Crookham v. Riley

584 N.W.2d 258, 1998 Iowa Sup. LEXIS 206, 1998 WL 650865
CourtSupreme Court of Iowa
DecidedSeptember 23, 1998
Docket96-1930
StatusPublished
Cited by35 cases

This text of 584 N.W.2d 258 (Crookham v. Riley) is published on Counsel Stack Legal Research, covering Supreme Court of Iowa primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Crookham v. Riley, 584 N.W.2d 258, 1998 Iowa Sup. LEXIS 206, 1998 WL 650865 (iowa 1998).

Opinion

ANDREASEN, Justice.

Attorney Peter Riley (Peter) and the Tom Riley Law Firm, P.C. (Riley law firm) (collectively Riley) appeal from a judgment entered upon a jury verdict awarding Carter Crookham (Carter) $161,000 in damages for legal malpractice, from the court’s order setting aside a judgment entry upon a jury verdict awarding the Riley law firm $86,000 in damages for breach of a contingent fee contract, and from the court’s denial of post-trial motions. We affirm.

*261 I. Background Facts and Proceedings.

In 1976 Carter invested $65,000 in Musca-tine Lighting Manufacturing Co., later known as Musco Sports-Lighting, Inc., and as Musco, Inc. (Sports) and in exchange he received 635 shares of stock (approximately eleven percent of the outstanding shares) and a promissory note for $35,000. Joe Crook-ham (Joe) and Myron Gordin (Myron) owned or controlled two-thirds of the company’s stock. Carter later acquired 5600 shares of Musco Mobile Lighting Corp. (Mobile) and 20,000 shares of Facilities Acceptance Co. (FAC), additional companies owned or controlled by Joe and Myron.

Between 1982 and 1986 Carter was the general manager of Structural Contractors, another company controlled by Joe and Myron. Joe observed that Carter’s behavior was becoming a problem in 1985. He was aware Carter had lupus disease and this condition required he take strong dosages of steroids. Joe believed the treatment caused Carter to be very hyper and made it difficult for people to work around him. In April 1986, Joe, Myron, and others in the companies discussed what action should be taken. They agreed Carter must be fired and that they should offer to purchase his stock interests in the Musco companies for $390,000.

When advised that he was fired, Carter sought legal advice. At the suggestion of his son, Carter contacted the Riley law firm and conferred with Peter. Carter complained that Joe and Myron were unlawfully siphoning the profits from the companies in which he held a minority interest. At the initial meeting with Peter on November 5, Carter provided numerous Musco documents that were reviewed by Peter. The documents revealed Musco had entered into an “operating loan agreement” that provided salary, management fees, and other remunerations would not be paid to Joe or Myron until the borrower was operating profitably unless the agreement was modified by sixty percent of the lenders. The “operating loan agreement” also provided the company would not become a party to any merger until all sums borrowed under the agreement were paid in full unless individual lenders with a combined participation percentage greater than sixty percent agreed in writing to a modification. Because Carter’s minority sharehold interest could not block a modification, Peter suggested if there were other minority stockholders that Carter could align himself with they could perhaps block action by Joe and his companies. Carter suggested that John Coster (John) be contacted.

On November 20 Peter met with Carter and John in Carter’s home. They discussed the mutual interest that each had as minority shareholders and lenders under the provisions of the operating loan agreement. Peter learned that John had established a Cost-er trust in 1975. This trust was suggested by Joe who was John’s attorney at the time. Under the provisions of the trust Joe was appointed trustee and John, his wife, and their children were beneficiaries. The trust had invested in Musco Sports, Mobile, and GNL, corporations controlled by Joe and Myron, and the trust assets had been used as collateral for Musco bank loans.

After failing to get Museo’s records informally, Peter filed a law action for Carter in the district court for Polk County, Iowa on December 10. This suit requested the production of Musco’s records and the issuance of an injunction prohibiting the corporate officers from altering them. Musco then voluntarily provided the requested records for Peter’s review.

On January 23, 1987, Peter prepared a contingent fee contract for legal services which was signed by Carter. A second contingent fee contract was signed by Carter on February 16. This contract provided for the employment of the Riley law firm to prosecute his claim and provided for a contingent fee of forty percent in the event of recovery, and a fee of fifty percent if the case went to trial and the verdict was appealed. The contract also provided the gross recovery would not include amounts recovered on promissory notes made by Musco payable to Carter.

On August 23, Musco companies held shareholder meetings to vote on resolutions to indemnify corporate officers for wrongdoing. Just prior to the meeting, Peter filed a lawsuit in the Iowa district court for Mahas-ka County for Carter and John against Joe, *262 Myron, and the Musco, companies seeking compensatory and punitive damages for breach of contract, breach of fiduciary duties, and fraud. A demand for a jury trial was also filed. Peter attended the shareholder meetings and, though Carter and John voted against the resolutions, the resolutions were adopted. At these same meetings, the possibility of merging the various Musco companies into one new corporation was discussed. All but Carter and John voted to go forward with the merger proposal. In response to the demand for jury trial, Musco filed a motion to transfer the action to the equity docket. The court granted the motion on October 12 and then denied Riley’s motion to set aside the order granting the transfer on November 16.

On December 10 Museo mailed notices of a special meeting of shareholders of each of the Musco companies to be held on December 30, 1997, to consider and act upon'proposed merger plans. The notice stated certain members of the board of directors that controlled in excess of two-thirds of the outstanding shares of stock had indicated their intent to vote such shares in favor of approving the plan. Under the proposed merger plan Carter would be paid $257,668 for his shares of stock in Sports, Mobile, and FAC, and John would be paid $149,525 for his shares in Sports, Mobile, and GNL. Under the plan all of the promissory notes to Carter and John would be paid in full.

The merger package was received and reviewed by Peter. Included was a copy of Iowa Code sections 496A.77 and .78 (1987) stating the rights of shareholders to dissent from any plan of merger and the rights of dissenting shareholders to demand payment of the fair value of such shareholder’s stock.

Neither Carter nor Peter attended the special meeting of the shareholders held on December 30. The merger was approved by the stockholders at the meeting. Peter was advised of the action taken by the shareholders. He signed Carter’s name on a “demand by dissenting stockholder for market value of shares” and mailed it to Musco on January 11,1988.

Attorneys representing Musco notified Carter that his notice was not given within the ten-day statutory period and therefore he was not entitled to seek the determination of the mai’ket value of his stock as permitted by the statute. When contacted by Carter’s son, Peter assured him that all dissenters’ rights were properly protected and that he had complied with every necessary requirement.

On January 15 the Mahaska County lawsuit was dismissed by Peter.

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Bluebook (online)
584 N.W.2d 258, 1998 Iowa Sup. LEXIS 206, 1998 WL 650865, Counsel Stack Legal Research, https://law.counselstack.com/opinion/crookham-v-riley-iowa-1998.