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Court Revives Business Ownership Case

The animals are gone, but the lawsuit goes on.

The animals can’t be revived, but the lawsuit was. 

That is the upshot of a recent decision by the Court of Appeals of Indiana. The Court said the company in the case, Waste Recovery, was in the business of “biological effluent destruction systems products.” Or, as the Court delicately put it in a footnote, “Apparently, the products were used in management of animal carcasses.” 

As described by the Court, Waste Recovery was insolvent in 2006 when an employee, Donald Morris, approached Richard Redpath about forming a new company to “take control of the niche industry.” The dispute at the center of this case was who owned the new company, BioSafe Engineering, LLC, which successfully bid for the assets of Waste Recovery. According to Morris, it was orally agreed to be him, Redpath, Brad Crain and five others. However, BioSafe’s Articles of Organization had been filed in Indiana with Redpath and Crain as the sole members, and other investors were subsequently admitted. BioSafe fired Morris in 2007. 

The decision doesn’t state why it happened that the parties had different views on the ownership. Business people forming a new company should agree at the outset who will be the owners, their percentage ownership and what they must contribute to the business in return for their shares. This should all be reflected in written agreements and the company’s organizational documents, prepared with the advice of an attorney and often an accountant. Of course the company can agree to admit other investors later. 

In 2010, Morris, and another man who thought he was an owner, sued Redpath, Crain, BioSafe and others, based on alleged breach of contract, claiming interests in BioSafe, and seeking appointment of a receiver, an accounting and disgorgement of funds, and BioSafe’s dissolution. The defendants denied the allegations. Although the trial court decided in favor of the defendants, the appeals court revived the case. The defendants had asked the trial court for “summary judgment,” which the trial court could have considered if there were no disputed facts. The appeals court ruled that the trial court essentially assumed that there were no disputed facts, instead of requiring defendants to show that.   

Legal brief. The case discussed is Morris v. Crain, No. 32A01-1109-PL-414 (Ct. App. Indiana, June 18, 2012). Appeal from grant of summary judgment in favor of defendants. Held, summary judgment reversed. Trial court procedure was inconsistent with summary judgment standard, requiring non-moving party (plaintiffs) to establish each of their claims in order to withstand summary judgment, and necessarily assuming all factual disputes resolved in defendants’ favor.

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