Kreischer v. Kerrison Dry Goods

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

JANE P. KREISCHER; CHARLES F.
KREISCHER; EDWIN F. KREISCHER;
BARBARA W. KREISCHER,
Plaintiffs-Appellants,

v.
No. 99-1966
THE KERRISON DRY GOODS COMPANY;
EDWIN H. POULNOT, III; DALE
WIDMAN; GENE POULNOT RIGGS;
DAVID LAWRENCE POULNOT; JOAN
HUTCHINSON POULNOT,
Defendants-Appellees.

JANE P. KREISCHER; CHARLES F.
KREISCHER; EDWIN F. KREISCHER;
BARBARA W. KREISCHER,
Plaintiffs-Appellees,

v.
No. 99-1985
THE KERRISON DRY GOODS COMPANY;
EDWIN H. POULNOT, III; DALE
WIDMAN; GENE POULNOT RIGGS;
DAVID LAWRENCE POULNOT; JOAN
HUTCHINSON POULNOT,
Defendants-Appellants.

Appeals from the United States District Court
for the District of South Carolina, at Charleston.
C. Weston Houck, Chief District Judge.
(CA-91-3255-2-12)

Argued: March 2, 2000

Decided: August 16, 2000
Before WILKINS and LUTTIG, Circuit Judges, and
James H. MICHAEL, Jr., Senior United States District Judge
for the Western District of Virginia, sitting by designation.

_________________________________________________________________

Affirmed in part and remanded in part by unpublished per curiam
opinion.

_________________________________________________________________

COUNSEL

ARGUED: James Robert Howard, NALL & MILLER, L.L.P.,
Atlanta, Georgia, for Appellants. Robert Buford Wallace, WALLACE
& TINKLER, Charleston, South Carolina, for Appellees. ON
BRIEF: Jay Pontrelli, NALL & MILLER, L.L.P., Atlanta, Georgia,
for Appellants. Robert B. Wallace, WALLACE & TINKLER,
Charleston, South Carolina; T. Alexander Beard, BEARD LAW
OFFICES, Mt. Pleasant, South Carolina, for Appellees.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

The plaintiffs, Jane P. Kreischer, Charles F. Kreischer, Edwin F.
Kreischer, and Barbara Kreischer ("the Kreischers"), are minority
shareholders in The Kerrison Dry Goods Company ("Kerrisons" or
the "company"). Edwin H. Poulnot, III, Dale Poulnot Widman, Gene
Poulnot Riggs, David Lawrence Poulnot, and Joan Hutchison Poulnot
("the Poulnots"), are majority shareholders in Kerrisons. The Kreis-
chers sued Kerrisons and the Poulnots in the District of South Caro-
lina, requesting dissolution of Kerrisons due to alleged fraud,
oppression, and breach of fiduciary duties by the Poulnots. The dis-

2
trict court refused to order dissolution, but required the Poulnots to
purchase the Kreischers' shares for market value. We affirmed on
appeal, and remanded to the district court with instructions to order
the purchase of ten shares that had not been repurchased with the rest
of the shares. On remand, the Kreischers argued that they were enti-
tled to an award of attorneys' fees from the Poulnots. The district
court declined to award attorneys' fees to the Kreischers, but did
award postjudgment interest to them for the aforementioned ten
shares.

The Kreischers appeal from the district court's denial of attorneys'
fees. The Poulnots appeal the district court's award of postjudgment
interest. For the reasons stated herein, we hold that the district court
did not err in denying the Kreischers' claim for attorneys' fees, but
that the district court failed to determine properly the date from which
postjudgment interest should be calculated. Accordingly, we affirm
the district court's decision to deny attorneys' fees, and remand to the
district court for proper determination of postjudgment interest.

I.

Kerrisons is a family-owned South Carolina company that once
operated several department stores and specialty stores in South Caro-
lina. The Kreischers are the minority shareholders in Kerrisons, own-
ing approximately 28% of the company. The Poulnots are the
majority shareholders in Kerrisons. Although both the Poulnots and
the Kreischers are on Kerrisons's Board of Directors, the Poulnots
controlled the day-to-day operations of the company for many years.

