Mona v. Mona Electric Group, Inc.

DEBORAH S. EYLER, J. In the Circuit Court for Prince George’s County, Mark Mona (“Mark”) brought suit for declaratory and injunctive relief and damages against his father, Vincent Patrick “Cap” Mona (“Cap”); Mona Electric Group, Inc. (“MEG” or “the company”); and five former and present directors of MEG and one employee, all of whom were voluntarily dismissed before trial. The complaint stated eleven counts. In the year and a half between the initial filing date and trial, it was amended three times, adding and deleting various claims and defendants. Before trial, all of the counts in the third amended complaint were disposed of by motion, except: 1) breach of fiduciary duty against Cap; 2) fraud against Cap; 3) unjust enrichment against MEG; 4) a derivative action against MEG; and 5) a declaratory judgment action. 1 The case was tried to a jury for six days.

At the conclusion of Mark’s case-in-chief, the court granted Cap’s motion for judgment on the breach of fiduciary duty and fraud counts and MEG’s motion for judgment on the derivative action. 2 The claims against MEG for unjust enrichment and declaratory judgment survived. Over MEG’s objection, the unjust enrichment claim was submitted to the jury for decision. The jury returned a verdict in favor of Mark and against MEG for $1,241,000. Thereafter, the court dismissed the declaratory judgment claim as moot. 3 In a timely filed motion for judgment notwithstanding the verdict (“JNOV”), MEG argued that the unjust enrichment claim should have been decided by the court, not by a jury, ⁶⁸⁴ and was barred by the doctrine of judicial estoppel in any event.

In support of its estoppel argument, it pointed out that Mark had admitted in his testimony at trial to conduct that was an offense under the federal tax laws. Specifically, Mark had testified that he had taken a tax write-off on his individual federal return based upon his personal guarantee of advances MEG had made to Mona Energy, Inc. (“Mona Energy”), a subsidiary wholly owned by Mark; but he also testified that he had never personally guaranteed those advances. The advances only could be used by Mark to support the tax write-off if he had personally guaranteed them. Of the damages awarded by the jury, $581,789 was to compensate Mark for MEG’s having deducted, from his share of a dividend the company declared in March 2005, sums the company had advanced to Mona Energy and, according to the company, that Mark had guaranteed.

During the hearing on MEG’s JNOV motion, the court, following up on MEG’s assertion that Mark had admitted to tax fraud, asked whether the “clean hands” doctrine should preclude Mark from recovering the $581,789. The court decided to continue the hearing and give the parties an opportunity to brief the clean hands issue, which they did. At the continued hearing, the trial judge entertained argument of counsel and then ruled that Mark had not come to court with clean hands with respect to the $581,789 he had sued to recover as having been wrongly deducted from his share of the March 2005 dividend. On that ground, the court reduced the judgment by $581,789.

Judgment in favor of Mark for $659,211 was entered on December 7, 2005. Immediately after entry of the December 7, 2005 judgment, Mark demanded that the full amount of the judgment, plus postjudgment interest, be paid. On December 19, 2005, MEG paid the judgment and a sum of money representing post-judgment interest from December 7 to December 19. Mark insisted that he was owed postjudgment interest from the date of the jury verdict to December 19, and refused to file an order of satisfaction.

Ultimately, the trial court ruled that ⁶⁸⁵ MEG was responsible for paying postjudgment interest beginning from the date of the verdict. MEG then paid that amount, and Mark filed an order of satisfaction. Mark and MEG each noted timely appeals. Because Mark’s notice of appeal was filed first, his appeal was designated as such and MEG’s was designated as a cross-appeal.

In his appeal, Mark poses two questions for review, which we have reordered and reworded: 4 I. Was the evidence in Mark’s case-in-chief legally sufficient to support a verdict in his favor for breach of fiduciary duty against Cap?

II

Did the trial court err by sua sponte reducing the jury’s damages award pursuant to a motion for JNOV? In its cross-appeal, MEG poses six questions, two of which are essentially the same as Mark’s questions. The four independent cross-appeal questions are: I. Should Mark’s appeal of the reduction of the damages award on the unjust enrichment claim be dismissed under the acquiescence doctrine?

II

Did the trial court err by submitting the unjust enrichment claim to the jury for decision, instead of deciding it itself?

III

Was Mark judicially estopped to bring his claim for unjust enrichment? ⁶⁸⁶ IV. Did the trial court err by awarding post-judgment interest from the date of the original judgment instead of from the date of the revised judgment? For the reasons discussed below, we shall affirm the judgment of the circuit court. FACTS AND PROCEEDINGS MEG is an ordinary business corporation with its principal place of business in the Prince George’s County town of Clinton.

