Crain et al v. Airport Transportation Company et al

OCR transcription for search; preserved printed pages are authoritative

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IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS

FORT SMITH DIVISION
LISA CRAIN; CATHEE CRAIN; MARILLYN CRAIN BRODY;
and KRISTAN CRAIN SNELL PLAINTIFFS
V. CASE NO. 2:24-CV-2070
AIRPORT TRANSPORTATION COMPANY; and
SHIRLEY CRAIN DEFENDANTS
OPINION AND ORDER

Before the Court is a Motion to Dismiss (Doc. 9) with accompanying Brief in
Support (Doc. 10) filed jointly by Defendants Shirley Crain (“Shirley”) and Airport
Transportation Company (“ATC”). Plaintiffs Lisa Crain, Cathee Crain, Marillyn Crain
Brody, and Kristan Crain Snell (collectively, “Crain Sisters”) filed a Response in Opposition
to the Motion (Doc. 12) and a Brief in Support (Doc. 13). On November 13, 2024, the
Court held an in-person hearing and entertained oral argument on the Motion, ultimately
DENYING it from the bench. Below is a more fulsome explanation of the Court’s ruling.
To the extent anything in this Order differs from what was stated during the hearing, this
Order controls.

1. BACKGROUND

The Crain Sisters are minority shareholders of ATC, a closely held corporation.
Their stepmother, Shirley, is the majority shareholder who manages the affairs of the
company. The Complaint alleges that Shirley, individually as majority shareholder,
breached the fiduciary duties she owes to the Crain Sisters as minority shareholders. The
Complaint also accuses both Shirley and ATC (acting at Shirley's direction) of failing to

furnish the Crain Sisters with ATC’s annual financial statements, as Arkansas Code § 4-

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27-1620 requires; refusing to allow the Crain Sisters to inspect ATC’s accounting records
pursuant to Arkansas Code § 4-27-1602(b); denying the Crain Sisters the opportunity to
inspect ATC’s articles, bylaws, resolutions, minutes, communications with shareholders,
and financial statements in accordance with Arkansas Code § 4-27-1602(a); and
engaging in minority shareholder oppression.

Shirley and ATC make a threshold argument that the Complaint should be
dismissed under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter
jurisdiction. Shirley and ATC contend that the causes of action in the Complaint may
plausibly be construed as shareholder derivative actions brought on behalf of and for the
benefit of ATC—which means that ATC should be considered a plaintiff for diversity
purposes. Since ATC and Shirley are both citizens of Arkansas, if the Court deemed ATC
both a plaintiff and a defendant, this would destroy diversity. In addition, Shirley and ATC
argue that the Complaint fails to plausibly allege the minimum amount in controversy
necessary for federal subject matter jurisdiction. They contend that damages cannot be
aggregated and that each sister must meet the minimum amount individually, which
Shirley and ATC claim is impossible, given the nature of the relief requested.

Alternatively, the Motion to Dismiss urges the Court to abstain from hearing the
case because parallel proceedings concerning the same subject matter are taking place
in state court. Shirley and ATC cite to a lawsuit pending in Benton County Circuit Court
between the Crain Sisters and a different, though related, corporate entity called Regional

Jet Center.

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Finally, the Motion to Dismiss suggests that if the previous arguments are rejected,
the Complaint must be dismissed under Rule 12(b)(6) because the claims are moot,
collaterally estopped, or implausible.

li. DISCUSSION
A. Subject Matter Jurisdiction: Diversity and Amount in Controversy

Shirley and ATC contend that the Court lacks subject matter jurisdiction for two
reasons. First, they argue that the Complaint should be construed as stating both direct
and derivative shareholder claims. If the Court were to agree, then Shirley and ATC
maintain that ATC would need to be joined as a party plaintiff, since derivative shareholder
suits are brought for and on behalf of the corporation. But because ATC and Shirley are
both Arkansas citizens, joining ATC as a plaintiff would destroy diversity. Second, Shirley
and ATC argue that even if the parties were completely diverse, the Court would lack
subject matter jurisdiction because each individual Plaintiffs damages do not exceed
$75,000, the minimum required under 28 U.S.C. § 1332.

The Court begins its analysis by considering whether the Complaint asserts
derivative shareholder claims. A shareholder may bring a direct suit if she has suffered
an injury that is distinct from the harm caused to the corporation. See Underwood v.
Underwood, 2024 Ark. App. 51, at 13 (2024) (citing Golden Tee, Inc., v. Venture Golf
Schs., Inc., 333 Ark. 253, 260 (1998). Here, the Crain Sisters allege that the majority
shareholder, Shirley, has injured each of them, as minority shareholders, by engaging in
oppressive tactics in violation of Shirley’s fiduciary obligations to the corporation and by
refusing to allow the Crain Sisters to examine ATC’s accounting records, articles, bylaws,

resolutions, minutes, communications with shareholders, and financial statements. “A

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shareholder may bring a derivative action on behalf of a corporation to enforce a right of
the corporation when the corporation has failed to do so.” Muccio v. Hunt, 2014 Ark. 35,
at 8 (2014) (citing Ark. R. Civ. P. 23.1). But a shareholder is not required to bring a
derivative action when her individual harm overlaps with harms suffered by the
_ corporation; instead, she may choose to assert only a direct claim. Hames v.
Cravens, 332 Ark. 437, 442 (1998).

