Court Opinion

ID: 4247273
Source: CourtListenerOpinion
Date Created: 2018-02-22 16:11:42.103139+00
Date Added: 2024-06-11T13:27:24.208989
License: Public Domain

MEMORANDUM DECISION                                                FILED
                                                              Feb 22 2018, 7:30 am
Pursuant to Ind. Appellate Rule 65(D), this
Memorandum Decision shall not be regarded as                       CLERK
                                                               Indiana Supreme Court
precedent or cited before any court except for the                Court of Appeals
                                                                    and Tax Court
purpose of establishing the defense of res judicata,
collateral estoppel, or the law of the case.

ATTORNEYS FOR APPELLANT                                   ATTORNEYS FOR APPELLEE
Jason R. Delk                                             Gregory A. Neibarger
Daniel J. Gibson                                          Briana L. Clark
Delk McNally LLP                                          Meaghan Klem Haller
Muncie, Indiana                                           Bingham Greenebaum Doll LLP
                                                          Indianapolis, Indiana

                                                          John H. Brooke
                                                          Brooke-Stevens, P.C.
                                                          Muncie, Indiana

                                             IN THE
    COURT OF APPEALS OF INDIANA

Samuel D. Pitman, II,                                     February 22, 2018
Individually and as Personal                              Court of Appeals Case No.
Representative of the Estate of                           18A04-1701-PL-185
Samuel D. Pitman, the Estate of                           Appeal from the Delaware Circuit
Samuel D. Pitman, and Steven                              Court.
                                                          The Honorable Marianne L.
Pitman,                                                   Vorhees, Judge.
Appellants-Plaintiffs,                                    Trial Court Cause No.
                                                          18C01-1304-PL-15
        v.

Stanley Pitman, Selena Hall,
Drury Hall, and SDP
Manufacturing, Inc.,
Appellees-Defendants.

Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 1 of 13
      Shepard, Senior Judge

[1]   Samuel D. Pitman, II, individually and as the executor of the Estate of Samuel

      D. Pitman, the Estate itself, and Steven Pitman appeal the trial court’s

      judgment in favor of Stanley Pitman, Selena Hall, Drury Hall, and SDP

      Manufacturing, Inc. We affirm.

[2]   SDP is a family-owned, closely-held corporation. It was originally incorporated

      in 1992. SDP manufactures digging devices that are used to install telephone

      poles and similar equipment in hard-to-navigate areas such as utility easements.

[3]   SDP’s original incorporators were Samuel Pitman, his wife Dixie Pitman,

      attorney John Brooke, and Samuel and Dixie’s children: Samuel D. Pitman II

      (who we will refer to as David to avoid confusion), Steven Pitman, Stanley

      Pitman, Selena Hall, and Scott Pitman. All of the children worked at SDP at

      various times over the years. Later, an ownership share was granted to Selena’s

      husband, Drury Hall.

[4]   Samuel Pitman left SDP in 1995, retaining his two ownership shares in the

      company. David also left the company in 1995, retaining his one share. Before

      they left SDP, Samuel and David started S.D. Pitman, Inc., which competes

      with SDP. Steven left SDP in 1998, but he also retains his ownership share.

[5]   Stanley, Selena, and Drury have continued to run SDP, and Scott is an

      employee. In 1998, SDP created a deferred compensation plan and trust for

      key management employees. That same year, Stanley and Selena incorporated

      Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 2 of 13
      Easement Equipment Specialists (EES), a separate entity which purchased

      manufacturing equipment that was in turn leased to SDP. In 2003, SDP

      created a second deferred compensation plan and trust, which was intended to

      keep Scott as an employee. Also in 2003, Stanley, Selena, and Scott

      incorporated SSS Land Group, which purchased land and leased it to SDP.

      Stanley and Selena also created Southpaw Enterprises, which was a pass-

      through entity through which SDP’s laborers were paid.

