¶ 1 Thomas Kurtz, Derrick Shoemake, Steve Kile, Jess Goins and Jim Simmons (Plaintiffs) appeal an order of the district court granting summary judgment in favor of Defendants Don Clark and Bruce Bradley, an order awarding Clark and Bradley attorney fees, and denial of Plaintiffs' motion for new trial.
¶ 2 This case involves a shareholders derivative suit by shareholders of Efftec International, Inc. (Efftec), who at the time of filing were also employees or contractors employed by Efficiency Technologies, Inc. (ETI), a subsidiary of Efftec. Both Efftec and ETI are incorporated in Nevada, and both corporations are authorized to conduct business in Oklahoma. The events that are the subject of this lawsuit occurred in Tulsa. During the time periods relevant to this litigation, Clark was a shareholder and officer of ETI. Bradley was a shareholder and also employed by ETI as a consultant.
¶ 3 Plaintiffs initially obtained a temporary restraining order (TRO) on December 24, 2008, against Clark and Bradley, restraining them from destroying evidence related to the subject matter of this litigation or using or disclosing any trade secrets of the corporations. Plaintiffs sought a preliminary injunction against Clark and Bradley, but were unable to provide the undertaking required by statute. See 12 O.S.2011 § 1392. As a result, the TRO was dissolved on April 3, 2009. Certain of Plaintiffs' claims were referred to arbitration pursuant to a clause in Bradley's employment contract. On May 13, 2009, Clark filed a motion for summary judgment, which Bradley later joined, challenging Plaintiffs' standing to maintain a derivative claim. Defendants were eventually granted summary judgment on Plaintiffs' remaining claims based on the district court's finding that Plaintiffs lacked standing to pursue the claims in a derivative capacity, due to the Plaintiffs' admission that a demand had been made on the corporation to take action and the corporation refused. Plaintiffs filed a motion for new trial on January 26, 2010, seeking reconsideration of that ruling. ETI filed a motion to intervene, and motion to substitute the corporation as plaintiff in the case and to grant a new trial. The court denied ETI's motion, along with Plaintiffs' motion for new trial, on May 27, 2010. Defendants were awarded attorney fees pursuant to 12 O.S.2011 § 1384.2, based on the court's finding that the TRO ought not to have been entered against Defendants. Plaintiffs filed a second motion for new trial
¶ 4 Summary judgment "should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." 12 O.S.2011 § 2056(C). We review the district court's grant of summary judgment de novo. Carmichael v. Beller, 1996 OK 48, ¶ 2, 914 P.2d 1051, 1053.
¶ 5 We review de novo the question of whether a party is entitled by statute to an award of attorney fees. McKiddy v. Alarkon, 2011 OK CIV APP 63, ¶ 10, 254 P.3d 141, 145. "That is, statutory interpretation presents a question of law which is subject to a de novo standard of review." Id. (citing Williams v. Smith & Nephew, Inc., 2009 OK 36, ¶ 8, 212 P.3d 484, 486).
¶ 6 On appeal, Plaintiffs challenge the district court's grant of summary judgment in favor of Defendants, the award of attorney fees and the denial of the motions for new trial. We find it necessary to address the procedural background of this case as it relates to the timeliness of Plaintiffs' appeal. "The question of jurisdictions an issue which is primary and fundamental in each case This Court must inquire into its own jurisdiction as well as to the jurisdiction of the court from which the appeal is taken, regardless of whether it is raised by the litigants." Bailey v. Campbell, 1991 OK 67, n. 32, 862 P.2d 461.
¶ 7 On appeal, Plaintiffs challenge the correctness of the district court's January 26, 2010 order granting summary judgment in favor of Defendants. Plaintiffs filed a motion for new trial on January 26, 2010,
12 O.S.2011 § 994(A).
¶ 8 Although we address the correctness of the order granting summary judgment as the basis for the Defendants' award of attorney fees, we find that regardless of whether Plaintiffs had standing to seek a TRO at the time it was entered, they have since lost standing as a result of the corporations filing a subsequent action against Defendants.
