Don Morris and Randy Coakes v. Brad Crain, Richard Redpath, BioSafe Engineering, LLC, Steve Biesecker, Tyler Johnson, Brandon Ross and Cris Sollars ( 2012 )

FOR PUBLICATION
ATTORNEY FOR APPELLANTS: ATTORNEYS FOR APPELLEES:
JAMES E. AYERS Brad Crain and Richard Redpath
Wernle, Ristine & Ayers
Crawfordsville, Indiana BRUCE D. LACONI
SEAN M. CLAPP
Clapp Ferrucci
Fishers, Indiana
FILED
Jun 18 2012, 9:45 am
BioSAFE Engineering, LLC CLERK
of the supreme court,
court of appeals and
tax court
THOMAS G. BURROUGHS
MICHAEL W. HILE
RONALD G. SENTMAN
Katz & Korin, PC
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
DON MORRIS and RANDY COAKES, )
)
Appellants-Plaintiffs, )
)
vs. ) No. 32A01-1109-PL-414
)
BRAD CRAIN, RICHARD REDPATH, )
BIOSAFE ENGINEERING, LLC, )
STEVE BIESECKER, TYLER JOHNSON, )
BRANDON ROSS and CHRIS SOLLARS, )
)
Appellees-Defendants. )
APPEAL FROM THE HENDRICKS CIRCUIT COURT
The Honorable Jeffrey V. Boles, Judge
Cause No. 32C01-1003-PL-12
June 18, 2012
OPINION - FOR PUBLICATION
BAILEY, Judge
Case Summary
Appellants-Plaintiffs Donald Morris (“Morris”) and Randy Coakes (“Coakes”) appeal
the grant of summary judgment in favor of Appellees-Defendants Brad Crain (“Crain”),
Richard Redpath (“Redpath”), and BioSafe Engineering, LLC (“BioSafe”)1 upon breach of
contract and equitable claims.2 They present a single, consolidated issue: whether the
defendants demonstrated their entitlement to summary judgment.3 We reverse.
Facts and Procedural History
The facts most favorable to Morris and Coakes, the non-movants for summary
1
On July 28, 2011, consistent with the agreement reached by the parties at the summary judgment hearing, the
trial court dismissed defendants Steve Biesecker, Tyler Johnson, Brandon Ross, and Chris Sollars. (App. 8.)
2
The Amended Complaint sought a declaratory judgment regarding ownership of BioSafe as well as the
appointment of a receiver and an accounting of funds. The averments of the Amended Complaint included
allegations of fraud; additionally, the Plaintiffs contended “this case is also brought as a derivative action to
establish, fix, and determine the rights of the LLC for recoupment from Brad Crain and Richard Redpath and
disgorgement by Defendants to the LLC of any benefits, property, or funds received improperly.” (App. 15.)
However, after the summary judgment hearing, the trial court ordered the plaintiffs to clarify, in writing, the
causes of action upon which they were proceeding. The plaintiffs responded that their theories of recovery
were breach of contract, unjust enrichment, and estoppel. (App. 171.)
3
Morris and Coakes have also strenuously argued that the BioSafe operating agreement should be stricken as a
“false document.” Appellants’ Brief at 6. However, Morris and Coakes have abandoned any shareholder
derivative claim and do not contend that they are actually members holding shares of record. Rather, they
claim an equitable, as opposed to legal, interest. They contend an oral contract was breached and the
defendants were unjustly enriched precisely because Crain and Redpath formed an LLC without regard to the
plaintiffs’ contract rights and contributions. The operating agreement, naming only Crain and Redpath, is
support for the proposition that Morris and Coakes were excluded. It is accordingly unclear how admission of
the document is prejudicial to them. Nonetheless, Morris and Coakes concede that the operating agreement
was admissible evidence, if only for a limited purpose. Appellants’ Brief at 6. Essentially, Morris and Coakes
concede the authenticity of the document (but challenge the date of signature), as the plaintiffs have alleged
that Crain and Redpath in fact established themselves as 50/50 members of BioSafe, albeit wrongfully.
2
judgment, are as follows. In 2006, Morris was employed by Waste Recovery, which
provided biological effluent destruction systems products.4 When it became apparent that the
company was insolvent, Morris approached Redpath in regard to forming a new company to
“take control of the niche industry.” (App. 78.) On November 15, 2006, Waste Recovery
ceased doing business; Morris paid a rent installment and agreed to execute a five-year lease
for the premises previously occupied by Waste Recovery. He initiated remodeling of the
premises and began to investigate financing.
Later in November, Crain, Coakes, Redpath, and Morris conducted a conference call
regarding the new business. Morris and Coakes drafted a spreadsheet of proposed ownership
shares (45% to Morris, as President, 25% and 20% to Crain and Redpath, respectively, as
Vice-Presidents, and 2% each to Coakes, Biesecker, Johnson, Ross, and Sollars). After
negotiation, the shares allocation was changed to 40% for Morris, 30% for Crain, and 20%
for Redpath (with the others retaining 2% each).
