BNSF Railway v. Level 3 Communications

Corporations—Shareholder Derivative Action—Closely Held Corporation—Civil Theft—Piercing the Corporate Veil—Alter Ego—Dividends and Distributions—Statute of Limitations. Father assigned his stock in the Liquor Barn, Ltd. (Liquor Barn) to his son Gary, who was the company's sole director and majority shareholder. The two other Tisch siblings (the Tisch siblings) held nonvoting shares in Liquor Barn. The Tisch siblings filed a complaint against Gary alleging various causes of action related to his fiduciary duties. A jury found that Gary had committed civil theft against the Tisch siblings individually and against Liquor Barn by using the Liquor Barn profits for his private use. It awarded the Tisch siblings treble damages on the civil theft claim. The trial court entered judgment against Gary and Liquor Barn and awarded the Tisch siblings costs and attorney fees. Gary moved to amend the judgment, arguing that the trial court erred in piercing the corporate veil and that this error would prejudice Liquor Barn's creditors. He then filed a combined motion for new trial and relief from judgment, arguing that the trial court erred in disqualifying his expert witness and in piercing the corporate veil. The trial court denied the postjudgment motions and awarded the Tisch siblings attorney fees that exceeded the lodestar. On appeal, Gary contended that the trial court erroneously found that he, as an individual, and the Liquor Barn were "alter egos." Here, the record shows that Gary comingled his personal and other business funds with the Liquor Barn's funds, kept inadequate corporate records, routinely disregarded the legal formalities of declaring shareholder distributions and filing taxes related to payments he made to himself, and used corporate funds for noncorporate purposes and Gary's position as controlling and sole voting shareholder facilitated his misuse of Liquor Barn's funds. The record also shows that Gary used the corporate fiction to defeat the Tisch sibling

Probate—Disability—Conservator—Fiduciary Duty—Conflict of Interest—Jurisdiction—Civil Theft. Black is the former conservator for his mentally-ill sister, Joanne. When he filed his petition to be appointed conservator, he did not tell the probate court that he sought the appointment to disclaim Joanne's interest in payable-on-death (POD) assets so that they could be redistributed in accordance with his and his children's expectations of his mother's estate plan. Nor did he disclose this conflict of interest when he requested authorization to disclaim Joanne's assets. Black later admitted this conflict. The probate court found that Black breached his fiduciary duties and committed civil theft by converting his sister's assets for his own benefit. Specifically, the court concluded that Black failed to adequately disclose his intent to use a disclaimer to divest his sister of one-third of the (POD) assets, and therefore did not have the court's authorization to redirect the assets. The court determined that his actions were undertaken in bad faith and satisfied the elements of civil theft. Based on its findings, the court surcharged Black in the amount of the converted funds and then trebled those damages under the civil theft statute. On appeal, Black first argued that the probate court lacked jurisdiction to enter the hearing order because only a CRCP 60(b) motion, and not a motion to void the disclaimer, could undo the court's order authorizing the disclaimer. However, the motion to void the disclaimer did not seek relief from a final order. Instead, the motion alleged that Black had breached his fiduciary duties to Joanne while acting as conservator, and it sought to unwind a transaction based on this breach. Thus, the probate court's jurisdiction was based on the court's authority to monitor fiduciaries over whom it has obtained jurisdiction. Accordingly, the court had jurisdiction to adjudicate the allegations and issues raised by the motion to void the disclaimer

<bold>1. Employer and Employee — negligent hiring — reasonable</bold> <bold>investigation</bold> <block_quote> The trial court erred by granting defendant financial planning company's motion to dismiss plaintiff customer's claim for negligent hiring of plaintiff's son, an insurance agent who misappropriated funds from plaintiff's various insurance and annuity products, because the allegations were sufficient to assert that defendant company could have discovered the unfitness of plaintiff's son had it conducted a reasonable investigation prior to hiring him.</block_quote> <bold>2. Fiduciary Relationship — breach of fiduciary duty —</bold> <bold>insurance agent</bold> <block_quote> The trial court erred by granting defendant financial planning company's motion to dismiss plaintiff customer's claim for breach of fiduciary duty regarding plaintiff's son who misappropriated funds from plaintiff's various insurance and annuity products while employed as an insurance agent of defendant company, because: (1) the complaint sufficiently alleged that a relationship of confidence and trust existed between plaintiff and plaintiff's son, individually and in his capacity as an employee and agent of defendant company; (2) plaintiff was not required to allege wrongful benefit as an element of this claim since it is an element of constructive fraud; and (3) plaintiff sufficiently alleged that he relied upon false representations of the status of his investment accounts provided by his son in his capacity as an employee and agent of defendant company and that plaintiff's son in carrying out his duties as an agent and employee of defendant company converted plaintiff's funds to his own use.</block_quote> <bold>3. Fraud — constructive — motion to dismiss — sufficiency of</bold> <bold>evidence</bold> <block_quote> The trial court did not err by granting defendant financial planning company's motion to dismiss plaintiff customer's claim for constructive fraud, because: