may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1994).
STATE OF MINNESOTA
IN COURT OF APPEALS
Paul L. Padgett,
Core, Incorporated, et al.,
Charlton Dietz, et al.,
Filed November 5, 1996
Ramsey County District Court
File No. C4958404
Jonathan C. Miesen, Doherty Rumble & Butler, 2800 Minnesota World Trade Center, 30 East Seventh Street, St. Paul, MN 55101-4999 (for Respondents)
Considered and decided by Crippen, Presiding Judge, Parker, Judge, and Short, Judge.
Appellant Paul Padgett contends that the trial court erred in dismissing by summary judgment his claims that directors of a corporation are personally liable under Minn. Stat. § 302A.467 (1994) and in awarding attorney fees to the respondent directors.
Several days after receiving the letter, Core's attorney responded by letter stating that there was no money to pay appellant's salary but that Core was willing to provide appellant with a promissory note covering the debt. The response letter further stated that the corporate records were kept and maintained at the president's home and that Core was willing to produce the records. Core's attorney also sent a copy of this letter to all of the directors, including respondents.
Approximately one month after sending the initial letter, appellant mailed a summons and complaint to Core and all the directors. The complaint alleged that Core had violated Minn. Stat. § 302A.461 by failing to produce the corporate records within ten days. The complaint further alleged that all of Core's directors were personally liable for the corporation's failure to produce the records. Respondents thereafter retained counsel, who responded to the complaint by stating that Minn. Stat. § 302A.461 does not apply to directors and that the records were in the exclusive possession of Core's president. Respondents' counsel also informed appellant that if he were to proceed with the action against the directors, respondents would seek Rule 11 or Minn. Stat. § 549.21 sanctions. On the same day, respondents' counsel also wrote the president a letter demanding that he immediately make all of Core's corporate records available to appellant. This demand was reiterated over the telephone several days later.
Two weeks after his initial service by mail, appellant personally served all of the defendants with the summons and complaint. The next day, the president personally delivered copies of all the requested corporate documents to appellant. After the president delivered the documents, respondents sent a joint answer and a stipulation for dismissal to appellant, again indicating their intent to seek Rule 11 and Minn. Stat. § 549.21 sanctions should appellant continue to pursue his claim. Appellant indicated that he would dismiss his cause of action only if he were paid his back salary and benefits. Respondents refused, and, as a result, filed the case and brought the motion for summary judgment. The trial court found that Minn. Stat. § 302A.461 does not apply to individual directors and granted summary judgment to respondents, together with an award of attorney fees as a sanction.
Appellant brought this action in trial court to recover attorney fees expended in attempting to force compliance with Minn. Stat. § 302A.461, subd. 4 (1994), which provides that shareholders have a right to inspect certain corporate records on demand. Appellant claims that § 302A.467 (1994) provides a type of broad, equitable vehicle to pursue his claims against the individual directors. Minn. Stat. § 302A.467 states:
If a corporation or an officer or director of the corporation violates a provision of this chapter, a court * * * may * * * grant any equitable relief it deems just and reasonable * * * including attorney fees.
Indeed, as indicated by legislative history, Minn. Stat. § 302A.467 was intended to provide shareholders with broad, equitable relief. The reporter's notes indicate that:
This section recognizes that situations in which equitable relief may be appropriate are not readily definable in advance, as they often present novel fact situations, and it therefore adopts a broad rule which gives the court complete discretion in ordering whatever relief it deems just and reasonable in the circumstances.
Minn. Stat. Ann. § 302A.467 reporter's notes--1981 (West 1985). Respondents read Minn. Stat. § 302A.467 to allow liability only against the entity that had "violate[d] a provision" of Chapter 302A. But Minn. Stat. § 302A.467 does indeed give the courts broad discretion to grant equitable relief as is necessary.
Although the language of Minn. Stat. § 302A.461 indicates that the "corporation," not the directors, must make the corporate records available, appellant asserts that the directors must personally make the records available because they have a duty to oversee the "management and direction of the business and affairs of the corporation." While the directors may have such a duty, it is the chief executive officer, not the directors, who has the duty of running a corporation's day-to-day business. Compare Minn. Stat. SSSS 302A.201-.255 (1994) (describing the duties of directors) with Minn. Stat. § 302A.305, subd. 2(a) (1994) ("The chief executive officer shall [h]ave general active management of the business of the corporation."). Based on the provisions of Chapter 302A, directors have no comparable duty to be concerned with the day-to-day affairs of a corporation. Furthermore, it is a well-settled principle of corporate law that corporations, rather than being legal fictions, are actual legal entities with the power to sue and be sued. See, e.g., Di Re v. Central Livestock Order Buying Co., 246 Minn. 279, 283, 74 N.W.2d 518, 523 (1956) (holding that a corporation is an artificial person, created by law, with rights and liabilities that are independent from those of natural persons composing the corporation). Appellant, having named Core as one of the original defendants, was apparently aware of this legal principle. Even if appellant has a tangible claim against the corporation or its president, there is no statutory basis to impose liability on the directors.
Appellant also claims that he is entitled to relief under Minn. Stat. § 302A.467 because the directors have breached their duties to the corporation pursuant to Minn. Stat. § 302A.251 (1994). Section 302A.251 requires that directors discharge their duties in "good faith, [and] in a manner the director reasonably believes to be in the best interests of the corporation." Id., subd. 1. But appellant fails to indicate how any of the directors' actions have been in bad faith or how they have harmed the best interests of the corporation. The directors, when they became aware that there was a problem, acted quickly to resolve it. The directors' duties are to the corporation, not to the individual shareholders. Id.
Appellant never disputes that he brought this action in an attempt to collect his back salary. The trial court determined that appellant's claim that Core's individual directors were liable under Minn. Stat. § 302A.461 was "objectively unreasonable" and awarded respondents attorney fees. Absent an abuse of discretion, a reviewing court will not reverse a trial court's grant of attorney fees under either Minn. Stat. § 549.21 (1994) or Minn. R. Civ. P. 11. Becker v. Alloy Hardfacing & Eng'g Co., 401 N.W.2d 655, 661 (Minn. 1987); Rumanchik v. Rumanchik, 494 N.W.2d 68, 70 (Minn. App. 1992) (Minn. R. Civ. P. 11), review denied (Minn. Feb. 25, 1993); Radloff v. First Am. Nat'l Bank, 470 N.W.2d 154, 156 (Minn. App. 1991) (Minn. Stat. § 549.21), review denied (Minn. July 24, 1991). We find no abuse of discretion on the part of the trial court.
Respondents seek attorney fees under Minn. Stat. § 549.21, subd. 2 (1994) for sums incurred on this appeal. A reviewing court may award fees on appeal under Minn. Stat. § 549.21 if a party has asserted a claim or defense that is frivolous and costly to the other party. Ma v. Ma, 483 N.W.2d 732, 736 (Minn. App. 1992); see also Radloff, 470 N.W.2d at 157 (indicating that a court may award sanctions where a party persistently advances an untenable position). Although appellant has failed to indicate how the individual directors have breached any of their duties, we decline to characterize this appeal as frivolous and thus decline to make an additional award of attorney fees.