[6]   From 1995 through today, the siblings (and Dixie and Samuel, prior to her

      death in 1996 and his death in 2011) have disputed the way SDP and its assets

      are managed, including SDP’s intellectual property and SDP’s deferred

      compensation plans. In 1995, SDP, Stanley, Selena, Steven, and Dixie sued

      David, Samuel, and S.D. Pitman, Inc. in Blackford Circuit Court, alleging

      claims that included theft of trade secrets. Steven was dismissed from the

      lawsuit at his request after he left SDP. David and Samuel asserted

      counterclaims such as breach of fiduciary duty. As we discuss in more detail

      below, David and Samuel argued that Stanley, Selena, and Scott were

      managing SDP for their own personal benefit, to the detriment of SDP’s other

      shareholders.

[7]   The Blackford Circuit Court dismissed the case with prejudice in 2005, per the

      parties’ agreement. No money was exchanged as part of the dismissal. Instead,

      the parties agreed “to stop all the court proceedings and be able to go on our

      separate ways.” Tr. Vol. II, p. 141.

      Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 3 of 13
[8]    Meanwhile, in 1998, Samuel, David, and Steven sued SDP in Delaware

       County, seeking a court-ordered shareholders’ meeting. They claimed the

       shareholders had failed to schedule a required meeting, in violation of SDP’s

       bylaws. They later sought to amend their complaint to request SDP’s

       dissolution, arguing the shareholders had “conducted a sham Annual Meeting.”

       Tr. Ex. Vol. II, p. 238. They further alleged the “incumbent Directors,”

       referring to Stanley, Selena, and Drury, were “motivated by a fraudulent desire

       to maintain their corporate authority.” Id. at 242. This case was later

       dismissed without prejudice. See also Pitman v. Pitman, 717 N.E.2d 627 (Ind. Ct.

       App. 1999) (dispute between Steven and Stanley over Steven’s failure to return

       an SDP-owned backhoe that he had borrowed).

[9]    The current case began in 2013, when David, Samuel’s estate, and Steven (who

       we collectively refer to as David) sued Stanley, Selena, Drury, and SDP (who

       we collectively refer to as Stanley), along with the two employee benefit trusts.

       David claimed Stanley breached a fiduciary duty to manage the company fairly

       and in good faith for the benefit of all shareholders. David further claimed

       Stanley engaged in constructive fraud by paying inflated salaries and bonuses to

       SDP’s officers and by granting dividends to Stanley, Selena, and Drury that

       were not paid to other shareholders.

[10]   Stanley filed an answer denying the alleged breach of fiduciary duty and a

       motion to dismiss the claim of constructive fraud. Among other defenses,

       Stanley argued David’s complaint was “barred, in whole or in part, by the

       doctrines of estoppel, equitable estoppel, release, waiver, accord and

       Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 4 of 13
       satisfaction, and payment.” Appellants’ App. Vol. II, p. 94. The court denied

       Stanley’s motion to dismiss. Stanley next filed an amended answer in which he

       restated his defenses of estoppel and equitable estoppel.

[11]   On June 6, 2014, Stanley filed a motion for partial summary judgment. David

       responded, and Stanley replied. On January 13, 2015, the court granted the

       motion as to the two employee benefit trusts, dismissing them from the case.

[12]   The parties attempted to mediate their case but were unsuccessful. On June 1,

       2016, Stanley filed another motion for summary judgment, alleging David’s

       claims were barred by res judicata or collateral estoppel. Stanley also filed a

       motion to amend his answer to add a defense of res judicata. The court granted

       the motion to amend, stating David would not be prejudiced. After a bench

       trial limited to the issues of res judicata and collateral estoppel, the court issued

       findings of fact and conclusions thereon, concluding David’s claims were

       barred. This appeal followed.

[13]   David first argues the court erred in allowing Stanley to amend his answer to

       add an affirmative defense of res judicata, claiming Stanley waived that defense

       by failing to include it in his initial answer to the complaint and instead waiting

       three years to request the amendment.

[14]   When a party seeks to amend a responsive pleading after the deadline has

       elapsed, the amendment is allowed “only by leave of court or by written

       consent of the adverse party; and leave shall be given when justice so requires.”

       Ind. Trial Rule 15(A). It is within the trial court’s sound discretion to grant a

       Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 5 of 13
       party leave to amend an answer to add an affirmative defense. Shewmaker v.

