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Roderick v. Keesecker

Supreme Court of West Virginia

April 15, 2019

Mervin Roderick, Defendant Below, Petitioner
v.
Marlyn Keesecker, Bettina Truitt, and Lorelei Freshman, Plaintiffs Below, Respondents.

          Jefferson County 06-C-368

          MEMORANDUM DECISION

         Petitioner Mervin Roderick, by counsel Richard G. Gay, appeals the March 15, 2018, order of the Circuit Court of Jefferson County, West Virginia, that adopted the final report of the Special Receiver following the liquidation of assets of Avon Hills Farm, Incorporated. Respondents Marlyn Keesecker, Bettina Truitt, and Lorelei Freshman, by counsel Christopher C. Luttrell and Kathy M. Santa Barbara, filed a response, to which petitioner filed a reply.

         This Court has considered the parties' briefs and the record on appeal. The facts and legal arguments are adequately presented, and the decisional process would not be significantly aided by oral argument. Upon consideration of the standard of review, the briefs, and the record presented, the Court finds no substantial question of law and no prejudicial error. For these reasons, a memorandum decision affirming the order of the circuit court is appropriate under Rule 21 of the Rules of Appellate Procedure.

         This matter is an appeal from the Circuit Court of Jefferson County's March 14, 2018, order ratifying, confirming, approving, and adopting the Special Commissioner's final report from the dissolution of Avon Hill Farms, Inc. ("Avon"). Prior to the dissolution of Avon, respondents each owned a 9.52% interest in Avon and petitioner owned a 71.44% interest. The underlying facts leading to the dissolution of the corporation were outlined by this Court, in Avon Hill Farms, Inc., v. Keesecker, No. 13-0977, 2014 WL 2682036 (W.Va. June 13, 2014) (memorandum decision). According to Avon Hill Farms,

[a]t all times relevant, Avon was an on-going entity with its primary assets in real property in Jefferson County, West Virginia. In addition to being the majority stockholder, [petitioner] was the president of Avon and was responsible for the handling of the business operations. It is undisputed that he owed a fiduciary responsibility to respondents, the minority shareholders.
In 2005, it was discovered by respondents that Avon property had been sold by Roderick for an amount in excess of $3, 000, 000.00, which triggered tax consequences to the minority shareholders. On October 25, 2005, Keesecker and Truitt filed an application for order of inspection in the Circuit Court of Jefferson County, pursuant to West Virginia Code §§ 31D-16-1601 through 31D-16-1620 of the West Virginia Business Corporation Act. Respondent Freshman intervened in the action in April 2006. Respondents requested the production of corporate records for inspection. Roderick failed to respond and judgment was entered against them.

2014 WL 2682036, at *1. Based upon a review of the records, respondents filed a civil action against petitioner alleging fraud, conversion, and breach of fiduciary duty. Respondents also sought dissolution of Avon and the appointment of a special receiver to assist in the winding up of the business affairs, pursuant to West Virginia Code § 31D-14-1432. Petitioner failed to respond, or otherwise appear, and the circuit court entered default judgment in favor of respondents on July 5, 2007. The circuit court appointed a special receiver to conduct a full accounting of Avon's activities for the preceding five years and to make recommendations regarding damages. The circuit court also awarded damages and attorney's fees in amounts to be determined. According to Avon Hill Farms,

[e]vidence presented by the Special receiver and the accountants substantiated the allegations in the complaint: that in 2004, with no prior notice to the minority shareholders, Roderick sold a significant piece of Avon property for over $3, 000, 000.00; that he used the profit from the sale to finance his personal lifestyle; that, according to the accountants, he made more than $500, 000.00 in inappropriate unauthorized "distributions" of assets to himself between 2003 and 2007; and that $139, 000.00 was "loaned" to or misappropriated by Roderick acquaintances. Additionally, Roderick used corporate assets to purchase vacation property and failed to insure Avon's Jefferson County farm house (where he lived), which subsequently burned to the ground.
By order entered December 30, 2008, the circuit court concluded that none of the foregoing transactions "were authorized, agreed to, or were otherwise in the best interests of Avon or the minority shareholders[;]" that "Roderick used the Avon assets as his own to the great detriment of the minority shareholders [;]" and that "Roderick's fraud and conversion [were] carried out in a willful, wanton[, ] and reckless manner which also breached his fiduciary obligations to the minority shareholders and constitute[d] an improper conversion of property." The circuit court determined that respondents were entitled to damages, including attorney's fees, pursuant to West Virginia Code § 31D-16-1604.

         The circuit court further found as follows:

[T]he fraud perpetrated upon the minority shareholders of Avon significantly devalued those shares as said value is determined by the value of the corporate assets in this closely held corporation. The damages awarded in accordance with this order are intended to compensate for the damage to the minority shareholders' share value by permitting the Special Receiver to sell assets to pay the damages awarded herein over the time necessary to obtain the maximum value for the minority shareholders. The court also notes the fraud occurred at a time in the real estate market when property was at its highest value, and that that value may never again be regained by the minority shareholders as the vast majority of the corporate value is in its real property. Hence, Mr. Roderick perpetrated his fraud at a time when he could gain the most from his improper activity, and the minority shareholders would be damaged the most. The court recognizes that the damages awarded may not return the full value to the minority shareholders of the damages caused by this fraud.

         Accordingly, the Court Orders as follows:

A. Special Receiver John K. Dorsey is to continue as Special Receiver pursuant to W.Va. Code, ยง 31D-14-1432(c)(1). In that capacity, Mr. Dorsey is at all times to take that action he deems necessary to maximize remaining Avon assets for the benefit of its shareholders. Mr. Dorsey is to make distributions to the shareholders, Keesecker, Truitt, Freshman, and Roderick in 25% equal shares, as assets are liquidated. . . . The Court notes that the Plaintiffs mutually agree that Avon's real property should not be sold immediately, and the Court concurs, but it is in the Special ...

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