Venkata Krishna Nallaballi v. Eswari Achanta ( 2016 )

STATE OF MICHIGAN
COURT OF APPEALS
VENKATA KRISHNA NALLABALLI, UNPUBLISHED
January 26, 2016
Plaintiff/Counter-
Defendant/Appellant,
v No. 322021
Washtenaw Circuit Court
ESWARI ACHANTA, LC No. 13-001104-CK
Defendant/Counter-
Plaintiff/Appellee,
and
GMGT TECHNOLOGIES, INC.,
Defendant/Appellee.
SUNEETHA NALLABALLI,
Plaintiff-Appellant,
v No. 325704
Washtenaw Circuit Court
ESWARI ACHANTA and GMGT LC No. 14-000663-CK
TECHNOLOGIES, INC.,
Defendants-Appellees.
Before: SHAPIRO, P.J., and O’CONNELL and WILDER, JJ.
PER CURIAM.
This appeal involves two consolidated claims arising out of the same course of
transactions and involving the same defendants, GMGT Technologies, Incorporated, a now-
dissolved corporation engaged in software development and consulting, and its principal, Eswari
Achanta. In Docket No. 322021, plaintiff Venkata Nallaballi sought to assert rights as a
shareholder in the corporation even though those rights did not arise until after the corporation
ceased to exist. The trial court dismissed his claims and we affirm. In Docket No. 325704,
-1-
plaintiff Suneetha Nallaballi, Venkata’s wife, sought to enforce rights as a shareholder, which
she asserts were extant while the corporation did business and had income. The trial court
dismissed her claims, finding that she lacked standing. We reverse and remand for further
proceedings as to Suneetha’s claims.
I. FACTS
On January 30, 2009, Achanta filed articles of incorporation for GMGT. GMGT’s
operating agreement, dated February 1, 2009, was signed by Achanta, Suneetha, and Kalyani
Gopalam. Pursuant to its terms, the three were equal shareholders in GMGT. Achanta was the
manager and had the authority to make distributions to the shareholders.
In April 2009, the three shareholders entered into a stock redemption agreement under
which Gopalam and Suneetha were to sell their shares back to the corporation in exchange for
$25,000 each. The agreement did not specify a closing date. However, at some point, both
Gopalam and Suneetha received $25,000 checks. Gopalam cashed her check, but Suneetha did
not.
On July 14, 2009, GMGT, Achanta, Suneetha, and Venkata executed an “Amended
Agreement of GMGT Technologies, Inc” which provided that Venkata “hereby assumes the
interest taken by his wife . . . in the Operating Agreement.” The amended agreement noted that
Gopalam had resigned from the corporation and that she had been compensated for her interest.
Significantly, the amended agreement stated that the “April 2009 Stock Redemption Agreement
shall no longer have any force or effect upon the parties herein[.]” Thus, the amended agreement
memorialized the fact that Gopalam’s shares had been redeemed by GMGT but that Suneetha’s
shares had not been redeemed. The amended agreement went on to state that its purpose was to
provide a mechanism by which Venkata would become a shareholder of GMGT, which he could
not do at the time of execution because he did not have a valid green card.1 It provided that
when Venkata received his green card, “GMGT will promptly enter into a subsequent agreement
making [Venkata] Nallaballi an equal partner in GMGT.” The amended agreement further
provided that, although Venkata was not yet a shareholder, he would have all the rights and
responsibilities of a shareholder, including a share of the profits. Finally, the amended
agreement also contained a severability clause providing that if any term or provision within it
was declared to be illegal or invalid, it would not affect the balance of its terms and provisions.
On November 9, 2009, Venkata filed suit against Achanta and GMGT alleging that they
had failed to comply with the amended agreement by refusing to provide him the rights of a
shareholder. The circuit court dismissed the suit on the grounds that the provisions making
Venkata a shareholder were illegal and could not be enforced. The court held that Venkata was
not and could not be treated as a shareholder until he met the condition precedent of obtaining
his green card and that until then he had no standing. The court stated:
1
At the time the agreement was executed, Venkata had an H-1B visa and could not hold stock in
a U.S. corporation.
-2-
[T]he only way that I can interpret this contract so as to not make it illegal is to
interpret it to say that when he gets his Green Card those will be the rights that he
will exceed to.
As it is, he has by his own admission not obtained the Green Card. And at
this point, he has no status, no standing to seek any remedies that are sought in
this complaint. Motion is granted. [Nallaballi v Achanta, unpublished opinion of
the Court of Appeals, issued June 28, 2011 (Docket No. 298042), pp 3-4.]
Venkata appealed the circuit court’s ruling, and we affirmed, stating:
. . . Nallaballi has no currently enforceable rights under the terms of the
amended agreement. The only way to interpret the amended agreement without
violating federal law is to interpret it as if it were an executory contract or
contract subject to a condition precedent. When Nallaballi obtains his Green
Card, but only at that time, he will have the rights listed in the amended
agreement. [Id. at 8.]
