Joseph H. Whitney v. The Guys, Inc. ( 2016 )

United States Court of Appeals
For the Eighth Circuit
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No. 14-3451
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Joseph H. Whitney
lllllllllllllllllllll Plaintiff - Appellant
v.
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.; John R. Morrison
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: January 11, 2016
Filed: June 24, 2016
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Before WOLLMAN, MELLOY, and COLLOTON, Circuit Judges.
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MELLOY, Circuit Judge.
Joseph H. Whitney appeals from a grant of summary judgment finding his
claims time barred. We affirm.
I.
Whitney entered into a business relationship with John R. Morrison. Whitney
characterizes the relationship as a partnership that eventually involved several
corporations. We discussed the relationship and the various corporations in a prior
opinion and do not repeat those facts here. See Whitney v. The Guys, Inc., 700 F.3d
1118, 1121–23 (8th Cir. 2012).
In the prior appeal, we reviewed a grant of a motion to dismiss. Id. at 1121.
We affirmed the district court’s choice-of-law and statute-of-limitations rulings as to
several claims and also its grouping of claims and dismissal of redundant claims. Id.We held, however, that Whitney had sufficiently pleaded shareholder-rights claims
under Delaware law to meet the plausibility standards of Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009), and Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 555
(2007). Id.On remand, the defendants filed an answer and counterclaims. The
counterclaims alleged Whitney had caused payments of about $200,000 to be diverted
from one of the subject companies to a bank account ultimately controlled by
Whitney. Whitney characterizes the diversion as a rightful self-help remedy to
capture a portion of funds he believed he was entitled to receive from the enterprise.
Eventually, the parties filed cross motions for summary judgment. The district
1
court, applying Delaware law, determined that a three-year statute of limitations
applied and that the filing of the original complaint in October 2010, served as the
reference point for calculating the latest possible date of permissible claim accrual:
October 2007.
1
The Honorable John R. Tunheim, United States District Judge for the District
of Minnesota.
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Using this date, the court cited an email Whitney had sent to Morrison on July
20, 2007. In the email, Whitney complained to Morrison about a lack of access to
information or income from the companies. The court also referenced deposition
testimony from Whitney in which Whitney described the email as referencing all of
his alleged interests in the various companies. In the deposition testimony, Whitney
claimed to have demanded documentation and financial records for “months and
months” prior to sending the email. Finally, Whitney stated that, after he sent the
email and received no response, he met with an attorney in July or August 2007 but
did not initiate suit until October 2010. The district court held the email showed
Whitney was, at a minimum, on inquiry notice by July 20, 2007 that Morrison was
not recognizing his status or rights as a shareholder in the companies.
The court also conducted an analysis to determine whether the shareholder
claims at issue were of the type that accrue once or whether new claims “re-accrue”
with each additional corporate act the plaintiff finds objectionable (e.g., with each
failure to pay dividends or failure to share records, etc.). The district court held that,
not only was Whitney on inquiry notice of shareholder-rights claims prior to October
2007, but any subsequent denial of shareholder rights or shareholder status did not
result in a newly accrued claim. As such, the July or August 2007 date controlled for
statute-of-limitations purposes. In so holding, the district court expressly noted that
Whitney had failed to present argument on the issue of ongoing claim accrual or the
continuing-violation doctrine.
The court then conducted a choice-of-law analysis for the defendants’
counterclaims, held Delaware law applied, and dismissed the counterclaims on
statute-of-limitations grounds. Whitney appeals. The defendants do not appeal the
grant of summary judgment on the counterclaims.
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III.
We review a grant of summary judgment de novo, viewing the record in the
light most favorable to the nonmoving party and drawing all reasonable inferences
in that party’s favor. Hitt v. Harsco Corp., 356 F.3d 920, 923–24 (8th Cir. 2004).
Summary judgment is appropriate when there exist no genuine questions of material
fact and the case can be decided as a matter of law. Fed. R. Civ. P. 56(c). “There is
no genuine issue of material fact when ‘the record taken as a whole could not lead a
rational trier of fact to find for the nonmoving party.’” Grage v. N. States Power Co.-
Minn., 813 F.3d 1051, 1052 (8th Cir. 2015) (quoting Torgerson v. City of Rochester,
643 F.3d 1031, 1042 (8th Cir.2011) (en banc)).
On appeal, Whitney argues that he was a shareholder of the several companies
and that the district court erred in holding otherwise. He also argues the district court
erred in its statute-of-limitations analysis because he was not on inquiry notice prior
to October 2007. As in the district court, he presents no arguments concerning tolling
of the statute of limitations, ongoing claim accrual, or a potential continuing-violation
theory.
Whitney’s argument concerning his status as a shareholder is misplaced. The
district court did not hold that he was or was not a shareholder of any corporations.
Rather, the court held claims asserting such status were untimely because he was on
inquiry notice of such claims in July or August 2007, yet he did not file suit until
October 2010.
Whitney argues that the July 20, 2007 email and accompanying deposition
testimony are inconclusive and leave open a triable question of fact as to whether he
was on inquiry notice prior to October 2007. The email at issue stated:
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John, We need to have a serious talk. I have absolutely NO idea what is going
on at Agora. I have never seen financials. I have never seen a PENNY FROM
THIS ENTITY. Where are the tax returns???? Where is the K-1? This is no
way to run a business, I am feeling that you are screwing me out of my share.
