Wingate v. Hajdik

795 S.W.2d 717, 1990 WL 91957

Opinions

OPINION

HECHT, Justice.

This is an action by the sole shareholder of a corporation against a former shareholder for fraud, breach of fiduciary duty, and misappropriation of assets. The trial court found for the plaintiff on all theories and awarded actual and punitive damages. The court of appeals reversed and remanded the case for a new trial. 753 S.W.2d 199. The principal issue before us is whether a shareholder can properly recover damages individually for injury to the corporation. We hold that he cannot. Accordingly, we affirm the judgment of the court of appeals.

I

When George Wingate and J.G. Hajdik were still close friends, they decided to invest together in the construction of some apartments on property owned by Glen-meadow Townhomes, Inc. Wingate purchased half the stock in Glenmeadow and guaranteed a loan for the construction costs. Hajdik owned the other half of the stock and, as president of the corporation, supervised the construction project.

Eventually, the two friends had a falling out over the operation of Glenmeadow, and Wingate sued Hajdik. Wingate claimed that Hajdik misappropriated corporate assets to his personal use. Wingate also claimed that Hajdik breached his fiduciary duty to Wingate as a business partner. Although it appears that Wingate and Haj-dik each owned half the stock in Glenmea-dow at the time Wingate filed suit, it is undisputed that sometime prior to trial Wingate became the sole shareholder of Glenmeadow.

Twenty-four days before trial, Hajdik amended his answer to include, among other things, a special exception to Wingate’s pleadings on the ground that all the causes of action Wingate asserted belonged to Glenmeadow and not to Wingate personally. One week before trial, the trial court overruled Hajdik’s special exception. Three days before trial, Wingate amended his pleadings to add a claim that Hajdik had fraudulently induced him to enter into their business relationship initially. On the day of trial, the trial court denied Hajdik’s motion to strike Wingate’s amended pleadings, and granted Wingate’s motion to strike Hajdik’s pleadings for discovery abuse. The trial court rendered a default judgment against Hajdik and proceeded to hear evidence on damages.

The trial court found that Hajdik misappropriated corporate assets, made fraudulent misrepresentations to Wingate, and breached his fiduciary duty to Wingate. The trial court did not find damages on each basis of liability separately, but rather, awarded Wingate $270,000 actual damages and $1,000,000 exemplary damages on all bases of liability together. The trial court also awarded Wingate attorney fees, interest and costs.

The court of appeals held that the trial court erred in overruling Hajdik’s special exception, in allowing Wingate to amend his pleadings three days before trial, and in awarding Wingate damages personally on causes of action belonging to the corporation, Glenmeadow. Accordingly, the court of appeals reversed the judgment of the trial court and remanded the case for a new trial. 753 S.W.2d 199.

II

A corporate stockholder cannot recover damages personally for a wrong done solely to the corporation, even though he may be injured by that wrong.

Ordinarily, the cause of action for injury to the property of a corporation, or the impairment or destruction of its business, is vested in the corporation, as distinguished from its stockholders, even though it may result indirectly in loss of earnings to the stockholders. Generally, the individual stockholders have no separate and independent right of action for injuries suffered by the corporation which merely result in the depreciation of the value of their stock. This rule is based on the principle that where such an injury occurs each shareholder suffers relatively in proportion to the number of shares he owns, and each will be made whole if the corporation obtains restitution or compensation from the wrongdoer. Such action must be brought by the corporation, not alone to avoid a multiplicity of suits by the various stockholders and to bar a subsequent suit by the corporation, but in order that the damages so recovered may be available for the payment of the corporation’s creditors, and for proportional distributions to the stockholders as dividends, or for such other purposes as the directors may lawfully determine.