       Etter, 644 N.E.2d 922 (Ind. Ct. App. 1994), adopted by Supreme Court, 659
N.E.2d 1021 (1995). In general, leave to amend should be given unless the

       amendment would result in prejudice to the opposing party. Fowler v. Brewer,

       773 N.E.2d 858 (Ind. Ct. App. 2002) (quotation omitted), trans. denied.

[15]   David argues the amendment prejudiced him because he had already spent

       hundreds of thousands of dollars in attorney’s fees and expert witness fees

       litigating the case when the amendment occurred. We disagree. David cannot

       claim to be surprised by the issue because Stanley’s initial answer raised

       “estoppel” as a defense, which should have put him on notice that past conduct

       was at issue. Appellant’s App. Vol. II, p. 94. Further, the trial court allowed

       the parties to conduct additional discovery on the newly-added affirmative

       defense, allowing David time to investigate and adjust his strategy. For these

       reasons, the trial court acted within its discretion by allowing the amendment.

[16]   David next argues the court erred in admitting certain evidence during the

       evidentiary hearing, claiming the court considered evidence that was irrelevant

       to the parties’ claims. Stanley responds that David waived this argument by

       failing to timely object during trial. We disagree with Stanley because David

       objected on grounds of relevance at several points during the hearing. See Reply

       Br. p. 22 (listing objections in transcript).

[17]   A ruling regarding the admission or exclusion of evidence is reviewed for an

       abuse of discretion. Carlson v. Warren, 878 N.E.2d 844 (Ind. Ct. App. 2007).

       Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 6 of 13
       We reverse only when the decision is clearly against the logic and effect of the

       facts and circumstances. Id.

[18]   In general, relevant evidence is admissible and irrelevant evidence is not

       admissible. Indiana Evid. Rule 402. Evidence is relevant if:

               (a) it has any tendency to make a fact more or less probable than
               it would be without the evidence; and
               (b) the fact is of consequence in determining the action.

       Ind. Evidence Rule 401.

[19]   David claims Stanley presented irrelevant evidence as to: (1) the creation of

       one of the employee benefit trusts and the incorporation of EES and SSS Land

       Group; and (2) the circumstances under which Samuel, David, and Steven left

       SDP. Having reviewed the evidence, and keeping in mind that the main claim

       on appeal is the applicability of res judicata, we conclude the trial court did not

       abuse its discretion in admitting the evidence. The timing and circumstances of

       the creation of the trusts and the corporations are relevant to whether David

       could have addressed those issues in the Blackford County litigation. Similarly,

       evidence pertaining to the circumstances under which Samuel, David and

       Steven left SDP are relevant to establishing David’s knowledge of how the

       defendants ran SDP and compensated executives during the Blackford County

       litigation. The trial court did not abuse its discretion.

[20]   The final issue is whether the trial court erred in granting judgment to Stanley

       on grounds of res judicata. The court entered findings of fact and conclusions

       thereon, and our standard of review is two-tiered. Briles v. Wausau Ins. Cos., 858

       Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 7 of 13
N.E.2d 208 (Ind. Ct. App. 2006). We review for clear error whether the

       evidence supported the findings, then whether the findings supported the

       judgment. Elwood v. Parker, 77 N.E.3d 835 (Ind. Ct. App. 2017), trans. denied.

       Error is clear when our review of the record leaves us firmly convinced that a

       mistake has been made. Id. We do not reweigh evidence and consider only the

       evidence favorable to the trial court’s judgment. Stevenson v. Cty. Comm’rs of

       Gibson Cty., 3 N.E.3d 1062 (Ind. Ct. App. 2014), trans. denied.

[21]   Res judicata serves to prevent repetitious litigation of disputes that are

       essentially the same. Hilliard v. Jacobs, 957 N.E.2d 1043 (Ind. Ct. App. 2011),

       trans. denied. A claim is precluded under res judicata if these four requirements

       are met:

               (1) the former judgment must have been rendered by a court of
               competent jurisdiction;
               (2) the former judgment must have been rendered on the merits;
               (3) the matter now in issue was, or could have been, determined
               in the prior action; and
               (4) the controversy adjudicated in the prior action must have
               been between the same parties to the present suit or their privies.

