Court Opinion

ID: 9892564
Source: CourtListenerOpinion
Date Created: 2023-10-24 15:15:42.57745+00
Date Added: 2024-06-11T08:22:52.518757
License: Public Domain

IN THE SUPREME COURT, STATE OF WYOMING

                                   2023 WY 100

                                                OCTOBER TERM, A.D. 2023

                                                           October 24, 2023

BARBARA CAMPBELL and
WILLIAM LOVELAND, on behalf of
themselves and as representatives of a
class of similarly situated persons,

Appellants
(Plaintiffs),

v.

CHRIS DAVIDSON; TRI COUNTY
TELEPHONE ASSOCIATION, INC., a
Wyoming corporation; DALIN                     S-22-0303
WINTERS; CLIFFORD ALEXANDER;
J.O. SUTHERLAND; DANIEL
GREET; JOHN K. JOHNSON; NEIL
SCHLENKER; BHT INVESTMENTS,
LLC, a Wyoming Limited Liability
Company; BHT HOLDINGS, INC., a
Wyoming corporation; BHT MERGER
CORPORATION, a Wyoming
corporation; and STEVE HARPER,

Appellees
(Defendants).

                    Appeal from the District Court of Park County
                       The Honorable Jason M. Conder, Judge

Representing Appellants:
      Drake D. Hill, Hill Law Firm, LLC, Cheyenne, Wyoming; Jonathan O. Hafen,
      Robert S. Clark, Gregory M. Hess, Matthew J. Ball, Parr Brown Gee & Loveless,
      P.C., Salt Lake City, Utah. Argument by Mr. Hill and Mr. Clark.
Representing Appellees Tri County Telephone Association, Inc., Neil Schlenker, BHT
Investments, LLC, BHT Holdings, Inc., and BHT Merger Corporation:
      David M. Clark, Ragain & Clark, P.C., Worland, Wyoming. Argument by Mr.
      Clark.

Representing Appellees Dalin Winters, Clifford Alexander, J.O. Sutherland, Daniel
Greet, and John K. Johnson:
       Robert C. Jarosh, Hirst Applegate, Cheyenne, Wyoming. Argument by Mr. Jarosh.

Representing Appellees Chris Davidson and Steve Harper:
      Russel D. Yerger, Yerger Law Firm, P.C. Billings, Montana; Jon M. Moyers,
      Moyers Law P.C., Billings, Montana.

Before FOX, C.J., and KAUTZ, GRAY, FENN, JJ, and ROBINSON, D.J.

NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third.
Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheyenne,
Wyoming 82002, of typographical or other formal errors so correction may be made before final
publication in the permanent volume.
KAUTZ, Justice.

[¶1] Tri County Telephone Association, Inc. (Cooperative) was a Wyoming cooperative
utility organized to provide telecommunication services to its members on a non-profit
basis. It also invested in for-profit ventures through four subsidiaries. In December 2014,
over 2/3 of the Cooperative’s members voted to sell the Cooperative, including its for-profit
subsidiaries, to entities owned and controlled by Neil Schlenker. Mr. Schlenker, in turn,
converted the Cooperative into a for-profit corporation under the same name, which we
will refer to as TCT to distinguish it from the Cooperative. After the sale, R. Joseph
Campbell, Barbara Campbell, and William Loveland (Class Representatives) filed a class
action lawsuit, ostensibly on behalf of themselves and all members of the Cooperative at
the time of its sale, against TCT, Mr. Schlenker and his entities (the BHT entities), two of
the Cooperative’s officers, and five former directors of the Cooperative’s Board of
Directors (collectively Defendants). The lawsuit alleged, inter alia, claims for fraud,
constructive fraud, breach of fiduciary duty, conversion, and civil conspiracy. In essence,
the Class Representatives claimed Defendants duped the Cooperative’s members into
selling what they allege was a $105 million Cooperative for a mere $29 million. The
district court granted summary judgment in favor of Defendants and denied the Class
Representatives’ motions for partial summary judgment. The Class Representatives
appealed. We affirm.

                                          ISSUES

[¶2] The parties present numerous issues on appeal, but the following issues are
dispositive:

       1.     Did the district court err by granting summary judgment in favor of
Defendants on the Class Representatives’ fraud, constructive fraud, and aiding and abetting
fraud claims because they could not demonstrate the existence of a genuine issue of
material fact with respect to the element of reliance?

        2.    Did the district court err by granting summary judgment to Defendants on
the Class Representatives’ claim that TCT, with the help of Mr. Schlenker and the BHT
entities, converted the Cooperative members’ capital credits and on their claim that the
Cooperative’s officers and directors breached their fiduciary duties by failing to ensure the
members were paid the full amount of their capital credits?

       3.     Did the district court err by dismissing the Class Representatives’ claims for
breach of fiduciary duty and aiding and abetting breach of fiduciary duty because they were
not brought as derivative claims?

      4.    Did the Class Representatives properly make and preserve a claim for
monetary damages based on Defendants’ alleged violation of Wyo. Stat. Ann. § 17-19-

                                             1
1807(a)(iv)?

      5.    Did the district court err by granting summary judgment in favor of
Defendants on the Class Representatives’ civil conspiracy claim?

                                         FACTS

[¶3] The record in this matter is voluminous. We recite only those facts necessary to our
resolution of this appeal.

       The Cooperative

[¶4] In the early 1950s, the Cooperative was organized under Wyoming law as a
cooperative utility to provide telecommunication services on a non-profit basis to its
members in the Big Horn Basin. As the Cooperative grew, it was divided into four
geographical service areas/exchanges: (1) Burlington, (2) Ten Sleep, (3) Hyattville, and
(4) Hamilton Dome. The Cooperative was managed by a five-person Board of Directors
(who were also members of the Cooperative), with one director elected from each service
area and one elected by the Cooperative’s membership at large. The Board appointed a
Chief Executive Officer (CEO) and Chief Financial Officer (CFO) to oversee the day-to-
day business activities of the Cooperative. At all relevant times, Chris Davidson and Steve
Harper served as CEO and CFO, respectively.

