Lifetouch Nat'l Sch. Studios Inc. v. Okla. Sch. Pictures

554 P.3d 764

2024 OK CIV APP 17

LIFETOUCH NATIONAL SCHOOL STUDIOS INC., a Minnesota corporation, Plaintiff/Appellant,

v.OKLAHOMA SCHOOL PICTURES, LLC, an Oklahoma limited liability company; Defendant/Appellee.

Case No. 120,562

THIS OPINION HAS BEEN RELEASED FOR PUBLICATION BY ORDER OF THE COURT OF CIVIL APPEALS, Division No. 4

Court of Civil Appeals of Oklahoma, Division No. 4.

Filed November 13, 2023

Rehearing Denied: March 27, 2024

Mandate Issued: July 5, 2024

APPEAL FROM THE DISTRICT COURT OF OKLAHOMA COUNTY, OKLAHOMA; HONORABLE ALETIA HAYNES TIMMONS, TRIAL JUDGE

REVERSED AND REMANDED FOR FURTHER PROCEEDINGS

Harvey D. Ellis, Jaycee Booth, Randall J. Snapp. CROWE & DUNLEVY A PROFESSIONAL CORPORATION, Oklahoma City, Oklahoma, for Plaintiff/Appellant

Armando J. Rosell, ROSELL LAW GROUP, L.L.P., Oklahoma City, Oklahoma, for Defendant/Appellee

OPINION BY JOHN F. FISCHER, JUDGE:

¶1 Lifetouch National School Studios, Inc., appeals the judgment in favor of Oklahoma School Pictures, L.L.C., in this summary proceeding. Lifetouch holds a judgment against Tulsa School Pictures, L.L.C., which it seeks to collect from Oklahoma School Pictures in this action. Lifetouch contends that Tulsa School Pictures is the alter ego or, "mere instrumentality" of Oklahoma School Pictures and argues that disregarding the separate legal existence of Tulsa School Pictures is necessary to protect the rights of third persons and accomplish justice. The appeal has been assigned to the accelerated docket pursuant to Oklahoma Supreme Court Rule 1.36, 12 O.S.2021, ch. 15, app. 1. Viewing the summary judgment record most favorably to Lifetouch, there are unresolved issues of fact regarding the separate existence of Tulsa School Pictures and whether it was the instrumentality of Oklahoma School Pictures. We reverse the judgment in favor of Oklahoma School Pictures and remand for further proceedings to determine that issue.

BACKGROUND AND PROCEDURAL HISTORY

¶2 When this action was filed, Lifetouch had sued Tulsa School Pictures in the United States Distinct Court for the Northern District of Oklahoma for tortious interference with Lifetouch’s business in the Tulsa area, but the liability of Tulsa School Pictures for that conduct had not been determined. Before the federal court litigation was concluded, Tulsa School Pictures filed a voluntary petition for bankruptcy on November 27, 2017. Tulsa School Pictures was eventually liquidated in that proceeding. While the bankruptcy was pending, Lifetouch negotiated a settlement of its federal court case against Tulsa School Pictures. That settlement resulted in a judgment entered in the federal case against Tulsa School Pictures, which fixed the amount of damages for Tulsa School Pictures’ tortious interference with Lifetouch’s Tulsa area business.

¶3 Lifetouch filed this action against Oklahoma School Pictures on December 15, 2017, one month after Tulsa School Pictures filed for bankruptcy. As originally filed, Lifetouch sued Oklahoma School Pictures and its two owners, Bart Baker and Nathan Dunn, asserting theories of recovery similar to those asserted in the federal court action against Tulsa School Pictures. Lifetouch alleged that Tulsa School Pictures was the instrumentality or alter ego of Oklahoma School Pictures and liable for Tulsa School Pictures’ tortious conduct. (ROA Tab 1, Plaintiff's First Amended Petition, Fourth Cause of Action, p.16, ¶ 83).

¶4 This is the second appeal in this case. In the first appeal, we held that Lifetouch had stated a claim against Oklahoma School Pictures based on its alter ego theory of liability and reversed the district court’s dismissal of that claim.¹ We framed the issue to be resolved on remand as follows:

Lifetouch’s claim of alter-ego liability seeks to hold Oklahoma School Pictures liable for the torts committed by the nowinsolvent Tulsa School [Pictures] …. If Lifetouch is successful in proving that Tulsa School [Pictures] was merely an instrumentality of Oklahoma School Pictures, "the legal distinction between these corporations may be disregarded, and they may be treated as one entity for purposes of liability." Gilbert v. Sec. Fin. Corp. of Okla., 2006 OK 58, ¶ 22, 152 P.3d 165.

