This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. ' 480A.08, subd. 3 (1994).
STATE OF MINNESOTA
IN COURT OF APPEALS
Mark A. Morris,
Norman J. Dodd, et al., defendants and counterclaimants,
Mark A. Morris, et al., defendants on the counterclaim,
Filed June 18, 1996
Hennepin County District Court
File No. 8822296
Patrick J. Neaton, Chamberlain, Neaton & Johnson, 445 Lake Street, Suite 303, Wayzata, MN 55391 (for Respondents).
Neal J. Shapiro, Bernick and Lifson, P.A., The Colonnade, Suite 1200, 5500 Wayzata Boulevard, Minneapolis, MN 55416 (for Appellants).
Considered and decided by Schumacher, Presiding Judge, Lansing, Judge, and Short, Judge.
U N P U B L I S H E D O P I N I O N
We review a summary judgment disposing of a counterclaim in a lawsuit between shareholders that started as an action for involuntary dissolution. The shareholders of the closely-held corporation partially settled the action with a buy-out agreement, and the district court entered summary judgment against the remaining counterclaim for mismanaging or taking corporate funds. We affirm the summary judgment and the denial of motions to substitute parties, plead punitive damages, and grant attorneys' fees.
This counterclaim is the last segment in litigation stemming from the breakup of City Graphics, Inc. In 1984 Norman Dodd and Mark Morris each owned fifty percent of the voting stock of City Graphics. Morris was also the sole shareholder of More Direct, Inc., a major City Graphics' client.
Morris brought an action for involuntary dissolution against City Graphics and Dodd in December 1988. The complaint alleged director deadlock and breach of fiduciary duties and, in addition to buy-out or dissolution, sought an accounting. Dodd and City Graphics filed a counterclaim against Morris, More Direct, and Ross Johnson (a former employee), seeking an accounting, a buy-out, and damages. In early October 1989, Morris and Dodd entered a partial settlement agreement under which City Graphics redeemed Morris' entire stock ownership in the company.
In August 1991 City Graphics, but not Dodd, filed for Chapter 11 bankruptcy. The proceeding was converted to a Chapter 7 liquidation proceeding. In January 1993 the bankruptcy trustee sold the estate's rights in this lawsuit to the American Bank of Burnsville for $500. The trustee's notice of sale explained the risks involved in the lawsuit and described the thrust of the counterclaim as a request for an accounting and a buy-out.
In August 1995 the district court granted Morris summary judgment against Dodd's and City Graphics' counterclaims and denied all other motions without discussion. Morris appeals the denied motion to substitute the bank for City Graphics as the real party in interest. City Graphics (but not Dodd) appeals the summary judgment and the denial of its request for punitive damages. Morris also appeals the denial of attorneys' fees.
D E C I S I O N
All actions must be "prosecuted in the name of the real party in interest." Minn. R. Civ. P. 17.01. Determining the real parties in interest is a factual determination, which must be upheld unless clearly erroneous. Minnesota Educ. Ass'n v. Independent Sch. Dist. No. 404, 287 N.W.2d 666, 668 (Minn. 1980). The Burnsville Bank is "interested" in the sense that it will receive any money that City Graphics recovers. It is not clear whether the bank would also be liable for any damages assessed against Dodd. The bank is not directly connected with the transactions between More Direct or Morris and City Graphics. The bank has made no effort to intervene or be joined as a party, and has not participated in the appeal. See Cybyske v. Independent Sch. Dist. No. 196, 347 N.W.2d 256, 264 (Minn. 1984) (applying these factors and affirming denial of substitution), cert. denied, 469 U.S. 933 (1984).
Morris argues that unless this court substitutes the bank as a party, a circuity of obligations will arise. A circuity of obligation arises when a plaintiff must indemnify the defendant for claims, including the plaintiff's own claims. National Hydro Sys. v. M.A. Mortenson Co., 529 N.W.2d 690, 693 (Minn. 1995). The partial settlement provided that City Graphics and Dodd would indemnify Morris for any claims "by any third parties" against him for his role as an officer or director at City Graphics. But this circuity arises only if the bank becomes a party. If the bank asserts no claims, no circuity of obligations exists. The district court did not err in denying Morris' motion to substitute the bank as a party.