Kerrisons began having financial problems in the mid-1980s. Stiff
competition from national retailers resulted in net losses for Kerrisons
in every year since 1986. Kerrisons now consists of only one depart-
ment store and a few specialty stores. In 1988, the Board of Directors
discussed liquidating Kerrisons because of its continued financial
deterioration. The Kreischers were very interested in liquidating the
company, as they were not optimistic about the company's ability to
turn a profit and wanted to realize some return for their minority
shareholder interests.

In May 1990, the Kreischers approached Edwin Poulnot III (Edwin
III), the President and lead shareholder in Kerrisons, about the possi-

3
bility of liquidation. Edwin III made a fairly low offer to purchase the
Kreischers' shares, which they refused. The Kreischers responded
with a counteroffer, which Edwin III refused.

In October 1991, the Kreischers sued the Poulnots in the District
of South Carolina, requesting dissolution of Kerrisons pursuant to
section 33-14-300 of the South Carolina Code. See S.C. Code Ann.
§ 33-14-300 (Law. Co-op. 1990) ("§ 33-14-300"). The Kreischers
alleged the following causes of action: (1) breach of fiduciary duties
by the directors of Kerrisons; (2) breach of fiduciary duties by the
officers of Kerrisons; (3) fraud; (4) conspiracy; (5) oppression; and
(6) negligence, mismanagement, waste, and misapplication of corpo-
rate assets. The Kreischers brought their claims in their individual
capacities and not as a derivative action on behalf of the corporation.
They did so because they asserted that "squeeze-out" suits are not
derivative actions.

On that basis, the Poulnots moved for and were granted partial
summary judgment as to counts one through four on the ground that
the Kreischers suffered no individual damages as a result of the
events of which they complained. The district court permitted counts
five and six to proceed to trial because individual shareholders may
maintain such actions under South Carolina law. See id.

The district court bifurcated the trial into liability and valuation
phases. A jury was selected and began hearing evidence on the liabil-
ity phase, but the court dismissed the jury on July 28, 1993. The court
did so because it concluded that judicial dissolution proceedings
under § 33-14-300 are equitable, not legal; therefore, whether to grant
the requested relief was a question for the court.

The district court rejected the Kreischers' allegations of improper
conduct by the Poulnots. For example, the court stated the following
in rejecting the Kreischers' claim of oppression:

The plaintiffs also have not made out a case for oppression.
Oppressive conduct is only made out if the plaintiffs can
show the defendants treated them unfairly. The parties
always treated each other the same until this litigation began
according to the record. The plaintiffs historically chose to

4
 take an inactive role in the running of the Company, and the
defendants, for obvious reasons, were eager to oblige them.
While the practices which the plaintiffs claim were oppres-
sive may have often not been good business practices, the
plaintiffs cannot show they were prejudiced in any way. . . .
The defendants['] conduct simply does not rise to the level
that this court believes calls for the extraordinary remedy of
judicial dissolution.

(J.A. 1227.)

The district court concluded that dissolution of Kerrisons was not
warranted, but that a court-ordered buyout of the Kreischers' shares
was an equitable and appropriate solution to the matter. On January
29, 1997, after two valuation trials, the court concluded that the Kreis-
chers' shares were worth $704,306.31. The court gave the Poulnots
120 days to pay that amount to the Kreischers in exchange for the
shares. However, the district court failed to dispose of ten shares that
Edwin Poulnot II (Edwin II) owned at his death. The ten shares were
still in Edwin II's estate, but Jane Kreischer owned a beneficial inter-
est in the shares under Edwin II's will.

The Kreischers appealed, challenging, among other things, the dis-
trict court's finding that dissolution of Kerrisons was not warranted.
We rejected the Kreischers' arguments. See Kreischer v. The Kerrison
Dry Goods Co., Nos. 97-1230, 97-1800, 1999 WL 30836 (4th Cir.
Jan. 26, 1999). Specifically, we held that "[s]ince the Kreischers dem-
onstrated no injury to themselves, there can be no fraud with respect
to those issues," id. at **6, and that"the record offers abundant evi-
dence that establishes that there was no oppression," id. at **7. We
also affirmed the district court's finding that the Kreischers' request
for attorneys' fees was not ripe. See id. at **9.

The Poulnots cross-appealed, arguing that the district court erred in
failing to order the Poulnots to purchase the ten shares from Jane
Kreischer. We agreed, and instructed the district court to order the
Poulnots to purchase the ten shares from Jane Kreischer. See id. at
**13.

