United States District Court, D. Minnesota
JOSEPH H. WHITNEY, Plaintiff,
THE GUYS, INC., AGORA SOLUTION CORP., MYBILLINGSERVICES, INC., INFO BILLING, INC., MYTELESERVICES, INC., LAURENTEL, INC., GREENTREEDATA, INC., LOWCOSTBILLING, INC., YOURBILLINGSOLUTIONS, INC., MYSUPERLOTTO, INC., MYPRIZEAWARDS CORP., MYSERVICEANDSUPPORT, INC., XYZ, INC. and JOHN R. MORRISON, Defendants
[Copyrighted Material Omitted]
For Plaintiff: Mark J. Kallenbach, KALLENBACH LAW OFFICE, Minneapolis, MN.
For Defendants: Charlie R. Alden, THOMPSON HALL SANTI CERNY & DOOLEY, Minneapolis, MN.
MEMORANDUM OPINION AND ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT
JOHN R. TUNHEIM, United States District Judge.
Plaintiff Joseph Whitney brought this action in October 2010 based upon an alleged oral agreement he made with Defendant John Morrison pursuant to which Whitney was entitled to one-half of the shares of stock in at least twelve internet-based marketing companies. Whitney brought various common law and statutory claims against Morrison and those twelve internet-based companies (" the Corporate Defendants" ), as well as " XYZ, Inc." a label Whitney uses for defendants that he characterizes as unknown derivative business entities of the Corporate Defendants. Whitney's claims arise out of his allegation that Defendants failed to abide by the oral agreement and recognize Whitney as a shareholder.
Upon remand from the Eighth Circuit, Whitney's remaining claims are those for (1) an accounting, (2) breach of shareholder rights -- including right of access to the Corporate Defendants' books and records, participation in the Corporate Defendants' management, and a share in profits, and (3) breach of fiduciary duty -- based upon his contention that Morrison -- an officer of some or all of the Corporate Defendants -- breached a fiduciary duty by misappropriating corporate property. Whitney and Defendants bring cross motions for summary judgment on these claims. Whitney and Defendants also bring cross motions for summary judgment on Defendants' counterclaims against Whitney for conversion, civil theft, unjust enrichment, and fraud, arising out of Whitney's alleged misappropriation of funds from one of the Corporate Defendant entities. Because the Court concludes that the statute of limitations has run on Whitney's claims as well as Defendants' counterclaims, it will grant Defendants' motion with respect to Whitney's claims and Whitney's motion with respect to Defendants' counterclaims to the extent those motions seek dismissal of the opposing parties' claims on statute
of limitations grounds. The Court will thus dismiss all claims currently before the Court.
I. WHITNEY'S ALLEGATIONS
The paucity of record evidence in this case combined with the failure of the extensive briefs associated with the present motions to connect their presentation of copious isolated facts to a coherent legal theory makes it difficult to construct a logical and/or chronological overview of the events underlying Whitney's claims or otherwise impose order on what appears to have been nothing short of a business relationship disaster. In light of this difficulty, the Court begins by briefly outlining Whitney's allegations related to his claims as a way of focusing the factual discussion and orienting the reader to the possible relevance of the various record facts identified by the parties.
In his Second Amended Complaint, Whitney alleges that on April 25, 2005, he and Morrison formed The Guys, Inc., one of the Corporate Defendants, and agreed that Whitney and Morrison would each own one half of the outstanding shares in The Guys, Inc., as well as one half of the outstanding shares in wholly owned subsidiaries of The Guys, Inc. -- Corporate Defendants MySuperLotto, Inc., Agora Solution Corporation, and MyServiceAndSupport, Inc. (Second Am. Compl. ¶ ¶ 9-11, Nov. 5, 2010, Docket No. 5.) Whitney also alleges that in April 2005 he paid $150,000 for one half of the shares in The Guys, Inc., its wholly owned subsidiaries, and all of the other Corporate Defendants, which " were created to carry out business ventures contemplated and agreed to by and between Whitney and Morrison of which Whitney and Morrison were to be equal owners." ( Id. ¶ ¶ 13, 14.) Additionally, Whitney claims that in November 2005 he made a $25,000 capital contribution to Agora Solution Corporation. ( Id. ¶ 15.) Whitney alleges that Defendants " refuse to acknowledge Whitney's ownership in any of the Corporate Defendants" and " refuse to permit Whitney's participation in the Corporate Defendants' affairs or profits." ( Id. ¶ ¶ 16-17.) Whitney contends that as a shareholder of one-half of the outstanding shares in each of the Corporate Defendants he " is entitled to an accounting of each of the Corporate Defendants and Derivative Entities' sales, expenses, assets, and liabilities." ( Id. ¶ 48.) In support of his breach of shareholder rights claim, Whitney alleges that his rights as a shareholder have been violated because " Morrison has refused and continues to deny Whitney access to any of the Corporate Defendants', including the Derivative Entities', books and records, his right to participate in the Corporate Defendants' and Derivative En[ti]ties['] governance or management and rightful share of their profits." ( Id. ¶ ¶ 51-52.) Finally, with respect to his breach of fiduciary duty claim, Whitney argues that Morrison owed Whitney a fiduciary duty " as a shareholder," and breached that duty " by misappropriating corporate property." ( Id. ¶ ¶ 59-60.) With this background in mind, the Court sets forth the record facts bearing upon Whitney's claim that he is a shareholder in the Corporate Defendants.