City Graphics argues that the district court improperly granted summary judgment against its counterclaims. In response to a summary judgment motion, the nonmoving party must present "specific facts" demonstrating an issue of material fact. Patton v. Newmar Corp., 538 N.W.2d 116, 119 (Minn. 1995). A material fact is one that may affect the outcome or result of a case. Zappa v. Fahey, 310 Minn. 555, 556, 245 N.W.2d 258, 259-60 (1976). This court reviews the evidence in the light most favorable to the nonmoving party to determine whether genuine issues of material fact exist and whether the district court correctly applied the law. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).
The district court concluded that a request for an accounting was "central" to City Graphics' claims. The counterclaim alleges conversion, unjust enrichment, breach of fiduciary duties, breach of implied covenant, and negligence and requests a stock buy-out. As relief City Graphics sought a court-ordered accounting and damages. Because Morris and Dodd accused each other of taking corporate funds or improper management of money, an accounting would be necessary to establish any of the claims in Dodd's complaint.
An accounting action is considered an equitable action. Maras v. Stilinovich, 268 N.W.2d 541, 544 (Minn. 1978); Johnson v. Johnson, 272 Minn. 284, 297, 137 N.W.2d 840, 850 (1965). The party claiming a right to an accounting must prove that right. Herring v. Standard Guar. Ins., 232 S.E.2d 544, 545 (Ga. 1977); Stockmen's Ins. Agency v. Guarantee Reserve Life Ins., 217 N.W.2d 455, 459-60 (N.D.), cert. denied, 419 U.S. 869 (1974); Randolph Foods v. McLaughlin, 115 N.W.2d 868, 871 (Iowa 1962). The demanding party must also show that the opposing party has refused to agree to an accounting. Wiegardt v. Becken, 113 P.2d 60, 60 (Wash. 1941), modified, 118 P.2d 182 (1941).
Morris asserts that four times in 1988-1989 he proposed that an independent auditor perform an accounting. Dodd and City Graphics admit that Morris suggested an accounting. Dodd only states that "Morris' suggestion of an audit appeared disingenuous" because he knew City Graphics could not afford an accounting. But this explanation does not inject sufficient doubt to create a triable issue. Even if it did, Dodd has made no allegation that Morris refused to comply with an accounting. The district court properly granted summary judgment because the thrust of the counterclaim was an accounting, City Graphics' damages are premised on an accounting, and City Graphics not only failed to request an accounting, it rejected Morris' offers to submit to an accounting.
Moreover, City Graphics' counterclaim was part of an action for dissolution, requesting a buy-out under section 302A.751 (1994). Although the parties ultimately settled the buy-out action, the subject matter of the counterclaims is the business and conduct of City Graphics, More Direct, and their respective shareholders. In essence the parties' dispute resembles a corporate dissolution in which nothing remains to be divided. A court has substantial latitude in granting relief in the dissolution of a corporation. Minn. Stat. ' 302A.751, subd. 1 (court "may grant any equitable relief it deems just and reasonable in the circumstances"). The district court acted within its discretion in not allowing the action to go forward. See In re Lakeland Dev. Corp., 277 Minn. 432, 441, 152 N.W.2d 758, 764 (1967) (noting that dissolution proceedings are "fundamentally equitable in nature").
Because City Graphics' claims do not survive summary judgment, there is no reviewable issue on punitive damages.
Morris contests the district court's denial of its motion for costs and attorneys' fees for a frivolous and costly action. Morris seeks attorneys' fees for all legal work after October 16, 1989, totaling $37,276.59.
A district court's decision on attorneys' fees will stand absent an abuse of discretion. Blattner v. Forster, 322 N.W.2d 319, 321 (Minn. 1982). A court may impose attorneys' fees when a party acts in bad faith, poses frivolous and costly claims or defenses, takes an unfounded position to delay proceedings or harass an opponent, or commits fraud upon the court. Minn. Stat. ' 549.21, subd. 2 (1994). Sanctions are not appropriate simply because a party did not prevail on the merits. Radloff v. First Am. Nat'l Bank, 470 N.W.2d 154, 157 (Minn. App. 1991), review denied (Minn. July 24, 1991). A colorable or good faith claim does not merit sanctions. Block v. Target Stores, 458 N.W.2d 705, 713 (Minn. App. 1990), review denied (Minn. Sep. 28, 1990).
We conclude that City Graphics' claims, although ultimately unsuccessful, were not raised for an improper purpose. The district court acted within its discretion in denying attorneys' fees.