Court Opinion

ID: 4263514
Source: CourtListenerOpinion
Date Created: 2018-04-12 19:55:53.220184+00
Date Added: 2024-06-11T14:30:14.127726
License: Public Domain

17-0009 - Tri-State Petroleum Corp., et al. v. Kevine P. Coyne
                                                                          FILED
                                                                       April 12, 2018
                                                                         released at 3:00 p.m.
LOUGHRY, Justice, concurring, in part, and dissenting, in part:      EDYTHE NASH GAISER, CLERK
                                                                     SUPREME COURT OF APPEALS
                                                                          OF WEST VIRGINIA

              I agree with the majority’s decision to reverse the award of attorney’s fees and

remand the issue to the circuit court for an additional hearing concerning the reasonableness

of the fees requested by the respondent and for entry of a more thorough order to facilitate

meaningful appellate review. I also concur in the majority’s reversal of the award of

prejudgment interest. Unlike the majority, however, I believe the circuit court erred by

failing to rule, as a matter of law, that the respondent lacked standing to pursue his

usurpation of corporate opportunity claim, such claim being derivative in nature.

              At the time the respondent instituted this litigation, he was no longer a

shareholder or partner in the defendant corporations and partnership. As such, he did not

have standing to assert a claim on behalf of those entities. As the circuit court had correctly

ruled, when the Honorable Jason A. Cuomo was presiding, the usurpation of corporate

opportunity claim had to be dismissed because such claim must be brought as a shareholder

derivative action. As Judge Cuomo explained, “a shareholder or limited partner may bring

a derivative action in the right of the corporation or limited partnership.” Explaining further,

Judge Cuomo stated that a

              derivative action is distinct from a direct action because ‘[t]he
              corporation is the primary beneficiary of a derivative suit, and

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              the stockholder only secondarily benefited.’ Bank of Millcreek
              v. Elk Florm Coal Corp., 57 S.E.2d 736, 746 (W.Va. 1950); see
              also Masinter v. Webco Co., 262 S.E.2d 433 (W. Va. 1980) (a
              suit for oppressive conduct by an individual shareholder differs
              from a derivative suit - the shareholder there is seeking
              individual relief; whereas, in a derivative suit, the relief sought
              is on behalf of the corporation and other similarly situated
              shareholders).

Judge Cuomo observed that the respondent had alleged that the individual petitioners

“purportedly took property and opportunities belonging to Defendant Companies and placed

such property into other entities, and allegedly utilized Defendant Companies’ resources to

do so.” He further noted that the respondent did not own the allegedly usurped or converted

property1 personally and that the alleged injury was to the defendant companies and “only

secondarily” to the respondent as a stockholder and/or limited partner. Because the

respondent was no longer a shareholder or a limited partner in the corporate and partnership

entities at the time he instituted this litgation, Judge Cuomo ruled that he could not bring a

derivative action.

              Subsequently, the Honorable Larry V. Starcher was appointed to preside over

this matter, and he allowed the respondent to file a second amended complaint in which the

dismissed usurpation of corporate opportunity claim was recast as a breach of fiduciary duty

claim relative to the development of the Bridgeville and Oakland properties. The respondent

       1
        This is in reference to the Bridgeville and Oakland properties.

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simply re-alleged that the individual petitioners had breached their fiduciary duties by

“diverting corporate opportunities to themselves, Bridgeville Realty and Comhdan Realty”2

rather than to the “Family Business.” Other than recasting his usurpation of corporate

opportunity claim as one for breach of fiduciary duty, the claim was otherwise that which had

been dismissed by Judge Cuomo, i.e., the alleged diversion of “corporate opportunities . . .

that belonged to the Defendant Companies” using “corporate resources[.]”3 While I agree

with the majority that the same facts can support multiple claims, critically, the respondent

simply reiterated his allegations of injury to the “Family Business” and the “Longterm Family

Business Plan” in relation to the development of the Bridgeville and Oakland properties. In

       2
           These were companies formed by the individual petitioners.
       3
       In his amended complaint, the respondent’s usurpation of corporate opportunities,
which Judge Cuomo dismissed, alleged that the petitioners had

                intentionally diverted corporate opportunities to themselves,
                Bridgeville Realty and Comhdan Realty that were created by
                Plaintiff as an employee and shareholder of the Defendant
                Companies, that belonged to the Defendant Companies and that
                were developed with the Defendant Companies’ resources.

