IN THE SUPREME COURT OF FLORIDA CASE NO. SC10-59 L.T. CASE NUMBERS: 4D08-4057; 502006CA005626XXXXMD ALAN I. KARTEN, TRUSTEE of the ALAN I. KARTEN TRUST U/A DTD 1/5/85 Appellant, vs. ROBERT I. WOLTIN and CARL KARMIN, Appellees. BRIEF ON JURISDICTION OF PETITIONER, ALAN I. KARTEN, TRUSTEE Law Office of Norman Malinski, P.A. Attorney for Petitioner 2875 Northeast 191 st Street Suite 508 Aventura, Florida 33180 Telephone: (305) 937-4242
TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CASES i Page ii STATEMENT OF THE CASE AND FACTS 1 SUMMARY OF ARGUMENT 2 ISSUE PRESENTED FOR REVIEW 4 WHETHER THE FOURTH DISTRICT COURT OF APPEAL ERRED IN HOLDING THAT AN ACTION BY ONE SHAREHOLDER AGAINST THE ONLY OTHER TWO SHAREHOLDERS FOR BREACH OF FIDUCIARY DUTY MUST BE BROUGHT AS A SHAREHOLDERS DERIVATIVE ACTION ARGUMENT 5 CONCLUSION 10 CERTIFICATE OF SERVICE 11 CERTIFICATE OF COMPLIANCE 11 -i-
TABLE OF CASES Page Harrington v. Batchelor, 781 So.2d 1133 (Fla. 3d DCA 2001) 2,6,7 Wolfe v. American Savings and Loan Association of Florida, 539 So.2d 606 (Fla. 3d DCA 1989) 7 Tooley v. Donaldson, Lufkin & Janrette Inc. 845 A.2d 1031 (Del. 2004) -ii-
STATEMENT OF THE CASE AND FACTS The Petitioner herein, ALAN I. KARTEN, TRUSTEE, (hereinafter, KARTEN) filed a lawsuit against the Defendants WOLTIN and KARMIN in the Palm Beach County Circuit Court. That action asserted a breach of fiduciary duty by WOLTIN and KARMIN in diverting assets of a restaurant in which KARTEN was a 25% shareholder and WOLTIN and KARMIN owned 50% and 25% of the stock, respectively. These three people were the only shareholders of 201 East Atlantic, Inc., a closely held corporation. The Palm Beach County Circuit Court granted Summary Judgment against KARTEN, holding that this lawsuit was required to be brought as a shareholder s derivative action. The Fourth District Court of Appeal of Florida rendered its opinion on December 9, 2009 which affirmed the decision of the Palm Beach County Circuit Court. Review has been sought in this Court of the decision of the Fourth District Court of Appeal, in that same conflicts with the decisions of the Third District Court of Appeal. - 1 -
SUMMARY OF ARGUMENT KARTEN, alleged in his Palm Beach County Circuit Court Complaint that the only two other shareholders of the corporation, 201 East Atlantic, Inc., had diverted products and services from 201 East Atlantic, Inc. to other entities in which they held an interest and KARTEN, did not hold any interest. KARTEN alleged that he was the only party injured by the actions of WOLTIN and KARMIN. Simply on the pleadings, KARTEN alleged a breach of fiduciary duty and an injury only to himself by the only two other shareholders of the corporation. These pleadings, were disregarded by the conclusory determination of the Fourth District Court of Appeal that such an injury belonged to the corporation and not to KARTEN, personally. As such, the conclusion of the Fourth District Court of Appeal directly conflicts with the decisions in Harrington v. Batchelor, 781 So.2d - 2 -
1133 (Fla. 3d DCA 2001) and its predecessors. KARTEN, alleged a special duty, that is, a fiduciary duty, flowing from both WOLTIN and KARMIN to him and a breach of that duty which resulted in an economic loss to him. This Court should clarify the conflict between these Districts in holding that the assertion of a unique damage by an individual shareholder of a closely-held corporation does not have to be brought as a shareholder derivative action. - 3 -
ISSUE PRESENTED FOR REVIEW WHETHER THE FOURTH DISTRICT COURT OF APPEAL ERRED IN HOLDING THAT AN ACTION BY ONE SHAREHOLDER AGAINST THE ONLY OTHER TWO SHAREHOLDERS FOR BREACH OF FIDUCIARY DUTY MUST BE BROUGHT AS A SHAREHOLDERS DERIVATIVE ACTION - 4 -
ARGUMENT WHETHER THE FOURTH DISTRICT COURT OF APPEAL ERRED IN HOLDING THAT AN ACTION BY ONE SHAREHOLDER AGAINST THE ONLY OTHER TWO SHAREHOLDERS FOR BREACH OF FIDUCIARY DUTY MUST BE BROUGHT AS A SHAREHOLDERS DERIVATIVE ACTION KARTEN, was a 25% shareholder in a Florida Corporation known as 201 East Atlantic, Inc. There were two other shareholders in this company, ROBERT I. WOLTIN, holding 50% and CARL KARMEN, holding the final 25%. The restaurant did business in Delray Beach, Florida under the name Louie-Louie Too. At some point in 1999, WOLTIN and KARMEN, opened a competing restaurant in the same area and began to systematically divert goods and personnel from Louie-Louie Too to the competing restaurant. KARTEN had no interest in this competing operation. - 5 -
