This case involves some defendants who behaved VERY badly. And it also shows that a plaintiff cannot rest on its laurels when encountering such behavior.
Trisler and Koeppen opened Greek’s Pizza, a pizza shop in Carmel, in 2014, under an LLC referred to in the opinion as GMRT. Later that year, they agreed to sell McLean a share of the business in exchange for $90,000. Thus, McLean owned 30% of the business, while Koeppen owned 45% and Trisler owned 25%. The three had no operating agreement. A bit later, Koeppen left the business, and his shares were divided pro rata between Trisler and McLean, leaving McLean the majority owner of GMRT.
Near the end of 2014, Trisler wanted to buy another Greek’s Pizza operating in Carmel, in which he was already a part owner. He bought this other business with GMRT funds, but did not inform McLean of this. In addition, while Koeppen was no longer an owner of GMRT, he used GMRT funds to make payments on a personal loan.
McLean became concerned with Trisler’s and Koeppen’s activities and asked to review the business’s books. Trisler did not comply and told McLean that there was no operating agreement. However, at some point someone associated with Trisler and Koeppen gave McLean a document which purported to be an operating agreement that McLean signed. His signature on this document had been forged.
After Trisler refused to provide the company’s records to McLean, he entered into an agreement to sell GMRT to ARG. The purchase agreement was contingent on the agreement of a majority of GMRT’s members. Trisler and Koeppen agreed to ratify the sale, and McLean opposed the sale.
After this, McLean sued everyone involved in these pizza shops, asserting many direct and derivative claims on GMRT’s behalf.
During discovery, McLean learned that Trisler and Koeppen had signed an operating agreement when starting the business, and that this agreement required unanimous agreement in order to sell the business. This was not in the forged agreement that was provided to McLean pre-suit.
The defendants then started playing games in discovery—not responding to certain interrogatories or amending the interrogatory and answering the question that they preferred to answer. McLean moved for sanctions, and the trial court granted that motion. It granted final judgment to McLean on liability against all defendants as a discovery sanction and set the matter for a damages hearing.
Meanwhile, McLean kept having issues getting damages-related discovery from the defendants, and filed a motion to compel. The trial court granted that motion, and later imposed further sanctions on defendants for their behavior in discovery. Now the defendants were prevented from presenting any evidence at the hearing and had to pay McLean’s attorney’s fees. McLean requested $21,193.84 in fees, but the trial court did not immediately rule on that request.
At the damages hearing, McLean testified that he found $366,000 in “questionable withdrawals from GMRT’s bank accounts, that he had objected to the sale of the business, and that he had not received any of the proceeds from the sale.” When the hearing resumed after a long continuance, defense counsel indicated, without contradiction, that the only defendants “still at issue” were Trisler, Koeppen, and the other Carmel pizza shop.
At the end of the hearing, the trial court dismissed all claims against all defendants, finding that McLean had failed to prove his damages. The trial court then denied all pending motions, including McLean’s motion for fees. Both parties appealed.
On appeal, the Court addressed the defendants’ arguments first. They argued that McLean abandoned his derivative claims at the damages hearing. At the hearing, McLean’s counsel asked that the trial court
entertain evidence and argument for the remainder of the day on direct damages, issue an order based on that evidence, a final and appealable order on his direct damages, and we can figure out the rest of it some other time.
The Court concluded that it was not fair to characterize this as abandonment of these claims because counsel “never explicitly said” that he was doing so.
However, the same was not true of the claims against many of the defendants. McLean did not contest defense counsel’s statement that the only defendants “still at issue” were Trisler, Koeppen, and the other Carmel pizza shop. The Court held that counsel’s silence on this issue “indicated” that it was correct, so all of McLean’s claims against any other defendants were abandoned.
The Court then turned to McLean’s appeal and the issue of whether he proved his damages with sufficient certainty, and it found the trial court’s decision was clearly erroneous. After all, the business sold for $350,000, he had more than a 50% interest in the business, and he never received any of the sale proceeds. In doing so, the Court rejected the trial court’s concern about unknown “intercompany loans, debts and liabilities and therefore ultimately the net proceeds” of the sale.
While it is true that the trial court may have been correct that it cannot speculate on evidence of loans, debts, and/or liabilities that was not presented, we conclude that it erred in resolving the uncertainty in favor of the Trisler Parties, who were, after all, the wrongdoers. In the absence of any evidence of debts or liabilities, the trial court’s finding in this regard is clearly erroneous.
The Court made similar conclusions about McLean’s conversion claim regarding $45,000 in unauthorized withdrawals by Trisler and Koeppen. For while defense counsel’s cross-examination “suggested” that these transactions were, in fact, proper, “suggestions that the transactions were proper are not evidence.” Again, the trial court should have erred on the side of McLean and awarded him damages.
Finally, the Court seemed to be flummoxed by the trial court’s failure to award the attorney’s fees it had previously ordered as a discovery sanction. “The trial court presumably failed to grant McLean’s fee request because it ultimately entered judgment in favor of the Trisler Parties, but this is not a valid basis for denial.” Therefore, McLean was entitled to this money, too.
As a remedy, the Court remanded for an entry of judgment in McLean’s favor for particular amounts to be paid by the particular defendants, and ordered the trial court to consider whether to award treble damages under the Crime Victims Relief Act.
1. A shareholder in a closely held corporation is not limited to derivative claims but may assert direct claims for what might otherwise be corporate damages when to do so will not (i) unfairly expose the corporation or the defendants to a multiplicity of actions, (ii) materially prejudice the interests of creditors of the corporation, or (iii) interfere with a fair distribution of the recovery among all interested persons.
2. No particular degree of certainty is required in awarding damages so long as the amount awarded is supported by evidence and not based merely on speculation or conjecture.
3. A party cannot avoid sanctions that have been properly awarded for discovery misconduct merely by winning a judgment on the merits.
4. When addressing egregious and repeated misconduct, the Court of Appeals may remand with instructions to allow evidence of claims, treble damages and additional attorney’s fees under the Crime Victims Relief Act.