On remand, the Kreischers again pursued their claim for attorneys'
fees. The Kreischers argued that their attorneys' fees for this case

5
were $2,474,339. On June 10, 1999, the district court rejected the
Kreischers' claim for attorneys' fees. The court found that the Kreis-
chers failed to establish that they were entitled to attorneys' fees
under any of the exceptions to the American Rule. The court also
rejected the Kreischers' claim that they should receive attorneys' fees
under section 33-14-310(d) of the South Carolina Code. See S.C.
Code Ann. § 33-14-310(d) (Law. Co-op. 1990) ("§ 33-14-310(d)").

Also in its June 10 order, the district court directed the Poulnots to
purchase the remaining ten shares from Jane Kreischer. The court
ordered that interest on the value of the ten shares would run from
January 29, 1997, the date the court valued the rest of the Kreischers'
shares.

The Kreischers now appeal the district court's refusal to award
them attorneys' fees. The Poulnots appeal the running of postjudg-
ment interest on the ten shares from January 29, 1997.

II.

A.

Federal courts apply the "American Rule" in deciding whether an
award of attorneys' fees is appropriate. In the United States, each
party in a lawsuit bears its own attorneys' fees"unless there is express
statutory authorization to the contrary." Hensley v. Eckerhart, 461
U.S. 424, 429 (1983). The Supreme Court has recognized three
exceptions, pursuant to which a federal court can award attorneys'
fees through its inherent powers. These exceptions are: (1) where a
party's litigation efforts directly benefit others (the "common fund"
exception); (2) where a party willfully disobeyed a court order; and
(3) where a party acts in bad faith, vexatiously, or for oppressive rea-
sons (the "bad faith" exception). See Chambers v. NASCO, Inc., 501
U.S. 32, 45-46 (1991). The Fourth Circuit also has recognized an "es-
sential to equity" exception that may apply in exceptional circum-
stances. See Rolax v. Atlantic Coast Line R.R. Co., 186 F.2d 473 (4th
Cir. 1951). Although these exceptions exist, their status as exceptions
must not be forgotten. The Supreme Court cautioned that "because of
their very potency, inherent powers must be exercised with restraint
and discretion." Chambers, 501 U.S. at 44.

6
In the instant case, the Kreischers argue that the district court
should have awarded attorneys' fees under the "common fund" excep-
tion, the "bad faith" exception, and the "essential to equity" exception.
The Kreischers also argue that the district court should have awarded
attorneys' fees under § 33-14-310(d). We review a district court's
decision to deny attorneys' fees for an abuse of discretion. See
Hitachi Credit Am. Corp. v. Signet Bank, 166 F.3d 614, 631 (4th Cir.
1999).

1.

The Kreischers first argue that they are entitled to attorneys' fees
under the common fund exception to the American Rule. The com-
mon fund exception typically applies in a shareholder derivative
action. In such a case, a plaintiff who spends a considerable amount
litigating the case for the benefit of the corporation and all of its
shareholders may be entitled to reimbursement for litigation expenses.
See Mills v. Electric Auto-Lite Co., 396 U.S. 375, 394-95 (1970). The
Kreischers cannot rely on a monetary benefit to Kerrisons to support
their claim for fees, as they asserted their claims as individuals rather
than as a derivative action.

Recognizing this, the Kreischers argue that their claims against the
Poulnots benefitted Kerrisons by forcing the Poulnots to organize
Kerrisons's corporate records and discover the "truth" about the miss-
ing ten shares of stock. The Kreischers rely on the Supreme Court's
holding in Mills, that the common fund exception may apply when a
corporation receives no monetary benefit. See Mills, 396 U.S. at 395
(agreeing with "an increasing number of lower courts [that] have
acknowledged that a corporation may receive a `substantial benefit'
from a derivative suit, justifying an award of counsel fees, regardless
of whether the benefit is pecuniary in nature").

Mills, however, was a derivative case where the plaintiffs conferred
a benefit on the corporation as a whole by overturning a defective
proxy solicitation. The Kreischers fail to cite any cases applying the
common fund exception to individual actions against a corporation.
In addition, the Kreischers' claim that Kerrisons"benefitted" from
their suit is speculative, at best. The benefits received by Kerrisons,
better record keeping and discovery of the "truth" about corporate

7
stock, are incidental to any protracted litigation within a small corpo-
ration.