¶ 9 The district court granted summary judgment in favor of Bradley as to four of Plaintiffs' claims on May 20, 2009, based on a finding that the claims were subject to arbitration pursuant to a clause in Bradley's employment contract. Therefore, Bradley contends that the dismissal of these claims cannot be appealed. We agree.
¶ 10 Plaintiffs do not contest the district court's decision to refer these claims to arbitration, but nonetheless attempt to appeal their dismissal. Neither party has contested the existence or validity of the arbitration clause contained in Bradley's employment contract. Plaintiffs make no contention that the claims against Bradley were not subject to arbitration, and we will not address any attempt to appeal the dismissal of these claims.
¶ 11 The remaining claims against Bradley and the claims against Clark were dismissed pursuant to the January 26, 2010 order, based on the court's finding that Plaintiffs lacked standing to bring the lawsuit. While Plaintiffs' first motion for new trial was pending, ETI attempted to intervene as plaintiff in the case. When the district court denied ETI's motion to intervene, the corporation filed a petition in case number CJ-2010-3978, asserting the same claims
¶ 12 Shareholders have limited standing to bring a suit in equity on behalf of a corporation "when the corporation refuses to maintain or defend an action." Hargrave v. Canadian Valley Elec. Coop., Inc., 1990 OK 43, ¶ 11, 792 P.2d 50, 54. "The remedial rights of minority stockholders with respect to wrongs committed against the corporation... are derivative rights and any action taken by the stockholders to redress such wrongs must be for the benefit of the corporation." Weston v. Acme Tool, Inc., 1968 OK
Dobry v. Yukon Elec. Co., 1955 OK 281, ¶ 8, 290 P.2d 135, 137. Plaintiffs have no individual right of action as shareholders, other than the rights of the corporation. We find that the corporations' assumption of control of this lawsuit rendered Plaintiffs without standing to pursue a derivative action on the corporations' behalf. Plaintiffs therefore cannot seek review of dismissal of these claims, and we are unable to grant Plaintiffs relief in this matter.
¶ 13 However, the fact that Plaintiffs no longer have standing to pursue the substantive claims against Defendants does not resolve this appeal. Plaintiffs also appeal the award of attorney fees, which requires consideration of the merits of the order granting summary judgment.
¶ 14 Title 12 O.S.2011 § 1384.2 provides: "If a temporary restraining order is granted, the party restrained may recover the damages he sustained, including reasonable attorney's fees, if it be finally decided that the restraining order ought not to have been granted." We find no case interpreting this statute. It appears from the record that the district court may have concluded that the statute provides for a mandatory award of attorney fees in the event that a court finds a temporary restraining order "ought not to have been granted." We cannot agree with a reading of the statute that mandates an award of fees any time the court finds a TRO should not have been entered for any reason. Rather, the use of the word "may" in the statute, rather than "shall," permits the court, at its discretion, to award attorney fees only after a determination that a temporary restraining order should not have been entered, but does not require that result. "The words of a statute will be given a plain and ordinary meaning, unless it is contrary to the purpose and intent of the statute considered as a whole." Lumber 2, Inc. v. Illinois Tool Works, Inc., 2011 OK 74, ¶ 8, 261 P.3d 1143, 1146. Therefore, we vacate the district court's order granting attorney fees to Clark and Bradley and remand this case for consideration of the factors identified in this Opinion as relevant to the district court's exercise of discretion in determining whether to grant Defendants' motion.
