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APPEAL FROM THE HENDRICKS SUPERIOR COURT. The Honorable Stephenie D. LeMay-Luken, Judge. Cause No. 32D05-1207-PL-82.
ATTORNEYS FOR APPELLANT: EDWARD R. HANNON, GREGORY C. IRBY, Steuerwald Hannon Zielinski & Witham, Danville, Indiana.
ATTORNEYS FOR APPELLEES: MICHAEL B. LANGFORD, BRADEN K. CORE, Scopelitis, Garvin, Light, Hanson & Feary, P.C., Indianapolis, Indiana.
NAJAM, Judge. BAILEY, J., and PYLE, J., concur.
STATEMENT OF THE CASE
The Indiana Supreme Court recently reaffirmed that Indiana's summary judgment standards establish a " high bar" for summary judgment movants to clear.
Hughley v. State, 15 N.E.3d 1000, 1004 (Ind. 2014). " In particular, while federal practice permits the moving party to merely show that the party carrying the burden of proof [at trial] lacks evidence on a necessary element, we impose a more onerous burden: to affirmatively 'negate an opponent's claim.'" Id. at 1003 (quoting Jarboe v. Landmark Cmty. Newspapers of Ind., Inc., 644 N.E.2d 118, 123 (Ind. 1994)). In this summary judgment appeal, we consider the plaintiff-nonmovant's personal claims as well as his direct and derivative shareholder claims against the defendants-movants. After determining whether the trial court erred when it entered summary judgment despite pending discovery, we assess whether the summary judgment movants designated evidence to either affirmatively negate an element of the nonmovant's remaining claims or to establish all of the elements of an affirmative defense. Where they have done so, we consider whether the nonmovant designated evidence to establish a genuine issue of material fact to preclude the entry of summary judgment.
Specifically, Michael Kent Smith (" Kent" ) appeals the trial court's entry of summary judgment for Thomas L. Taulman, II (" Taulman" ); Thomas McClellan, Christina R. Hurley, Gary R. Meunier, and Denny D. Smith (who are individually referred to in this opinion by their last names and collectively referred to as " the Employees" ); and T.K.O. Enterprises, Inc., d/b/a T.K.O. Graphix (" T.K.O. Enterprises" ); T.K.O. Commercial Development, LLC (" T.K.O. Commercial" ); SCS Fleet Services, LLC (" SCS" ); GTS Properties, LLC (" GTS" ); and T.K.O. South, LLC (" T.K.O. South" ) (collectively, " the T.K.O. Companies" ) (Taulman, the Employees, and the T.K.O. Companies are collectively referred to, where appropriate, as either " the Defendants" or " the Appellees" ). Kent raises the following two issues for our review:
1. Whether the trial court abused its discretion when it denied his motion to compel the production of certain evidence; and
2. Whether the trial court erred when it entered summary judgment for the Appellees.
We hold tat the trial court abused its discretion when it denied Kent's motion to compel, and, therefore, the court erred when it entered summary judgment for the Appellees on certain claims even though the pending discovery was relevant to those claims and Kent had been diligent in seeking that discovery. As to Kent's other claims, we hold that the Appellees designated evidence to establish an affirmative defense regarding Kent's defamation claim against Taulman, and Kent failed to designate evidence in response to negate an element of this affirmative defense. We also hold that the Appellees designated evidence to negate an element of Kent's claim that Taulman breached a fiduciary duty when he fired Kent and on Kent's claims that the Employees breached
their fiduciary duties, and Kent failed to designate evidence
in response to demonstrate that summary judgment should be precluded on these claims. Finally, we hold that the Appellees failed to designate evidence to negate at least one element of Kent's shareholder derivative claims, in which Kent alleged that some of the T.K.O. Companies had agreed to lease real property below fair rental value and that other T.K.O. Companies had engaged in ghost employment. Thus, we affirm in part, reverse in part, and remand for further proceedings.
FACTS AND PROCEDURAL HISTORY
In 1985, Thomas L. Taulman, Sr., Taulman, and Kent formed T.K.O. Enterprises. T.K.O. Enterprises is a full-service graphics firm, and its work includes the design, manufacture, installation, and removal of graphics on trailers used in the trucking industry. Each of the three men owned T.K.O. Enterprises in equal one-third shares. Eventually, Taulman, Sr. sold some of his shares back to the company and transferred the remainder of his shares to his son, Taulman. From 2000 to late 2009, Taulman owned about 52% of the shares of T.K.O. Enterprises, and Kent owned the remaining shares, or about 48%.
Although Taulman, the President of T.K.O. Enterprises, was actively engaged in the management and promotion of the business, it is not clear that Kent had any specific job description. Rather, Kent was the Vice President, and he would help with various odds-and-ends around the company. Nonetheless, Taulman and Kent shared in the profits, and their respective incomes were based upon their ownership interests.
Over time, T.K.O. Enterprises expanded through the creation of the T.K.O. Companies, in particular:
o T.K.O. Commercial, which owns and manages certain real property and is owned equally by Taulman and Kent;
o SCS, which removes decals from and cleans semi-trailers and is equally owned by Taulman, Kent, Meunier, and Smith;
o GTS, which owns and manages certain real property and is 50% owned by T.K.O. Enterprises, 25% owned by Meunier, and 25% owned by Smith; and
o T.K.O. South, which owns and manages certain real property and is wholly owned by T.K.O. Enterprises.
