Marquis Theatre Corp. v. Condado Mini Cinema

Summary

The First Circuit reviewed a shareholder derivative action involving alleged self-dealing and mismanagement by George Dennis and related corporations. The court upheld sanctions striking Dennis's pleadings under Federal Rule of Civil Procedure 37, affirmed liability and most damages, and affirmed the attorney's-fee award. It reversed damages attributable to a period when Dennis was not shown to have been responsible for the corporation and reversed repayment of a portion of his salary.

Holdings

1. A party's continuing refusal to comply with discovery orders may support the striking of responsive pleadings, and a prior lesser sanction does not discharge the party's continuing obligation to comply with the discovery orders.
2. When relevant documents are withheld by a party who possesses them, the trier of fact may draw an adverse inference that the documents would have been unfavorable to that party.
3. Demand on the corporation's board is excused as futile when the entire board is interested in the challenged transactions and the alleged misconduct is not directed to a legitimate corporate purpose.
4. In a self-dealing transaction involving a corporate director or controlling shareholder, the defendant bears the burden of proving both the good faith and the intrinsic fairness of the transaction from the corporation's perspective.
5. Attorney's fees may be awarded for obdurate or abusive litigation conduct even when the opposing defense is not entirely meritless.

Questions Presented

1. Whether the district court abused its discretion by striking Dennis's responsive pleadings under Federal Rule of Civil Procedure 37(b)(2)(C) and (D) after his persistent failure to comply with discovery orders.
2. Whether the plaintiff adequately excused the demand requirement for a shareholders' derivative action under Federal Rule of Civil Procedure 23.1.
3. Whether the evidence supported liability for self-dealing and breach of fiduciary duties.
4. Whether the evidence supported the damages awards, including projected lost profits, personal expenses, condominium maintenance fees, and repayment of three-fourths of Dennis's salary.
5. Whether the district court properly admitted transcripts of Dennis's sworn testimony from bankruptcy proceedings as admissions of a party-opponent.
6. Whether the attorney's-fee award was permissible based on Dennis's obdurate and abusive litigation conduct.

Disposition

other