The district court recognized the Kreischers' claim for fees would
tend to make an award of attorneys' fees the norm, rather than the
exception, in actions against a corporation. Such a holding would con-
travene the Supreme Court's admonition that federal courts "exercise
restraint and discretion" before awarding fees. See Chambers, 501
U.S. at 44. The common fund exception does not support the Kreis-
chers' claim to an award of attorneys' fees.

2.

The Kreischers next argue that they are entitled to attorneys' fees
under the exception for bad faith or oppressive conduct. The Kreis-
chers allege the Poulnots engaged in bad faith and oppression both
prior to and during the course of the litigation.

The Kreischers' argument that they are entitled to attorneys' fees
for prelitigation bad faith and oppression is without merit. The district
court found that the Poulnots were not guilty of fraud or oppression
in its May 1, 1995 order denying the Kreischers' request for dissolu-
tion. We affirmed, specifically rejecting the Kreischers' claims of
fraud and oppression. See Kreischer, 1999 WL 30836, at **10 ("At
bottom, [the Kreischers'] argument is premised upon findings of fraud
and oppression and other wrongful conduct . . . .[T]he Poulnots' con-
duct, although distasteful, did not rise to that level."). The Kreischers
cannot relitigate these issues in the context of a claim for attorneys'
fees. As before, the record supports the district court's finding that the
Poulnots did not engage in prelitigation fraud or oppression. The
Kreischers are not entitled to attorneys' fees for the Poulnots' preliti-
gation conduct, the issue as to prelitigation conduct having been
resolved finally by the previous decision of this court.

The Kreischers also claim that they are entitled to attorneys' fees
because the Poulnots acted vexatiously and in bad faith as litigants
during the course of this action. The Kreischers argue that they were
forced to incur substantial expenses in advancing their claims due to
the Poulnot's false testimony and failure to produce records in discov-
ery.

8
The district court rejected the Kreischers' allegations of discovery
abuse in its January 29, 1997 order. The court stated that the "[the]
claim that the defendants were somehow guilty of fraud or conceal-
ment of material facts is without merit." (J.A. 2110.) On June 10,
1999, the district court rejected the Kreischers' claim for attorneys'
fees due to bad faith during the course of the litigation. The court held
that "the defendants' conduct as litigants during this action does not
come close to the type of conduct warranting the sanction of attor-
neys' fees. . . . [T]he plaintiffs['] claims of discovery abuses commit-
ted by the defendants [are] without merit." (J.A. 2251.)

The district judge presided over this proceeding for eight years; he
was in the best position to determine whether the Poulnots were guilty
of concealment or other discovery abuses, and the record contains
nothing that indicates he abused his discretion in refusing to award
attorneys' fees on this ground. The Kreischers are not entitled to attor-
neys' fees for the Poulnots' conduct during the course of the litiga-
tion.

3.

The Kreischers also contend that the district court should have
awarded attorneys' fees under the "essential to equity" exception. The
Kreischers rely on Rolax v. Atlantic Coast Line R.R. Co., 186 F.2d
473 (4th Cir. 1951), in support of their argument. In Rolax, the court
stated that prevailing parties normally do not receive an award of
attorneys' fees, but noted that, "in suit in equity, where the taxation
of such costs is essential to the doing of justice, they may be allowed
in exceptional cases." Id. at 481.

The Kreischers claim that their attorneys' fees exceed the amount
they received from the Poulnots for their shares, resulting in a "net
zero" benefit for this litigation. The Poulnots' attorneys' fees were
paid by the corporate treasury. The Kreischers argue that an award of
attorneys' fees thus is "essential to equity" under Rolax.

Rolax stated that attorneys' fees were appropriate in exceptional
cases involving discriminatory and oppressive conduct. See id. at 481.
Here, both the district court and this court found that the Poulnots did
not engage in discrimination, fraud, or oppression. The Kreischers'

9
argument under the "essential to equity" exception, therefore, is with-
out merit.

4.