II. ALLEGED CONTRACT FORMATION
Whitney is a businessman who, among other things, invests in start-up companies. (Fifth Decl. of Mark J. Kallenbach, Ex. A (Dep. of Joseph A. Whitney (" Whitney Dep." ) 29:7-11, 31:6-32:11), Feb. 21, 2014, Docket No. 94.) He met Morrison in the 1980s, and the two began doing business
together. (Whitney Dep. 21:1-22:10, 23:13-18.)
Whitney testified that in 2004 or 2005 Morrison approached him with an idea for a business model. ( Id. 82:13-83:2.) Morrison proposed to set up a corporation to provide LEC, or Local Exchange Carrier billing, which is a form of billing for internet-based or other electronic services where the user is charged through his account with a local telephone company, rather than directly from the provider of the service. ( Id. 83:18-84:3.) Whitney testified that he and Morrison worked together to develop the business as partners explaining, " [s]o we figured out a budget and we funded that budget - - for each owning 50 percent of the business. And it was clear and - - without any shred of doubt in our minds, that we were partners." ( Id. 84:3-8.) It is unclear from Whitney's testimony whether he believed the alleged agreement in question was for a fifty percent partnership and a fifty percent share in the profits, or whether the deal was actually to receive fifty percent ownership of stocks in the various companies that grew out of the business model. Whitney testified:
Q. So this was just an agreement that you would be equal partners and you would get half of the profits?
A. Yes. Well, I mean - -
. . . .
A. He - - he had to gerrymander the companies around a little bit, based on the payment schedule, but, you know, he gave me 100 percent of Agora. You know, he had 100 percent of another entity. But, you know, at the end of the day, yes, it was going to be fifty-fifty on all moneys made out of the enterprises.
Q. So it wasn't exactly a deal that you would get stock in companies, correct? It was just a deal - - let me put it this way. Could the deal have taken place without a stock transfer?
Q. So stock was not integral to the deal, is that correct?
Q. Okay. So did you feel that because you did not receive certificates for the companies, demonstrating your stock, that you were not getting what you had bargained for?
A. Well, I only got to that when he started playing games on - - on me, not giving me information on the company that I was a partner in, and, you know, then I started asking about the stock.
Of course, he said, " Oh, it's" - - you know - - you know, " You have shares in this. I have shares in that." You know, it all washes out in the end. At the end of the day it's a fifty-fifty deal, period.
Q. So you're - - you were really just partners in this endeavor and you were supposed to get 50 percent of the profits, correct?
A. Pretty much. I mean, I - - whether it came as a result of my ownership by stock or by, you know, profits interests . . . . But it was always the understanding that I had half the deal, whatever that was. One half, 50 percent of the deal.
At some point, Morrison created a document titled " The Organization Structure We Focus On Internet Marketing." (Fifth Kallenbach Decl., Ex. H.) Whitney argues that this document laid out the intended structure of his arrangement with Morrison, and supports his claim that he holds fifty percent of the shares in the Corporate Defendants. This document depicts that Whitney's and Morrison's " The JWH &
JRM Holding Company" would own one-hundred percent of " The Guys Corp." which would in turn own twenty-five percent of each of six companies -- three of which are Corporate Defendants in the present case. ( Id.) In a handwritten note, the document indicates that the remaining seventy-five percent of the six individual companies would be split " 37 1/2% JM" and " 37 1/2% JW." ( Id.) Morrison testified that the JHW & JRM Holding Company and related structure referenced in this document " [n]ever came into existence" and was just a brainstorm on his part. (Fifth Kallenbach Decl., Ex. B (Dep. of John R. Morrison (" Morrison Dep." ) 93:17-94:4).)
III. STOCK OWNERSHIP IN CORPORATE DEFENDANTS
The Corporate Defendants were all incorporated in Delaware. (Fifth Kallenbach Decl., Ex. F.) The first of the Corporate Defendants to be incorporated was Agora Solution Corporation on July 1, 2003. ( Id., Ex. F at 5.) The Guys, Inc. and MyTeleservices, Inc. were incorporated on April 25, 2005. ( Id., Ex. F at 2, 10-11.) Whitney and Morrison were named as the initial directors of those two entities. ( Id., Ex. F at 9; id., Ex. O.) MyPrizeAwards Corp. and MySuperLotto, Inc. were both incorporated in 2005. ( Id., Ex. F at 24, 26.) The remaining Corporate Defendants were incorporated in 2006. ( Id., Ex. F at 7-8, 13, 15, 20, 22, 28.)
A. Documentation of Stock Ownership
In connection with the present motion, the parties have presented stock certificates allegedly indicating the shareholders of some of the Corporate Defendants. This section describes the stock ownership as represented by the certificates as well as relevant deposition commentary and a description of other documents that contradict the stock certificates.