You might already have with this corporate mish mash. this is not fair to treat
me like this. For all I know there is some tax liability that that I owe!!! It is
time to come clean with your partner about your intentions. We SHOULD be
making a LOT of mony. Are you taking it out???? Where is it if not . . . ?
Whenever I ask any employee I get this stonewall, “talk to John”. I have tried
to nicely get info and you just put me off. Time and time again. I need
answers I want to set a time next week to have this discussion. It’s time to stop
the BS and talk. . . . JOSEPH
As per Whitney’s own deposition testimony, this email followed “months and
months” of requests for records and applied to Whitney’s purported interests in all of
the various corporations. These undisputed facts, coupled with the fact that the
absence of any response to the email caused him to consult with an attorney, show a
reasonable jury could reach but one conclusion: Whitney was on inquiry notice no
later than August 2007 that Morrison and the various corporations were not
recognizing or honoring his purported shareholder rights.2
2
Whitney’s theory of the case in the alternative is that he and Morrison were
partners and that Morrison breached a fiduciary duty by misappropriating corporate
property. Partnership-related fiduciary claims, however, also have a three-year statute
of limitations. Del. Code Ann. tit. 10, § 8106. And here, Whitney presented no
evidence of misappropriation within the three-year limitations period, so the fiduciary
duty claim is also barred. Finally, to the extent Whitney frames his claims as a
demand for an accounting, we agree with the district court that accounting is a
remedy, not an independent cause of action. Stevanov v. O’Connor, Civ. No. 3820,
2009 WL 1059640, at *15 (Del. Ch. Apr. 21, 2009) (“A claim for an accounting in
the Court of Chancery generally reflects a request for a particular type of remedy,
rather than an equitable claim in and of itself.”); see also Cox v. Mortg. Elec.
Registration Sys., Inc., 794 F. Supp. 2d 1060, 1065 (D. Minn. 2011) (“Moreover, this
request for equitable relief is premised on defendants liability in counts II–V.
Because those claims warrant dismissal, the claim for accounting also fails.”), aff’d,
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Whitney counters that documents and information he received as late as 2006
suggested he was a shareholder such that he could not have been on inquiry notice in
July or August 2007. Whitney’s argument fails in two regards. First, it would be
surprising if a plaintiff asserting a shareholder-rights claim did not possess some
evidence from an earlier point in time to support his theory of shareholder status.
There is, therefore, nothing inconsistent about finding inquiry notice in August 2007
even if materials from 2006 otherwise suggested Whitney was a shareholder. More
importantly, however, any such older statements, representations or evidence only
create a triable question of fact as to inquiry notice if, on the whole, the resulting
record would permit reasonable jurors to find in Whitney’s favor. Torgerson, 643
F.3d at 1042. Here, nothing Whitney references from prior to 2007 shows a
reasonable juror might fail to conclude Whitney was on inquiry notice of his potential
shareholder-rights claims at least as of August 2007.
Whitney also argues that he had no notice from the defendants that they
contested his shareholder status until 2011 when the defendants filed a memorandum
in support of their motion to dismiss. In that memorandum, the defendants
affirmatively asserted that funds Whitney earlier had contributed to the enterprise
were loans rather than a shareholder’s equity contribution. According to Whitney,
the 2011 memorandum, rather than any statements or events from 2007, provided
inquiry notice that the defendants did not consider him to be a shareholder.
Whitney miscontrues the nature of inquiry and actual notice. The 2011
memorandum served as an express repudiation of Whitney’s purported shareholder
status. Whitney offers no authority to support the proposition that an express and
affirmative denial of such status is required to create inquiry notice. In fact it runs
685 F.3d 663 (8th Cir. 2012). In the absence of a timely substantive claim, Whitney
is not entitled to an accounting. See Jacobson v. Dryson Acceptance Corp., Civ. No.
17684, 2002 WL 75473, at *4 (Del. Ch. 2002) (“If [the plaintiff] has no enforceable
right to stock, the action for an accounting will also fail.”).
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counter to the concept of inquiry notice to demand such a statement—a statement
expressly repudiating a claim to shareholder status serves as actual notice rather than
inquiry notice. Simply put, the failure or refusal to honor shareholder rights, when
clearly known by the purported shareholder, suffices to create inquiry notice. See
Eluv Holdings (BVI) Ltd. v. Dotomi, LLC, C.A. No. 6894-VCP, 2013 WL 1200273,
at *10 (Del. Ch. Mar. 26, 2013) (finding a purported shareholder to be on inquiry
notice when, after attempting to exercise stock purchase options, he received no
documents and participated in no manner in the corporation, and stating, “Not
receiving documents of this sort should have alerted a reasonable investor to the fact
that [the corporation] did not consider [the plaintiff] a shareholder.”). And, in
general, an outstanding question of fact regarding whether a plaintiff was or was not
a shareholder “does not create a genuine fact dispute about whether [the plaintiff]
knew enough to put her on inquiry notice, and thus did not excuse her from making
a reasonable inquiry to protect her rights.” Egner v. Talbots, Inc., 214 P.3d 272, 280
(Alaska 2009). Here, as in Eluv and Egner, Whitney was on inquiry notice when he
knew he was not being treated as a shareholder. A reasonable jury would be
compelled to conclude that the July 20, 2007 email and the accompanying deposition
testimony show such notice.
We affirm the judgment of the district court.3
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3
We deny as moot Whitney’s pending motion to supplement the record.
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