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Florie v. Reinhart

Court of Appeals of Texas, First District

March 2, 2017

DORENE FLORIE, Appellant
v.
CRAIG REINHART, Appellee

         On Appeal from the 334th District Court Harris County, Texas Trial Court Case No. 2015-06803

          Panel consists of Chief Justice Radack and Justices Jennings and Bland.

          MEMORANDUM OPINION

          Sherry Radack Chief Justice

         Plaintiff/appellee Craig Reinhart, individually and derivatively as a shareholder and director of Custom Advanced Connections, Inc. (CAC), sued defendant/appellant Dorene Florie on February 6, 2015. The trial court issued a temporary injunction in Reinhart's favor on July 27, 2016, and Florie brought this interlocutory appeal. See Tex. Civ. Prac. & Rem. Code § 51.014(4) (West 2014). We affirm.

         BACKGROUND

         This case involves a dispute between CAC's equal owners. While the pleadings and the evidence amassed below are voluminous, unless noted otherwise, the parties are largely in agreement about the following facts-derived from the parties' sworn affidavits, exhibits, and testimony at the temporary injunction hearing-that are relevant to our review of the trial court's temporary injunction.

         CAC is an S-corporation that was formed in 1997 and supplies equipment to a variety of industries. Reinhart and Florie each own 50% of the company's stock, and CAC has never had any other shareholders. When CAC was formed, the provision in its by-laws designating the number of directors that would serve on the Board was left blank. From its inception, both Reinhart and Florie were company directors and grew and operated the business together. After the original 1997 organizational meeting at which Florie was appointed President and Treasurer and Reinhart was appointed Vice-President and Secretary, CAC did not have another shareholders' or directors' meeting until 2016. The validity of the actions taken at a March 15, 2016 shareholders' meeting is at the heart of this dispute.

          At some point, Florie hired her husband, son, and daughter to work at CAC, rendering her family the majority of CAC's workforce. In June 2011, Reinhart's wife was stricken with ovarian cancer. In July 2013, she learned that her cancer was growing and her tumor marker had increased.

         Reinhart's petition alleged that, also around July of 2013, Florie expressed frustration with his performance and told Reinhart that she felt terrible that work was keeping him away from his wife at such a critical time. Florie issued him an ultimatum: leave his day-to-day duties at CAC or she would. Reinhart then left the company's employment. He retained his 50% ownership and officer and director positions, but voluntarily relinquished his salary shortly after leaving.

         Afterwards, Florie changed the locks to the offices, claiming a breach of security, but did not give Reinhart a replacement key. The parties agree that, at some point in 2014, they first discussed Florie buying out Reinhart's interest, but they do not agree about the date on which that happened. Reinhart repeatedly and unsuccessfully requested financial information about the company, and was denied access to the records when he went to the offices on November 11, 2014 in person. Reinhart was not provided any of the company's records until after filing the underlying lawsuit.

          A. Distributions, Salaries, and the Bonus Plan

         Throughout its history, CAC made regular and equal distributions to its two owners. In 2012, it made 26 such distributions. In 2013, it made 24. Through July 25, 2014, it made 13. Reinhart has not received a distribution since then. Records later revealed that, after July 25, 2014, Florie continued to prepare, sign, and deliver checks to herself that she classified as "distributions" totaling at least $47, 337.07. Then CAC's corporate tax preparer told Florie that, as an S-corporation, CAC could not make uneven distributions to shareholders. Rather than paying Reinhart equal distributions as had always been done, Florie instead wrote a check to CAC to pay back the distributions she had taken.

         Reinhart pleaded that Florie had unfettered discretion to alter accounting and business records, which she has done in the course of this litigation. For example, sometime after 2014, she went back and changed accounting references on distribution payments to "wages." In November of 2014, Florie's counsel provided a profit and loss statement for January through September of 2014. But substantial modifications were made to the records for the same period when they were reproduced in February of 2015.

         At some point, Florie instituted a "bonus program" under which she increased her and employees' compensation, and it was made retroactive to July 2014. The "distribution" category was changed in CAC's accounting software to "bonus." Reinhart alleges that Florie instituted this bonus program to take money out of CAC for herself and her relatives while avoiding paying his distributions. His live petition also alleges that Florie:

-more than tripled her so-called salary from $2, 322.98 per week to $7, 211.54 starting in October 2014, though some weeks she paid herself even more than that;
-increased her son's salary at the Company by nearly 50 percent between January 1, 2014, and December 2014, and is believed to have continued this pattern throughout 2015 and thereafter;
-increased her husband's salary at the company by 25 percent between January 1, 2014, and December 2014, and is believed to have continued this pattern throughout 2015 and thereafter; and
-increased her daughter's salary at the company by more than 39 percent between January 1, 2014, and December 2014, and is believed to have continued this pattern throughout 2015 and thereafter.

         In contrast, employees not related to Florie received raises of slightly more than 13 percent during that period, if they received raises at all.

