Johnson v. Brown, Brown, Wood, & Schoelen, Inc.

554 P.3d 781

2024 OK CIV APP 18

Betty JOHNSON; Barbara Smola; Ruth Crocket; Janice Bako; and Kaye Fife, Trustee of the Lillian Kaye Fife Revocable Trust Dated 9-27-2017, both individually and derivatively on behalf of Brown, Brown, Wood and Schoelen, Inc., an Oklahoma Corporation, Plaintiffs/Appellants,

v.BROWN, BROWN, WOOD, AND SCHOELEN, INC., an Oklahoma Corporation, Nominal Defendant,

v.Joyce K. Brown, Trustee of the Joyce Brown Trust Dated 12-31-92, and as Trustee of the Dorsey N. Brown Trust Dated 12-31-92, Defendant/Third-Party Plaintiff/Appellee,

v.Gloria Shadid and Steve Wood, Third-Party Defendants/Appellants,andSharlene Tipken; Jane LaFalier, individually; The Lavonne and Harvey Brown Living Trust, U/D/A 10/24/08; Rodney Charles Brown; Rhonda Lee Brown Living Trust Dated 07/16/09; and The Massey Family Trust Agreement Dated 08/20/01, Third-Party Defendants.

Case No. 120,813

(Consolidated with Case No. 120,816)

APPROVED FOR PUBLICATION BY THE SUPREME COURT.

Court of Civil Appeals of Oklahoma, Division No. 2.

Filed March 27, 2024

Mandate Issued: July 11, 2024

APPEAL FROM THE DISTRICT COURT OF KINGFISHER COUNTY, OKLAHOMA; HONORABLE PAUL WOODWARD, TRIAL JUDGE

REVERSED AND REMANDED FOR FURTHER PROCEEDINGS

Joseph P. Titterington, DAVIS BUSINESS LAW, PLLC, Oklahoma City, Oklahoma, for Plaintiffs/Appellants

Michael D. Roberts, ROBERTS LAW OFFICE, Enid, Oklahoma, Erin J. Rooney, GUNGOLL, JACKSON, BOX & DEVOLL, P.C., Oklahoma City, Oklahoma, for Nominal Defendant

Julia C. Rieman, GUNGOLL, JACKSON, BOX & DEVOLL, P.C. Enid, Oklahoma, for Defendant/Third-Party Plaintiff/Appellee,

Jeremy K. Ward, FRANDEN, FARRIS, QUILLIN GOODNIGHT, ROBERTS + WARD, Tulsa, Oklahoma, for Third-Party Defendants/Appellants Gloria Shadid and Steve Wood

Matthew K. Felty, LYTLE SOULÉ & FELTY, P.C., Oklahoma City, Oklahoma, for Third-Party Defendant/Appellee The Lavonne and Harvey Brown Living Trust U/D/A 10/24/08

Camille N. Burge, Fred A. Leibrock, PHILLIPS MURRAH, P.C., Oklahoma City, Oklahoma, for Third-Party Defendant/Appellee Massey Family Trust Dated 08/20/01

OPINION BY JANE P. WISEMAN, PRESIDING JUDGE:

¶1 Betty Johnson, Barbara Smola, Ruth Crocket, Janice Bako, and Kaye Fife, Trustee of the Lillian Kaye Fife Revocable Trust dated 9/27/2017, individually and derivatively on behalf of Brown, Brown, Wood and Schoelen, Inc. (collectively, Plaintiffs), appeal from trial court orders (1) granting summary judgment in favor of Defendant and Third-Party Plaintiff Joyce K. Brown, as Trustee of the Joyce Brown Trust Dated 12/31/1992, and as Trustee of the Dorsey N. Brown Trust dated 12/31/1992, and (2) granting attorney fees to Defendant. Third-Party Defendants Gloria Shadid and Steve Wood also appeal the order granting summary judgment in favor of Defendant. This appeal has been assigned to the accelerated docket pursuant to Oklahoma Supreme Court Rule 1.36, 12 O.S.2021, ch. 15, app. 1, and stands submitted without additional briefing. The issue presented is whether the trial court erred in finding no material undisputed fact questions remain and that Defendant is entitled to judgment as a matter of law, and secondarily, whether the trial court properly granted attorney fees to Defendant in the wake of the summary judgment. After review, we conclude it was error to grant summary judgment in favor of Defendant and Third-Party Plaintiff, and we reverse the summary judgment and the attorney fee order.

FACTS AND PROCEDURAL HISTORY

¶2 Plaintiffs filed a petition and subsequent amended petitions. In their last (third) amended petition, Plaintiffs state Brown, Brown, Wood and Schoelen, Inc. (BBWS) is a closely held corporation formed in Oklahoma in 1982. They allege that, at least as early as December 1990, of the 1200 outstanding shares of voting stock, each of the four siblings, Dona Jean Schoelen, Vivian L. Wood, Harvey Leon Brown, and Dorsey N, Brown, owned 300 voting shares in BBWS and each sat on the board of directors. Plaintiffs claim that as each sibling passed away, a member of their respective immediate families replaced them on the board of directors. They allege:

[F]or thirty (30) years, from at least as early as December 1990 until the shareholders’ meeting held in March 2021, board members were not elected by the shareholders. Instead, each of the four families who descended from the Original Shareholders selected one of their own family members to sit on the board. This course of conduct was approved and adopted by those who were shareholders during this period. This modification of the Bylaws allowed each family to select a board member and thereby insured that each family would have equal representation on [the] board and an equal say in the affairs of BBWS.

