LOWDER (BRIAN DEAN) VS. LOWDER (JASPER D.), ET AL.
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RENDERED: APRIL 18, 2008; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2007-CA-000638-MR
BRIAN DEAN LOWDER
v.
APPELLANT
APPEAL FROM GALLATIN CIRCUIT COURT
HONORABLE PAUL W. ROSENBLUM, JUDGE
ACTION NO. 04-CI-00124
JASPER D. LOWDER, III; SHEILA LOWDER;
AND CARLTON-LOWDER FUNERAL HOME
APPELLEES
OPINION
VACATING AND REMANDING IN PART
AND AFFIRMING IN PART
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BEFORE: COMBS, CHIEF JUDGE; CAPERTON AND MOORE, JUDGES.
MOORE, JUDGE: Brian Dean Lowder appeals the Gallatin Circuit Court’s order
granting the motion for summary judgment filed by Jasper D. Lowder, III, Sheila Lowder,
and Carlton-Lowder Funeral Home, Incorporated. After a careful review of the record,
we vacate and remand the circuit court’s order in part, regarding the claim that the
defendants/appellees misappropriated $80,000.00 of the corporation’s money for their
personal benefit. The remainder of the Gallatin Circuit Court’s order is affirmed.
I. FACTUAL AND PROCEDURAL BACKGROUND
In 1975, Jasper and Sheila Lowder, husband and wife, bought from Eules
Carlton the land and building upon which his funeral home business operated, as well
as the contents and equipment thereon. Approximately nine years later, Jasper and
Sheila incorporated the business, creating Carlton-Lowder Funeral Home, Incorporated.
After forming the corporation, Jasper and Sheila did not convey the land
upon which the funeral home was located to the corporation. The real estate upon
which the funeral home was situated was owned by Jasper and Sheila, personally and
in their individual names, and the funeral home building was never leased to or owned
by the corporation. Jasper and Sheila never received any corporate compensation for
the use of the land or building.
After their son Brian graduated from mortuary school, he was hired as a
director and embalmer for the funeral home. Jasper and Sheila gave Brian two shares
of corporate stock per year. After a period of years, Brian ultimately held sixteen shares
of stock in the corporation, with Jasper and Sheila owning the remaining shares, totaling
hundreds of shares. No one else owned stock in the corporation. Brian also served as
vice president of the corporation, with Jasper as president and Sheila as
secretary/treasurer.
In 1997, Jasper, Sheila and Brian executed a written Stock Purchase
Agreement (“stock agreement”). The stock agreement provided that, if one shareholder
wanted to sell or transfer his stock in the corporation, such shares of stock first had to
be offered to the corporation. If the corporation did not purchase them, the shares had
to be offered to the remaining shareholders. The stock agreement also provided that no
shares of stock could be transferred by gift or otherwise without the written permission
of the remaining shareholders because it was the shareholders’ intention that all shares
of stock would remain in the immediate family. Furthermore, the stock agreement
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provided that, if any of the shareholders divorced or died, their shares had to be
surrendered to the corporation so that it could purchase those shares. If the corporation
failed to purchase them, then the shares had to be offered to the remaining
shareholders.
Years later Jasper and Sheila, as corporate officers, decided to sell
corporate assets. They entered into an agreement for the purchase and sale of the
corporation’s assets (“assets sales agreement”) with MNG, Incorporated, Michael
McDonald, Brian New and Mark Garnett. Specifically, the corporation sold assets used
in the business’s operation, as well as the real estate and the “buildings and
improvements located thereon,” in exchange for $900,000.00 “plus other terms and
conditions and payments” as set forth in the assets sales agreement. The assets sold
included inventory, as well as equipment used by the business, the business’s name,
the telephone numbers used by the business, the funeral home’s books and records,
and the business’s motor vehicles. The assets sales agreement further provided that
the following assets were not being sold: “all accounts receivable owed to the
Business; all cash on hand at the business; all bank accounts or other monies used in
conjunction with the operation of the business; and [certain] photographs, mementos
and personal property of” Jasper and Sheila that had been stored at the property.
In his complaint filed in the circuit court, Brian contended that Jasper and
Sheila had misappropriated assets of the corporation by transferring “approximately
$80,000.00 in corporate funds in 2001 to make improvements in their personal real
estate”; by transferring “approximately $70,000.00 of corporate funds in 2003 to their
own name for their personal use and benefit”; and by purchasing “personal vehicles,
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boats, and other non-business expenditures for the personal use and the benefit of
themselves and their daughter.” Brian further alleged that Jasper and Sheila’s act of
selling the corporate assets violated “the purpose, intent, and terms of” the Stock
Purchase Agreement. Alternatively, Brian argued that the sale of the corporation’s
assets violated Jasper and Sheila’s duties to the corporation and violated the good faith
they owed, as the majority stockholders, to Brian.