         Because CAC is an S-corporation, its profits are reported to the shareholders on a K-1 and the profits and tax liability flow through to the shareholders' individual returns. In 2015, Reinhart received a K-1 from CAC reflecting his allocation of ordinary business income of $161, 880 that he owed taxes on, despite his not receiving any distributions from CAC for 2015.

          B. Reinhart's Supplemental and amended application for temporary and permanent injunction

         On June 7, 2016, Reinhart filed Plaintiff's First Supplemental and Amended Application for Temporary and Permanent Injunction and Request for Appointment of Receiver. That motion, supported by Reinhart's affidavit, alleged the filing was made necessary by several recent events surrounding a purported March 15, 2016 shareholder's meeting and a purported March 28, 2016 director's meeting.

         Reinhart also alleged that more details relevant to the attorney conflicts identified in an earlier motion to dismiss counsel had been identified. Specifically, Reinhart contended that Charles Kirklin and Stephen Kirklin were attorneys of record for Florie when she filed her answer, and they appeared in court on her behalf on February 13, 2015. After Reinhart added CAC as a defendant on February 13, 2015, Charles withdrew as Florie's attorney and filed an answer for CAC. Because Charles has taken the position that he, "as the attorney for CAC, is answerable only to Defendant, Dorene Florie, in her role as President, the same Dorene Florie who was sued by Plaintiff for her individual wrongful acts and conduct as a shareholder, director and President that he was the attorney of record for" Reinhard asserts that a "conflict of interest has and continues to exist."

          C. The March 15, 2016 Shareholders' Meeting

         On February 1, 2016, Reinhart noticed a Special meeting of Shareholders and a Regular or Special Meeting of Directors for February 12, 2016. Neither Florie nor hers or CAC's attorneys showed for the meeting. Instead, they claimed through an email through their lawyer, that a shareholder's meeting would be held March 15, 2016. No formal notice was sent for March 15, 2016 meeting.

         Reinhart travelled from California to attend the March 15, 2016 shareholders' meeting at the Kirklin Law Firm's office. Present were Reinhart, Florie, Charles Kirklin (for CAC), Stephen Kirklin (for Florie), Patrick McGerrigan (for Reinhart), and an unidentified person, Stephen Collins. Stephen Kirklin stated that he had invited Collins and proposed that Collins be allowed to act as Secretary, taking notes and minutes. Collins is not a shareholder, director or officer, and refused to disclose what his relationship is with Florie or defendants' attorney, responding when asked with: "I am a 39 year old male." Reinhart objected, because as CAC's Secretary, Reinhart is the one with the obligation to take notes and prepare minutes. Reinhart's attorney then announced that the meeting would be recorded on Reinhart's phone.

         On the recording, Reinhart's attorney again voiced his objection that Charles Kirklin representing CAC is a conflict, and attempted to provide the other parties with minutes of the February 12, 2016 meeting that no one attended.

          Florie called the meeting to order, identified that there was a quorum of shareholders, and the meeting proceeded. Over Reinhart's objection, Florie appointed Steve Collins as the Secretary of the meeting to take minutes. Florie and Reinhart objected to each other continuing as directors. Reinhart moved to open the meeting up for further discussions, which Florie refused to do. CAC's attorney stated that, since this was the annual shareholders' meeting, no further discussion on other matters was allowed. Reinhart then moved to have a meeting of directors for the election of officers since both directors-he and Florie-were present. That was denied as well.

         As they left, McGerrigan asked Collins for a copy of the minutes he was going to prepare. CAC's attorney promised they would be prepared and distributed within a couple of days.

         Reinhart's audio recording of the March 15, 2016 meeting was transcribed and provided to defendants' attorneys two days later, on March 17, 2016. No one objected to its completeness, and neither Charles Kirklin nor Collins supplied Reinhart or his attorney with the minutes they represented would be prepared by Collins.

         D. The March 28, 2016 Directors' Meeting

         On March 18, 2016, Reinhart received a notice of a directors' meeting to be held March 28, 2016. When Reinhart arrived and his attorney objected to the presence of Gyna Dionne, Florie's daughter, because she was not a shareholder, director, or officer, Reinhart and his attorney were told that after they left the March 15, 2016 shareholder's meeting, Florie continued the meeting and, on her own vote, elected her daughter Dionne as a director. Charles Kirklin provided minutes of the meeting that included what occurred after Reinhart left. Those minutes noted that Reinhart had "withdrawn from the meeting." The minutes also reflect that Florie, also on her own motion and own vote after Reinhart left, approved and ratified (1) "the bonuses and salaries paid to all CAC employees and officers for the years 2013, 2014, 2015, and 2016 and to continue the same bonus plan and salaries into the future, " (2) "the 401k program instituted by CAC, " (3) "the employment by CAC of attorneys Charles Kirklin, Paul Kirklin, and The Kirklin Law Firm, P.C. in the pending litigation with Reinhart, " (4) "payment of $47, 347.07 by Dorene Florie to CAC for amounts incorrectly accounted for as dividends, " and (5) "suspension of dividends since July 2014, by CAC."