The Arkansas Supreme Court has held that a direct claim is appropriate “to enforce
that shareholder's voting rights, to compel the payment of dividends, or to protect minority
shareholders.” /d. Here, the Crain Sisters’ lawsuit seeks to protect their individual rights
as minority shareholders. They do not accuse Shirley of damaging ATC’s corporate health
and interests in any particular way or seek to enforce ATC’s rights where ATC has failed
to do so.' Therefore, the Court declines to join ATC as a party plaintiff.

As for the $75,000 jurisdictional minimum, “[i]f the defendant challenges the
plaintiffs allegations of the amount in controversy, then the plaintiff must establish
jurisdiction by a preponderance of the evidence.” Peterson v. Travelers Indem. Co., 867
F.3d 992, 995 (8th Cir. 2017) (quoting Kopp v. Kopp, 280 F.3d 883, 884—85 (8th Cir.
2002)). A complaint that alleges “the jurisdictional amount in good faith will be dismissed
only if it appears to a legal certainty that the claim is really for less than the jurisdictional

amount.” Am. Fam. Mut. Ins. Co. v. Vein Ctrs. for Excellence, Inc., 912 F.3d 1076, 1080-

' Furthermore, realigning the parties would not be appropriate—even if some claims could
plausibly be construed as derivative—because ATC has joined in Shirley's Motion and
taken a position adverse to that of the Crain Sisters. In Smith v. Sperling, 354 U.S. 91,
96-97 (1957), the Supreme Court opined that if “the management is antagonistic to the
stockholder” and “refuses to take action” or opposes “the enforcement of the claim,” the
trial court should not join the corporation as a plaintiff for diversity purposes. In the case
at bar, it is clear that ATC opposes the enforcement of the Crain Sisters’ claims.

4

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81 (8th Cir. 2019) (quotation marks and alteration omitted). “The legal certainty standard
is met where the legal impossibility of recovery is so certain as virtually to negative the
plaintiffs good faith in asserting the claim.” Peterson, 867 F.3d at 995 (cleaned up). The
Court may make reasonable deductions, reasonable inferences, or other reasonable
extrapolations from the pleadings to determine whether it is facially apparent that the
jurisdictional amount is in controversy.

Shirley and ATC maintain that the amount in controversy must be met by each
individual Plaintiff and cannot be aggregated. This appears to be a correct statement of
the law. Generally, “separate and distinct claims [can]not be aggregated to meet the
required jurisdictional amount.” Snyder v. Harris, 394 U.S. 332, 336 (1969). In the Ninth
Circuit case of Eagle v. American Telephone & Telegraph Co., 769 F.2d 541, 547 (9th Cir.
1985), the court approved aggregating the amount in controversy among the individual
shareholders because all claims were derivative in nature and “rooted in an injury to the
assets of the corporation.” By contrast in the case at bar, all claimed injuries are individual
in nature (despite the fact that all Plaintiffs claim the same injuries and request the same
relief).

Nevertheless, when the Court examines the damages claimed by each Plaintiff, it
is not legally impossible that each one has stated a claim for damages in excess of
$75,000. Each Plaintiff demands her share of profits unlawfully retained by ATC for 2022
and 2023, a statutory award of attorney’s fees, an award of damages for breach of
fiduciary duty by Shirley, and an interest in the value of the company as a whole, since

the Complaint requests as a potential remedy the dissolution and liquidation of ATC. The

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Court therefore finds that Shirley and ATC have failed to prove to a legal certainty that
each Plaintiffs claims fail to meet the jurisdictional minimum.
B. Colorado River Abstention

In the alternative to the argument stated above, Shirley and ATC urge the Court to
abstain from making rulings in the instant lawsuit because a similar suit is already pending
in state court. The Crain Sisters filed an action in the Circuit Court of Benton County,
Arkansas, on December 21, 2022, alleging shareholder individual and derivative claims
against Shirley and an entity called Regional Jet Center, Inc. (“RJC’). See Doc. 9-2. The
state court lawsuit accuses Shirley—as RJC’s sole Class A shareholder and exclusive
decisionmaker—of mismanaging the company, engaging in self-dealing, subverting the
interests of both RJC and its shareholders in favor of Shirley’s own personal and business
interests, disregarding corporate transparency, withholding distributions of company
profits, and wasting corporate assets. Although the suit originally contained both direct
and derivative shareholder claims, the Crain Sisters recently dismissed all of their direct
claims because RJC made an elective distribution of profits. See Doc. 13, p. 13.
Accordingly, the only claims pending in the RJC suit are derivative shareholder claims.

