Preview:

REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1198 September Term, 2000

PATRICIA DANIELEWICZ, INDIVIDUALLY, ETC.

v. DIANA ARNOLD, INDIVIDUALLY, ETC., ET AL.

Salmon, Eyler, Deborah S., Thieme, Raymond G., Jr. (Ret'd, Specially Assigned), JJ.

Opinion by Thieme, J.

Filed: April 2, 2001

Patricia Danielewicz appeals from the Circuit Court for Anne Arundel County's decision granting appellee's Motion for Summary Judgment. Appellant presents the following questions for our review, which we have rephrased for clarity: 1. Whether the trial court erred by determining that appellant lacked standing to sue both in her own capacity and derivatively for the corporation for claims against an officer and director of a corporation for breach of fiduciary duty, negligence, civil conspiracy, and aiding and abetting. Whether the trial court erred by determining that corporate officers owe no fiduciary duties to an individual stockholder in the absence of actual fraud. Whether the trial court erred by its interpretation of the rights and powers of a trustee under both the underlying trusts and Maryland law. Whether the complaint had alleged specific facts sufficient to establish a dilution of the value of appellant's stock interest in AFS. I. Arnold Factory Supply (AFS) was organized in 1965 by Mortimer and Helen Arnold. At that time, 7,000 shares of common stock were issued, with 3,500 shares issued to Mortimer Arnold and 3,500 shares issued to Helen Arnold. Mortimer Arnold transferred 1,155 of his shares to their son, George Arnold, and Helen Arnold transferred 1,155 of her shares to their other son, Anthony Arnold. In 1969, Mortimer and Helen Arnold transferred 525 shares of AFS stock to Anthony. They also transferred 525 shares to George, as a life tenant, with a remainder, upon George's death, to his daughter, appellant.

2.

3.

4.

In accordance with Mortimer Arnold's will, upon his death, his remaining 1,820 shares were transferred to a trust for the benefit of Helen Arnold during her lifetime. The will further provided that upon Helen Arnold's death, 910 shares were to be transferred to Anthony outright and free of trust, and 910 shares were to be transferred to George to be held by him in trust for life, with the remainder to appellant. Helen Arnold's will provided for 910 of her shares to be transferred to Anthony outright and free of trust, and 910 shares to George to be held by him in trust for life, with the remainder to appellant. Thus, in July of 1983, after both Mortimer and Helen Arnold had died, appellant held an interest in 2,345 of the outstanding shares of AFS (1,820 as a remainder in the trust for life held by George, pursuant to the wills of Mortimer and Helen Arnold, and a remainder in another 525 shares that were held by George as a life tenant).1 In May of 1986, George and Anthony negotiated an agreement whereby AFS would redeem from Anthony his 3,500 shares of AFS stock for $200,000. At the same time, they also negotiated for Anthony to sell to George 200 shares in another entity, Arnold Sales & Service, Inc. (AS&S) in exchange for $100,000. In August of 1987, the Board of

Directors of AFS, which consisted of Andrew Danielewicz (appellant's

George was given complete managerial powers over the 1,820 shares that he held in trust for life. In order to protect appellant's remainder interest in the shares, George's ability to transfer the stock was limited. 2

1

husband), George Arnold, and Diana Arnold, authorized the issuance of 1,750 shares to George in exchange for his 200 shares in AS&S, which he had bought from Anthony. George Arnold died in 1995, leaving 2,905 shares of AFS stock in a new trust of which appellee was the beneficiary. These shares

represented a majority interest in AFS issued and outstanding stock at that time, as the corporation now owned 1,750 shares of the originally issued stock. Diana Arnold and Terry Holinsky, as trustees, became the legal holders of the stock under the new trust created by George. Appellant's interest in the shares that she owned became possessory at the time of George's death. In 1996, appellee, as personal

representative of George's estate, filed a supplemental inventory, which disclosed George's ownership in AFS. At this time, appellant became aware of the 1986 and 1987 transactions that had taken place regarding AFS stock. Appellant filed a complaint in her individual capacity and derivatively on behalf of AFS against appellee, as an individual and as co-trustee of the Residuary Trust u/w/o George M. Arnold. Appellant claimed that appellee breached her fiduciary duty to appellant and to the corporation in participating in and consenting to the 1987 transaction. Appellant's complaint further alleged negligence, civil conspiracy, and aiding and abetting.

3

Appellant's Complaint cited the lack of any appraisal or valuation by the corporation to ascertain both the fair market value of Anthony's 3,500 shares and his shares in AS&S. Appellant complained that,

despite her interest in AFS, she was not provided with any notice or information concerning either of these transactions, nor was she provided with notice or information pertaining to the transaction in which George was given 1,750 shares of AFS stock in exchange for his 200 shares of AS&S stock. Appellant claimed that "Diana and George Arnold either knew or had reason to know of [a]ppellant's interest in a majority of the shares of AFS at that time as the stock ledger reflected her interest." Appellant asserted that Diana and George Arnold owed her and the corporation itself a fiduciary duty to disclose to her the 1987 transaction and to act honestly and in good faith. She also averred that the 1987 transaction was unfair to AFS because it overvalued the AS&S stock, resulting in overpayment for George's shares of AS&S, and that this transaction divested her of majority ownership of AFS stock, albeit that interest was held by her as a beneficial and remainder interest. Appellee filed a Motion to Dismiss or, in the Alternative, Motion for Summary Judgment. Appellee contended in her Motion that appellant lacked standing to sue either individually or derivatively because she was not a stockholder at the time of the alleged wrong, she had acquired her stock from one of the alleged wrongdoers, and because any

4

action belonged only to AFS.