KARTEN sued WOLTIN and KARMEN for breach of fiduciary duty, asserting that the actions of WOLTIN and KARMEN had damaged him, and only him, in relation to the joint ownership and value of 201 East Atlantic, Inc. The trial court in Palm Beach County granted summary judgment against KARTEN, asserting that such a claim could only be brought as a shareholder s derivative action. The Fourth District Court of Appeal concluded, solely on the basis of the pleadings, that the action by KARTEN was not based on an injury unique to him but was based on a claim owned by the corporation and, therefore, KARTEN was limited to bring a shareholders derivative action for his asserted injuries. This conclusion conflicts with the law enunciated in the Third District Court of Appeal and also conflicts with the general trend of courts in the United States, including the Courts of Florida, to follow the Courts of Delaware in these particular issues. Harrington v. Batchelor, 781 So.2d 1133 (Fla. 3d DCA 2001) (although it - 6 -
began as a breach of contract action by a shareholder) set out, clearly, when a shareholder may sue directly: There are two major, often overlapping, exceptions to the general rule that a shareholder cannot sue for injuries to his corporation: (1) where there is a special duty, such as a contractual duty, between the wrongdoers and the shareholder, and (2) where the shareholder suffered an injury separate and distinct from that suffered by other shareholders. Harrington, at 1135. The special duty asserted by KARTEN against WOLTIN and KARMEN is the fiduciary duty which is alleged to have been breached. Particularly with respect to the assertion of the breach of fiduciary duty, Wolfe v. American Savings and Loan Association of Florida, 539 So.2d 606 (Fla. 3d DCA 1989) deems such an action to be a direct action brought in a shareholders own right to address an injury sustained directly by him. That is precisely what KARTEN sought to do in his Complaint. - 7 -
The Delaware Supreme Court has announced a simplified standard to determine if a claim is a derivative claim or a direct claim. In making this determination, a court should ask itself two questions: (1) who suffered the alleged harm (the corporation or the suing stockholders, inidividually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders, individually)? Discussing the first prong of this standard, the court approvingly referred to the test promulgated by the American Law Institute ( ALI ), which states: A direct action may be brought in the name and right of a holder to redress an injury sustained by, or enforce a duty owned to, the holder, an action in which the holder can prevail without showing an injury or breach of duty to the corporation should be treated as a direct action that may be maintained by the holder in an individual capacity 2 American Law Institute, Principles of Corporate Governance: Analysis and Recommendations Sec. 7.01(b) (1994) This determination by the Delaware Supreme Court is straightforward, will - 8 -
resolve the conflict between the opinion of the Fourth District Court of Appeal and harmenize the lower Courts of Florida in determination the difference between shareholder derivative actions and shareholder direct actions. - 9 -
CONCLUSION This Court should accept jurisdiction of this Petition for the purposes of resolving the conflict between the Fourth District Court of Appeal in the Opinion rendered in this matter on December 9, 2009 and the existing opinions of the Third District Court of Appeal of Florida. - 10 -
CERTIFICATE OF SERVICE I HEREBY CERTIFY that a copy of the foregoing was mailed this 1 st day of February, 2010, to: James K. Pedley, Esquire, 727 N.W. 3 rd Avenue, Suite 301, Fort Lauderdale, Florida 33304. CERTIFICATE OF COMPLIANCE LAW OFFICES OF NORMAN MALINSKI, P.A. 2875 Northeast 191 st Street, Suite 508 Aventura, Florida 33180 Telephone: (305) 937-4242 Facsimile: (305) 937-4261 By: /s/ Norman Malinski Florida Bar ID# 182344 The undersigned hereby certifies that this Brief has been computer generated using the size and style of type using 14-Point Times New Roman, in compliance with Florida Rules of Supreme Court Appellate Procedure. - 11 - /s/ Norman Malinski