¶3 As voting shares were acquired or transferred by various family members, the Dorsey Brown Trust and the Joyce Brown Trust controlled 650 of the 1200 voting shares of BBWS. Plaintiffs allege that at the shareholders’ meeting in March 2021, the attorney for these trusts asserted that they were entitled to elect all four board members and he proceeded to nominate four adult children of Dorsey and Joyce Brown to the board of directors who were then elected. The result was the elimination of directors from the other three families.

¶4 Plaintiffs sought a declaratory judgment that BBWS’s "Bylaws have been modified by a course of conduct which the shareholders of BBWS agreed to and adopted over the past thirty (30) plus years." They also asked for a declaratory judgment providing, "That pursuant to said course of conduct, membership on BBWS’s board of directors is not to be subject to a vote of the shareholders but, rather, by each family holding shares in BBWS being allowed to select one person to sit on the board." Plaintiffs asked the trial court to declare that the election of the existing board of directors is void, all their actions "were unauthorized, improper, void, and in contravention of the Bylaws, as modified," and that a new election must be held.

¶5 Defendant filed an answer, counterclaim, and third-party petition, naming as third-party defendants the following BBWS shareholders: Gloria Shadid, Steven Wood, Sharlene Tipken, Jane LaFalier, the Lavonne and Harvey Brown Living Trust, U/D/A 10/24/08, Rodney Charles Brown, Rhonda Lee Brown Living Trust Dated 07/16/09, and the Massey Family Trust Agreement Dated 08/20/01. For its counterclaim and third-party petition, Defendant sought a declaratory judgment that the stock transfers by the Massey Trust and the Lavonne Brown Trust did not violate BBWS’s Stock Restriction Agreement and that BBWS’s bylaws require the directors "to be elected by the owners and holder [sic] of the voting shares of stock in BBWS."

¶6 Defendant filed a motion for summary judgment. We will quote and summarize below the facts Defendant alleges to be undisputed. Plaintiffs admitted the majority of Defendant’s undisputed facts. Each of the following facts is admitted by Plaintiffs unless specifically indicated otherwise. BBWS was formed and incorporated in Oklahoma in 1982. Defendant states, "Neither the Articles of Incorporation nor the Amended Certificate of Incorporation": (1) "contains a restriction on the sale or transfer of BBWS’s stock"; (2) "provides for more or less than one vote for any share on any matter"; or (3) "modif[ies] the statutory procedure for electing members of the board." BBWS’s Bylaws were adopted on August 10, 1982.

¶7 Although Defendant claims that the original Bylaws are still BBWS’s current bylaws, Plaintiffs claim that at the March 10, 2012 shareholders’ meeting, "Plaintiff Barbara Smola moved that the four seats on the Company’s board of directors consist of a member from each of the families of the four ‘Original Shareholders.’ The motion was seconded and approved without objection." Plaintiffs also claim that at the March 10, 2013 annual meeting of BBWS’s board of directors:

a proposal was made to amend Article III, Section 1 with regard to the selection of members of its board of directors. According to the minutes of that meeting "[t]he amendment would read that there are to be four directors, one director from each family of Harvey Brown, Dorsey Brawn, Vivian Wood, and Dona Schoelen. Steve Wood motioned to approve the measure with Lavonne Brown seconding the motion. All Directors approved the motion."

¶8 BBWS’s Bylaws do not restrict the sale or transfer of its stock. Article II of the Bylaws provides that the annual shareholders’ meeting must be held every year on the second Tuesday of March at 10:00 a.m., but a special meeting may be called, as allowed by law, by the president or the board of directors. Shareholders may consent to action without a meeting.

¶9 Article III of the Bylaws titled "Board of Directors" provides that the board shall be comprised of four members elected by the shareholders at the annual meeting and who hold office until their successors have been elected and qualified at the next annual meeting. The board’s meeting is held immediately following and at the same location as the shareholders’ meeting. The Bylaws also allow for special meetings and action without a meeting under delineated circumstances.

¶10 The Bylaws at Article VI, Section 3, provide:

Amendments to By-Laws. — These By-Laws may be altered, amended or repealed by the shareholders or by the Board. Any By-Law adopted, amended or repealed by the shareholders may be amended or repealed by the Board, unless the resolution of the shareholders adopting such By-Law expressly reserves to the shareholders the right to amend or repeal it.

¶11 When BBWS was formed, the four original individuals each owned 300 shares of voting stock, amounting to 25% each of the outstanding shares: Dona Jean Schoelen, Vivian L. Wood, Harvey Leon Brown, and Dorsey N. Brown. In December 1990, these four individuals entered into an Agreement for Restriction on Alienation of Stock, which provides that "before any common voting or on-voting stock of BBWS could be...