Opinion
Case No. 2:02CV-0060 TC
October 20, 2003
ORDER
This matter is before the court on Plaintiff's Motion for Summary Judgment and Defendants' Request for Rule 54(b) Certification of an order as final.
BACKGROUND
Plaintiff Manheim Automotive Financial Services, Inc. ("Manheim") filed this action against Forshee Auto Sales ("FAS") and individuals Kenneth Forshee and Renee Forshee to collect payment on a $750,000 promissory note ("Note"). FAS executed the Note, and Kenneth and Renee Forshee (collectively, the "Forshees") each signed the Note on behalf of FAS as individual guarantors, in January 2001. The Forshees are officers and shareholders of FAS. Manheim and FAS also entered into a Security Agreement at the same time, under which FAS granted Manheim a security interest in FAS's vehicle inventory and in any proceeds from sale of that inventory.
On December 7, 2001, Manheim declared the Note and Security Agreement in default and took possession of some vehicles from FAS's inventory that were part of Manheim's collateral under the Security Agreement. Manheim then filed this suit. Days later, FAS filed for bankruptcy. FAS and the Forshees filed counterclaims against Manheim, alleging that Manheim's action in taking possession of FAS's vehicle inventory was done in bad faith and caused FAS to go out of business.
Manheim subsequently obtained relief from the automatic stay and sold FAS's remaining vehicle inventory (i.e., Manheim's collateral). The proceeds from the sale of those vehicles were used to satisfy FAS's financial obligation to Manheim. As a result, Manheim no longer seeks to recover damages in this action from FAS's bankruptcy estate or from the Forshees on their written guaranties.
In June 2003, Manheim and the trustee of FAS's bankruptcy estate jointly filed a stipulated motion for dismissal with prejudice of Manheim's claims against FAS and FAS's counterclaim against Manheim. The stipulated motion was granted on June 18, 2003, but the claims by and against the individual Defendants were left intact.
Nevertheless, the Forshees appealed the dismissal of "defendants' counterclaims" to the Tenth Circuit. The Tenth Circuit tolled briefing on the merits of the appeal because the June 18, 2003 Order did not dispose of all of the claims and no Rule 54(b) certification was issued. Consequently, the Forshees have filed a request for 54(b) certification that the June 18, 2003 Order is a final order. In the meantime, Manheim filed a motion for summary judgment against the Forshees, alleging that the Forshees do not have standing to assert their counterclaim against Manheim.
For the reasons set forth below, Manheim's Motion for Summary Judgment is GRANTED, Manheim's remaining claims against the Forshees are DISMISSED under Federal Rule of Civil Procedure 41, and the Forshees' Request for 54(b) Certification is DENIED,
ANALYSIS
A. Manheim's Motion for Summary Judgment against the Forshees
1. Legal Standard
Under Federal Rule of Civil Procedure 56, a court may enter summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions 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.'" Fed, R. Civ. P. 56(c);see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986);Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998). The party moving for summary judgment bears the initial burden of demonstrating that there is an absence of evidence to support the non-moving party's case. Celotex. 477 U.S. at 323;Adler, 144 F.3d at 670-71, A movant "may make its prima facie demonstration simply by pointing out to the court a lack of evidence for the nonmovant on an essential element of the nonmovant's claim."Adler, 144 F.3d at 671, In applying this standard, the court views the factual record and must construe all facts and reasonable inferences therefrom in the light most favorable to the nonmovant,Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Aramburu v. Boeing Co., 112 F.3d 1398, 1402 (10th Cir. 1997).