In the respondent’s second amended complaint, his usurpation of corporate opportunities
claim reappeared through his allegation that the petitioners had breached their fiduciary
duties by

                intentionally diverting corporate opportunities to themselves,
                Bridgeville Realty and Comhdan Realty that were created by
                Plaintiff as an employee and shareholder of the Defendant
                Companies, that belonged to the Defendant Companies and that
                were developed with the Defendant Companies’ resources.

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other words, as Judge Cuomo found, the respondent alleged an injury to the defendant

companies and “only secondarily” to himself as a stockholder and/or limited partner, which

is quintessentially a derivative, rather than direct, cause of action.

              Both the majority and the respondent rely heavily upon Masinter v. WEBCO

Co., 164 W.Va. 241, 262 S.E.2d 433 (1980), as the authority for the breach of fiduciary duty

claim. In Masinter, this Court acknowledged a breach of fiduciary duty claim when there is

a closely-held corporation and reaffirmed that majority shareholders owe a fiduciary duty to

minority shareholders. There is, however, a critical distinction between Mr. Masinter and

the respondent herein: Mr. Masinter was a shareholder at the time he brought his action to

dissolve the close corporation, WEBCO. Moreover, Mr. Masinter specifically asserted a

claim for an individual injury arising out of the majority shareholders’ allegedly oppressive

conduct related to his separate ownership of a retail business in Charleston, West Virginia.

In that regard, he alleged that WEBCO opened a retail outlet in Charleston “for the specific

purpose of injuring his retail business[.]” Id. at 246, 262 S.E.2d at 437. Other than the

respondent’s seemingly incongruous allegation that he should have been allowed to

participate in the very opportunities that he alleged had harmed the corporate and partnership

entities, he failed to allege an individualized harm, such as that issue in Masinter.

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              As the petitioners correctly observe, “Masinter nowhere says diversion of

corporate opportunity claims can be vindicated in direct actions.” Placing Masinter in its

appropriate context, this Court was addressing a minority shareholder’s action that sought

dissolution of the corporation, WEBCO. Recognizing there can be other avenues of relief

short of corporate dissolution, this Court simply observed that “[i]n an oppression suit, the

shareholder is ordinarily seeking some type of individual relief, whereas in a derivative suit

he is usually seeking relief on behalf of the corporation as well as other similarly situated

shareholders.” Id. at 255, 262 S.E.2d at 442 (emphasis added).

              Again, the respondent’s usurpation of corporate opportunities claim, although

re-designated as a breach of fiduciary duty for minority shareholder oppression, continued

to allege harm to the “Family Business.” Such re-designation does not transmogrify the

respondent’s self-described diversion of corporate opportunities claim into a direct claim for

minority shareholder oppression when the alleged harm was to the “Defendant Companies”

and such harm could only flow to the respondent as a shareholder.4

       4
        The petitioners also assert that even if the respondent’s usurpation of corporate
opportunity claim can be reforged as one of minority shareholder oppression, the circuit court
never made any findings that the petitioners’ conduct constituted minority shareholder
oppression. See 12B Fletcher Cyc. Corp. § 5820.11 (“The determination of whether certain
acts constitute shareholder oppression is a question of law for the court in an action alleging
minority shareholder oppression.”); Argo Data Res. Corp. v. Shagrithaya, 380 S.W.3d 249,
264 (Tex. App. Ct. 2012) (“It is within the province of the jury as fact finders to determine
whether certain acts occurred. But the determination of whether such acts constitute
shareholder oppression is a question of law for the court.”); Edler v. Edler, 745 N.W.2d 87,

