence that Ruwest transferred its 400 shares of Damark stock to Cohn on April 30, 1987. They have submitted an agreement dated April 30, 1987, signed by Diane Russ as proprietor of Ruwest, transferring Ruwest's 400 shares of Damark stock to Cohn. They have submitted a cancelled Damark stock certificate for 400 shares which is endorsed by Diane Russ. The endorsement purports to transfer the shares represented by the certificate to Cohn and to authorize Damark's corporate attorney, Steven Timmer, to record the transfer on Damark's corporate record books on April 30, 1987. They have submitted an affidavit by Cohn in which he stated that he purchased the 400 shares of Damark stock from Ruwest on April 30, 1987, took possession of the stock certificate, and delivered it to Timmer. They have also submitted Timmer's affidavit in which he stated that the agreement and the endorsed stock certificate were delivered to him within a few days of April 30, 1987 and that he understood he was to record the transfer on the corporate record books and to issue a new stock certificate to Cohn. Under Minnesota law, "[a]ll that is required to effectuate a valid transfer of securities between the parties to the transfer is delivery with the intent to change ownership." Brener v. Industrial Steel Container Co., 303 Minn. 275, 280, 228 N.W.2d 115, 118 (1975); see also Minn. Stat. § 336.8-301 (1986) (repealed 1995); Minn. Stat. § 336.8-104 (a) (1996). "Delivery" occurs when the purchaser acquires possession of the security certificate. Minn. Stat. § 336.8-313(1)(a) (1986) (repealed 1995); Minn. Stat. § 336.8-301 (1996). The evidence submitted by David Russ, Cohn, and Damark demonstrates that Ruwest delivered 400 shares of Damark stock to Cohn on April 30, 1987 with intent to change ownership of the stock. David Russ, Cohn, and Damark have amply supported the premise of their motions for summary judgment, which premise is that no Damark stock was owned by David Russ when he filed for bankruptcy on July 10, 1987.
DLH first points to the Damark stock register. DLH claims that the stock register "lists 'Ruwest Company' as the owner of 400 shares of Damark stock as of July 10, 1987." This is a mischaracterization of the contents of the stock register. The stock register provides that on July 10, 1987, a new stock certificate for 400 shares of Damark stock was issued pursuant to a transfer of 400 shares of Damark stock "From Ruwest to Mark A. Cohn per agreement dated 4/30/87." This court has held that the records of a corporation are competent evidence against an alleged stockholder who denies ownership of corporate stock. Lebens v. Nelson, 148 Minn. 240, 243, 181 N.W. 350, 351 (1921). We have also stated the rule that when an individual's name appears on the stock books of a corporation as a stockholder, a prima facie presumption arises that such individual is the owner of the stock. Holland v. Duluth Iron Min. & Dev. Co., 65 Minn. 324, 332, 68 N.W. 50, 52 (1896). But it is equally true that "[i]t is the law of this state that a transfer of stock is good between the parties and that the title passes to the purchaser without the transfer being entered on the corporate books." In re Declaration of Trust by Bush, 249 Minn. 36, 47, 81 N.W.2d 615, 622 (1957) (footnote omitted). The Damark stock register does not support DLH's position that Ruwest/David Russ/Diane Russ owned 400 shares of Damark stock on July 10, 1987. Rather, it corroborates the evidence submitted by David Russ, Cohn, and Damark that Ruwest transferred Damark stock to Cohn on April 30, 1987 and that a new certificate for the shares was issued to Cohn on July 10, 1987 pursuant thereto.
Second, DLH points to David and Diane Russ' personal tax return for 1992, which reports a March 1, 1992 sale of Damark stock that was acquired on January 1, 1985. DLH contends that this return is evidence of David Russ' continuous ownership of Damark stock since January 1, 1985. However, this return is not probative as a matter of law on the issue of whether David Russ owned stock when he filed bankruptcy. Damark stock could not have been acquired on January 1, 1985 because Damark was not incorporated until March 20, 1986, well over a year later. It is axiomatic that a business entity has no power to issue securities until it is incorporated. See Minn. Stat. § 302A.161, subd. 19 (1996). The affidavit of the Russes' certified tax preparer, in which the tax preparer stated that he erroneously chose January 1, 1985 as the acquisition date of the shares because he wanted to show that the 1992 sale produced long-term capital gains, further supports the conclusion that reliance on the return as evidence of stock ownership on January 1, 1985 is misplaced. [9]
Third, DLH points to Damark's 1987 corporate tax returns. The Schedule K-1 attached to Damark's 1987 U.S. Income Tax Return for an S Corporation -- Form 1120S -- indicates that it covers the period between January 1, 1987 and April 30, 1987 and lists David Russ as a 33 1/3% shareholder of Damark. Schedule E of Damark's 1987 U.S. Corporation Income Tax Return indicates that it covers the entire calendar year of 1987 and lists David Russ as a 25% shareholder of Damark. These corporate tax returns are not inconsistent with an April 30, 1987 sale of the Damark stock to Cohn. They merely show that David Russ owned Damark stock at some time in 1987, a fact which is conceded for the purposes of this summary judgment motion. We further note that Schedule E erroneously represents that 25% of the Damark stock was owned by David Russ; in fact, Ruwest/David Russ/Diane Russ' ownership interest was 24.5%.