[¶5] As a condition of membership in the Cooperative, each member was required to
purchase telecommunication services from the Cooperative. Members paid the
Cooperative monthly for their selected telecommunication services, and the Cooperative
applied the funds to the operating costs and expenses it incurred to furnish services to the
members. If the amount received from the members exceeded the Cooperative’s operating
costs and expenses, the Board credited the excess to the members’ “capital credit accounts”
in proportion to each member’s patronage. The amount credited to a member’s capital
credit account remained there until the Board allowed a “retirement” of capital. Before the
sale of the Cooperative in December 2014, the Board had not retired any capital credits for
over fourteen (14) years. However, members received a monthly discount (approximately
$15 per month) on their bills; this amount was deducted from their capital credit accounts.

       The Cooperative’s For-Profit Subsidiaries

[¶6] Over the years, the Cooperative created four subsidiaries for the purpose of carrying
on for-profit activities unrelated to providing telecommunication services to its members:
(1) TCT West, Inc., (2) TCT Investments Cellular, LLC, (3) TCT Investments ESL, LLC,
and (4) TCT Investments, LLC. Through TCT West, the Cooperative purchased five rural
telecommunication exchanges from U.S. West Communications and acquired thousands
of customers who were not members of the Cooperative. TCT West provided

                                             2
telecommunication services to these customers on a for-profit basis. The Cooperative
formed TCT Investments Cellular to hold a 34% limited partnership interest in Wyoming
1-Park Limited Partnership. The general partner was Verizon Wireless and the purpose of
the partnership (hereinafter Verizon Partnership) was to provide cellular telephone services
in various areas in northern Wyoming. TCT Investments ESL owned 568,590 shares of
Class D common stock issued by Eleutian Technologies, Inc., a company involved in long-
distance language education, and TCT Investments held a 51% interest in Best of the West,
LLC, a manufacturer of sporting firearms and related media.

[¶7] The Cooperative received considerable profits from these investments, primarily
from TCT West’s for-profit activities and the Verizon Partnership.1 As a non-profit
cooperative, there was no ready method for the Cooperative to distribute those profits to
its members. It tracked the profits by “assigning” them to its members’ capital credit
accounts in proportion to their patronage, but this action did not increase the capital
accounts.

        The Sale of the Cooperative and Its Subsidiaries

[¶8] In the Spring of 2009, Mr. Schlenker offered to purchase the Cooperative for $11
million and 50% of the Cooperative’s net profits for the three years immediately following
the sale. In June 2009, the Board unanimously rejected the offer because it found the offer
to be “totally unacceptable and far below value.”

[¶9] Four years later, in July 2013, Mr. Schlenker returned with a new offer to purchase
the Cooperative for $40 million less net liabilities, which were defined as total liabilities
minus cash and marketable securities. Over the next fourteen months, the Board negotiated
with Mr. Schlenker on the price and other terms of the sale. The negotiations ultimately
led the Board, with the exception of Mr. Campbell, to agree, subject to approval of 2/3 of
the Cooperative’s members, to sell the Cooperative’s LLC subsidiaries for $19,302,000
and the Cooperative (including TCT West) for $26.7 million. To accomplish the
Cooperative portion of the sale, BHT Merger Corporation, a subsidiary of BHT Holdings,
Inc. (a company associated with Mr. Schlenker), would merge with and into the
Cooperative and the Cooperative would be the surviving corporation.

[¶10] On September 19, 2014, the Board sent a letter to the Cooperative’s members
notifying them of the proposed sale and inviting them to vote on the sale with an enclosed
ballot. The letter informed the members that the sale proceeds would be divided among
the membership and advised each member of his approximate amount. It provided a
summary of the sale documents and told the members the instruments were available at the
Cooperative’s offices in Basin and Cody. Enclosed with the letter were three pages of

1
 The issue of whether or how a nonprofit cooperative could separately operate a for-profit business is not
an issue in this case.
                                                    3
anticipated “Questions and Answers” concerning the sale. The letter informed the
members that a meeting of members would be held on December 20, 2014, at the
Cooperative’s office in Basin “to count the ballots and announce the results of the vote.”
The enclosed ballot advised the members they could mail their ballots or bring them to the
December 20, 2014, meeting or one of the three informational meetings held by the
Cooperative in September and October 2014. On October 15, 2014, and December 2, 2014,
the Board sent the members two more letters with additional anticipated “Questions &
Answers.”

[¶11] On December 20, 2014, the Board held a special membership meeting at which the
Cooperative’s Credentials and Elections Committee counted the votes. The Committee
certified that out of 825 members eligible to vote, 652 members or 79% voted in favor of
the sale, more than the 2/3 required by the Wyoming Cooperative Utility Act (see Wyo.
Stat. Ann. §§ 17-20-1106(a)(iii), 17-20-1201(c) (LexisNexis 2023)) and the Cooperative’s
bylaws. Forty-two members, including Mr. Loveland, a Class Representative, voted “no,”
and the remaining members, including the Campbells, also Class Representatives, did not
return a ballot and therefore their votes were tallied as a “no.”

[¶12] On December 31, 2014, BHT Investments, LLC, another company associated with
Mr. Schlenker, purchased the Cooperative’s three LLC subsidiaries. The sale proceeds
were allocated (added) to the members’ capital credit accounts in proportion to their
patronage. That same day the Cooperative issued checks to its members, paying them the
amounts in their capital credit accounts, which included their proportion of the proceeds
from the sale of the LLC subsidiaries and the profits the Cooperative had accumulated over
the years from providing telecommunication services to its members. All members,
including the Campbells and Mr. Loveland, cashed their checks.

[¶13] On January 2, 2015, BHT Merger Co. was merged with and into the Cooperative,
with the Cooperative as the surviving entity.2 The Articles of Merger filed with the
Wyoming Secretary of State stated “pursuant to and upon completion of the [merger], [the
Cooperative] will no longer be a cooperative utility as defined by W.S. § 17-20-140(a)(i).”
On that same day, Mr. Schlenker filed Amended Articles of Incorporation with the
Wyoming Secretary of State, which transformed the Cooperative from a nonprofit
corporation into a Wyoming for-profit corporation (TCT).