Marketing materials were distributed indicating that Redpath, Morris, and Crain were
“principals” of BioSafe. (App. 103.) Nonetheless, in January of 2007, Articles of
Organization for BioSafe were filed with the Indiana Secretary of State, indicating that Crain
and Redpath were the sole members, each having 50% ownership.
In August of 2007, Crain advised Morris that a building in Brownsburg had been
leased in anticipation of acquiring Waste Recovery assets. The following month, Morris
asked Crain about signing to purchase Waste Recovery assets, and was told that Crain and
4
Apparently, the products were used in management of animal carcasses.
3
Redpath had been representing that they were each 50/50 owners. Later that month, BioSafe
successfully bid for the assets of Waste Recovery. Redpath advised Morris that new
investors now owned 50% of BioSafe.
The new owners of record were Justin Bisland (“Bisland”) and LPM Investments,
LLC. In October of 2007, Bisland came into the BioSafe offices and fired Morris. Morris
was unable to locate the electronic document he had drafted with regard to shared ownership;
he reached the conclusion that it had been deleted from the company files.5
On March 5, 2010, Morris and Coakes filed their complaint. An amended complaint
asserted that Morris and Coakes had equitable interests and contractual rights in BioSafe and
that they had standing to bring a shareholder derivative action.6 They sought the appointment
of a receiver, an accounting and disgorgement of funds, and BioSafe’s dissolution. The
defendants answered, denying that Redpath and Crain had created a false document, made
false representations, brought about the plaintiff’s ouster, diverted funds, or met with Morris
to discuss ownership participation. The defendants also denied that Morris and Coakes held
an equitable interest, or that they had standing to bring a shareholder derivative claim.
On February 8, 2011, the majority of the defendants moved for summary judgment;
Crain and Redpath subsequently joined in the motion. The parties made their respective
designations of materials. The trial court conducted a hearing on July 26, 2011, at which
argument of counsel was heard. BioSafe’s counsel argued that the shareholder derivative
5
There is no indication of record that Morris and Coakes sought e-discovery (discovery of electronically stored
information).
6
See Ind. Code § 23-18-8-1 providing that an action on behalf of a limited liability company may be brought
only by a member or manager of such company (where the organizational document so provides).
4
claims were unfounded or, at a minimum, were premature, and that the case distilled to “a
case of an oral contract at best between Mr. Crain and Mr. Redpath and Mr. Morris and Mr.
Coakes … of dubious merit.” (Tr. 17.) Counsel for Crain and Redpath argued that there had,
at most, been discussion about a business yet to be formed, “an offer that was never
accepted.” (Tr. 18-19.)
On the following day, the trial court issued an order dismissing defendants Biesecker,
Johnson, Ross, and Sollars and ordering the remaining parties to submit documents:
1. Plaintiffs, within ten (10) days, must file with the Court a document
stating with specificity the legal theories the Plaintiffs assert against the
Defendants.
2. Within ten (10) days thereafter, the Defendants must file a document
stating with specificity the legal elements of the Plaintiffs theories that the
Defendants assert have not been met.
(App. 170.) On August 8, 2011, Morris and Coakes submitted a document indicating that
their theories of recovery were breach of contract, unjust enrichment, and estoppel. Crain
and Redpath jointly, and BioSafe separately, submitted “statements of elements not met by
plaintiffs.” (App. 174, 177.)
On August 19, 2011, the trial court granted summary judgment to all defendants in an
order providing in pertinent part:
Plaintiff’s theory is in contract. The Defendant’s Statement of Elements
Not Met of Defendants Biosafe Engineering LLC, Steve Biesecker, Tyler
Johnson, Brandon Ross and Chris Sollars correctly sets out the current state in
the law regarding Plaintiffs[’] complaint.
Based upon application of the law to the facts of this case at this
pleading stage, the court must GRANT the Defendant’s Motion for Summary
Judgment for the reasons set out in the Statement of Elements Not Met filed 8-
16-11 and enters Summary Judgment on behalf of the Defendants and against
the Plaintiffs. There is no reason for any delay in this Order.
5
(App. 180-81.) This appeal ensued.
Discussion and Decision
Indiana Trial Rule 56 provides that summary judgment shall be rendered “if the
designated evidentiary matter shows that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of law.” A genuine issue of
material fact exists where facts concerning an issue that would dispose of the litigation are in
dispute or where the undisputed material facts are capable of supporting conflicting
inferences on such an issue. Huntington v. Riggs, 862 N.E.2d 1263, 1266 (Ind. Ct. App.
2007), trans. denied.
The party moving for summary judgment bears the burden of establishing the lack of a
material factual issue and, once the movant has met this burden, an opposing party is obliged
to disgorge sufficient evidence to show the existence of a genuine triable issue. Cowe by
Cowe v. Forum Group, Inc., 575 N.E.2d 630, 633 (Ind. 1991). The opposing party’s
obligation does not arise until after the movant has shown entitlement to summary judgment.