After Jasper and Sheila answered Brian’s complaint, Brian moved to
amend his complaint. His motion was granted. Brian’s amended complaint included
claims that he raised in his initial complaint, and added a claim that Jasper and Sheila
“made oral statements for a period of years (the entire time [Brian] worked for the
funeral home) that [Brian] would have the first opportunity to purchase the funeral home
if it was ever sold.” Brian claimed they knew these statements were false and that Brian
would rely on them, which Brian alleges he did to his detriment. Additionally, Brian
claimed in his amended complaint that Jasper and Sheila wrongfully terminated his
employment with the funeral home in retaliation against him after he threatened to
report them to the Internal Revenue Service and the Kentucky Revenue Cabinet for tax
evasion. Furthermore, Brian contended that an award of punitive damages was proper.
Jasper, Sheila, and the funeral home moved for summary judgment, and
Brian opposed their motion. The circuit court granted the motion for summary
judgment.
Brian now appeals, arguing that: (1) a party to a buy-sell agreement
regarding stock cannot circumvent the agreement by selling all of the corporation’s
assets; (2) the circuit court improperly granted summary judgment when genuine issues
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of material fact existed concerning: (a) the duty of corporate officers claim; (b) the fraud
claim; (c) the punitive damages claim; and (d) the wrongful termination claim.
II. STANDARD OF REVIEW
"The standard of review on appeal of a summary judgment is whether the
trial court correctly found that there were no genuine issues as to any material fact and
that the moving party was entitled to judgment as a matter of law." Scifres v. Kraft, 916
S.W.2d 779, 781 (Ky. App. 1996). "The record must be viewed in a light most favorable
to the party opposing the motion for summary judgment and all doubts are to be
resolved in his favor." Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 480
(Ky. 1991). "Even though a trial court may believe the party opposing the motion may
not succeed at trial, it should not render a summary judgment if there is any issue of
material fact." Id. Further, "the movant must convince the court, by the evidence of
record, of the nonexistence of an issue of material fact." Id. at 482.
III. ANALYSIS
A. CLAIM THAT SALE OF CORPORATE ASSETS WAS IN VIOLATION OF STOCK
PURCHASE AGREEMENT
Brian first claims on appeal that a party to a buy-sell agreement regarding
stock cannot circumvent the agreement by selling all of the corporation’s assets.
Specifically, Brian contends that the sale of all of the corporation’s assets violated the
stock purchase agreement because the intent of the stock purchase agreement was for
“all shares of stock [to] remain in the immediate family.” Brian cites no authority for this
theory.
Brian acknowledged in his response to Jasper and Sheila’s motion for
summary judgment that the stock purchase agreement made no mention of the sale of
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assets. However, he mistakenly equates the sale of the corporation’s assets with a sale
of stock. The stock purchase agreement does not control the sale of the corporate
assets.
By selling its assets, the corporation did not sell its stock; rather,
compensation was received by the corporation in exchange for the assets it sold. This
money was retained by the corporation and used to pay corporate debt. The remaining
balance is in a corporate account. Brian did not dispute this assertion. Thus, the claim
that the sale of the assets violated the stock purchase agreement lacks merit.
B. CLAIM THAT THE CIRCUIT COURT IMPROPERLY GRANTED SUMMARY
JUDGMENT
(1) THE DUTY OF CORPORATE OFFICERS CLAIM
Brian next asserts that the circuit court improperly granted summary
judgment on his claim that Jasper and Sheila violated their duties as officers and
directors of the corporation when they, in bad faith: sold the corporation’s assets and
misappropriated corporate assets for personal use. See KRS 271B.8-300; KRS
271B.8-420.
As for his claim that Jasper and Sheila violated their duties by selling the
corporation’s assets allegedly in bad faith, Brian has proffered no evidence to support
this claim. In fact, Brian has not alleged, much less shown, that Jasper and Sheila sold
the corporation’s assets for less than what they were worth.
Additionally, Brian alleges that Jasper and Sheila violated their duties by
misappropriating corporate assets for their personal use. “When the directors
themselves, who must necessarily act for the corporation, mortgage or sell the property
of the corporation to themselves or one of their members, a different rule obtains from
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that where the property is sold to a third person in good faith and for a valuable
consideration.” People’s State Bank v. Jacksonian Hotel Co., 261 Ky. 101, 87 S.W.2d
111, 117 (Ky. 1935) (internal quotation marks omitted).