       This Lawsuit

[¶14] On December 28, 2015, almost a year after the sale, the Campbells filed a class
action complaint against TCT; Mr. Davidson and Mr. Harper (collectively “Officers”);

2
 Although the merger agreement referred to the Cooperative as the surviving entity, the Cooperative
effectively ceased to exist as it no longer had members. See Wyo. Stat. Ann. § 17-20-603 (LexisNexis
2023) (“A cooperative utility is required to have members.”).
                                                 4
Dalin Winters, Clifford Alexander, J.O. Sutherland, Daniel Greet, and John Johnson (the
Board’s directors at the time of the sale, collectively “Directors”); and Mr. Schlenker and
the BHT entities (BHT Investments, LLC, BHT Holdings, Inc., and BHT Merger
Corporation). The Campbells amended their complaint twice. The operative complaint,
the Second Amended Complaint, alleged twelve causes of action including fraud,
constructive fraud, aiding and abetting fraud, breach of fiduciary duty, aiding and abetting
breach of fiduciary duty, conversion, and civil conspiracy. It requested the sale “be set
aside” and sought monetary damages, including punitive damages.

[¶15] The Campbells filed a motion for class certification under Wyoming Rule of Civil
Procedure (W.R.C.P.) 23 which purported to define the class as the 825 members of the
Cooperative at the time of its sale. The district court granted the motion and appointed the
Campbells as class representatives.3 During the pendency of the district court proceedings,
Mr. Campbell died and the district court granted Ms. Campbell’s motion to appoint Mr.
Loveland as a class representative. We will continue to refer to the Campbells and Mr.
Loveland collectively as the “Class Representatives.”

[¶16] In October 2017, the Class Representatives filed a motion for partial summary
judgment arguing the sale was void because, among other things, it violated Wyo. Stat.
Ann. § 17-19-1807(a)(iv) (LexisNexis 2023) of the Wyoming Nonprofit Corporation Act.
See Wyo. Stat. Ann. § 17-20-103 (LexisNexis 2023) (stating the Wyoming Nonprofit
Corporation Act applies to cooperative utilities unless inconsistent with the Wyoming
Cooperative Utilities Act). According to the Class Representatives, § 17-19-1807(a)(iv)
prohibited the Cooperative from becoming a for-profit corporation. The district court
denied the motion, concluding § 17-20-1106 provided “the statutory authority for the
merger of a cooperative utility with an entity other than a cooperative utility, provided
certain conditions have been met and/or complied with.”

[¶17] After concluding discovery in the case, the Class Representatives filed a second
motion for partial summary judgment on their (1) conversion claim, (2) breach of fiduciary
duty claims based on the Officers’ and Directors’ failure to, inter alia, obtain two
independent analyses of the effect of the sale on the members’ equity position as required
by § 17-20-1106(a)(iv) and § 17-20-1201(b)(i), and (3) breach of fiduciary duty and
constructive fraud claims based on Defendants’ violations of the voting requirements
outlined in § 17-20-1201(b)(ii) and the Cooperative’s bylaws. The Defendants, in turn,
filed a joint motion for summary judgment on all of the Class Representatives’ claims. The
district court granted Defendants’ motion and denied the Class Representatives’ motion.
The Class Representatives appealed.

3
  The Second Amended Complaint did not allege that each member of the class met the jurisdictional
requirement for actions in district court. See Mutual of Omaha Ins. Co. v. Blury-Losolla, 952 P.2d 1117,
1121 (Wyo. 1998). However, whether the district court properly certified a class is not an issue before us.
                                                    5
                               STANDARD OF REVIEW

[¶18] Each of the Class Representatives’ arguments on appeal were resolved by the
district court on summary judgment. Summary judgment is appropriate “if the movant
shows that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” W.R.C.P. 56(a).

              We review the district court’s order granting summary
              judgment de novo and can affirm on any legal grounds
              provided in the record. Burns v. Sam, 2021 WY 10, ¶ 7, 479
              P.3d 741, 743 (Wyo. 2021) (citing Warwick v. Accessible
              Space, Inc., 2019 WY 89, ¶ 9, 448 P.3d 206, 210 (Wyo. 2019)).

                     [W]e review a summary judgment in the same
                     light as the district court, using the same
                     materials and following the same standards. We
                     examine the record from the vantage point most
                     favorable to the party opposing the motion, and
                     we give that party the benefit of all favorable
                     inferences that may fairly be drawn from the
                     record. A material fact is one which, if proved,
                     would have the effect of establishing or refuting
                     an essential element of the cause of action or
                     defense asserted by the parties.

              [Burns,] ¶ 7, 479 P.3d at 744 (quoting Warwick, ¶ 9, 448 P.3d at 210–
              11).

Page v. Meyers, 2021 WY 73, ¶ 9, 488 P.3d 923, 926 (Wyo. 2021).

                                      DISCUSSION

       1. Fraud/Constructive Fraud/Aiding and Abetting Fraud

[¶19] In the first cause of action in the Second Amended Complaint, the Class
Representatives asserted claims for fraud and constructive fraud against the Officers and
Directors. In support of these claims, they alleged that between 2009 and 2014, the Officers
and Directors made material misrepresentations and omissions to the members which
allowed Mr. Schlenker, with the help of his friend, Mr. Davidson, to “take over” the
Cooperative for far less than it was worth. Among other things, the Class Representatives
maintained the Board violated § 17-20-1201(b)(i) by failing to have the sale independently
analyzed for its effect on the members’ equity position, thereby depriving the members of
information necessary to properly evaluate the sale. In the second cause of action, the

                                             6
Class Representatives asserted the Officers and Directors committed fraud by
misrepresenting and lying to members about the true value of the sale in the September 19,
2014, letter. The Class Representatives further alleged Mr. Schlenker and the BHT entities
aided and abetted the Officers’ and Directors’ fraud.