         The March 28, 2016 director's meeting continued and, over Reinhart's objection, Florie and Dionne voted to remove Reinhart as Secretary and Vice-President, and to appoint Dionne as Secretary and Vice-President in his place. Florie and Dionne also voted to pass numerous resolutions, including again approving and ratifying bonuses and salaries paid to employees and officers of CAC for years 2013, 2014, 2015 and 2016 to date and ratifying the 401(k) contributions made by CAC.

         INJUNCTIVE RELIEF

         In light of the March 2016 events, Reinhart's supplemental and amended motion for injunctive relief requested an order that includes the following:

• enjoins Dorene Florie from making salary changes to herself and her family without Board approval beyond the salary she and her family members were allowed as of the last payroll period in July 2014;
• enjoins Dorene Florie from taking further "wages" or other compensation from CAC in excess of the $2, 322.98 weekly salary she received in July 2014;
• set[s] aside as a reserve fund of CAC a sum of money of at least twice the amount (i) of her wages in excess of that fixed salary, (ii) all the wages in excess of the amounts her husband, son, and daughter earned in July 2014; and (iii) all the sums contributed by CAC to the 401(k) not approved by the Board of Directors; and (iv) the $47, 337.07 she has taken since July 2014 as dividends;
• enjoins Dorene Florie from excluding Craig Reinhart from CAC's premises at 903 Bay Star Blvd., Webster, Texas 77598;
• gives Craig Reinhart full access to all CAC's books and records, including pursuant to Tex. Bus. Org. Code § 3.153;
• enjoins Dorene Florie from making or taking increases of compensation to herself, her relatives, or any officers or agents of CAC without approval of the Board of Directors;
• enjoins Dorene Florie from taking dividends or distributions, whether labeled as such or disguised under another name, to herself without approval of the Board of Directors, and without paying an equal amount at the same time to Plaintiff; and
• in the alternative, if the above equitable remedies are for any reason not granted, that the Court appoint a rehabilitative receiver pursuant to Tex. Bus. Org. Code § 11.404. This court has jurisdiction to take this action through Tex. Bus. Org. Code §11:402(b).
• in the alternative, if the above equitable remedies are for any reason not granted, that the Court enjoin Florie and CAC pursuant to Tex. Bus. Org. Code § 20.002 (c) (1) and (2).

         Florie's response to Reinhart's motion contended that injunctive relief was not warranted because her complained-of actions were all approved or ratified when she "continued to transact business after [Reinhart] withdrew from the [March 15, 2016] meeting as permitted by the CAC bylaws." She also argued that he has not established a probable right of recovery or immediate, irreparable harm. Finally, Florie contended that the relief Reinhart sought was too vague to conform with Rule 683 of the Texas Rules of Civil Procedure.

         A. The Temporary-Injunction Hearing

         On June 17, 2016 and July 22, 2016, the trial court held a hearing on Reinhart's temporary-injunction motion and other pending motions. The court began by listening to a recording of the March 15, 2016 shareholder's meeting made on Reinhart's phone. The court also noted that it would take Reinhart's affidavit as evidence. Both Reinhart and Florie testified about the history of the company, compensation, and the March 15 and March 28 meetings. Florie also presented an expert to testify that her compensation decisions were reasonable.

          Craig Reinhart

         With reference to the March 15, 2016 meeting, Reinhart testified that (1) when Reinhart and his attorney left, Charles Kirklin did nothing to indicate that there were other matters for discussion, (2) when he and his attorney stood to leave, there was nothing pending, (3) Florie did not ask him to stay, and (4) no one called him back to the meeting.

         Reinhart testified that it was not until the March 28, 2016 directors' meeting that he first learned that Florie contended the March 15, 2016 meeting had continued after Reinhart and his attorney left. When Reinhart tried to, as Secretary, submit the minutes of the March 15, 2016 shareholder's meeting for approval at the March 28, 2016 directors' meeting, Charles Kirklin handed Reinhart a set of minutes that Reinhart had not seen before.

         Reinhart further testified that he had no reason to leave the meeting other than there was no further business. He did not leave "out of any kind of protest." He would have stayed if he had been told the meeting was continued. Although Florie's attorneys repeatedly represented that Collins, the person who took minutes after he left the March 15 meeting, was simply a neutral person, Reinhart has since learned that he is a life-long friend of the Kirklins. Reinhart acknowledged that there was no vote on a motion to adjourn, nor was there any discussion about adjournment. But when he and his attorney left, Stephen Kirklin had already left the room, and Collins was standing up.

         Dorene Florie

         Florie testified that Reinhart was no longer being paid distributions because she had made the decision, as President, that the company would not pay distributions anymore. She testified that she was a more valuable employee to CAC than Reinhart was, and she believes that she has treated Reinhart fairly in deciding not to pay his distributions after July 2014. Her decision to institute a bonus plan in 2014 was also her prerogative as ...


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