Agora: A stock certificate indicates that on some unspecified date in 2001, 1500 shares in Agora Solution Corporation -- representing all of the authorized shares of that company -- were issued to John R. Morrison. (Third Aff. of Charlie Alden, Ex. E at 7, Feb. 20, 2014, Docket No. 90.) Morrison was unable to explain how shares in a corporation were issued to him two years prior to its incorporation, testifying only that " it might have been incorporated in 2003, but the corporation was established way before that." (Morrison Dep. 131:13-15.)
Minutes from a meeting held by Agora's board of directors on June 10, 2003, are inconsistent with the stock certificate produced, and specify that initially John Morrison and Mildred Morrison were each issued 250 shares and Lee Chung and David Kwok were each issued 500 shares. (Third Alden Aff., Ex. D at 4-5.) Minutes from a June 9, 2004 meeting of Agora's board of directors contain a resolution, providing:
RESOLVED that the shares of stock owned by Lee Cheng and David Kwok will be purchased by John R. Morrison giving John R. Morrison ownership of 1,250 shares. Mildred B. Morrison retains her 250 shares. This 1,500 shares represent all Agora Solution outstanding authorized shares by shareholders.
Id., Ex. D at 2.)
Minutes from a January 11, 2006 Agora board meeting contain resolutions stating
that " Joseph H. Whitney Chairman of the Board and Geoff Morrison Vice President, resign as officers and Board of Directors members of Agora Solution Corp." and " that Joseph H. Whitney will transfer all rights to Agora Solution stock to John R. Morrison." ( Id., Ex. J at 2.) January 15, 2006 meeting minutes from a board meeting of another Corporate Defendant -- MyTeleservices Corporation -- contain the same resolution " that Joseph H. Whitney will transfer all rights to Agora Solution Corp. stock to John R. Morrison." ( Id., Ex. J at 3.)
Morrison testified that Whitney never owned shares in Agora. (Morrison Dep. 60:3-5.) Morrison testified that he put the clause in the meeting minutes which indicated that Whitney would transfer his Agora stock to Morrison " to make sure that when I incorporated with him, and et cetera . . . that he didn't feel that he owned any of the stock of the company, because no stock had ever been issued to Joe Whitney." ( Id. 68:3-12.)
MyTeleservices: A stock certificate reflects that on April 24, 2005, 1500 shares in MyTeleservices Corporation were issued to John R. Morrison,
representing all of the authorized shares in the company. (Third Alden Aff., Ex. E at 10.) In minutes of a MyTeleservices corporate meeting on April 12, 2005 -- prior to the date of MyTeleservices' incorporation -- Agora is listed as the owner of 500 MyTeleservices shares, with Morrison and Mildred Morrison each owning 500. (Sixth Decl. of Mark J. Kallenbach, Ex. AA at 2, Mar. 13, 2014, Docket No. 101.) In a December 23, 2005 meeting Morrison resigned as an officer of MyTeleservices " due to the fact that he cannot be an officer in more than one company billing to phone companies" and sold his shares in MyTeleservices to Mildred Morrison. ( Id., Ex. AA at 5-6.)
Minutes from a December 15, 2006 meeting of MyTeleservices board of directors state that " Joseph R. Whitney will transfer all rights to MyTeleserveces [sic] stock to John R. Morrison." (Fifth Kallenbach Decl., Ex. S.) January 15, 2006 corporate minutes from MyTeleservices contain the opposite resolution -- that " John R. Morrison will transfer all rights to MyTeleserveces [sic] stock to Joseph H. Whitney." (Sixth Kallenbach Decl., Ex. AA at 10.) This transfer of MyTeleservices stock from Morrison to Whitney is also reflected in January 11, 2006 minutes of an Agora board meeting. (Third Alden Aff., Ex. J at 2.) A 2006 tax return for MyTeleservices, prepared by Morrison's accountant, lists Whitney as the one-hundred percent owner of the company's common stock. (Fifth Kallenbach Decl., Ex. W at 6, 10.) When he was shown this tax return at his deposition, Morrison testified that he was " shocked to see that." (Morrison Dep. 217:12-18.)
MyBillingServices: A stock certificate indicates that on February 24, 2006, 1500 shares in MyBillingServices Corporation were issued to Dawn Daniels, representing ownership of all authorized shares in the company. (Third Alden Aff., Ex. E at 3.) Daniels is Morrison's wife's cousin. (Morrison Dep. 43:8-12.) LaurenTel: A stock certificate reflects that 1500 shares in LaurenTel Corporation were issued to Lorraine Treadwell on May 29, 2006, representing all of the authorized shares for the corporation. (Third Alden Aff., Ex. E at 2.) Treadwell is Morrison's sister, (Morrison Dep. 87:24-88:1) and Morrison testified that Treadwell did not actually invest any money in LaurenTel ( id. 88:3-10).
Info Billing: A stock certificate reflects that on May 29, 2006, 1500 shares in Info Billing Corporation were issued to Morrison's daughter-in-law, Brenda Morrison, representing all of the authorized shares for the corporation. ...