[¶20] The district court awarded summary judgment to Defendants on the Class
Representatives’ fraud claims for several reasons. We need only focus on one. The court
decided the Class Representatives could not demonstrate the existence of a genuine issue
of material fact with respect to the element of reliance because it was undisputed that they
did not rely upon Defendants’ alleged misrepresentations. We agree with the district court.

[¶21] “Fraud is established when a plaintiff demonstrates, by clear and convincing
evidence that, (1) the defendant made a false representation intended to induce action by
the plaintiff; (2) the plaintiff reasonably believed the representation to be true; and (3) the
plaintiff relied on the false representation and suffered damages.” Bitker v. First Nat’l
Bank in Evanston, 2004 WY 114, ¶ 12, 98 P.3d 853, 856 (Wyo. 2004) (emphasis added).
“The element of reliance overlaps with (and may be considered a form of) the usual
requirement in tort that a defendant’s wrong be a factual or ‘but for’ cause of the harm that
the plaintiff suffered.” Restatement (Third) of Torts: Liability for Econ. Harm § 11 (2020).
“There can be no recovery if the plaintiff did not believe the defendant’s
misrepresentation[] or was not aware of it until after the transaction was complete . . . . In
those cases, the claim fails because the plaintiff did not act in reliance on the defendant’s
statement.” Id.

[¶22] Each of the Class Representatives voted “no” on the sale, which precludes any claim
that they relied on any misrepresentations by Defendants.4 Only those who voted “yes”
could claim they relied on misrepresentations. Further, the Class Representatives stated
they did not believe the alleged misrepresentations, did not rely upon them, and had, in
fact, tried to counter them.

[¶23] The Class Representatives do not dispute that they did not rely on the alleged
misrepresentations. Rather, they claim reliance should be presumed in spite of their votes
because their fraud claim is a claim of fraud by omission. The Class Representatives argue
Defendants withheld numerous material facts, so reliance is presumed under Affiliated Ute
Citizens of Utah v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 1472, 31 L.Ed.2d
741 (1972).

[¶24] Affiliated Ute involved a claim for securities fraud under § 10(b) of the Securities
Exchange Act, see 15 U.S.C. § 78j, and Rule 10-b of the Security and Exchange
Commission. Id., 406 U.S. 128 at 144-45, 92 S.Ct. at 1467-68. The United States Supreme
Court held: “Under the circumstances of this case, involving primarily a failure to disclose,

4
    The Campbells did not vote on the sale, knowing their failure to vote would be considered a “no” vote.
                                                      7
positive proof of reliance is not a prerequisite to recovery. All that is necessary is that the
facts withheld be material in the sense that a reasonable investor might have considered
them important in the making of this decision.” Id., 406 U.S. 128 at 153-54, 92 S.Ct. at
1472 (citations omitted). We have not yet addressed whether Affiliated Ute’s presumption
of reliance applies to a common law fraud claim based, in whole or in part, on alleged
omissions of material fact and we need not do so here. Assuming, without deciding, the
presumption of reliance applies, the presumption is rebuttable upon a showing the plaintiff
did not, in fact, rely. Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, 552 U.S. 148, 159, 128
S.Ct. 761, 769, 169 L.Ed.2d 627 (2008) (stating Affiliated Ute’s presumption of reliance is
rebuttable); Black v. Finantra Cap., Inc., 418 F.3d 203, 209 (2d Cir. 2005) (Affiliated Ute’s
presumption of reliance is rebuttable upon a showing that plaintiff did not, in fact, rely);
Rifkin v. Crow, 574 F.2d 256, 262 (5th Cir. 1978) (Affiliated Ute’s “presumption of reliance
in nondisclosure cases is not conclusive. If defendant can prove that plaintiff did not rely,
that is, that plaintiff’s decision would not have been affected even if defendant had
disclosed the omitted facts, then plaintiff’s recovery is barred.”). In this case, Defendants
rebutted any presumption.

[¶25] The Class Representatives maintain the district court erred by using their actions to
find no reliance on the alleged misrepresentations and omissions. According to them, the
fact they affirmed they would fairly and adequately represent the class and that their claims
were typical of the claims of the class is irrelevant to the showing of reliance. They assert
that because over 2/3 of the Cooperative’s members voted “yes” on the sale, a genuine
issue of material fact exists about whether those members relied on the alleged materially
misleading disclosures they received.

[¶26] W.R.C.P. 23(a) states “[o]ne or more members of a class may sue . . . on behalf of
all members only if . . . the claims . . . of the representative parties are typical of the claims
or defenses of the class; and . . . the representative parties will fairly and adequately protect
the interests of the class.” The Class Representatives told the district court that their claims
were representative of the members of the class. Other courts have refused to certify a
class under the “typicality” and “representation” requirements where the putative class
representatives are subject to unique defenses which may not be applicable to other
members of the proposed class. See, e.g., Sheehan v. Grove Farm Co., Inc., 163 P.3d 179,
191 (Haw.Ct.App. 2005) (affirming circuit court’s denial of class certification where
purported class representative sought to raise a negligent misrepresentative claim yet he,
unlike other purported class members, was aware of the alleged omissions prior to voting
on the merger); Kas v. Fin. Gen. Bankshares, Inc., 105 F.R.D. 453, 461-62 (D.D.C. 1985)
(denying motion for class certification where defendants had an available defense peculiar
to the class representatives, namely, the representatives did not rely on the alleged
deceptive proxy statement because they voted against the merger for reasons unrelated to
that statement, whereas other members of the proposed class were allegedly deceived by
the proxy statement and, relying upon it, voted in favor of the merger). Here, the propriety
of the district court’s class certification order and its appointment of the Campbells and

                                                8
Mr. Loveland as the class representatives is not before us. However, by confirming to the
district court that their claims were typical of other class members and that they would
fairly and adequately protect the interests of the class, the Class Representatives are now
estopped from arguing otherwise.