Having affirmed the summary judgment entered against DLH on its conversion claim, we need not address DLH's arguments regarding the tolling of the limitations period on that claim. In addition, DLH did not raise a "turnover" claim before the district court, and we will not address it for the first time on appeal. [10] See Morton v. Board of Comm'rs, 301 Minn. 415, 427, 223 N.W.2d 764, 771 (1974).
We do not condone David Russ' behavior in failing to disclose the extent of his ties with Ruwest or Damark and in failing to report the transfer of Damark stock on his bankruptcy schedules. But the appropriate action in this case would have been for the bankruptcy trustee to bring a fraudulent transfer action against David Russ for transferring his interest, if any, in Damark stock prior to filing bankruptcy. See 11 U.S.C. §§ 548(a), 546(a) (1982 & Supp. 1987).
[1] Schedule M-KS of Damark's 1987 Minnesota S Corporation Return covering the period between January 1, 1987 and April 30, 1987 also lists David Russ as a 33 1/3% shareholder. This return was also prepared in October 1989.
[2] We note that Damark stock could not have been acquired on March 1, 1986 because Damark was not incorporated until March 20, 1986.
[3] In his counterclaim, Cohn alleged that as a result of false and defamatory statements by DLH, the price of Damark stock plummeted. He claimed that prior to the commencement of DLH's action and the publicity related thereto, Damark stock was publicly trading at $30 per share, but decreased to approximately $22 per share "due to the wrongful acts of DLH." On Wednesday, November 6, 1996, the date of oral argument, the per share trading price of Damark stock was $9 7/8.
[4] At that time, DLH also moved for a temporary restraining order enjoining respondents from selling, transferring, or otherwise disposing of the shares formerly owned by David Russ or their proceeds, but the district court denied the motion, concluding that equitable relief was not warranted.
[5] Rule 50.01 of the Minnesota Rules of Civil Procedure provides that at the close of the evidence offered by an opposing party or at the close of all of the evidence, a party may move for a directed verdict. If the evidence is sufficient to sustain a verdict for the [nonmoving party], the motion shall not be granted." Minn. R. Civ. P. 50.01.
[6] See also City of Willmar v. Short-Elliott-Hendrickson, Inc., 475 N.W.2d 73, 77 (Minn. 1991) (citing Wittmer v. Ruegemer, 419 N.W.2d 493, 497 (Minn. 1988)); Anderson v. Twin City Rapid Transit Co., 250 Minn. 167, 186, 84 N.W.2d 593, 605 (Minn. 1957).
[7] See Kobluk v. University of Minn., 556 N.W.2d 573, 577-78 (Minn. App. 1996); Peterson v. Colonial Ins. of Cal., 493 N.W.2d 152, 154 (Minn. App. 1992); Strauss v. Thorne, 490 N.W.2d 908, 912 (Minn. App. 1992), pet. for rev. denied (Minn., Dec. 15, 1992); see also Carlisle v. City of Minneapolis, 437 N.W.2d 712, 715 (Minn. App. 1989) (citing Liberty Lobby for the proposition that the summary judgment standard "mirrors" or "is very close to" the directed verdict standard); but see Moe v. Springfield Milling Corp., 394 N.W.2d 582, 585 (Minn. App. 1986), pet. for rev. denied (Minn. Oct. 21, 1986) (holding that evaluations under summary judgment standard and evaluations under directed verdict standard are "not precisely analogous"); Louwagie v. Witco Chem. Corp., 378 N.W.2d 63, 68 (Minn. App. 1985) ("Although the standards for summary judgment and directed verdict are similar, undue reliance on directed verdict cases when deciding a summary judgment motion is a mistake, especially when determining whether the evidence is 'substantial.'").
[8] The "1986 trilogy" has been cited frequently by lower courts, particularly the "reasonable jury" language of Liberty Lobby. David F. Herr, et al., Motion Practice § 16.1.2, at 421 (2d ed. 1991). However, the courts appear to have applied the "substantial evidence by the nonmovant" and "reasonable jury" tests gingerly and have found a genuine factual dispute to exist whenever the nonmovant has created a record of controverted fact questions except in a small class of cases where either the veracity of the controverting matter is highly suspect or where the evidence, even where credited, is so weak as to prompt widespread judicial agreement that the nonmovant's support is but an insubstantial scintilla. Id.
[9] We note that on appeal, DLH did not raise the issue of the Russes' 1991 personal tax return, which reports a 1991 sale of Damark stock that was owned since 1986. We note that if DLH had cited both returns, its evidence would have been internally inconsistent as to the acquisition date of the stock. This inconsistency further supports the conclusion that reliance on the Russes' personal tax returns in this context is misplaced.
[10] We note that even if we were to reach the merits of the "turnover" claim, we would affirm summary judgment. DLH cites no case for the proposition that a bankruptcy trustee may sell or transfer a "turnover" cause of action under 11 U.S.C. § 542(a). The general rule is that only bankruptcy trustees or debtors in possession may enforce turnover rights. See 9A Am. Jur. 2d Bankruptcy § 1281 (1991 & Supp. 1997); Perkins v. Teachers' Retirement Sys. of Ill., 902 F.2d 1254, 1257-58 (7th Cir. 1990) (holding that creditors lacked standing to bring a turnover action to recover debtor's funds because "the authority to collect the debtor's assets is vested exclusively in the trustee"). Even if a "turnover" cause of action was transferable, DLH has failed to present specific facts showing that there is a genuine issue for trial as to whether the bankruptcy trustee had a "turnover" cause of action to sell to DLH.