It is the current iteration of the business first organized and incorporated in 1966 as the Mona Electric Company, Inc., and later divided into Mona Electrical Construction, Inc., and Mona Electrical Service, Inc. MEG is a Subchapter S corporation under the Internal Revenue Code. Cap Mona is the founder, President, and Chairman of the Board of Directors of MEG. During the time relevant to this case, he owned 50.6% of the shares of stock in MEG, including all of the voting shares. Mark is one of five children of Cap and Susan Mona.

Beginning in the 1980’s, he was president of Mona Electrical Construction, Inc., and his older brother, Andy, was President of Mona Electrical Service, Inc. Cap was the chief executive officer (“CEO”) of both companies. In November 1992, Andy died of melanoma. Thereafter, Mark became president of both companies. In the late 1990’s, the companies were combined to form MEG.

From the mid-1990’s until April 2002, Mark served as MEG’s CEO. During that time, he ran the company’s day-today operations while Cap served in an advisory role. Cap and Susan were the original sole stockholders in the companies that later became MEG. Beginning in 1992, after Andy’s death, Susan began making gifts of her stock to Mark.

The gifts were made with Cap’s knowledge and approval. From 1997 through 2001, Cap and Mark tried to find an outside purchaser for MEG. When third-party sale negotiations proved unsuccessful, they explored the option of Mark’s ⁶⁸⁷ buying out Cap’s shares in the company. Mark made various offers to purchase Cap’s shares, which Cap rejected.

As the negotiations continued, Cap and Mark’s relationship grew increasingly hostile and deteriorated. In February 2002, Cap, through counsel, informed Mark in writing that, if he could not meet the price Cap was demanding for his interest in MEG, Cap would “return to the business and exercise the rights he has as the owner of the voting stock of the business.” Mark and Cap were not able to agree on a price. In April 2002, the Board of Directors fired Mark, removed him as a director, and elected Cap President and CEO of the company. A few months later, Susan Mona was diagnosed with cancer.

In 2003, Susan still owned 25% of the stock in MEG. At some point before September of that year, she gave all her remaining stock to Mark, upon his promise that he and Cap would mend their relationship. With that gift, Mark became the only stockholder in MEG other than Cap, having acquired 49.4% of the stock in the company through the gifts from his mother. Susan Mona died in November 2003.

On February 26, 2004, in the Circuit Court for Prince George’s County, Mark filed the instant suit. He alleged among other things that the company had failed, wrongly, to declare a dividend for three years, to his detriment as a shareholder and contrary to agreements that a dividend would be declared. Specifically, Mark alleged that on February 13, 2001, the shareholders agreed in writing to issue a “regular dividend” of $950,000, but the company reneged on that agreement; and that on December 27, 2001, the Board voted to issue a $210,000 dividend to Mark, which the company then failed to pay. MEG filed a counterclaim that included counts for breach of contract and fiduciary duty.

It alleged that Mark had improperly taken personal advances from the company that he had not repaid and had taken advances from the company on behalf of Mona Energy, which he also had failed to repay. In support, MEG alleged that the very documents Mark was ⁶⁸⁸ relying upon in asking the court to order it to pay promised dividends contained promises by Mark that whatever dividends were issued would be used to repay the advances he had taken from the company, personally and on behalf of Mona Energy. The case was specially assigned and designated a June 28, 2005 trial date. Mark filed an amended complaint, and later a second amended complaint, by which he eliminated and added certain individual defendants, all of whom were no longer in the case by the time of trial and are not parties to this appeal.

The appellees filed an amended counterclaim. In rulings on motions to dismiss, the court narrowed the scope of several of Mark’s claims. As pertinent to the issues on appeal, on January 7, 2005, the court dismissed MEG from the derivative action. The appellees then filed a second amended counterclaim.

On February 4, 2005, in a second motions hearing, the court limited Mark’s breach of fiduciary duty claim to Cap and limited a claim Mark had made against individual directors for payment of a dividend, ruling that individual directors (as opposed to the company) did not have a duty to a minority shareholder with respect to dividends. 5 The parties each moved for summary judgment. In the meantime, on March 3, 2005, the MEG Board of Directors declared a dividend of $3.2 million dollars. The company deducted from Mark’s share of the dividend the sums the Board had determined, and was alleging, he owed MEG. Specifically, after apportioning the dividend between Mark and Cap according to their percentage ownership of shares, MEG deducted $1,531,590 dollars from Mark’s portion, as follows: • $581,789, for one-half of the balance due on advances to Mona Energy (a subsidiary business wholly owned by ⁶⁸⁹ Mark) that MEG claimed Mark and Cap had personally guaranteed; • $290,590, for the balance due on loans from MEG to Peak Trader, a business venture owned by Mark; • $547,786, for personal advances that Mark had taken from MEG but had not repaid; and • $111,425, for interest on the money borrowed.

After these deductions, Mark received $49,219. (Prior to the issuance of the dividend, Cap had repaid his $581,789 share of the advances MEG had paid to Mona Energy.) On April 26, 2005, Mark filed a third amended complaint. He added an unjust enrichment count against MEG, claiming that, to its own benefit, the company had wrongly deducted the above sums from his share of the March 2005 dividend. His breach of fiduciary duty count was against Cap only; and his derivative action was against Cap and another individual defendant who later was voluntarily dismissed.