Massachusetts v. Davis, 140 Tex. 398, 168 S.W.2d 216, 221 (1942), cert. denied, 320 U.S. 210, 63 S.Ct. 1447, 87 L.Ed. 1848 (1943); Schoellkopf v. Pledger, 739 S.W.2d 914, 918-920 (Tex.App.-Dallas 1987), rev’d on other grounds, 762 S.W.2d 145 (Tex.1988) (per curiam), opinion on remand, 778 S.W.2d 897 (Tex.App.-Dallas 1989, writ denied). This rule does not, of course, prohibit a stockholder from recovering damages for wrongs done to him individually “where the wrongdoer violates a duty arising from contract or otherwise, and owing directly by him to the stockholder.” Davis, 168 S.W.2d at 222; accord, Stinnett v. Paramount-Famous Lasky Corp., 37 S.W.2d 145, 149-151 (Tex.Comm’n App. 1931, holding approved); Schoellkopf, 739 S.W.2d at 918-920; Morrison v. St. Anthony Hotel, 295 S.W.2d 246, 250 (Tex.Civ.App.-San Antonio 1956, writ ref'd n.r.e.); Cullum v. General Motors Acceptance Corp., 115 S.W.2d 1196, 1200-1202 (Tex.Civ.App.-Amarillo 1938, no writ); Empire Life Ins. Co. of America v. Valdak Corp., 468 F.2d 330, 335 (5th Cir.1972); Schaffer v. Universal Bundle Corp., 397 F.2d 893, 896 (5th Cir.1968); see, United States v. Palmer, 578 F.2d 144, 146 (5th Cir.1978); 12B Fletcher, Encyclopedia of the Law of Private Corporations § 5921 (1984). However, to recover individually, a stockholder must prove a personal cause of action and personal injury.

In this case, Wingate alleged, and the trial court found, that Hajdik misappropriated assets belonging to Glenmeadow. This claim indisputably belongs to Glen-meadow, and Wingate is not entitled to recover personally for assets Hajdik wrongly took from the corporation. The trial court awarded Wingate a single sum of actual damages predicated upon multiple liability findings. Assuming that Wingate timely pleaded causes of action upon which he was entitled to recover personally,¹ the trial court erred in including in the damages awarded amounts which only Glen-meadow is entitled to recover. Hajdik specially excepted to Wingate’s pleadings which claimed individual recovery of damages on a cause of action belonging to Glenmeadow. The trial court erred in overruling Hajdik’s special exception. In his motion for new trial, Hajdik reiterated his objection to Wingate’s pleadings and also objected to awarding damages to Wingate individually on a Glenmeadow’s claim. The trial court erred in denying Hajdik’s motion for new trial.²

Had the trial court segregated the damages resulting from Hajdik’s misappropriation of corporate assets from the damages recoverable on Wingate’s personal causes of action, it would not be necessary to reverse the entire judgment. However, the trial court awarded Wingate a single sum of actual damages predicated upon multiple liability findings. In these circumstances, the entire judgment must be reversed. Accordingly, the judgment of the court of appeals is affirmed.

Justice SPEARS, J., dissents with opinion, joined by RAY and MAUZY, JJ.

Footnotes

1

. We need not address, as the dissent does, whether the trial court erred in allowing Win-gate to file amended pleadings asserting a new cause of action three days before trial. Even if we assume the amendment was properly allowed, the unsegregated award of damages in this case cannot stand.

2

. The dissent argues that Hajdik’s objection to the damage award was not enough to preserve error, and that he should also have requested that the damages be segregated between Win-gate's and Glenmeadow’s causes of action. Haj-dik’s special exception and motion for new trial were sufficient to preserve error. We need not decide whether either was necessary.

The cases cited by the dissent requiring an objection to overly broad or inclusive jury questions are inapposite in a nonjury case like this one, where the defendant cannot anticipate that the trial court will award damages erroneously. The dissent presumes that Hajdik’s failure to preserve error in the manner the dissent would require was intentional "laying behind the log". "We can reasonably assume,” the dissent surmises, "that Hajdik’s failure to request segregation was not unintentional but strategic....” 795 S.W.2d at 722. Even if Hajdik’s intent were relevant — and it certainly is not — the dissent cannot point to anything in the record to justify this imputation of motive to Hajdik.