Lifetouch Nat’l Sch. Studios, Inc., v. Oklahoma Sch. Pictures, L.L.C, Bart Baker, and Nathan Dunn, No. 117,747, slip op. at 7-8. (COCA Div. II May 7, 2020) (unpublished), cert. denied (Okla. Sup. Ct, Dec. 14, 2020). The parties proceeded to resolve that issue on remand by filing competing motions for summary judgment, arguing for and against the proposition that Tulsa School Pictures was the instrumentality of Oklahoma School Pictures. The motions were supported by affidavits, deposition testimony and documentary evidence, and were argued to the court without the presentation of witnesses or additional evidence. The district court found that Tulsa School Pictures was not the instrumentality of Oklahoma School Pictures and declined to disregard Tulsa School Pictures’ legal status as a separate limited liability company. In this appeal, we resolve whether the district court was correct in granting judgment in favor of Oklahoma School Pictures.

¶5 Certain facts relevant to that issue are not disputed. Oklahoma School Pictures was formed as an Oklahoma limited liability company. Oklahoma School Pictures has three members, Baker, Dunn and Oklahoma School Pictures. Oklahoma School Pictures was formed on April 22, 2010, and its current operating agreement was signed by Baker and Dunn on September 26, 2013. Oklahoma School Pictures is primarily involved in taking school pictures in the Oklahoma City area. The Oklahoma School Pictures operating agreement "reserved to the members" the management of the company. Oklahoma School Pictures’ operating agreement also defined the specific functional responsibilities of Baker and Dunn as follows: "Assist in management of LLC."

¶6 Tulsa School Pictures was formed as an Oklahoma limited liability company on February 19, 2016. Tulsa School Pictures had two members, Baker and Dunn. Its operating agreement was signed by Baker and Dunn on February 23, 2016. Baker and Dunn, each contributed one-half, i.e., $7,500 each, of the initial $15,000 capital used to start Tulsa School Pictures. The Tulsa School Pictures operating agreement "reserved to the members" the management of the company. The Tulsa School Pictures operating agreement also defined the specific functional responsi- bilities of Baker and Dunn as follows: "Assist in management of LLC."

¶7 In its first ten months of operations, Tulsa School Pictures was able to generate substantial revenue, $454,671, primarily from former Lifetouch clients. The following year, Tulsa School Pictures generated $753,878 in gross revenue from the same source. However, that income was insufficient to pay all of Tulsa School Pictures’ operating expenses or sustain its viability as a separate legal entity and it filed for bankruptcy. While it was in business, Tulsa School Pictures was primarily involved in taking school pictures in the Tulsa area.

¶8 Lifetouch provides professional photography services, including school pictures, throughout the United States. Lifetouch has been in business for more than eighty years. Lifetouch maintained an office in Owasso, Oklahoma, through which it provided services to the Tulsa area. In November 2016, Lifetouch initiated the federal court action against one of its former employees, who had served as Lifetouch’s Territory Manager in the Tulsa area. After discovery, Lifetouch amended the complaint to add Tulsa School Pictures as a defendant. Lifetouch alleged tortious conduct by Baker, Dunn, Tulsa School Pictures and key members of Lifetouch’s Owasso office management team, who left Lifetouch to work for Tulsa School Pictures in the first half of 2016.

I. The First Appeal

¶9 The first appeal in this case was precipitated by a January 14, 2019 Order dismissing Lifetouch’s amended petition against Oklahoma School Pictures. Among the claims asserted in its amended petition, Lifetouch alleged that Tulsa School Pictures was the alter ego or instrumentality of Oklahoma School Pictures and liable for the tortious acts of Tulsa School Pictures, including Baker and Dunn’s wrongful solicitation of Lifetouch’s Tulsa office employees.² Lifetouch alleged that Baker and Dunn did so before forming Tulsa School Pictures, tortiously interfering with Lifetouch’s business and wrongfully obtaining Lifetouch’s customers in the Tulsa market. In its "Fourth Cause of Action," Lifetouch relied on "alter ego liability" to hold Oklahoma School Pictures liable for the tortious acts of Tulsa School Pictures.

¶10 With respect to Lifetouch’s alter ego claim, the defendants relied on 12 O.S. § 2012(B)(7) (failure to join an indispensable party under § 2019), in support of their motion to dismiss. The defendants argued that Oklahoma law does not recognize a "stand alone" cause of action for alter ego liability. The defendants maintained that Tulsa School Pictures was an indispensable party to the alter ego claim but could not be joined as a defendant because of the automatic stay prohibiting non-bankruptcy litigation entered when Tulsa School Pictures filed for bankruptcy on November 28, 2017.³

¶11 Tulsa School Pictures’ bankruptcy began as a reorganization but was converted to a liquidation managed by a court-appointed Trustee. Lifetouch and the bankruptcy Trustee negotiated a settlement of Lifetouch’s claim against Tulsa School Pictures which was finalized on June 29, 2018, while the defendants’ motion to dismiss in this case was pending. Pursuant to the terms of the settlement agreement, the parties agreed to "the entry of an Agreed Judgment in favor of Lifetouch and against [Tulsa School Pictures] only in the Federal Case." One of the "rights and obligations created in [the settlement agreement]" was entry of the $750,000 Agreed Judgment in favor of Lifetouch and against Tulsa School Pictures.

¶12 In its...