During his deposition, Jasper admitted that, in 2001, he had used
$80,000.00 of the corporation’s assets to make improvements on the funeral home
building; additions were made to the office and garage. Although the corporation
operated out of this building, it did not own or lease it. Rather, the building was
personally owned by Jasper and Sheila. Jasper and Sheila have not cited evidence
showing that the money was paid back to the corporation at a later date. The building,
with the improvements, was subsequently sold along with the corporate assets. Of the
$900,000 purchase price, $497,500 was allotted for the property, land and buildings,
which were personally owned by Jasper and Sheila. Because corporate money was
used, but not repaid, to improve personal property, summary judgment was not proper
on this claim. 1
(2) THE FRAUD CLAIM
Brian next asserts that the circuit court erred in granting summary
judgment on his fraud claim. In his fraud claim raised on appeal, Brian contends that
Jasper and Sheila committed fraud by falsely telling him that he would have the first
opportunity to buy the funeral home whenever they decided to sell it. He also alleges
that the stock purchase agreement provides that it was the intent of the parties to pass
the company on to him.
1
We note that in the circuit court, Brian alleged that an additional transfer of $70,000.00 in
corporate funds was made by the defendants/appellees in 2003 for their own personal use.
However, he has not pointed this Court to any evidence supporting this claim. Therefore,
summary judgment was properly granted by the circuit court as to that portion of Brian’s
misappropriation of corporate funds claim.
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To the extent that Brian asserts the stock purchase agreement reflected
the parties’ intent that the company would be passed on to him, his claim is misplaced.
The stock purchase agreement provided that if a shareholder wished to sell his or her
shares in the corporation, the corporation would first have the opportunity to purchase
those shares. If the corporation did not purchase them, the remaining shareholders
could do so. This stock purchase agreement, however, did not concern the sale of the
corporation’s assets, as occurred in this case. Therefore, Brian’s claim that Jasper and
Sheila committed fraud by allegedly violating the stock purchase agreement lacks merit
because they did not violate that agreement when they sold the corporation’s assets.
Brian also asserts that Jasper and Sheila committed fraud by falsely telling
him that he would have the first opportunity to buy the funeral home if they decided to
sell it. However, this claim concerns an alleged future oral promise by Jasper and
Sheila. “It is a general rule that fraud must relate to a present or pre-existing fact and
cannot ordinarily be predicated on representations or statements that involve mere
matters of futurity or things to be done or performed in the future.” Brooks v. Williams,
268 S.W.2d 650, 652 (Ky. 1954). Therefore, this claim lacks merit. Consequently, the
circuit court did not err by granting summary judgment regarding Brian’s fraud claim.
(3) THE PUNITIVE DAMAGES CLAIM
Brian next alleges that he is entitled to punitive damages in this case
based on his fraud claims. However, because his fraud claims lack merit, as discussed
previously, there is no basis for awarding punitive damages. See KRS 411.184(2).
Additionally, to the extent that Brian contends that he is entitled to punitive damages
due to the alleged breach of contract perpetrated by the defendants/appellees, KRS
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411.184(4) prohibits such an award. Therefore, Brian’s punitive damages claim lacks
merit.
(4) THE WRONGFUL TERMINATION CLAIM
On appeal, Brian contends that he was wrongfully terminated. He
acknowledges that typically, the doctrine of at-will employment applies in Kentucky.
However, he alleges that the stock purchase agreement in this case created a more firm
relationship than one between a company and an at-will employee. Regardless, Brian
did not raise this argument in support of his wrongful termination claim in the circuit
court. Therefore, we will not consider this argument for the first time on appeal. See
Kennedy v. Commonwealth, 544 S.W.2d 219, 222 (Ky. 1976) (“The appellants will not
be permitted to feed one can of worms to the trial judge and another to the appellate
court.”).
Additionally, in the circuit court, Brian argued that he was wrongfully
terminated in retaliation for his threats to report Jasper and Sheila to the Internal
Revenue Service and the Kentucky Revenue Cabinet for tax evasion. However, he has
not argued retaliation as a basis for his wrongful termination claim on appeal.
Therefore, this part of Brian’s wrongful termination claim is deemed waived on appeal.
See Grange Mut. Ins. Co. v. Trude, 151 S.W.3d 803, 815 (Ky. 2004).
Accordingly, the judgment of the Gallatin Circuit Court is vacated and
remanded in part, regarding Brian’s claim that the defendants/appellees
misappropriated $80,000.00 of the corporation’s money. Furthermore, the remainder of
the Gallatin Circuit Court’s order is affirmed.
ALL CONCUR.
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BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Eric C. Deters
Independence, Kentucky
Ruth H. Baxter
Carrollton, Kentucky
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