[¶27] The fact that 2/3 of the Cooperative’s members voted “yes” on the sale does not
create a genuine issue of material fact on the element of reliance. Notably absent from the
record is any evidence of a member who voted “yes” who would have voted “no” had he
known Defendants made the alleged material omissions. Indeed, at his February 21, 2018,
deposition, Mr. Campbell stated he had talked with some former members of the
Cooperative about the lawsuit. When asked if he was aware of members “who voted yes
that, if given the opportunity, would now vote no” on the sale, he responded, “Yes, I would
be – I’m sure that there would be some, yes” but admitted he “[didn’t] know of any for
sure, no.” Similarly, Barbara Campbell claimed “there were a lot of people who did” rely
on the alleged misrepresentations when casting their votes because “they voted ‘yes’” on
the sale but admitted she did not know if any did, in fact, rely.

[¶28] The Class Representatives argue the district court erred by granting judgment to
Defendants on their constructive fraud claim without addressing the facts they allege
support the claim. They assert Defendants’ withholding and concealing of numerous
material facts from the Cooperative’s members in connection with the sale, including the
true value of the Cooperative’s assets, amply supported their constructive fraud claim.
“Constructive fraud has been defined as consisting of all acts, omissions, and concealments
involving breaches of a legal or equitable duty resulting in damage to another, and exists
where such conduct, although not actually fraudulent, ought to be so treated when it has
the same consequence and legal effects.” Johnson v. Reiger, 2004 WY 83, ¶ 22, 93 P.3d
992, 998 (Wyo. 2004) (citing In re Estate of Borton, 393 P.2d 808, 812 (Wyo. 1964)).
Because they did not rely on any alleged material misrepresentations or omissions and
there is no evidence that any member relied, the Class Representatives cannot show they
were damaged by any alleged misrepresentations or omissions. They simply cannot state
a claim for constructive fraud, whatever the substance of the claimed omissions were,
because they cannot show reliance. Similarly, because the Class Representatives failed to
establish their fraud and constructive fraud claims against the Officers and Directors, they
also cannot show Mr. Schlenker and the BHT entities participated in or aided and abetted
any fraud. See Bader v. Mills & Baker Co., 28 Wyo. 191, 201 P. 1012, 1014 (1921) (“It is
a fundamental rule of the law of tort, including trespass, that all who participate in the
wrong are equally liable). See also, Restatement (Second) of Torts § 876 (1979) (setting
forth the Restatement’s position regarding the liability of a person acting in concert with
another person whose “tortious conduct” results in harm to a third person”).

[¶29] The district court properly granted summary judgment in favor of Defendants on
the Class Representatives’ fraud, constructive fraud, and aiding and abetting fraud claims.

                                             9
       2. Conversion

[¶30] In the eleventh cause of action of the Second Amended Complaint, the Class
Representatives alleged:

                      In doing the acts as herein above alleged, Defendants
              Neil Schlenker and associated companies, Chris Davidson,
              Steve Harper, [and] Dalin Winters[] took the value of the
              Cooperative that should have been paid out to the owners and
              converted the same to their own use, and failed and refused,
              and continued to fail and refuse, to distribute the sale proceeds
              to the owners.

The district court granted summary judgment to Defendants on the conversion claim,
holding “the value of the []Cooperative” and its assets were owned by the Cooperative, not
its members, and therefore the Cooperative, not its members, held “title” to them. As a
result, the members had no right to possess, use, or enjoy the alleged converted property, a
necessary element of conversion.

[¶31] The Class Representatives argue their conversion claim was based on the conversion
of the members’ capital credits and the district court erred in determining the capital credits
were owned by the Cooperative, not its members. According to them, because of a
cooperative’s non-profit status, all of its profits belong to its members as capital credits and
not to the cooperative. The Class Representatives specifically claim the subsidiary profits
“assigned” to the members’ capital credit accounts but not accrued or added to the capital
accounts were taken by conversion because they were not paid to the members upon the
sale of the Cooperative and its subsidiaries. Although they did not specifically allege their
conversion claim against TCT in the Second Amended Complaint, they maintain on appeal
that TCT converted these profits with the help of Mr. Schlenker and the BHT entities.

[¶32] We conclude, albeit on different grounds, that the district court correctly granted
summary judgment to Defendants on the Class Representatives’ conversion claim. See
Burns, ¶ 7, 479 P.3d at 743 (“This Court . . . may affirm a summary judgment on any legal
grounds appearing in the record.”) (citations omitted).

[¶33] “Conversion is defined as any distinct act of dominion wrongfully executed over
one’s property in denial of his right or inconsistent therewith.” Satterfield v. Sunny Day
Res., Inc., 581 P.2d 1386, 1388 (Wyo. 1978) (quoting W. Nat’l Bank of Casper v. Harrison,
577 P.2d 635, 640 (Wyo. 1978)). See also, Ferguson v. Coronado Oil Co., 884 P.2d 971,
975 (Wyo. 1994) (“[C]onversion occurs when a person treats another’s property as his
own, denying to the true owner the benefits and rights of ownership.”). To establish a
conversion, a plaintiff must show:

                                              10
               (1) he had legal title to the converted property; (2) he either had
               possession of the property or the right to possess it at the time
               of the conversion; (3) the defendant exercised dominion over
               the property in a manner which denied the plaintiff his rights
               to use and enjoy the property; (4) in those cases where the
               defendant lawfully, or at least without fault, obtained
               possession of the property, the plaintiff made some demand for
               the property’s return which the defendant refused; and (5) the
               plaintiff has suffered damage by the loss of the property.

Ferguson, 884 P.2d at 975 (quoting Frost v. Eggeman, 638 P.2d 141, 144 (Wyo. 1981)).
Moreover, one cannot be liable for conversion of another’s property if the person consented
to the conversion. Restatement (Second) of Torts § 252 (1965) (“One who would otherwise
be liable to another for . . . conversion is not liable to the extent that the other has effectively
consented to the interference with his rights.”).

