Opinion ID: 1517538
Heading Depth: 1
Heading Rank: 2

Heading: The Summary Judgment Motions

Text: It is well settled that [s]ummary judgment is an extreme remedy that should be applied cautiously. Sjogren v. Metropolitan Property and Casualty Insurance Co., 703 A.2d 608, 610 (R.I. 1997) (citing Rotelli v. Catanzaro, 686 A.2d 91, 93 (R.I.1996)). In reviewing the grant of a summary judgment motion, this Court employs the same standard on review as the trial justice. We must examine all of the pleadings, memoranda and affidavits in the `light most favorable to the party opposing the motion.' Truk-Away of Rhode Island, Inc. v. Aetna Casualty & Surety Co., 723 A.2d 309, 313 (R.I. 1999) (quoting Splendorio v. Bilray Demolition Co., 682 A.2d 461, 465 (R.I.1996)). We have said on previous occasions that [i]n reviewing these materials, the motion justice should draw all reasonable inferences in favor of the nonmoving party and must refrain from weighing the evidence or passing upon issues of credibility. Superior Boiler Works, Inc. v. R.J. Sanders, Inc., 711 A.2d 628, 631 (R.I.1998) (citing Rustigian v. Celona, 478 A.2d 187, 189 (R.I.1984)). Accordingly, if our review of the admissible evidence viewed in the light most favorable to the nonmoving party reveals no genuine issues of material fact, and if we conclude that the moving party was entitled to judgment as a matter of law, we shall sustain the trial justice's granting of summary judgment. Accent Store Design, Inc. v. Marathon House, Inc., 674 A.2d 1223, 1225 (R.I.1996) (citing Mallane v. Holyoke Mutual Insurance Company in Salem, 658 A.2d 18, 20 (R.I.1995)). We are mindful that [c]orporate officers and directors of any corporate enterprise, public or close, have long been recognized as corporate fiduciaries owing a duty of loyalty to the corporation and its shareholders   . A. Teixeira & Co. v. Teixeira, 699 A.2d 1383, 1386 (R.I.1997). This Court has also recognized that, quite apart from officers and directors, the shareholders themselves in a closely held family corporation may have a fiduciary duty toward one another and to the minority shareholders because of the potential for oppression by the majority toward the minority shareholders by simple virtue of majority voting share power, coupled with the absence of a ready market for a closely held corporation's shares. See, e.g., Broccoli v. Broccoli, 710 A.2d 669, 673 (R.I.1998); A. Teixeira & Co., 699 A.2d at 1386-87; Long v. Atlantic PBS, Inc., 681 A.2d 249, 256 n. 8 (R.I.1996); Estate of Meller v. Adolf Meller Co., 554 A.2d 648, 651-52 (R.I.1989). Such a [fiduciary] relationship is one of trust and confidence and imposes the duty on the fiduciary to act with the utmost good faith. Point Trap Co. v. Manchester, 98 R.I. 49, 54, 199 A.2d 592, 596 (1964). Recognizing the potential for the freeze out and oppression of minority shareholders, the General Assembly enacted several statutory mechanisms by which such aggrieved shareholders might seek relief. Section § 7-1.1-90, entitled [j]urisdiction of court to liquidate assets and business of corporation, allows shareholders to seek relief from illegal, oppressive, or fraudulent acts of those controlling the corporation: (a) The superior court shall have full power to liquidate the assets and business of a corporation: (1) In an action by a shareholder when it is established that, whether or not the corporate business has been or could be operated at a profit, dissolution would be beneficial to the shareholders because: (i) The directors or those other persons that may be responsible for management pursuant to § 7-1.1-51(a) are deadlocked in the management of the corporate affairs and the shareholders are unable to break the deadlock; or (ii) The acts of the directors or those in control of the corporation are illegal, oppressive, or fraudulent; or (iii) The shareholders are deadlocked in voting power, and have failed, for a period which includes at least two (2) consecutive annual meeting dates, to elect successors to directors whose terms have expired or would have expired upon the election of their successors; or (iv) The corporate assets are being misapplied or are in danger of being wasted or lost; or (v) Two (2) or more factions of shareholders are divided and there is such internal dissension that serious harm to the business and affairs of the corporation is threatened   . Section 7-1.1-90.1, entitled [a]voidance of dissolution by stock buyout, provides an alternative to the drastic remedy of liquidation by allowing the corporation the option of buying out the aggrieved shareholder's equity interest at fair value: Whenever a petition for dissolution of a corporation is filed by one or more shareholders (subsequently in this section referred to as the `petitioner') pursuant to either § 7-1.1-90 or a right to compel dissolution which is authorized under § 7-1.1-51 or is otherwise valid, one or more of its other shareholders may avoid the dissolution by filing with the court prior to the commencement of the hearing, or, in the discretion