       Richter v. Asbestos Insulating & Roofing, 790 N.E.2d 1000, 1002 (Ind. Ct. App.

       2003), trans. denied. A dismissal with prejudice is conclusive of the rights of the

       parties and is res judicata as to any claims that might have been litigated. Id. In

       determining whether res judicata applies, it is useful to inquire whether

       identical evidence will support the issues in both actions. Id.

       Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 8 of 13
[22]   The crucial dispute here is whether David’s current claims were determined, or

       could have been determined, in the Blackford County case, which was litigated

       from 1995 to 2005. In the Blackford County case, David and Samuel filed a

       counterclaim alleging “breach of fiduciary duty” by Stanley, Selena, and Scott.

       Tr. Ex. Vol. I, p. 222. Specifically, David and Samuel claimed Stanley, Selena,

       and Scott stood “in a fiduciary relationship to [SDP] and to other shareholders”

       and were not permitted to “promote their self interest in derogation of their

       fiduciary duty.” Id. at 221. They further alleged Stanley, Selena, and Scott had

       “caused to be issued” three shares of SDP stock to an employee deferred

       compensation trust, which had the effect of advancing their own interests to the

       detriment of SDP, David, and Samuel. Id. at 221-22. David and Samuel

       argued Stanley, Selena, and Scott had “seize[d] control of the corporation by

       diluting the stock of the counterclaimants, [froze] out other shareholders and

       diminish[ed] the value of their interest in [SDP].” Id. at 222. David and

       Samuel requested compensatory damages and “remediation” of Stanley,

       Selena, and Scott’s acts. Id.

[23]   David and Samuel pursued discovery in the Blackford County case, sending

       146 interrogatories to the plaintiffs. In addition, they requested a protective

       order to prohibit SDP’s board of shareholders from meeting, claiming Stanley,

       Selena, and Scott were acting “for their exclusive benefit and for the purpose of

       enabling them to acquire a controlling interest in the corporation.” Id. at 229.

       David and Samuel also accused them of “fraudulent” behavior “as to the other

       shareholders of [SDP].” Id. In 2002, David and Samuel informed the court

       Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 9 of 13
       they were “in the process of pursuing their claims, but need[ed] additional time

       in which to complete discovery and complete their preparation for trial, if the

       case cannot be settled.” Id. at Vol. II, p. 36.

[24]   SDP’s board of shareholders met while the Blackford County case progressed.

       During a meeting in 1998, David accused the board of misconduct including

       “fail[ure] to maintain proper corporate records, [failure to] properly conduct

       meetings, . . . issu[ing] cash bonuses and other sorts of misuse.” Id. at 190.

       Further, David, Samuel and Steven filed a case in Delaware County in 1998

       accusing SDP of failing to hold regularly scheduled shareholders’ meetings and

       engaging in fraudulent behavior intended to freeze them out of the

       corporation’s operations.

[25]   In summary, during the long-running Blackford County litigation, David and

       Samuel argued that Stanley, Serena, and Scott breached their fiduciary duties as

       shareholders of SDP and engaged in fraudulent behavior to gain control of

       SDP, dilute the value of David and Samuel’s shares, and enrich themselves

       through deferred compensation plans and undisclosed cash payments. David

       and Samuel further claimed Stanley, Serena and Scott had damaged the value

       of their shares in SDP. They pursued discovery as to the plaintiffs’ claims and

       had ample opportunity to seek information about their counterclaims.

[26]   In the current case, David alleged in his complaint that Stanley “took control

       over the operations of [SDP] to the complete exclusion of Samuel David

       Pitman, Samuel David Pitman II, and Steven Pitman.” Appellants’ App. Vol.

       Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 10 of 13
       II, p. 69. He further alleged that Stanley created a deferred compensation trust

       to “dilute the ownership interest” of David, Steven, and their father and

       exclude them from control of SDP. Id. David also claimed SDP’s shareholders

       had not held regular meetings and refused to provide him with information as

       to salaries and bonuses for officers, as well as dividends or distributions.