Once the moving party has carried its initial burden, Rule 56(e) requires the nonmovant to "go beyond the pleadings and `set forth specific facts' that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant."Adler. 144 F.3d at 671 (quoting Fed.R.Civ.P. 56(e)). The specific and pertinent facts put forth by the nonmovant "must be identified by reference to an affidavit, a deposition transcript or a specific exhibit incorporated therein." Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir. 1992). Mere allegations and references to the pleadings will not suffice. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
2. Motion for Summary Judgment
In its motion for summary judgment, Manheim argues that any harm allegedly suffered by the Forshees as a result of Manheim's conduct resulted from the Forshees' status as FAS shareholders. Consequently, Manheim argues, their claims are derivative of the claims held by FAS, and, under Utah law, the Forshees lack standing to maintain an action against Manheim in their own right. Manheim asserts that the Forshees' breach of contract claim may be asserted only by FAS because it is based on Manheim's purported breach of its contract with FAS. Similarly, the tortious interference claim may be asserted only by FAS because it is based on Manheim's alleged tortious interference with FAS's business.
With one narrow exception, shareholders of a corporation may not bring suit in their individual capacities for a wrong done by a third party to the corporation. Norman v. Murray First Thrift, 596 P, 2d 1028, 1031-32 (Utah 1979); Stocks v. United States Fid. Guar. Co., 3 P.3d 722, 724-25 (Utah Ct.App. 2000). The Utah Court of Appeals has recognized a narrow exception to the general rule regarding a shareholder's capacity to bring an individual suit. Under this exception, a shareholder may "bring an individual cause of action if the harm to the corporation also damaged the shareholder as an individual rather than a shareholder." Stocks, 3 P.3d at 724 (emphasis added).
The Forshees, in their Opposition Memorandum, attempt to rely on this narrow exception. However, they never get beyond conclusory allegations or references to their pleadings. The Forshees fail to explain how they supposedly were damaged other than as shareholders, and they have presented no evidence in support of such a claim.
The fact that the Forshees were guarantors of FAS's obligations to Manheim does not change the outcome. The Forshees do not have standing to bring an action against Manheim simply because they guaranteed FAS's obligations under the Note and Security Agreement. See DLB Collection Trust v. Harris, 893 P.2d 593, 597-98 (Utah Ct.App. 1995) (holding that shareholder's personal guaranty of loan did not give him standing to assert individual claim against corporate officers and directors of bankrupt corporation); Nicholson v. Ash, 800 P.2d 1352, 1356 (Colo.Ct.App. 1990) (same).
The Forshees' unsupported argument that they were damaged as individuals, in the absence of credible evidence, is insufficient to create a genuine issue of material fact. Accordingly, Manheim's Motion for Summary Judgment dismissing the Forshees' counterclaim against Manheim is GRANTED.
B. Dismissal of Manheim's Claims Against the Forshees
Manheim represents that it "no longer seeks to recover damages in this action from FAS's bankruptcy estate or from the Forshees on their written guaranties," (Pl.'s Mem. in Supp. of Mot. for Summ. J. at 2.) The Forshees, in their Opposition Memorandum, understandably dispute Manheim's representation, because Manheim has not moved voluntarily to dismiss its claims against the Forshees. Manheim, however, in response to the Forshees' skepticism, volunteered the following: "Although [Manheim] has not yet filed a motion or stipulation with the Court for entry of an order formally dismissing its claims against the Forshees, [Manheim] has no objection to such an order being entered by the Court," (Pl.'s Reply Mem. in Supp. of Mot. for Summ. J. at 2 n. 1.)
In light of Manheim's representations and the Forshees' request for a Rule 54(b) Certification, the court hereby dismisses all of Manheim's claims against Kenneth Forshee and Renee Forshee under Federal Rule of Civil Procedure 41.
C. The Forshees' Request for 54(b) Certification
In light of the rulings above, the Forshees' Request for certification of the June 18, 2003 Order as final is moot.
ORDER
For the foregoing reasons, the court orders as follows:
1. Plaintiff Manheim Automotive Financial Services, Inc.'s Motion for Summary Judgment dismissing the Forshees' counterclaim against Manheim is GRANTED,
2. Plaintiff Manheim's claims against individual Defendants Kenneth Forshee and Renee Forshee are DISMISSED.
3. Defendants' Request for Rule 54(b) Certification is DENIED as moot.
IT IS SO ORDERED.