of the court, at any time prior to a sale or other disposition of the assets of the corporation, an election to purchase the shares owned by the petitioner at a price equal to their fair value. If the shares are to be purchased by other shareholders, notice shall be sent to all shareholders of the corporation other than the petitioner, giving them an opportunity to join in the election to purchase the shares. If the parties are unable to reach an agreement as to the fair value of the shares, the court shall, upon the giving of a bond or other security sufficient to assure to the petitioner payment of the value of the shares, stay the proceeding and determine the value of the shares, in accordance with the procedure set forth in § 7-1.1-74, as of the close of business on the day on which the petition for dissolution was filed. By its plain language, § 7-1.1-90.1 thus permits a corporation, rather than be forced to dissolve by a shareholder dissolution petition, [to] elect to buy out the shareholder's stock. Charland v. Country View Golf Club, Inc., 588 A.2d 609, 610 (R.I.1991). However, fair value must be given for those shares, and if the fair value cannot be agreed upon, the court shall determine the value of such shares as of the close of business on the day on which the petition for dissolution was filed. Id. In the case at bar, we believe that the two motion hearing justices erred by failing to give substantive consideration to Joyce's pleadings under §§ 7.1.1-90 and 7-1.1-90.1. Under Rhode Island law, Rule 8 of the Superior Court Rules of Civil Procedure is a liberal-pleading rule. Bresnick v. Baskin, 650 A.2d 915, 916 (R.I.1994) (citing Haley v. Town of Lincoln, 611 A.2d 845, 848 (R.I. 1992)). Although a plaintiff is not obligated to `set out the precise legal theory upon which his or her claim is based,' he or she must provide `the opposing party fair and adequate notice of the type of claim being asserted.' Id. (quoting Haley, 611 A.2d at 848). The policy behind these liberal pleading rules is a simple one: cases in our system are not to be disposed of summarily on arcane or technical grounds. Haley, 611 A.2d at 848. We note that each count in Joyce's amended complaint alleged conduct on the part of the cross and counterclaim defendants that was illegal, oppressive or fraudulent, and demanded relief pursuant to §§ 7-1.1-90.1 and 7-1.1-90. While it is undeniable that these pleadings pursuant to §§ 7-1.1-90 and 7-1.1-90.1 could have been framed with more particularity, we believe that they provided the counter and crossclaim defendants with more than sufficent notice of the type of claim that Joyce was asserting against them in her complaint as well as the relief sought. Because the hearing justices failed to address Joyce's claims under §§ 7-1.1-90 and 7-1.1-90.1, summary judgment as to those counts was not appropriate as a matter of law, and consequently must be considered reversible error. Further, we are of the opinion that genuine issues of material fact do exist concerning whether Joyce, as a minority shareholder, was oppressed by the actions of the other ECC shareholders pursuant to both common law and statutory law. We note that the term oppression in § 7-1.1-90 has not yet been specifically defined by this Court as it relates to close corporations. Oppression, however, has been defined by other courts to encompass that conduct which deviates from a heightened good faith standard that exists in closely held corporations, a more stringent standard than found in their public counterparts. See, e.g., Tomaino v. Concord Oil of Newport, Inc., 709 A.2d 1016, 1021 (R.I.1998); Donahue v. Rodd Electrotype Company of New England, Inc., 328 N.E.2d 505, 515 (Mass. 1975) (oppressive conduct found where stockholders in a close corporation did not discharge their management and stockholder responsibilities in conformity with this strict good faith standard); 19 Am. Jur.2d Corporations, § 2766 (1986) (oppression defined as burdensome, harsh or wrongful conduct, a visible departure from the standards of fair dealing or fair play   . It also constitutes a breach of the fiduciary duty of good faith and fair dealing owed by the majority shareholders to the minority). Alternatively, a more recent trend has been to define oppressive conduct as conduct that substantially defeats the `reasonable expectations' held by minority shareholders in committing their capital to the closed corporation. In re Rambusch, 533 N.Y.S.2d 423, 425 (N.Y.App.Div.1988). This approach takes into account the fact that shareholders in close corporations may have expectations that differ substantially from those of shareholders in public corporations. Muellenberg v. Bikon Corp., 669 A.2d 1382, 1387 (N.J. 1996). The reasonable expectation analysis also recognizes the fact sensitive nature of judicial inquiry into this area and the need to examine the understanding of the parties concerning their role in corporate affairs. Id. Likewise, oppressive conduct can manifest itself in a range of actions designed to disadvantage