Caldwell v. BC Fitness, Inc.

Thomas D. Horne

Stephen C. Price, Esquire
305 Harrison Street, SE
Leesburg, Virginia 20175 David R. Young, Jr., Esquire
15 Loudoun Street, SW, Suite C
Leesburg, Virginia 20175 Raymond Benzinger, Esquire
2009 N. 14th Street, Suite 612
Arlington, Virginia 22201 Gentlemen:

J. Mark Caldwell has commenced an action for dissolution of BC Fitness, Inc. Va. Code Ann.§13.1-747. He asserts standing to pursue such an action as a shareholder, director, vice president and secretary of the corporation. It is his contention that the other shareholders and directors have acted in a manner that is illegal and oppressive and have misappropriated and wasted corporate assets. In addition to his action for dissolution (Chancery 21240), Mr. Caldwell has initiated a derivative action against the other shareholders seeking their removal as well as a restoration by them of corporate funds allegedly misspent or lost. In the instant proceeding, he has motioned the Court for the appointment of a custodian pendente lite. Va. Code Ann. §13.1-748. This is not the first time that such a motion has been raised in these proceedings. Since the initiation of this action for dissolution, the parties have appeared several times before the Court and argued the matter. On each such prior occasion the parties have consented to consent orders that have avoided the appointment of a custodian. The last of such orders was entered on January 25, 2002. That Order provided that:

1. The corporation recognizes its obligation to repay loans to the corporation made by the incorporators/shareholders. To the extent funds are available each month, the corporation will repay Malcolm Blacken (a shareholder) or his creditors up to $4,300.00 per month toward Blacken's loan, the other shareholders, J. Mark Caldwell and David Barlock shall also be paid in direct proportion to the amounts they have loaned to the corporation. In effect, Caldwell will receive $1.00 for every $4.00 paid by the corporation on Blackens loan.
2. The books and records of the corporation, to the extent not held by accountants and other professionals employed by the corporation, shall be kept on the premises of the corporation's offices. All parties shall have reasonable access to the corporation's books and records at reasonable times.
3. The parties shall arrange within 14 days, through the corporation's accountant to arrange for the performance of an evaluation of the corporation. The corporate accountant will make whatever books and records of the corporation held by the accountant available to all parties on and equal basis.

Prior consent orders addressed limitations on payments to shareholders, maintenance of the corporate records, and reinstatement of the corporation with the State Corporation Commission.

This matter is before the Court on the motion to strike of the defendants. At this stage of the proceeding the Court must view the evidence in the light most favorable to the complainant, J. Mark Caldwell. At this time, it would appear that the business in paying its bills and is solvent. A hearing is scheduled on the petition for dissolution in the near future. Appointment of a custodian for the business may result in default under the terms of its lease. However, communication among the directors and strict compliance with the orders of the Court remain a problem for the parties.

A month has gone by since the parties were to have arranged for the performance evaluation, and this has not been done.

The Court has ordered the Directors to meet pending a hearing on the instant motion. Appointment of a custodian may have serious consequences to the parties. Mindful of such consequences, the Court has heretofore suggested that the parties discuss the matter with a view toward other action to preserve and carry on the business pending a hearing on the merits; Va. Code Ann.§13.1-747 (E).

It would appear that continuing judicial oversight short of the appointment of a custodian is required. Accordingly, the motion to strike is granted and the instant application for the appointment of a custodian at this time is denied. However, petitioner is free to raise the issue pendente lite, should circumstances change prior to a hearing on the merits. Moreover, continuing judicial oversight is indicated. Accordingly, the BC Fitness shall file with the Court on the 1st and 15th of each month a detailed statement of income and expenditures and make a proper accounting for same. A copy of such reports shall be forwarded to each of the directors. In addition, the parties are directed to comply, forthwith, with the previous directives of the Court as contained in the consent orders.

Counsel for the corporation shall prepare an order consistent with this opinion to which the parties may note their exception.

Very truly yours,

Thomas D. Horne