¶ 15 The only basis reflected in this record for the district court's determination that Defendants were entitled to attorney fees was the finding that Plaintiffs lacked standing to bring the derivative suit, and therefore were the wrong parties to seek a TRO against Defendants. This was not a determination on the merits of the suit, or on the substance of the TRO, but rather, was a technical victory for Defendants based on the district court's perception of Plaintiffs' standing at that time. The United States Supreme Court has held that a party may not be entitled to attorney fees pursuant to 42 U.S.C. § 1988, based on status as a prevailing party if the victory is a technical one, or that this factor is at least one that should be considered when determining the reasonableness of such an award. See Farrar v. Hobby, 506 U.S. 103, 117, 113 S.Ct. 566, 576, 121 L.Ed.2d 494 ("a technical victory may be so insignificant ... as to be insufficient to support an award of attorney's fees" or may be
¶ 16 We further note the difference between a temporary restraining order, which temporarily preserves the status quo, and a preliminary injunction.
¶ 17 The Oklahoma Supreme Court, in a case interpreting a statute similar to section 1384.2, held that the purpose of "[i]ncluding attorneys' fees as an element of damages sustained compensates the wrongfully enjoined and deters frivolous and meritless claims to the prejudgment equitable remedy of temporary injunctions." Bowlin v. Alley, 1989 OK 66, ¶ 16, 773 P.2d 365, 370. It is not apparent from the record that this purpose is served by an award of attorney fees in this case. As previously discussed, it appears the district court treated the statute as providing for a mandatory award of fees in this case, and therefore did not consider whether Defendants were entitled to fees based on the specific facts of this case. As a result, we must remand for a determination on the issue of whether Defendants are entitled to attorney fees. "An appellate court will not make first-instance determinations of disputed law or fact issues. That is the trial court's function in every case...." Bivins v. State ex rel. Oklahoma Mem'l Hosp., 1996 OK 5, ¶ 19, 917 P.2d 456, 464.
¶ 18 It is also clear from the language of section 1384.2 that in order to be entitled to an attorney fee award, the court must determine the TRO should not have been entered. Although we have determined that Plaintiffs no longer have standing, we must examine the district court's finding that Plaintiffs lacked standing at the time this suit was filed, as a basis for the award of fees.
¶ 19 Plaintiffs claim it was error to grant summary judgment based on the finding that Plaintiffs lacked standing to pursue a derivative action. Before bringing a derivative suit, a shareholder must first attempt to obtain redress from the corporation, unless good cause exists for failing to do so. In re American Int'l Group, Inc., 965 A.2d 763, n. 157, 810 (Del.Ch.2009). The district court found that the TRO should not have been entered against Defendants because Plaintiffs lacked standing to pursue the derivative suit based on the demand requirements in such an action. Title 12 O.S.2011 § 2023.1 provides in part:
This statute is modeled after a similar Delaware statute. See Del. Ch. Ct. R. 23.1. "It is a settled rule that when one state adopts a statute from another, it is presumed to adopt the construction placed upon the statute by the highest court of the other state." Beard v. Love, 2007 OK CIV APP 118, ¶ 20, 173 P.3d 796, 802 (citing Bank of the Lakes, Langley, Oklahoma v. The First State Bank, Ketchum, Oklahoma, 1985 OK 81, ¶ 9, 708 P.2d 1089, 1091). Further, the parties maintain that Delaware law applies in this case, because both Efftec and ETI are incorporated in Nevada, which Plaintiffs contend applies Delaware law of corporations. See Shoen v. SAC Holding Corp., 122 Nev. 621, 137 P.3d 1171 (2006).
¶ 20 "A stockholder ... may bring suit only when the corporation refuses to maintain or defend an action." Hargrave v. Canadian Valley Elec. Coop., Inc., 1990 OK 43, ¶ 11, 792 P.2d 50, 54 (citing Barnett v. Bodley, 1959 OK 274, ¶ 11, 348 P.2d 502, 505). "Ordinarily before a court will entertain an action brought by shareholders, the shareholders must first show that they sought relief through corporate channels without success." Id. (citing Guaranty Laundry Co. v. Pulliam, 1948 OK 30, ¶ 24, 191 P.2d 975, 979). The demand requirement exists to protect the decision making authority of the corporate board, and the board's right to manage the affairs of the corporation, which includes the authority to make decisions on whether to initiate litigation. In re American Int'l Group, Inc., 965 A.2d 763, 808 (Del.Ch.2009). See Spiegel v. Buntrock, 571 A.2d 767, 775 (Del.1990); In re Citigroup, Inc. S'holder Derivative Litig., 964 A.2d 106, 124 (Del.2009).