[¶34] The Class Representatives allege TCT converted the Cooperative members’ share
of the subsidiaries’ profits “assigned” but not accrued to their capital credit accounts when,
after the merger, Mr. Schlenker and the BHT entities amended the Cooperative’s Articles
of Incorporation, thereby transforming the Cooperative from a non-profit cooperative
utility into a for-profit corporation. At that time, however, the members did not have legal
title to, possession of, or the right to possess these profits because they had sold the
Cooperative to Mr. Schlenker and the BHT entities. See Ash v. First Nat’l Bank of East
Arkansas, 573 S.W.3d 584 (2019) (concluding stock power signed by Mr. Ash was a valid
indorsement under Arkansas securities law which transferred legal title to the stock shares
from Mr. Ash to National Bank of East Arkansas, as trustee of Mr. Ash’s mother’s
irrevocable testamentary trust; because Mr. Ash did not have legal title to or the right to
possess the shares after he signed the stock power, he could not state a claim for conversion
of those shares against the Bank). Cf. McCarthy v. James E. Simon Co., 923 P.2d 747,
749-50 (Wyo. 1996) (because the James E. Simon Company (Simon) purchased the gravel
from Ms. McCarthy, Simon had legal title to the gravel and Ms. McCarthy’s refusal to
allow Simon to remove the gravel constituted a conversion of the gravel). Moreover, by
voting to approve the sale of the Cooperative and its subsidiaries to Mr. Schlenker and the
BHT entities, the members consented to TCT’s alleged conversion.

[¶35] The Class Representatives assert the Cooperative could not extinguish the members’
ownership rights in the capital credits, including the subsidiary profits “assigned” to their
capital credit accounts, other than by repaying their full amount to the members. This
argument ignores that it was not the Cooperative who sold the capital credits but rather the
members, as the Cooperative could not be merged and/or sold without the approval of 2/3
of the members. Sections 17-20-1106(a)(iii), 17-20-1201(c). Indeed, in their brief, the
Class Representatives state: “Only the [m]ember[s] could and did authorize the sale of the
Cooperative[.]”

                                                11
[¶36] The Class Representatives rely on Lieberman v. Mossbrook, 2009 WY 65, 208 P.3d
1296 (Wyo. 2009), for the proposition that TCT converted the members’ capital credits.
Such reliance is misplaced. Mr. Lieberman withdrew from an LLC and claimed the LLC
owed him the value of his interest. Lieberman, ¶ 7, 208 P.3d at 1301-02. About three years
later, the LLC was merged into a corporation and the existing members’ interests were
converted into shares. Id., ¶ 10, 208 P.3d at 1302. Mr. Lieberman sued, alleging
conversion of his equity interest in the LLC. Id., ¶ 16, 208 P.3d at 1303. We concluded
Mr. Lieberman had established the elements of conversion: “[H]e was legally entitled to
payment of his equity interest at the time his membership was cancelled and his capital
contribution returned; [the LLC] failed to pay him the value of his equity interest; he
demanded payment; [the LLC] rejected his demand; and he sustained damages.” Id., ¶ 44,
208 P.3d at 1309. We decided the new corporation was liable to Mr. Lieberman for the
conversion of his equity interest. Id., ¶ 60, 208 P.3d at 1313. Lieberman does not help the
Class Representatives because, unlike the Cooperative’s members, Mr. Lieberman did not
sell his equity interest or consent to the conversion of his equity interest.

[¶37] The Class Representatives argue on appeal that by failing to ensure the members
were paid their capital credits, thereby leading to their wrongful conversion by TCT, the
Officers and Directors breached their fiduciary duties. Because TCT did not convert the
members’ capital credits, the Officers and Directors did not breach any duty with respect
to the capital credits and the Class Representatives cannot show they were damaged by any
breach. Gowdy v. Cook, 2020 WY 3, ¶ 27, 455 P.3d 1201, 1208 (Wyo. 2020) (“To establish
a claim for breach of fiduciary duties, the plaintiff must show a duty based on a fiduciary
relationship, breach of the duty, and the breach caused him damage.” (citing Acorn v.
Moncecchi, 2016 WY 124, ¶ 80, 386 P.3d 739, 762 (Wyo. 2016) (other citation omitted)).

[¶38] The district court correctly granted summary judgment in favor of TCT, Mr.
Schlenker, and the BHT entities on the Class Representatives’ conversion claim and in
favor of the Officers and Directors on the Class Representatives’ claim they breached their
fiduciary duties by allowing TCT to convert the members’ capital credits.

       3. Breach of Fiduciary Duty

[¶39] In the first, fourth, fifth, sixth, and ninth causes of action of the Second Amended
Complaint, the Class Representatives alleged the Officers and Directors breached their
common law and statutory fiduciary duties of due care, loyalty, disclosure, good faith, and
to serve the best interests of the Cooperative by violating various statutes and bylaws,
including § 17-20-1201(b), and by making the alleged material misrepresentations and
omissions about the sale.5 They also asserted Mr. Schlenker and the BHT entities aided

5
 In the seventh and eighth causes of action of the Second Amended Complaint, the Class Representatives
alleged the Officers and Directors violated Wyo. Stat. Ann. § 2-3-301 (LexisNexis 2023) of the Wyoming
                                                 12
and abetted the Officers and Directors in their breach of fiduciary duties. The district court
granted Defendants’ motion for summary judgment on these claims for several reasons.
Again, we need only focus on one. The court decided the breach of fiduciary duty and
aiding and abetting claims could only be brought in a derivative action because they were
“based solely upon [the Class Representatives’] membership in the []Cooperative” and
sought damages that the Officers and Directors “caused to the []Cooperative, and thereby
to them as members [of the Cooperative].” The court determined: “This connection
between an injury to the Cooperative and thus to the member is the very definition of a
derivative action. As such, [these claims are] now barred because the [Class
Representatives] have failed to satisfy the requirements of a derivative suit.” We agree
with the district court.

[¶40] To determine whether an action is direct or derivative in nature, we look to the
bearer and nature of the alleged injury. Fritchel v. White, 2019 WY 117, ¶¶ 12, 14, 452
P.3d 601, 604-05 (Wyo. 2019) (citing Sullivan v. Pike & Susan Sullivan Found., 2018 WY
19, ¶ 22, 412 P.3d 306, 312 (Wyo. 2018), and Wallop Canyon Ranch, LLC v. Goodwyn,
2015 WY 81, ¶ 29, 351 P.3d 943, 951-52 (Wyo. 2015)).