The Court observes that abstention in favor of a state-court proceeding is typically
disfavored. “Generally, a federal district court must exercise its jurisdiction over a claim
unless there are exceptional circumstances for not doing so.” Scottsdale Ins. Co. v. Detco
Indus., Inc., 426 F.3d 994, 996 (8th Cir. 2005) (internal quotation marks omitted). Federal
courts have “the virtually unflagging obligation . . . to exercise the jurisdiction given them.”

Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976).

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Under the Colorado River abstention doctrine, prudent judicial administration may
warrant “the dismissal of a federal suit due to the presence of a concurrent state
proceeding.” /d. However, this sort of abstention requires two preliminary findings: (1) that
the pending state and federal cases are “parallel” and (2) that “exceptional circumstances”
warrant abstention. See Fru-Con Const. Corp. v. Controlled Air, Inc., 574 F.3d 527, 534
- (8th Cir. 2009). “Parallelism” requires more than the pendency of a state claim “based on
the same general facts or subject matter as a federal claim and involving the same
parties.” /d. at 535. Instead, the Court must find that “substantial similarity” exists between
the two proceedings such that “there is a substantial likelihood that the state proceeding
will fully dispose of the claims presented in the federal court.” /d. To make such a finding,
the Court compares the “sources of law, required evidentiary showings, measures of
damages, and treatment on appeal” for each claim. Cottrell v. Duke, 737 F.3d 1238, 1245
(8th Cir. 2013) (quoting Fru-Con, 574 F.3d at 536). “[I]f there is any doubt as to the parallel
nature of the state and federal proceedings,” the Court must exercise jurisdiction. Fru-
Con, 574 F.3d at 536.

Quite obviously, the state court suit and the instant one are not parallel. The state
court suit involves the Crain Sisters and RJC, while the instant one involves the Crain
Sisters and ATC. Though Shirley controls both companies and has been named a party
in both suits, the companies themselves are distinct. Furthermore, the RJC suit involves
only derivative shareholder claims made by the Crain Sisters on behalf of RJC, while the
ATC suit involves only individual shareholder claims. Finally, it is unclear how any remedy
fashioned by the state court as to RJC will ostensibly affect ATC. Accordingly, the Court

finds no basis for abstaining.

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C. Failure to State a Claim under Rule 12(b)(6)

If the Court declines to dismiss the case under Rule 12(b)(1) or abstain under
Colorado River, Shirley and ATC maintain that all claims should be dismissed under Rule
12(b)(6). They contend that the Crain Sisters’ claims related to accessing financial and
corporate records are now moot, as all relevant documents have been produced to them
in the RJC proceeding. The Crain Sisters disagree. See Doc. 13, pp. 16-18. They claim
they are still waiting to see the ATC documents that they are entitled to under Arkansas
law. The Court must assume that the facts in the Complaint are true when evaluating a
motion to dismiss. See Bell.Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). As the
Complaint plausibly asserts that not all documents have been disclosed, the Court must
take these assertions as true and not dismiss the claims relating to document access.

Next, Shirley and ATC suggest that the Crain Sisters should be collaterally
estopped from claiming entitlement to stock distributions because the judge in the RJC
suit refused to order RJC to do the same. This argument lacks merit because the state
court suit and the instant one are not parallel, so none of the state court’s rulings as to
RJC have a preclusive effect on ATC. See supra, Section II.B.

Finally, Shirley and ATC argue that the Crain Sisters have failed to state a plausible
claim against Shirley for shareholder oppression. The parties agree that Arkansas
recognizes such a claim. See Taylor v. Hinkle, 360 Ark. 121, 129 (2004). Shirley and ATC
insist that the word “oppressive” contemplates a continuing course of conduct consisting
of harsh, dishonest, or wrongful acts—which they contend have not been adequately
pleaded here. The Crain Sisters respond that their Complaint plausibly asserts the

following oppressive conduct by Shirley: (1) failing to inform them of shareholder

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meetings; (2) acting unilaterally without their input; (3) failing to provide them with ATC’s
corporate governance documents; (4) refusing to distribute profits; (5) issuing K-1s for
retained profits, which required the Crain Sisters to pay taxes on said undistributed profits;
and (6) refusing to turn over corporate and accounting records that might demonstrate
Shirley's additional breaches of fiduciary duties. See Doc. 2, {] 49-53. The Court agrees
with the Crain Sisters that the Complaint plausibly states a claim for shareholder
oppression.
Ill. CONCLUSION
IT IS THEREFORE ORDERED that Defendants’ Motion to Dismiss (Doc. 9) is

DENIED. WA

IT IS SO ORDERED on this iS day of November, 2024.