Opinion
15-P-823
03-18-2016
HOUSER BUICK, INC. & others v. PHILIP J. HOUSER; HARVIE J. HOUSER & another, third party defendants.
NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
Philip J. Houser appeals from a decision of a Superior Court judge finding that Philip, in derogation of his fiduciary duties as an officer of three closely held corporations, misappropriated corporate assets for his personal benefit. On appeal, Philip argues that (i) the corporations lacked corporate authority to pursue litigation against him and (ii) because the record in this case was inadvertently misplaced by the court, resulting in a delay of approximately two years in issuing the decision, he should be relieved from paying prejudgment interest. We reject both arguments, affirm the amended judgment, and affirm the denial of Philip's motion for relief from the amended judgment.
Due to the common surname, we use the plaintiff's first name.
We refer the parties to the judge's findings for the background facts, which are largely undisputed. We recite those findings of fact necessary to consider the arguments made on appeal.
Philip questions compliance with the legal requirements for standing to bring a shareholder derivative action. As the judge noted, the corporate plaintiffs themselves commenced this action to recoup monies Phillip converted from the corporations. We agree with the judge below that this action, brought by the corporations, is not a shareholder derivative action and compliance with the legal requirements for a shareholder derivative action was unnecessary.
Phillip contends that action by the corporations required a corporate meeting to authorize this suit. See G. L. c. 156D, § 8.23. Phillip argued to the judge that bringing a suit against a director is such an extraordinary act that it requires a meeting and vote of the directors. Even if we were to accept the assertion that a meeting of the directors is necessary to commence litigation for misappropriation against a director in a closely held corporation, we find Philip's argument unavailing under these circumstances. Two of the three directors of each corporation signed the complaint. By the time his misdeeds were discovered, Phillip had abandoned his positions in the companies. There is nothing to suggest that he would have participated in a meeting even if one had been called. Moreover, he participated in the litigation, and even brought counterclaims and third-party claims without raising the defense of lack of corporate authority. He waited until trial to suggest that the corporate plaintiffs lacked corporate authority. There is no indication that a corporate meeting would have been anything other than a formality as only a majority vote of the directors was necessary to take action. See G. L. c. 156D, § 8.24. "This was a small family corporation conducted without overemphasis on corporate formalities and reasonably is not to be held to the strict standards of larger commercial organizations." Trager v. Schwartz, 345 Mass. 653, 568-659 (1963) (finding no error in the judge's decision that signatures by the majority on a trust amendment was enough to authorize a required waiver in lieu of a vote by the board of directors). Perhaps most importantly, Philip was a long-time director, officer, and shareholder of the closely held plaintiff corporations, all of which historically had paid little attention to corporate formalities in terms of meetings and even record keeping. In the circumstances of this case, therefore, Philip cannot reasonably rely upon the absence of a formal meeting to shield himself from liability for his misdeeds. See Samia v. Central Oil Co. of Worcester, 339 Mass. 101, 109 (1959) (noting that in a "laxly handled family situation, where no rights of creditors or outsiders are involved, . . . undue emphasis cannot fairly be placed upon strict compliance with corporate formalities"); Diamond v. Pappathanasi, 78 Mass. App. Ct. 77, 96 (2010) (noting "family business entities are typically operated in a decidedly looser manner than ordinary business entities"). While we do not condone an absence of formalities in operating closely held corporations, neither will we allow a director who had been complicit in years of informality, including years without any formal directors meetings, to rely on the absence of a formal meeting to shield him from requiring to respond to allegations of misappropriation. "Where rights of creditors or other outsiders are not involved, actions taken without compliance with corporate formalities have frequently been held to bind shareholders." Pitts v. Halifax Country Club, Inc., 19 Mass. App. Ct. 525, 532-533 (1985).
Next, comparing the court's delay in issuing the judgment to cases where a plaintiff caused multiple delays during the course of the litigation, Philip argues that it constitutes a windfall to the plaintiffs to award prejudgment interest. The trial concluded on August 22, 2012. The judge issued a notice on October 5, 2014, explaining that although a draft decision was written in December of 2012, a leak occurred in the courthouse and maintenance workers positioned the file behind a bookcase. The court lost track of the case until it was rediscovered after an extensive search prompted by an inquiry from the plaintiffs' attorney on July 1, 2014. The judge conducted an expedited hearing on the c. 93A issue on October 27, 2014, and entered judgment on November 6, 2014.
Philip filed a rule 60(b) motion pursuant to the Massachusetts Rules of Civil Procedure, 365 Mass. 828 (1974), for relief from judgment on the interest issue; on appeal he claims its denial was an abuse of discretion. Philip cites no authority for the claim that the plaintiffs should bear the consequences of the court's inadvertent delay. The plaintiffs did not cause the delay, they incurred an "additional injury," and should be "compensate[d] . . . for this additional injury." Smith v. Massachusetts Bay Transp. Auth., 462 Mass. 370, 375 (2012). Phillip took no action to accelerate the judgment; indeed, it was the plaintiffs, rather than Philip, who called the delay to the court's attention. In these circumstances, we discern no reason to disturb the award.
The plaintiffs' motion to submit a surreply brief is denied.
Amended judgment affirmed.
Order denying motion for relief from amended judgment affirmed.
By the Court (Vuono, Grainger & Massing, JJ.),
The panelists are listed in order of seniority. --------
/s/
Clerk Entered: March 18, 2016.