or freeze out a minority shareholder. The majority shareholders `may refuse to declare dividends; they may drain off the corporation's earnings in the form of exorbitant salaries and bonuses to the majority shareholder-officers and perhaps their relatives    [and] they may deprive minority shareholders of corporate offices and of employment by the company.' Donahue, 328 N.E.2d at 513; Giannotti v. Hamway, 387 S.E.2d 725, 731-32 (Va. 1990). Oppression also has been found to exist where the majority shareholders have engaged in waste of the corporate assets, Mullenberg, 669 A.2d at 1388, or where relevant financial information is withheld from shareholders. See generally 19 Am. Jur. 2d Corporations, § 2767 (1986), for a check list of oppressive acts. Whether in this case the existence of oppressive conduct is viewed under a heightened good faith or reasonable expectation analysis, we conclude that both motion hearing justices erred by granting summary judgment in favor of the counterclaim and crossclaim defendants on the issue of oppression when genuine issues of material fact were particularly raised by Joyce's submissions of affidavits and pleadings. After reviewing the record before us, we believe a determination of whether Joyce, as a minority shareholder, has been the victim of oppression appropriately can be made only at a hearing in which she will have opportunity to fully develop and present the facts relevant to her claims. In reaching that conclusion, we are mindful that, as discussed infra, oppression within a closely held corporation can manifest itself as a series of acts or a pattern of conduct by majority shareholders that can have the cumulative, overall effect of freezing out or depriving the minority shareholder of a voice in the corporation, as well as manifesting itself in more distinct, identifiable actions. We note that even in the absence of demonstrable oppression, we have upheld a Superior Court trial justice's determination that a forced buyout of a minority shareholder's shares pursuant to § 7-1.1-90.1 was warranted when there appeared no prospect for harmony between the shareholders and long-term injunctive control of the actions of the majority shareholders was not practicable. A. Teixeira & Co., v. Teixeira, 674 A.2d 407 (R.I.1996). We believe that the hearing justices, however, missed the forest for the trees in their inquiry, and instead focused exclusively on each count, to the exclusion of an appropriate broader inquiry into an alleged pattern or series of acts by the ECC majority shareholders that a fact-finder reasonably could conclude therefrom rose to the level of oppression toward Joyce as alleged in her counterclaims and crossclaims. Further, we believe that the hearing justices inappropriately made factual determinations concerning those various issues of fact raised by Joyce. We emphasize that the correct judicial role in a summary judgment motion hearing is simply to identify disputed material fact issues, and not to resolve them. Superior Boiler Works, Inc. v. R.J. Sanders, Inc., 711 A.2d 628, 632 (R.I.1998). Viewing the evidence here in the light most favorable to Joyce, we are persuaded that Joyce has demonstrated at least an arguable case that oppression against her and Jeffrey's estate existed within ECC, and has demonstrated that more than one reasonable inference could be drawn from the various actions and pattern of conduct manifested by ECC and its officers and directors. Among Joyce's allegations that present several material disputed factual questions are (1) whether the ECC directors, officers or stockholders acted coercively  violated Joyce's reasonable expectations as a minority shareholder or otherwise manifested bad faith in their dealings with her relating to the purchase agreement, given the existence of the contradictory legal opinions by counsel for one of the trustees and counsel for ECC about the scope of the purchase agreement and the trial justice's specific finding and the final judgment in the unappealed declaratory judgment portion of this litigation; (2) whether the bonuses awarded were excessive, given the discrepancy of the bonus award between the minority shareholder and the majority faction, given the IRS's subsequent disallowance of part of that bonus amount, and in light of ECC's decision not to declare dividends to stockholders; (3) whether ECC breached its fiduciary duty toward Joyce by terminating her employment in retaliation for her continued participation in the litigation against ECC, and (4) whether the corporate records and books provided to Joyce were adequate for proper purposes pursuant to § 7-1.1-46, given the evidence presented of their apparent paucity and questionable accuracy. Further, we conclude that a material factual issue exists as to the scope of the exculpatory clause in the purchase agreement and whether that clause shielded any of the crossclaim and counterclaim defendants in their roles as directors, officers or shareholders relating to the stock purchase-agreement transaction.