Hansmeyer v. Shotkoski

          MEMORANDUM OPINION AND ORDER DENYING MOTION TO DISMISS

          Lawrence L. Piersol United States District Judge

         Pending before the Court is Defendants Jeff Shotkoski and Heritage Builders, Inc. ("Heritage") Motion to Dismiss, Doc. 10. In their motion, Defendants ask that the claims in the Amended Complaint be dismissed for several reasons: 1) Heritage is the real party in interest as a plaintiff in a derivative action and inclusion of Heritage as a plaintiff destroys diversity and divests this Court of jurisdiction, requiring dismissal under Rules 12(b)(1) and (b)(7) of the Federal Rules of Civil Procedure; and 2) dismissal of any direct action by Plaintiffs is appropriate under Rule 12(b)(6) for failure to state a claim upon which relief can be granted based upon their lack of standing to bring a direct suit. For the following reasons, Defendants' motion is denied.

         BACKGROUND

         Accepting Plaintiffs' allegations as true and giving Plaintiffs the benefit of all reasonable inferences, the Court lays out the following facts in accordance with the pleadings. See Frey v. City of Herculaneum, 44 F.3d 667, 671 (8th Cir. 1995) (providing the standard for granting a motion to dismiss under Rule 12(b)(6)). In August 2011, Plaintiffs and Shotkoski formed Heritage for the primary purpose of residential real estate development and construction (¶ 7). Specifically, Heritage would buy residential lots, construct homes on those lots, and sell them for a profit (¶ 8). Shotkoski owns 50% of the shares of Heritage and Norman and Wayne Hansmeyer each own 25% of the shares of Heritage (¶ 10). Shotkoski has served as President of Heritage which, pursuant to its bylaws, made him responsible to "supervise and control all of the business and affairs of the corporation." (¶ 11). As part of those responsibilities, Shotkoski was and currently is responsible for maintaining all financial documents and information relative to Heritage (¶ 12). Shotkoski is also President and owner of both Sundance Group, Inc., ("Sundance") and CCI, Inc. ("CCI"), two other South Dakota corporations involved in residential real estate development and construction (¶¶ 13, 15).

         In 2011, at Shotkoski's insistence, Heritage established a $750, 000 line of credit, which was eventually converted to a term loan, with Cattle Bank in Lincoln, Nebraska (¶¶ 17, 19). At that time, Shotkoski represented to Plaintiffs that Heritage owned a number of properties (¶ 78). In reliance on this representation, Plaintiffs personally guaranteed the line of credit/loan and pledged their personal assets as the exclusive collateral for the line of credit/loan (¶¶ 76-81). Plaintiffs later learned that these representations were false, when made, as Shotkoski had apparently already transferred such properties to one or more third parties without the consent of the Plaintiffs (¶¶ 24, 35-40, 43, 44-45, 76-81).

         Over the last several years, Shotkoski, acting on behalf of Heritage, purchased numerous residential real estate lots for purposes of development using, in part, the funds available through the Cattle Bank line of credit/loan (¶ 20). Shotkoski has, on behalf of Heritage, also contracted for the construction of homes on many of those lots and, in turn, sold such homes (¶ 21). Inexplicably, such operations have resulted in a balance on the Cattle Bank line of credit/loan in excess of $ 1, 100, 000 with virtually no return to Plaintiffs (¶ 22). In August 2017, Plaintiffs learned that properties that at one time were owned by Heritage had been transferred to Sundance, CCI, and/or Shotkoski's family members without Plaintiffs' consent (¶¶ 24, 26). Plaintiffs have not been provided sufficient information from Shotkoski or Heritage regarding the financial dealings of Heritage to determine whether sufficient consideration was provided for such transactions (¶ 25).

         As shareholders and directors of Heritage, Plaintiffs have, on several occasions, made demand to inspect the corporate accounting and financial records of Heritage including Heritage's most recent financial statements showing in reasonable detail its assets, liabilities, and the results of its operations (¶ 26). Plaintiffs' efforts, to date, have been blocked by Heritage and Shotkoski (¶27).

         Beginning in April of 2017, Plaintiffs, through counsel, began demanding formal accountings from Shotkoski and Heritage regarding the company's operations (¶ 28). The demands were made in good faith and with the proper purpose of determining why there seems to be insufficient funds in Heritage to make payments on the Cattle Bank loan (¶ 30). Shotkoski and Heritage authorized the accountant for Heritage to allow inspection of all records relating to Heritage in the possession of Heritage's current accountant (¶ 31). However, the accountant indicated that the information provided to him by Shotkoski and Heritage was incomplete and that he made requests to Shotkoski and Heritage for the missing financial information and documents but they failed to comply (¶¶ 32, 33).

         On August 21, 2017, Shotkoski, through counsel, indicated that he "sold" or otherwise transferred numerous properties from Heritage to Sundance (¶ 35). In the August21 letter, Shotkoski represented that he had issued unsecured promissory notes for the transfer of Heritage's property to Sundance. That was the first time Plaintiffs had ever seen the alleged promissory notes (¶ 36). Plaintiffs did not authorize the sale or transfer of any property from Heritage to Sundance (¶ 37). Still, Shotkoski signed each promissory note for both Heritage and Sundance even though he lacked the authority and right to transfer or sell properties owned by Heritage to Sundance (¶¶ 38, 39). No payment for any of the eight promissory notes has ever been paid to Heritage, even though some of the promissory notes were purportedly executed in 2015 (¶ 42).

Plaintiffs' Amended Complaint contains the following counts:

• Accounting

• Breach of Fiduciary Duties

• Negligence

• Fraudulent ...