Venkata obtained his green card on or about August 8, 2013. On November 13, 2013, he
brought the instant suit. Defendants filed a motion for summary disposition, arguing that the
claims had already been litigated, and, therefore, were barred by res judicata. Defendants also
argued that GMGT had ceased to exist before Venkata obtained his green card, so his claims
were legally impossible. The trial court agreed and granted summary disposition to defendants.
Suneetha then filed suit against defendants alleging the same three counts, arguing that
the rulings in the two prior cases involving Venkata rendered the amended agreement null and
void as to Venkata, thereby resurrecting Suneetha’s rights under the original agreement.
Defendants filed for summary disposition alleging that Suneetha lacked standing to sue because
the amended agreement had supplanted the original agreement. The trial court again agreed,
concluding that the amended agreement was enforceable subject to a condition precedent, and
that, as a result, Suneetha had no standing to sue defendants.
II. STANDARD OF REVIEW
Both a lower court’s decision on a motion for summary disposition and the interpretation
of legal instruments are questions that are reviewed de novo, Rory v Continental Ins Co, 473
Mich. 457, 464; 703 NW2d 23 (2005), as are a grant of summary disposition under MCR
2.116(C)(7), Bint v Doe, 274 Mich. App. 232, 233; 732 NW2d 156 (2007), the applicability of res
judicata, Pierson Sand & Gravel, Inc v Keeler Brass Co, 460 Mich. 372, 379; 596 NW2d 153
(1999), and the interpretation and application of a statute, McAuley v Gen Motors Corp, 457 Mich.
513, 518; 578 NW2d 282 (1998).
III. DOCKET NO. 322021
Defendants argue that Venkata’s claims are precluded by the doctrine of res judicata. We
disagree. In Venkata’s original case, both the circuit court and this Court dismissed Venkata’s
claims due to his lack of standing because he had not met the condition precedent in the amended
-3-
agreement. Neither the circuit court nor this Court resolved the issues on their merits. Instead,
both courts held that Venkata would become a shareholder and attain enforceable rights when he
obtained his green card. Nallaballi, unpub op at 3-4, 8. Therefore, the prior actions of both
courts envisioned that Venkata could bring the claims again, to be tested on the merits, if and
when he obtained his green card. Because he has done so, his suit is not barred on res judicata
grounds.
Nevertheless, we conclude that the trial court properly granted summary disposition on
Venkata’s claims because he cannot claim to have become a shareholder of GMGT before its
dissolution. Even if we were to find that the corporation’s shares could have been transferred to
Venkata after its dissolution, this would not provide a basis for him to claim that he was entitled
to any rights or income as a shareholder at the time the corporation existed. The amended
agreement did not provide, nor could it, that upon obtaining his green card, he would become a
shareholder retroactive to the date the amended agreement was executed.
IV. DOCKET NO. 325704
Suneetha, who had not previously filed suit against defendants, asserts that because
Venkata never became a shareholder pursuant to the amended agreement, her interest in the
corporation was never eliminated and she remained a shareholder throughout GMGT’s existence.
Defendants argue that pursuant to the stock redemption agreement, Suneetha’s shares
were purchased by the corporation in 2009. However, the amended agreement specifically
provided that “the terms of the Stock Redemption Agreement, as it affects the parties herein,
shall become null and void upon the parties herein entering into this Amended Agreement. The
April 2009 Stock Redemption Agreement shall no longer have any force or effect upon the
parties herein[.]”
This provision of the amended agreement was not declared illegal or invalid in the prior
case. And, as noted, the amended agreement contains a severability provision. Thus, the
invalidity of the agreement’s provisions transferring Suneetha’s shares to Venkata or giving
Venkata any shareholder rights, does not affect any other provision or the relationship of the
parties. The amended agreement is binding insofar as it voided the redemption of Suneetha’s
shares, but void insofar as it purported to transfer those shares to Venkata. Thus, Suneetha’s
shares remained her own and she has standing to seek to enforce her rights as a shareholder
during GMGT’s existence.
V. CONCLUSION
As determined in Venkata’s first suit, he had no rights to, or in, the corporation until he
obtained his green card. By the time he did so, there was no longer a corporation, so there were
no still-existing shares to transfer to him. Accordingly, the circuit court properly dismissed
Venkata’s claims in Docket No. 322021. However, because the redemption agreement between
Suneetha and GMGT was void, no transfer of her shares occurred and Suneetha retained her 1/3
share of the corporation during its entire existence. Accordingly, she has standing to sue GMGT
and Achanta for their alleged failure to provide her with the rights due to a shareholder,
including an accounting and 1/3 of the distributions made during its existence. Accordingly, we
-4-
reverse the trial court’s dismissal in Docket No. 325704 and remand the case for proceedings
consistent with this opinion. Defendants may tax costs in Docket No. 322021 and Suneetha may
tax costs in Docket No. 325704. See MCR 7.219. We do not retain jurisdiction.
/s/ Douglas B. Shapiro
-5-