From Casetext: Smarter Legal Research

Rutz v. Flag Drilling Co.

Commonwealth of Kentucky Court of Appeals
Jan 23, 2015
NO. 2013-CA-001667-MR (Ky. Ct. App. Jan. 23, 2015)

Opinion

NO. 2013-CA-001667-MR

01-23-2015

TAMMY A. RUTZ, EXECUTRIX OF THE WILL OF WESLELY E. WILLIAMS, DECEASED APPELLANT v. FLAG DRILLING CO., INC. AND KERBY E. WILLIAMS APPELLEES

BRIEF FOR APPELLANT: Harry L. Mathison Henderson, Kentucky BRIEF FOR APPELLEE FLAG DRILLING CO., INC: Daniel N. Thomas Hopkinsville, Kentucky


NOT TO BE PUBLISHED APPEAL FROM MUHLENBERG CIRCUIT COURT
HONORABLE BRIAN WIGGINS, JUDGE
ACTION NO. 13-CI-00018
OPINION
AFFIRMING
BEFORE: CAPERTON, COMBS, AND VANMETER, JUDGES. COMBS, JUDGE: Tammy Rutz, on behalf of the estate of Wesley E. Williams, appeals the order of the Muhlenberg Circuit Court dismissing her complaint against Flag Drilling Co., Inc. The corporation argues that the appeal is premature. We disagree. Thus, we affirm the judgment of the circuit court on the merits.

Judge Caperton concurred in this opinion prior to Judge Debra Lambert being sworn in on January 5, 2015, as Judge of Division 1, Third Appellate District. Release of this opinion was delayed by administrative handling.

Flag Drilling, a Kentucky corporation, has been in business since 1956. It primarily drills oil wells and operates oil and gas leases in western Kentucky. Before the death of Wesley Williams on December 25, 2011, Flag Drilling was owned in equal shares by Wesley Williams and Kelly Williams, his son. Kelly Williams began serving as president of Flag Drilling and chairman of its board of directors on October 1, 2002.

On January 14, 2013, Rutz filed an action against the corporation on behalf of the Williams estate. She sought production of the corporation's business records. Flag Drilling provided the records requested.

A special meeting of the board of directors was conducted on January 20, 2013. Pursuant to the corporation's bylaws, Kelly Williams, the sole remaining director of Flag, appointed Kerby Williams, another surviving son of Wesley Williams, to the seat left vacant upon the death of Wesley Williams.

In an amended complaint filed on April 22, 2013, Rutz alleged that the corporation lacked a properly elected board of directors to manage its affairs. She contended that the corporation's shareholders were deadlocked and could not elect board members or a member of the board to succeed Wesley Williams; thus, she argued that irreparable injury to the business would likely result. Rutz sought the appointment of a receiver and the judicial dissolution of the corporation pursuant to the provisions of Kentucky Revised Statute[s] (KRS) 271(b).14-300.

Flag Drilling answered the complaint and denied the allegations. It also filed several counterclaims against the estate seeking to recover from the estate a portion of the costs associated with the labor, material, and other maintenance and servicing requirements of operating the oil and/or gas wells and leases owned by the estate. Flag Drilling also asserted a claim for abuse of process. The estate filed a timely reply.

By order entered August 12, 2013, Kerby Williams was permitted to intervene as a party defendant. The parties filed cross-motions for summary judgment.

In support of her motion for summary judgment, Rutz contended that the corporation's annual reports for 2011 and 2012 indicated that its board of directors was composed of a single member - Wesley Williams. The estate argued that the corporation was not being properly managed because a meeting of shareholders had not been conducted since the death of Wesley Williams. Regardless of the lack of a meeting, it also contended that the shareholders would be deadlocked in voting power with respect to necessary decision-making. Therefore, judicial dissolution was required.

In its memorandum submitted to the trial court, the corporation explained that a special meeting of the board had been convened on January 25, 2013, and that Kerby Williams had been appointed to fill the vacant seat on the board created by the death of his father, Wesley Williams. The corporation argued that the current directors were decidedly not deadlocked with respect to management of the corporation, noting that a shareholders' meeting had been scheduled.

In an opinion and order entered September 2, 2013, the trial court granted the corporation's motion for summary judgment. The court concluded that the estate had failed to establish the statutory requirements to warrant judicial dissolution of the corporation since it could not show that the directors were deadlocked.

Summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, stipulations, and admission on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Kentucky Rule(s) of Civil Procedure (CR) 56.03. On appeal, we consider whether the trial court erred by concluding 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).

On appeal, the estate argues that the trial court erred by granting summary judgment, contending that it misapplied the provisions of both KRS 271B.14-300(2)(a) and (b). We disagree. We shall address the contentions in reverse order.

KRS 271B.14-300(2)(b) provides that a corporation can be dissolved by a circuit court in a shareholder proceeding if it is established that the directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal or fraudulent. Under our rules of civil procedure, the circumstances constituting fraud must be pled with particularity. Kentucky Rule[s] of Civil Procedure CR 9.02. Additionally, all claims of fraud must be established by clear and convincing evidence. Farmers Bank and Trust Co. of Georgetown, Kentucky v. Willmott Hardwoods, Inc., 171 S.W.3d 4 (Ky. 2005).

In its appellate brief, the estate argues in generalized fashion that the failure of Kelly Williams to conduct a shareholder meeting and to seek a vote of the board to approve his request for an annual salary constitutes fraudulent acts. However, there were no allegations of fraud pled with specificity in the original complaint. Moreover, the corporation's bylaws provide that salaries for officers shall be fixed from time to time by the board of directors. Under the circumstances, the trial court did not err by declining to dissolve the corporation on the basis of director fraud.

Next, we address the application of KRS 271B.14-300(2)(a). This statute provides that a corporation can be dissolved by a circuit court in a shareholder proceeding where it is established that the directors of the corporation are deadlocked in the management of the corporate affairs, that the shareholders are unable to break the deadlock, and either that irreparable injury to the corporation is threatened or being suffered or that the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally because of the deadlock.

The estate failed to show that the directors of Flag Drilling are deadlocked with respect to the management of the corporation. Nor could it demonstrate that irreparable injury to the corporation is threatened or being suffered or the business of the corporation can no longer be conducted to the advantage of shareholders. Thus, the circuit court did not err by granting the corporation's motion for summary judgment. The estate presented no evidence other than the president's modest annual salary to show that those in control of the corporation's business were acting oppressively or were wasting or misapplying corporate assets. It did not establish that the corporation's business was being conducted in any way so as to disadvantage its shareholders. The circuit court did not err by refusing to order dissolution of the corporation.

We affirm the judgment of the Muhlenberg Circuit Court.

ALL CONCUR. BRIEF FOR APPELLANT: Harry L. Mathison
Henderson, Kentucky
BRIEF FOR APPELLEE FLAG
DRILLING CO., INC:
Daniel N. Thomas
Hopkinsville, Kentucky


Summaries of

Rutz v. Flag Drilling Co.

Commonwealth of Kentucky Court of Appeals
Jan 23, 2015
NO. 2013-CA-001667-MR (Ky. Ct. App. Jan. 23, 2015)
Case details for

Rutz v. Flag Drilling Co.

Case Details

Full title:TAMMY A. RUTZ, EXECUTRIX OF THE WILL OF WESLELY E. WILLIAMS, DECEASED…

Court:Commonwealth of Kentucky Court of Appeals

Date published: Jan 23, 2015

Citations

NO. 2013-CA-001667-MR (Ky. Ct. App. Jan. 23, 2015)