¶ 21 The Delaware Supreme Court, considering the purpose of the demand requirement, held that "if the demand rule requires deference to the prerogative of management, its invocation must advance management's position, vis-a-vis, the claims in question, otherwise, the rule serves no function." Kaplan v. Peat, Marwick, Mitchell & Co., 540 A.2d 726, 731 (Del.1988).
¶ 22 The evidence relied on by Defendants in obtaining summary judgment included statements by Plaintiffs and on behalf of the corporations, that a demand had been made to initiate litigation and was refused. Defendants principally relied on a letter from former counsel for the corporations and shareholder David Gordon, stating that Gordon had personally investigated the matter, and
¶ 23 We further find it problematic that Defendants in this case are no longer employed by the corporation in any capacity. Although they apparently remain shareholders of ETI, ETI has alleged that they have violated their duties to the corporation. In a case involving attempts by non-corporate defendants to invoke the business judgment rule as a defense to a derivative suit, the Delaware Supreme Court held that "when the challenged transaction does not involve director judgment, [but] rather ... encompasses the actions of a third party in fulfilling its duties to the subject corporation ... we need not consider whether [the corporation's] directors have properly exercised their business judgment." Id. It is not apparent from the record that Defendants in this case represent the position of the corporate board.
¶ 24 The majority of cases cited by Defendants involve a corporation seeking dismissal of a shareholder's derivative suit. In such a case, it is true that the board's decision is accorded deference pursuant to the business judgment rule. "Consistent with the purpose of requiring a demand, a board decision to cause a derivative suit to be dismissed as detrimental to the company, after demand has been made and refused, will be respected unless it was wrongful." Zapata Corp. v. Maldonado, 430 A.2d 779, 784 (Del.1981).
¶ 25 In this case, the court appears to have granted Defendants' motion applying the general rules of summary judgment procedure, without considering the differences in a shareholder's derivative action, or the purpose of the demand requirement in a derivative suit. When properly considered in this context, it was error for the court to grant summary judgment based solely on the evidence in the record. The record does not demonstrate that granting summary judgment in favor of Defendants would further the purpose of respecting the board's authority.
¶ 26 Defendants may contend on remand that their status as shareholders entitles them to raise the business judgment defense on behalf of the corporation.
¶ 27 We find it unnecessary to address Plaintiffs' contentions of error related to denial of the motions for new trial because we reverse the grant of summary judgment. On remand, the court may consider the evidentiary issues Plaintiffs raised in the motions for new trial, including whether a demand was actually communicated to the corporation, if appropriate.
¶ 28 We find it was error to grant summary judgment in favor of Defendants. That judgment is reversed and the two orders denying Plaintiffs' motions for new trial are vacated. However, because we find that Plaintiffs no longer have standing to maintain this suit, we reverse the grant of summary judgment and remand this case for a determination of the standing issue in a limited respect only as it relates to determination of the correctness of Defendants' attorney fee award.
¶ 29 Although Plaintiffs' current lack of standing prevents this Court from granting Plaintiffs relief from the order granting summary judgment, we find an issue of fact remains as to whether Plaintiffs lacked standing to seek the TRO at the time it was entered. We therefore reverse the order of the district court granting summary judgment and vacate the orders denying Plaintiffs' motions for new trial. The order granting attorney fees is vacated, and we remand this case to the district court for a determination consistent with this Opinion of whether Defendants are entitled to fees. If the court determines Defendants are entitled to such an award, the court shall determine what constitutes a reasonable fee, stating the basis for such award and a calculation
¶ 30
BARNES, P.J., and WISEMAN, J., concur.
Neil v. Pennsylvania Life Ins. Co., 1970 OK 172, ¶ 16, 474 P.2d 961, 964-65.