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              The petitioners further maintain that had the circuit court entered judgment in

their favor on the respondent’s corporate diversion allegations, the remainder of his breach

of fiduciary duty claim was barred under the gist of the action doctrine because it arose from

the parties’ agreements. I certainly agree with the petitioners that under this doctrine, only

one factor need exist to invoke it:

              recovery in tort will be barred when any of the following factors
              is demonstrated:

                     (1) where liability arises solely from the
                     contractual relationship between the parties; (2)
                     when the alleged duties breached were grounded
                     in the contract itself; (3) where any liability stems
                     from the contract; and (4) when the tort claim
                     essentially duplicates the breach of contract claim
                     or where the success of the tort claim is dependent
                     on the success of the breach of contract claim[.]
                                              • • •
                     Succinctly stated, whether a tort claim can coexist with
              a contract claim is determined by examining whether the parties’
              obligations are defined by the terms of the contract.

Gaddy Eng’g Co. v. Bowles, Rice, 231 W.Va. 577, 586, 746 S.E.2d 568, 577 (2013)

(emphasis added). I also agree that the balance of the respondent’s breach of fiduciary duty

claim appears to fall under the obligations set forth in the governing agreements asserted in

his breach of contract claim, which would certainly invoke the gist of the action doctrine.

*1 (Wis. Ct. App. 2007) (Table) (internal citation omitted) (“Minority shareholder oppression
presents a mixed question of fact and law. . . . Whether the facts constitute oppression is a
question of law[.]”). Nor does it appear that the respondent ever asked the circuit court to
make such a finding.

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Here, the jury placed the same sum on the verdict form in the blank provided for the breach

of contact claim and the separate blank provided for breach of fiduciary duty claim. At the

circuit court’s request, the jury clarified that it intended to award a unitary sum for both

claims, which, as the petitioners’ argue, supported their gist of the action argument. It is

impossible, however, to cull from that unitary award the amount intended for the breach of

contract claim in contrast to the breach of fiduciary duty claim. Regrettably, the parties did

not seek further clarification of the jury’s verdict in this regard, although the circuit court

expressly asked counsel whether there was anything further before the jury was released.

In the absence of such clarification and because I agree with the majority that the petitioners

were not entitled to judgment as a matter of law on the respondent’s contract claim, what

remains is a unitary award from which the breach of fiduciary duty claim cannot be

extricated.

              Lastly, I wish to briefly address the circuit court’s use of a general verdict form,

rather than the special verdict form proposed by the petitioners, or some variation thereof.

I wholeheartedly agree with the majority that a special verdict form was preferable,

particularly given the complexities of the legal theories, the issues to be resolved, and the

multiple defendants comprised of individuals, corporations, and a partnership. While the

circuit court may have used a general verdict form in an effort to condense these complex

issues and claims into a manageable form, the circuit judge later expressed regret, stating that

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he was “sorry” for not using a special verdict form. Like the majority, however, I cannot

conclude that the use of the general verdict form warrants a new trial, particularly when the

parties stood silent when the verdict was returned. See Syl. Pt. 2, Combs v. Hahn, 205 W.Va.

102, 516 S.E.2d 506 (1995) (“Absent extenuating circumstances, the failure to timely object

to a defect or irregularity in the verdict form when the jury returns the verdict and prior to

the jury’s discharge, constitutes a waiver of the defect or irregularity in the verdict form.”).

The petitioners contend that having previously argued in favor of using a special verdict

form, they preserved their objection and did not need to reiterate their arguments once the

verdict was returned. Nonetheless, I believe that it would have behooved the petitioners to

remind the circuit court of their arguments concerning the verdict form prior to the jury’s

discharge. Had the petitioners’ done so, the circuit court could have directed the jury’s

further deliberation or clarification of its verdict prior to the jury’s release.

               For the foregoing reasons, I respectfully concur, in part, and dissent, in part.

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