[27]   David further accused Stanley of breaching his fiduciary duties by:

               a.       Freezing Plaintiffs out of the management and operation
                        of the Corporation;
               b.       Freezing Plaintiffs out of the fruits and benefits of their
                        shareholder/ownership interests in the Corporation,
                        including compensation, benefits, distributions and
                        dividends;
               c.       Failing to deal with Plaintiffs in a fair, honest and open
                        manner with respect to the business and operation of the
                        Corporation;
               d.       Failing to apprise Plaintiffs of certain significant
                        management and financial decisions related to the
                        Corporation;
               e.       Failing to make proper distributions of profits, earnings,
                        and/or dividends to Plaintiffs;
               f.       Failing to follow corporate formalities with respect to the
                        notice and meeting requirements for the shareholders and
                        board of directors;
               g.       Improperly diluting the shareholder interest of Plaintiffs
                        for an improper purpose and without following proper
                        procedures;
               h.       Improperly withholding profits, earnings, dividends and
                        distributions to Plaintiffs by diverting earnings of the
                        Corporation back to the Individual Defendants in the form
                        of inflated salaries, bonuses and corporate perks; and

       Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 11 of 13
               i.       Engaging in self-dealing by providing Individual
                        Defendants with unreasonable compensation in an effort
                        to prevent earnings from passing to the remaining
                        shareholders.

[28]   Id. at 74-75. David further alleged in the complaint that Stanley committed

       constructive fraud by deceiving him about SDP’s income while paying himself

       “inflated salaries and bonuses,” thus engaging in self-dealing. Id. at 76.

[29]   Here, the trial court did not err in determining that David’s claims of breach of

       fiduciary duty and constructive fraud could have been resolved during the

       Blackford County case and were thus barred by res judicata. The same issues –

       alleged hiding of information, self-dealing, improper salaries and bonuses –

       arose in both cases. Further, the specific acts David complains of, including the

       establishment of the deferred compensation trusts and the new companies that

       are owned by Stanley and sell equipment or rent land to SDP, occurred during

       the Blackford County case. David had ample opportunity to conduct discovery

       to develop his claims of breach of fiduciary duty and fraud in that case, during

       which he would have learned of SDP’s method for calculating salaries, the

       existence of the deferred compensation trusts, and the existence of EES and SSS

       Land Group. See Hilliard, 957 N.E.2d 1043 (claims including breach of

       fiduciary duty and constructive fraud barred by res judicata; claims could have

       been raised in prior case involving the same contract).

[30]   David argues that if res judicata bars his claims, then Stanley is free to commit

       new breaches of his fiduciary duties or additional acts of constructive fraud

       without being held accountable. He further states res judicata does not bar

       Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 12 of 13
       claims based on acts that occurred after the prior litigation ended. As a general

       principle David is surely correct, but in this case he has not pointed to any

       actions that he could not have discovered and addressed in the Blackford

       County case. The record supports the trial court’s findings that SDP has used

       the same formula to calculate directors’ salaries since the 1990s. Further, there

       is no indication that SDP’s agreements with EES and SSS Land Group have

       changed from the days of the Blackford County case. In addition, David and

       Steven separately and repeatedly expressed concerns about lack of access to

       SDP financial information while the Blackford County case was pending. The

       same evidence would have been used in both cases. Cf. Afolabi v. Atlantic Mortg.

       & Inv. Corp., 849 N.E.2d 1170 (Ind. Ct. App. 2006) (mortgage foreclosure action

       not barred by res judicata due to prior foreclosure case; plaintiff alleged and

       demonstrated new wrong acts based on different evidence, specifically a new

       failure to make timely mortgage payments).

[31]   We need not address the parties’ arguments as to collateral estoppel. For the

       reasons stated above, we affirm the judgment of the trial court.

[32]   Affirmed.

       Vaidik, C.J., and Baker, J., concur.

       Court of Appeals of Indiana | Memorandum Decision 18A04-1701-PL-185 | February 22, 2018   Page 13 of 13