Id.“In ruling upon a motion for summary judgment, facts alleged in a complaint must be
taken as true except to the extent that they are negated by depositions, answers to
interrogatories, affidavits, and admissions on trial or by testimony presented at the hearing on
a motion for summary judgment.” Id. The trial court may consider only properly designated
evidence when deciding a motion for summary judgment. Kronmiller v. Wangberg, 665
N.E.2d 624, 627 (Ind. Ct. App. 1996), trans. denied.
6
In reviewing a trial court’s ruling on summary judgment, we stand in the shoes of the
trial court, and apply the same standards in deciding whether to affirm or reverse summary
judgment. Warren v. Warren, 952 N.E.2d 269, 272 (Ind. Ct. App. 2011). We consider all of
the designated evidence in the light most favorable to the non-moving party. Indiana
Regional Recycling, Inc. v. Belmont Indus., Inc., 957 N.E.2d 1279, 1282 (Ind. Ct. App.
2011). The party appealing the grant of summary judgment bears the burden of persuading
us that the trial court’s ruling was improper. Id.The theories of recovery before the trial court were those of breach of contract, unjust
enrichment and equitable estoppel. According to Morris and Coakes, an oral contract was
formed when the parties agreed to form a limited liability organization to meet the market
opportunity presented by Waste Recovery’s demise. It is claimed that Crain and Redpath
took benefits conferred by Morris but excluded Morris (and Coakes) from participation in
BioSafe’s formation and revenue.
The existence of a contract is a question of law. Batchelor v. Batchelor, 853 N.E.2d
162, 165 (Ind. Ct. App. 2006). The basic requirements are offer, acceptance, consideration,
and “a meeting of the minds of the contracting parties.” Id. However, the intention of the
parties to a contract is a factual matter which must be determined from all the circumstances.
Zimmerman v. McColley, 826 N.E.2d 71, 76 (Ind. Ct. App. 2005).
Unjust enrichment occurs when a measurable benefit has been conferred on the
defendant under such circumstances that the defendant’s retention of the benefit without
payment would be unjust. Bayh v. Sonnenburg, 573 N.E.2d 398, 408 (Ind. 1991). The
7
benefit must be one that the defendant impliedly or expressly requested. Coleman v.
Coleman, 949 N.E.2d 860, 867 (Ind. Ct. App. 2011).
Equitable estoppel is grounded on the underlying principle that one who by deed or
conduct induces another to act in a particular manner will not be permitted to adopt an
inconsistent position, attitude, or course of conduct that causes injury to such other. Brown
v. Branch, 758 N.E.2d 48, 52 (Ind. 2001). The basis for equitable estoppel is actual or
constructive fraud by the person estopped. Paramo v. Edwards, 563 N.E.2d 595, 598 (Ind.
1990). Constructive fraud arises by operation of law from conduct which, if sanctioned by
law, would secure an unconscionable advantage. Id.The trial court ordered the defendants to identify how the plaintiffs had failed to meet
the elements of the plaintiffs’ specified claims. This effectively challenged the plaintiffs to
establish each of their claims in order to withstand summary judgment.7 Indeed, as there had
been no trial of issues, the documents purporting to “state elements not met” necessarily
assumed that all factual disputes had been resolved in the defendants’ favor.8 The focus upon
7
Arguably, the post-hearing order also did not give the defendants a fair opportunity to establish their
entitlement to summary judgment through properly designated materials. The order did not limit the causes of
action to those of the complaint or those addressed at the summary judgment hearing. In other words, it
allowed the plaintiffs to clear up any perceived misunderstandings as to their legal theories after the time for
summary judgment designations had passed. Regardless, the defendants did not interpose an objection to the
opportunity afforded the plaintiffs.
8
For example, BioSafe contended that Morris had provided no measureable benefit except for his labor as an
employee (for which he had been paid) despite the designated evidence that Morris had conceptualized a new
company to satisfy a niche market, paid back rent, signed a lease, and remodeled premises. Similarly, Crain
and Redpath contended that Morris had been fully “and handsomely” paid for all his contributions. (App.
178.) There is also designated evidence that BioSafe marketed its services and products based upon the
reputation, credentials, and involvement of three principals, including Morris. This would tend to show that a
partnership had been formed.
8
the plaintiff’s purported failure to establish a claim is not consistent with our summary
judgment standard.
As we have previously observed, a party seeking summary judgment bears the burden
to make a prima facie showing that there are no genuine issues of material fact and that the
party is entitled to judgment as a matter of law. Jackson v. Wrigley, 921 N.E.2d 508, 512
(Ind. Ct. App. 2010). It is only when the moving party satisfies this burden that the
nonmoving party may not rest on its pleadings, but must designate specific facts
demonstrating the existence of a genuine issue for trial. Id. Of course, a defendant may
sometimes, through properly designated materials, negate an element of a plaintiff’s claim at
the summary judgment stage. However, the non-movant has no obligation to disgorge
evidence in support of his claim until after the movant has met his burden. Cowe, 575
N.E.2d at 633.
Here, the trial court ordered the parties to implement a procedure inconsistent with
summary judgment proceedings. Summary judgment was improvidently granted.
Reversed.
ROBB, C.J., and MATHIAS, J., concur.
9