                “[W]hen [a] director (or shareholder or member) seeks to
                remedy an injury to the corporation rather than himself, the
                action is derivative in nature.” Sullivan, 2018 WY 19, ¶ 22,
                412 P.3d at 312. “As a general rule, recovery in such actions
                inures to the corporation rather than to the stockholders as
                individuals.” Wallop Canyon Ranch, LLC . . ., ¶ 28, 351 P.3d
                [at] 951 . . . (quoting Lynch v. Patterson, 701 P.2d 1126, 1130
                (Wyo. 1985)). Generally, “[a] claim is derivative in nature
                where the plaintiff was not injured ‘directly or independently’
                of the [entity].” Wallop [Canyon Ranch, LLC], . . . ¶ 29, 351
                P.3d at 951.

Mantle v. N. Star Energy & Constr. LLC, 2019 WY 29, ¶ 152, 437 P.3d 758, 806-07 (Wyo.
2019).

[¶41] The distinction between a derivative action and a direct action is important because
“a plaintiff who mischaracterizes a derivative cause of action as direct [risks] dismissal of
the claim” for failure to comply with derivative suit procedural requirements. Mantle, ¶
154, 437 P.3d at 807. To satisfy those requirements, the plaintiff must: (1) be a member .
. . at the time of bringing the proceeding, and (2) demand the directors act or state with
particularity why such demand would be futile. Wyo. Stat. Ann. § 17-19-630 (LexisNexis

Probate Code which sets forth the standards for fiduciaries and their authority to acquire and retain property
and investments. The district court determined these statutes did not apply. The Class Representatives do
not challenge that determination on appeal.
                                                     13
2023). See also, W.R.C.P. 23.1 (setting forth the procedures for derivative actions brought
by “shareholders or members”). “Although our precedent on direct versus derivative
actions is limited, we have never strayed from the rule that derivative injuries must be
remedied by derivative actions.” Fritchel, ¶ 22, 452 P.3d at 606 (citing Mantle, ¶ 152, 437
P.3d at 806-07; Sullivan, ¶ 22, 412 P.3d at 312; Wallop Canyon Ranch, LLC, ¶ 31, 351
P.3d at 952).

[¶42] “A claim for breach of fiduciary duty is generally derivative in nature.” 12B
Fletcher Cyc. Corp. § 5923.30. This case is no exception. The Class Representatives rely
on Wyo. Stat. Ann. §§ 17-19-830, 17-19-831, and 17-19-842(a) (LexisNexis 2023) for
their claims of breach of fiduciary duty against the Officers and Directors. Section 17-19-
830 simply states a director may be liable for his intentional torts or illegal acts. To the
extent this statute imposes a duty on directors not to commit intentional torts or illegal acts,
its purpose is to protect the nonprofit corporation from such conduct. As a result, a breach
of that duty primarily injures the nonprofit corporation. Any injury to a nonprofit
corporation’s members stemming from a breach of this duty is derivative of the
corporation’s injury.

[¶43] Section 17-19-831 sets forth the conflict of interest statute for directors of a non-
profit corporation. In Sullivan, we concluded that a challenge to a board’s action on the
basis that it involved an improper conflict of interest belongs to the corporation. We
explained:

              In Mueller v. Zimmer, 2005 WY 156, ¶ 30, 124 P.3d 340, 357
              (Wyo. 2005), we stated that the purpose of the nonprofit
              corporation conflict of interest statute, § 17-19-831, is to
              “protect the corporation from potential unfair dealing by
              providing for review of conflict of interest transactions by
              disinterested board or committee members.”

Sullivan, ¶ 24, 412 P.3d at 313. Similarly, the Class Representatives’ challenge to the
Directors’ actions on the basis they involved an improper conflict of interest belongs to the
Cooperative, not its members, and any injury is primarily to the Cooperative and only
indirectly to its members.

[¶44] Section 17-19-842(a) states officers who are employees of the corporation with
discretionary authority, like Mr. Davidson and Mr. Harper, must discharge their duties
under that authority in good faith, with the care an ordinary prudent person in a like position
would exercise under similar circumstances, and in a manner the officer reasonably
believes to be in the best interest of the corporation and its members, if any. Again, these
duties are owed primarily to the corporation and when they are violated, the injury is to the
corporation and only derivatively to its members.

                                              14
[¶45] The Class Representatives maintain the Officers and Directors owed fiduciary
duties directly to the members, not merely to the Cooperative itself. For example, they
argue their claim for breach of fiduciary duty arising from the failure to observe proper
voting procedures can never be a derivative action because it is a personal claim—only
members were entitled to vote. We are not persuaded. The purpose of the voting
procedures is to protect the integrity of elections relating to the Cooperative, including a
vote to sell all or a portion of its assets, thereby ensuring its assets are not misappropriated.
See § 17-20-1201. In this case, the claimed injury resulting from the Officers’ and
Directors’ alleged failure to observe proper voting procedures was that the Cooperative and
its subsidiaries were ultimately sold for far less than their worth. This injury would be
primarily to the Cooperative and only indirectly to the Class Representatives as members
of the Cooperative.

[¶46] Because the Class Representatives’ breach of fiduciary duty claims are derivative
so too are their claims that Mr. Schlenker and the BHT entities aided and abetted the
Officers’ and Directors’ alleged breach of fiduciary duties.

[¶47] The district court properly granted summary judgment to Defendants on the Class
Representatives’ breach of fiduciary duty and aiding and abetting breach of fiduciary duty
claims. These claims are derivative and the Class Representatives failed to comply with
the derivative suit procedural requirements.

       4. Section 17-19-1807(a)(iv)

[¶48] The Class Representatives argue the sale of the Cooperative violated § 17-19-
1807(a)(iv), which they allege prohibited the Cooperative from becoming a for-profit
corporation. They maintain they are entitled to monetary damages resulting from this
violation under their constructive fraud and breach of fiduciary duty claims. The problem
for the Class Representatives is that they failed to properly raise a violation of this statute
as a basis for monetary damages in the district court.