Next, the Kreischers argue that the district court should have
awarded attorneys' fees under § 33-14-310(d). Section 33-14-310(d)
provides:

(d) In any action filed by a shareholder to dissolve a cor-
poration on the grounds enumerated in Section 33-14-300,
the court may make such order or grant such relief, other
than dissolution, as in its discretion is appropriate, includ-
ing, without limitation, an order:

(1) canceling or altering any provision contained
in the articles of incorporation, or any amendment
to the articles, or in the bylaws of the corporation;

(2) canceling, altering, or enjoining any act or
resolution of the corporation;

(3) directing or prohibiting any act of the corpo-
ration or of shareholders, directors, officers, or
other persons party to the action; or

(4) providing for the purchase at their fair value
of shares of any shareholder, either by the corpora-
tion or by other shareholders.

(e) The relief authorized in subsection (d) may be granted
as an alternative to a decree of dissolution or may be granted
whenever the circumstances of the case are such that the
relief, but not dissolution, is appropriate.

S.C. Code Ann. § 33-14-310(d) (Law. Co-op. 1990) (emphasis
added).

The Kreischers argue that § 33-14-310(d) authorizes the district
court, in its discretion, to award attorneys' fees to a prevailing party.

10
South Carolina has several statutes that expressly recognize the possi-
bility of an attorneys' fees award. See, e.g. , S.C. Code Ann. § 31-21-
140(B) (Law. Co-op. 1990) (stating that the "court may grant as
relief, as it considers appropriate, any permanent or temporary injunc-
tion . . . together with court costs and reasonable attorney's fees").
The South Carolina legislature explicitly would have listed attorneys'
fees in § 33-14-310(d) if the statute were designed to provide for such
an award. Not having done so, the legislature does not appear to have
intended to permit the awarding of attorneys' fees under that section
of the South Carolina Code. This interpretation finds support in that,
as the Kreischers concede, no court ever has awarded attorneys' fees
based on § 33-14-310(d). Even if fees were recoverable under § 33-
14-310(d), the district court acted within its discretion in denying
attorneys' fees, given its findings that the Poulnots did not engage in
fraud or oppression.

B.

The Poulnots' cross-appeal challenges the district court's holding
that the Poulnots were liable for postjudgment interest on the remain-
ing ten shares from January 29, 1997. Federal law provides that
"[s]uch interest shall be calculated from the date of the entry of judg-
ment." 28 U.S.C. § 1961 (West 1994). The district court did not enter
judgment on the ten shares at issue until June 10, 1999.

The Poulnots argue that they are not liable for interest on the shares
until June 10, 1999. In response, the Kreischers argue that charging
interest from 1999 rather than 1997 would be inequitable because it
would "minimize and reduce their recovery further." (Reply Br. at
13.) The Kreischers cite no authority in support of their position.

The Supreme Court analyzed the issue of postjudgment interest in
Kaiser Aluminum & Chemical Corporation v. Bonjorno , 494 U.S. 827
(1990). In that case, the district court entered a judgment in favor of
the plaintiffs on August 22, 1979, following a jury trial. See id. at 830.
However, the court vacated the jury's damages award due to insuffi-
cient evidence, and ordered a new trial on damages. The plaintiffs
received a second damages award on December 4, 1981. See id. The
plaintiffs argued that the district court should have calculated post-

11
judgment interest from 1979 rather than 1981. The Supreme Court
disagreed:

"[T]he purpose of postjudgment interest is to compensate
the successful plaintiff for being deprived of compensation
for the loss of the time between the ascertainment of the
damage and the payment by the defendant." Where the judg-
ment on damages was not supported by the evidence, the
damages have not been "ascertained" in any meaningful
way.

Id. at 835-36 (citation omitted) (alteration in original) (quoting Poleto
v. Consolidated Rail Corp., 826 F.2d 1270, 1280 (3d Cir. 1987)).

In the instant case, the district court did not enter a final judgment
forcing the Poulnots to purchase the ten shares until June 10, 1999.
The Kreischers thus could not have ascertained, with certainty, the
amount that they were going to receive for those shares until that date.
Therefore, postjudgment interest began to accrue on June 10, 1999.
Interest should have been calculated from June 10, 1999, rather than
January 29, 1997.

III.

Based on the foregoing, we affirm the district court's denial of
attorneys' fees, and remand the district court's calculation of post-
judgment interest to permit a calculation of that interest in accordance
with the principles set forth in this opinion.

AFFIRMED IN PART AND REMANDED IN PART

12