Between 2005 and 2009, Taulman and Kent discussed having Kent sell his shares in T.K.O. Enterprises, but no agreement was reached. In 2009, T.K.O. Enterprises suffered substantial losses in business and faced bankruptcy. In June of that year, Huntington Bank (" Huntington" ) downgraded its relationship with T.K.O. Enterprises to " substandard" due to poor financial performance, which placed T.K.O. Enterprises' line of credit with Huntington in jeopardy. Appellant's App. at 114. On September 11, Tina Magyar, T.K.O. Enterprises' Controller, e-mailed Taulman and Kent to tell them that T.K.O. Enterprises was almost completely unable to meet its financial obligations. Id. at 631.
Shortly thereafter, Taulman invested $50,000 of his own money in T.K.O. Enterprises to cover operating expenses. Taulman asked Kent to make a similar investment. Kent declined. Instead, Kent agreed to reduce his annual salary from $120,000 to $50,000, and he agreed to condition his employment on working " a billable position." Id. at 598, 633. In working a billable position, Taulman informed Kent that Kent's job requirements would include reporting to McClellan or another
assigned supervisor each week for specific instructions to help where needed, and that Kent would " have to be accountable for [his] work." Id. at 598.
On October 5, 2009, T.K.O. Enterprises' line of credit with Huntington expired, and the bank refused to automatically renew it. Also in October, Taulman sought to have a new investor, Terry Dillon, buy out Kent's shares in T.K.O. Enterprises. Taulman discussed this plan with Kent, and Kent agreed. But Huntington informed Taulman that it would not renew the line of credit even if Dillon bought out Kent, and the deal fell through.
Although facing tough market conditions, T.K.O. Enterprises, through Taulman and the rest of its sales staff, continued to pursue potential customers throughout 2009. In particular, in mid-2009 T.K.O. Enterprises began to engage TruGreen, a nationwide provider of residential and commercial lawn and landscape services, in what " had the potential to be a large account representing a sizeable volume of sales in 2010." Id. at 115. Kent was aware of T.K.O. Enterprises' attempt to secure a contract with TruGreen. In November of 2009, TruGreen selected T.K.O. Enterprises to demonstrate its products in a pilot program. Taulman informed Kent of this development.
Throughout this time T.K.O. Enterprises faced the prospect of bankruptcy. Taulman requested Kent to make a capital contribution on several occasions, which Kent declined to do. Kent was included on monthly e-mails that provided detailed reports on T.K.O. Enterprises' weak financial condition. Kent, a guarantor to T.K.O. Enterprises' line of credit, discussed having T.K.O. Enterprises " shut the doors to be able to pay vendors, pay our taxes, and walk away without filing personal bankruptcy." Id. at 234. Kent's understanding of the TruGreen negotiations, among others, was that there was " nothing to count on for me to invest money in the company" because the company " was not going to make it." Id. Indeed, in late 2009, Kent told Taulman, Hurley, and Smith that, even if the company landed the TruGreen account, T.K.O. Enterprises should " do the TruGreen job if it comes in and then shut . . . down." Id. at 255.
On December 16, 2009, Taulman issued a notice of a special meeting of the board of directors to be held on December 21, which was also the date of T.K.O. Enterprises' annual shareholders meeting. According to the notice, new and additional shares in T.K.O. Enterprises would be offered, and Taulman was to receive 52% of those shares in exchange for his earlier $50,000 investment. Kent was to be given the option to purchase the remaining 48% of the new shares at the meeting.
Taulman attended the meeting on December 21 as President of T.K.O. Enterprises. Kent attended as Vice President. Hurley attended as Secretary. Also present were McClellan, Meunier, and Smith, high-ranking employees of T.K.O. Enterprises whom Taulman had invited. Kent had been informed before the meeting that Hurley, McClellan, Meunier, and Smith were each willing to invest up to $25,000 in T.K.O. Enterprises.
At that meeting, Kent asked " everyone's opinion of why they would invest into the company" and stated that he was " concerned with the future of the company." Id. at 400. Hurley's handwritten minutes of the meeting do not reflect any statements about TruGreen. However, the official minutes, which were prepared subsequent to the meeting by Taulman and reviewed and signed by Hurley as consistent with her recollection, reflect that Taulman stated at the meeting that " TruGreen was about 90% sure, but no signed purchase order at the [t]ime." Id. at 358, 404.
And Hurley recorded that at least three other accounts were discussed, along with Smith stating that he thought the " [i]ndustry was coming back" and McClellan stating there had been a small upswing in sales. Id. at 352. Meunier then added that he " feels very strong[ly] about the company and his future" ; McClellan stated that he " believes in himself and work ethic" and that he " [w]ould take the gamble to keep his job" ; and Hurley stated that she " wanted to keep what [she] had at T.K.O." because she " believed in the company." Id. at 352, 359.
Kent did not think the others had presented any information that " would benefit the company. There was nothing really to bank on." Id. at 237. As such, he agreed to waive his right to purchase the new shares and agreed to reduce his total shareholdings to 9.8% in T.K.O. Enterprises. Hurley, McClellan, Meunier, and Smith each then purchased 9.8% of T.K.O. Enterprises. Taulman remained the majority shareholder with 51% of the total shares. The parties' agreement became effective on December 22, 2009.
In March of 2010, TruGreen awarded its contract for graphics services to T.K.O. Enterprises. Largely as a result of this contract, T.K.O. Enterprises' sales in 2010 were the highest in its history. In July of 2010, Taulman fired Kent for leaving work before the end of work days, failing to keep regular hours, failing ...