Appellee further contended that

appellant's Complaint had failed to state a claim upon which relief could be granted because no duty of care was owed to appellant at the time of the alleged wrong. A hearing on appellee's Motion was conducted on June 12, 2000, by the Circuit Court for Anne Arundel County. The court granted

appellee's Motion for Summary Judgment, holding that appellant lacked standing to bring her lawsuit both individually and derivatively, and that appellant had failed to state a cause of action because she was owed no duty by appellee at the time of the alleged wrong. Subsequently, appellant filed this appeal. II. Appellant contends that the court erred in granting appellee's motion for summary judgment when material facts were in dispute. Pursuant to Md. Rule 2-501(e), "[t]he court shall enter judgment in favor of or against the moving party if the motion and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law." Md. Rule 2-501(e). See, e.g., Murphy v. Merzbacher, 346 Md. 525, 531, 697 A.2d 861(1996); Bowen v. Smith, 342 Md. 449, 454, 677 A.2d 81 (1996); Rosenblatt v. Exxon Company, U.S.A., 335 Md. 58, 68, 642 A.2d 180 (1993); McGraw v. Loyala Ford, Inc., 124 Md. App. 560, 572, 723 A.2d 502, cert. denied, 353 Md. 473, 727 A.2d 382 (1999). A 5

material fact is one that will alter the outcome of the case, depending upon the factfinder's resolution of the dispute. King v. Bankerd, 303 Md. 98, 111, 492 A.2d 608 (1985). The Court of Appeals has stated that "the proper standard for reviewing the granting of a summary judgment motion should be whether the trial court was legally correct." Goodwich v. Sinai Hosp. of Baltimore, Inc., 343 Md. 185, 208, 680 A.2d 1067 (1996); Heat & Power Corp. v. Air Prods. & Chems., Inc., 320 Md. 584, 592, 578 A.2d 1202 (1990). The purpose of the summary judgment procedure is not to try the case or to decide the factual disputes, but to decide whether there is an issue of fact that is sufficiently material to be tried. See Coffey v. Derby Steel Co., 291 Md. 241, 247, 434 A.2d 564 (1981); Berkey v. Delia, 287 Md. 302, 304, 413 A.2d 170 (1980). When a court determines whether any factual issues exist, it must resolve all inferences against the moving party. Tennant v. Shoppers Food Warehouse Md. Corp., 115 Md. App. 381, 386, 693 A.2d 370 (1997). The plaintiff, however, must submit some evidence in which the jury could reasonably find for the plaintiff in order to defeat the motion. Beatty v. Trailmaster Prod. Inc., 330 Md. 726, 625 A.2d 1005 (1993). In order for there to be disputed facts sufficient to render summary judgment inappropriate "there must be evidence on which the jury could reasonably find for the plaintiff." Seaboard Sur. Co. v. Richard F.

6

Kline, Inc., 91 Md. App. 236, 244, 603 A.2d 1357 (1992). This Court has held that "[c]onclusory denials or bald allegations will not defeat a motion for summary judgment." Barber v. Eastern Karting Co., 108 Md. App. 659, 672, 673 A.2d 744 (1996) (citing Seaboard, 91 Md. App. at 243). Moreover, "a mere scintilla of evidence in support of the nonmoving party's claim is insufficient to avoid the grant of summary judgment." Barber, 108 Md. at 672 (citing Beatty, 330 Md. at 738). Having set forth the appropriate standard of review, we now turn to the legal issues raised in this appeal. III. Appellant's first contention concerns the trial judge's determination that she lacked standing to bring forth her claim, both as an individual and through a derivative action.2 The trial court found that appellant lacked standing in an individual capacity because her vested remainder did not provide her with a present possessory interest in the shares until George's life estate expired upon his death. The trial court noted that appellant had "no standing

individually as a stockholder to bring an action against Defendant for Defendant's acts prior to Plaintiff's possession." This principle, referred to as the contemporaneous ownership rule, provides that "a

We will first discuss whether appellant had standing to bring forth a claim in an individual capacity; thereafter, her standing to sue in a derivative capacity will be discussed. 7

2

shareholder does not have standing to recover against directors for acts which took place prior to the shareholder becoming a shareholder." Hecht v. Resolution Trust Corp., 333 Md. 324, 350, 635 A.2d 394 (1994); Eisler v. Eastern States Corp., 182 Md. 329, 335, 35 A.2d 118 (1943); Matthews v. Headley Chocolate Co., 130 Md. 523, 534, 100 A. 645 (1917). "`Stockholder' means a person who holds shares of stock in a corporation and includes a member of a corporation organized without capital stock." Md. Code (1975, 1999 Repl. Vol.),

Download Danielewicz v. Arnold.pdf

Maryland Law