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Marcum v. Scorsone

Supreme Court of Kentucky

April 2, 2015

FRANK D. MARCUM; JAMES D. CONWAY; FOSTER NORTHROP; AND MARK CHENEY, APPELLANTS
v.
HON. ERNESTO SCORSONE, JUDGE, FAYETTE CIRCUIT COURT, APPELLEE AND PAUL R. PLANTE, JR., REAL PARTY IN INTEREST

Released for Publication April 23, 2015.

Page 711

ON APPEAL FROM COURT OF APPEALS. CASE NO. 2013-CA-002146-OA. FAYETTE CIRCUIT COURT NO. 12-CI-00040.

FOR APPELLANTS: Thomas W. Miller, Elizabeth C. Woodford, Michelle Lynn Hurley, Miller, Griffin & Marks, PSC, Lexington, Kentucky.

FOR APPELLEE: Hon. Ernesto Scorsone, Judge, Fayette Circuit Court, Robert F. Stephens Courthouse, Lexington, Kentucky.

FOR REAL PARTY IN INTEREST: William B. Rambicure, Miller Wells, PLLC, Lexington, Kentucky; Albert F. Grasch, Jr., Crista Dittert Hollingsworth, James L. Thomerson, Grasch Law, PSC, Lexington, Kentucky.

All sitting. Minton, C.J.; Abramson, Barber, Cunningham, Keller, JJ., concur. Venters, J., concurs in result only by separate opinion.

Page 712

OPINION

NOBLE, JUSTICE

Appellants, Frank D. Marcum, James D. Conway, Foster Northrop, and Mark Cheney, sought a writ of prohibition in the Court of Appeals to bar enforcement of an order disqualifying their lawyers, the firm Miller, Griffin, & Marks, PSC (MGM), in a shareholder-derivative suit brought by the Real Party in Interest, Paul R. Plante, Jr., where the order was granted based on a finding of an " appearance of impropriety." The Court of Appeals denied the writ, concluding that one of the prerequisites for a writ, specifically a showing of irreparable harm, had not been made. This Court concludes that the Appellants have adequately shown the prerequisites for the availability of a writ and that the trial court applied an incorrect legal standard (" an appearance of impropriety" ) in disqualifying the firm. Moreover, disqualification

Page 713

was improper under the correct standard (a showing of actual conflict), at least based on the current record and findings of the trial court. Thus, this Court reverses and remands for entry of the requested writ.

I. Background

The shareholder-derivative suit underlying this writ action gives an excellent corporate representation of the infamous " Gordian knot." The Real Party in Interest (Plante) and the Appellants (Marcum, Conway, Northrop and Cheney), along with Bill Seanor, began their journey as the shareholders of Arthrodynamic Technologies Animal Health Division, Inc. (ADT), a Kentucky corporation that sells veterinary products. Originally, Marcum and Conway each owned 37.5% of the shares; Cheney owned 10%; and Northrop, Plante, and Seanor each owned 5%. All six shareholders were originally on the board of directors. Over time, disputes among the shareholders led to changes in the officers and membership of the corporate board.

In late 2010, Plante and Seanor seized control of the board, apparently having convinced a majority of the directors that Marcum and Conway had acted improperly, and caused Marcum and Conway to be removed from the board.[1] Plante and Seanor were installed as the secretary and president respectively. In February 2011, Conway and Marcum, holding a total of 75% of the shares of ADT, returned to the board, though Plante and Seanor remained in their role as officers.

In March 2011, a majority of the board caused the corporation to file a lawsuit against Marcum and Conway in Fayette Circuit Court alleging breach of fiduciary duties, misappropriation of corporate funds, and other claims. The suit was later transferred to Woodford Circuit Court. Miller, Griffin and Marks (MGM) represented Marcum and Conway individually in that action through the services of Thomas Miller.

On August 29, 2011, Bioniche Animal Health USA, Inc., which had been ADT's manufacturer, filed suit against ADT in federal court over a contract dispute. ADT was defended in the litigation by Stites & Harbison PLLC, a Kentucky law firm, and Sutherland Asbill & Brennan LLP, a firm headquartered in Atlanta.

In October and November 2011, there was some shaking up of the board's membership related to Marcum's claimed purchase of shares owned by Northrop, Cheney, and Conway.[2] Northrop tendered his resignation from the board, which was accepted at an October board meeting. In October, Cheney also executed a resignation letter, addressed to Seanor as president,

Page 714

but the letter was never delivered and was instead held by Marcum's counsel. Upon acceptance of Northrop's resignation, Bob Watson[3] was named to the board in his stead. On October 31, 2011, a board meeting was held at which Seanor was removed as president and replaced by Marcum, Cheney was ...


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