Kulko v. Davail, Inc.

Kulko v. Davail, Inc., 2015 MT 340 (Dec. 8, 2015) (Cotter, J.) (7-0, rev’d)

Issue: (1) Whether the district court erred in concluding that corporate dissolution is an exclusive remedy under § 35-1-939, MCA; and (2) whether the district court erred in dismissing Kulko’s claims for lack of subject matter jurisdiction on the basis that the corporate dissolution eliminated any case or controversy.

Short Answer(1) Yes; and (2) yes.

Reversed and remanded

Facts: Alex and Sharon Horn incorporated Davail, Inc. in Montana in 1982 for estate planning purposes. Their children – David Kulko, Ilsa Kaye, and Michael Horn – are Davail’s sole shareholders, officers, and directors. Kulko owns 46% of the shares and is a director and vice-president; Kaye owns 46% and is a director and president; and Horn owns the remaining 8%. Davail’s principal asset is a recreational property near Condon called Falls Creek Ranch.

Alex and Sharon founded the Odyssey Study Group, a secretive spiritual organization that some call a cult. Kulko was affiliated with the group until 2000, when he left the group and became estranged from his family. Kulko maintains that during the period of his estrangement, he was excluded from Davail director and shareholder meetings, denied access to corporate records, and denied all monetary and non-monetary benefits of ownership.

In November 2013, Kulko sued Davail and his siblings for dissolution of the corporation and damages for fraud and breach of fiduciary duties. Eventually the parties agreed to dissolution, and the district court dissolved Davail and appointed a receiver. The process of liquidating and distributing assets is ongoing.

In July 2014, Kulko moved to amend his complaint to add a punitive damages claim and to clarify his request for compensatory damages. Kaye and Horn responded that Kulko obtained the remedy he sought, and that no case or controversy exists.

Procedural Posture & Holding: The district court held that the governing statute authorizes dissolution or other equitable remedies, but not both, and dismissed Kulko’s complaint for lack of subject matter jurisdiction, denied his motion for leave to amend, and declined to rule on his pending discovery motions. Kulko appeals and the Supreme Court reverses.

Reasoning: (1) The statute providing alternative relief to dissolution, § 35-1-939(1), MCA, codifies the holding in Maddox v. Norman, 206 Mont. 1 (1983). However, Kulko was not seeking an equitable remedy to avoid corporate dissolution but a traditional remedy – money damages – as an injured shareholder. According to the ABA Official Comments to the Model Business Corporation Act, upon which the Montana Business Corporation Act is based, dissatisfied shareholders may seek traditional remedies for beach of fiduciary duty. The district court therefore erred.

(2) Kulko’s claim for dissolution was distinct from his claim for damages. The district court erred in concluding that Davail’s dissolution mooted Kulko’s claims.