Richards v. Bryan

Kansas Court of Appeals · 1994 · Corporations

879 P.2d 638 (1994)

Updated August 22, 2026

Corporationsclose corporationminority shareholderfreeze-outfiduciary dutydirect vs derivative actionsummary judgmentemployment contract

Facts

Richards invested $35,000 in Bryan World Travel of Overland Park, Inc. and received 49% of the stock under an Articles of Agreement stating he would continue to be appointed president and chief executive officer as long as he performed his duties credibly. Tours, the 51% shareholder, provided management services for a 1% fee and also advanced funds to Travel as loans without Richards' knowledge or consent. Richards was paid his $2,000 monthly salary from 1983 through the end of 1987, but no dividends or bonuses were ever authorized, and he was removed after the board became dissatisfied with his performance. He later sued alleging fraud, breach of contract, and breach of fiduciary duty, and a discovery dispute arose when his expert failed to appear for a scheduled deposition after Richards sought a last-minute protective order.

Issue

Whether summary judgment was proper on Richards' claims for breach of contract, fraud, and breach of fiduciary duty, and whether the district court properly imposed discovery sanctions without a hearing. The case also presented whether a minority shareholder in a close corporation could pursue fiduciary-duty claims directly rather than only derivatively.

Rule

A corporation's board is bound by an employment contract that limits removal of an officer, and where the contract provides continued appointment as long as the officer performs his duties credibly, whether that standard is met is a fact question not suitable for summary judgment when material facts are disputed. In a closely held corporation, a court may in its discretion treat derivative claims as a direct action if doing so will not unfairly expose the corporation to multiple suits, materially prejudice creditors, or interfere with fair distribution among interested persons. To defeat summary judgment on a fiduciary-duty claim involving self-dealing, the complaining party must make a prima facie showing of impropriety; once that showing is made, the burden shifts to the fiduciary to prove fairness and good faith. A fraud claim must be filed within two years of discovery of the fraud, and discovery sanctions under K.S.A. 60-237(a)(4) require an opportunity for hearing before expenses are awarded.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Maple Street Catering, Inc., a closely held Kansas corporation in Wichita, has two shareholder groups: Nina Patel owns 48%, and the Cole family owns 52%. Nina alleges the Cole family caused the corporation to pay inflated consulting fees to an affiliated entity, reducing corporate profits; there are no known creditor disputes, and no other shareholders could bring similar suits.

If Nina files an individual action for breach of fiduciary duty based on harm primarily suffered by the corporation, how should the court rule on standing?

Explanation. In a closely held corporation, the court may in its discretion treat derivative claims as direct if doing so will not unfairly expose the corporation to multiple actions, materially prejudice creditors, or interfere with fair distribution among interested persons. Here, the corporation has only two shareholder groups and no apparent creditor or distribution problems, so the exception may apply.