[¶49] The Class Representatives never mentioned § 17-19-1807(a)(iv) in their original
complaint or first amended complaint. In September 2016, at a hearing on Defendants’
motions to dismiss the first amended complaint, class counsel stated he believed the sale
was illegal and should be set aside “because of the violations of statute that have occurred.”
Counsel stated the legality of the sale was a threshold issue and he hoped to address the
issue “early in the case.” Despite these comments, the Second Amended Complaint did
not mention § 17-19-1807(a)(iv) in any respect, let alone as part of the Class
Representatives’ constructive fraud and breach of fiduciary duty claims.

[¶50] Although the Class Representatives never pled a violation of § 17-19-1807(a)(iv) in
any of their complaints, they argued in their first motion for partial summary judgment
filed in October 2017 that the sale was void because § 17-19-1807(a)(iv) prohibited the

                                               15
Cooperative from becoming a Wyoming for-profit corporation. In that motion, they sought
to have the sale “voided with the assets returned to the owners of the Cooperative” and
requested that “the Cooperative be reconstituted under the bylaws existing at the time of
the takeover with a new board of directors to be elected within 30 days of the date of the
Court’s order.” They never mentioned any claim for monetary damages connected with
this statute.

[¶51] The district court determined the sale was not void under § 17-19-1807(a)(iv)
because the statute did not apply. Nevertheless, it also determined recission of the sale was
“infeasible” because TCT had operated as a for-profit corporation for many years,
including engaging in contracts, providing services, and otherwise “moving forward.” See
Walter v. Moore, 700 P.2d 1219, 1227 (Wyo. 1985) (stating a party seeking to rescind a
contract must substantially return the opposite party to the position in which he was prior
to entering into the contract; “[h]ow [substantial restoration of the status quo] is to be
accomplished, or indeed whether it can, is a matter which is within the discretion of the
trial court, under the facts as found to exist by the trier of the fact.” (emphasis added)
(citation and internal quotation marks omitted)).

[¶52] Bluntly, the Class Representatives never claimed a violation of § 17-19-1807(a)(iv)
constituted constructive fraud or a breach of fiduciary duty and entitled the class members
to recover monetary damages. They never sought in the district court what they now
seek—money damages for breach of fiduciary duty and constructive fraud based on
Defendants’ alleged violation of § 17-19-1807(a)(iv). Because this issue was not raised
below, we will not consider it now. See Cooper v. Town of Pinedale, 1 P.3d 1197, 1208
(Wyo. 2000) (“Our general rule is that we will not consider issues not raised in the court
below.” (citing WW Enterprises, Inc. v. City of Cheyenne, 956 P.2d 353, 356 (Wyo. 1998)).

       5. Civil Conspiracy

[¶53] In the third cause of action in the Second Amended Complaint, the Class
Representatives alleged Defendants conspired to defraud and deceive the Cooperative’s
members by wrongfully transferring the Cooperative to Mr. Schlenker and the BHT entities
for “little or no money” and for the benefit of themselves and to the prejudice of the
members. They claimed Defendants accomplished this wrongful transfer by failing to
disclose and misrepresenting the true facts of the sale to the Cooperative’s members and
by violating Wyoming law and the Cooperative’s bylaws.

[¶54] The district court granted summary judgment in favor of Defendants on the civil
conspiracy claim because the Class Representatives failed to reference an underlying tort
and there was no evidence of a meeting of the minds to effectuate a tort, both necessary
elements of a civil conspiracy claim. On appeal, the Class Representatives argue the court
erred because the underlying torts of fraud, conversion, and breach of fiduciary duty were
referenced in the Second Amended Complaint and they presented evidence that Mr.

                                             16
Schlenker and Mr. Davidson effectuated a plan to take over the Cooperative and its
subsidiaries for far less than they were worth.

[¶55] We can dispose of the civil conspiracy claim in short order. Because the Class
Representatives cannot establish the Defendants committed fraud or conversion, they also
cannot establish Defendants conspired to commit such torts. Action Snowmobile & RV,
Inc. v. Most Wanted Performance, LLC, 2018 WY 89, ¶ 16, 423 P.3d 317, 324 (Wyo. 2018)
(“In order to bring a civil conspiracy claim, a plaintiff must state an underlying cause of
action in tort.”) (citation omitted); White v. Shane Edeburn Constr., LLC, 2012 WY 118, ¶
30, 285 P.3d 949, 958 (Wyo. 2012) (“Ms. White’s conspiracy claim fails for the same
reasons that are fatal to her claim of fraud. Fundamentally, in order to show that she was
entitled to relief, Ms. White was obliged to allege that she suffered damages resulting from
Appellees’ conduct” and she failed to do so). Moreover, the Class Representatives’ claim
that the Defendants conspired to breach fiduciary duties is a derivative claim, as any injury
from such conspiracy was to the Cooperative and only indirectly to its members. Mantle,
¶ 152, 437 P.3d at 806-07.

                                      CONCLUSION

[¶56] The district court did not err by granting summary judgment in favor of Defendants
on the Class Representatives’ fraud, constructive fraud, and aiding and abetting fraud
claims because the Class Representatives failed to establish reliance. Similarly, we find
no error in the court’s award of summary judgment to Defendants on the Class
Representatives’ conversion claim. The Cooperative’s members did not have legal title to,
possession of, or the right to possess the capital credits at the time of the alleged conversion
because they consented to the sale of the Cooperative and its subsidiaries. Summary
judgment to Defendants on the breach of fiduciary duty and aiding and abetting breach of
fiduciary duty claims was proper because those claims were derivative and the Class
Representatives failed to follow the procedures required for derivative actions. Because
they did not raise the issue below, we decline to address the Class Representatives’
argument that they were entitled to monetary damages based on Defendants’ alleged
violation of § 17-19-1807(a)(iv). The district court did not err by granting summary
judgment to Defendants on the civil conspiracy claim.

[¶57] Affirmed.

                                              17