In his declaratory judgment count, Mark sought a finding that the sums deducted from his share of the March 2005 dividend were improperly taken by the company. With the payment of the dividend, and the deduction from Mark’s share of the monies that MEG had counterclaimed to recover, MEG moved for leave to dismiss its counterclaim, which was granted over Mark’s objection. In the meantime, the discovery phase of the litigation had been in progress. In deposition, Mark refused to answer any questions about the damages he was claiming to have suffered as a consequence of Cap’s alleged breach of fiduciary duty, stating that damages would be the subject of testimony by an accountant expert witness.

No report of that expert witness was produced, however, and Mark later canceled the expert’s deposition and withdrew him. That prompted the appellees to move for sanctions on the ground that Mark had effectively prevented them from gaining any information about the damages he was seeking to recover. The court granted the motion, ruling that Mark could not testify about any claimed ⁶⁹⁰ damages, except with respect to the sums that were deducted from his share of the March 2005 dividend. 6 The court ruled in part on the motions for summary judgment in the month before trial, and ruled on the remaining summary judgment issues immediately before trial. Among other things, the court reiterated its ruling that the obligation to pay a dividend is that of the corporation, not of an individual director, officer, or shareholder, and arises when a dividend is declared; and the power to declare a dividend rests in the directors of the company.

Accordingly, Cap did not owe any duty to Mark with respect to the payment of dividends. 7 In support of his motion for summary judgment on the breach of fiduciary duty claim, Cap argued that Mark had no admissible evidence of damages to support that claim. The evidence generated in discovery and presented on the summary judgment record showed that the damages Mark was seeking to recover on this count were 1) an equal share of the salary and bonuses the company had paid to Cap from 2001 forward, on the theory that those monies were “constructive dividends” that Mark, as the other shareholder in the company, should have received as well; 2) an equal share of the reimbursements Cap received from the company during that same time period, on the theory that they were improper diversions of corporate monies to Cap; and 3) the monies that Mark claimed were improperly deducted from his share of the March 2005 dividend. The trial court granted summary judgment in favor of Cap, in part, on the issue of damages for breach of fiduciary duty. It ruled that, to the extent Mark was seeking damages in the form of a dividend that he was claiming should have been declared and paid to him, or in the form of deductions he was claiming were wrongly taken from the March 2005 dividend, any duty owed to Mark was a duty of the corporation, not of Cap; therefore, those damages were not recoverable against ⁶⁹¹ Cap.

(Also, the latter damages were being sought against the company by Mark in his unjust enrichment claim.) The court denied summary judgment, however, with respect to damages for improper payment to Cap of excessive salary and bonuses and allegedly improper reimbursements. A jury was selected and trial began on June 28, 2005. Mark’s theory of recovery was that Cap and the Board of Directors had understated MEG’s earnings in 2001, 2002, and 2003 in order to avoid having to declare a dividend; that from 2002 forward Cap was paid an inflated salary and bonuses; that, when Cap returned to manage the company in April 2002, he replaced the existing Board of Directors with people aligned with him and used the new Board and his 100% ownership of the voting shares in MEG to “freeze out” Mark, to the detriment of both Mark and the company; and that, when the Board finally declared a dividend three months before trial, it wrongly deducted amounts from his share that he did not owe the company. Cap’s theory of the case was that Mark had neglected the company during his tenure as CEO and that in the wake of Mark’s poor management and in the context of a weakening economy it would have been irresponsible for MEG to have declared a dividend before it did; his compensation package was fair and the Board’s decisions on that score were made in good faith and therefore were protected from scrutiny by the business judgment rule; Mark had received advances from MEG, including advances paid to Mona Energy, which he had personally guaranteed, and the deductions from Mark’s share of the March 2005 dividend were properly made, in order for the company to recover the sums Mark owed it.

As noted above, after the court ruled on motions for judgment, the unjust enrichment claim was submitted to the jury, which returned a verdict in favor of Mark against MEG. It awarded Mark $581,789 for the deduction MEG had taken for the money owed by Mona Energy; $290,590 for the deduction MEG had taken for the money owed by Peak Trader; $547,786 for the deduction MEG had taken for personal ad ⁶⁹² vanees allegedly made to Mark, but not repaid; and $111,425 for the deduction MEG had taken for interest on the above amounts. The trial court dismissed Mark’s only other claim, for declaratory judgment, as moot. That claim had been narrowed by pretrial motions to concern only the question whether the deductions from Mark’s share of the March 2005 dividend were properly made; that exact claim had been resolved by the jury in its decision on the unjust enrichment count.

Ultimately, as we shall discuss, the court granted a partial JNOV in MEG’s favor, reducing the amount of damages Mark would receive by the $581,789 awarded with respect to the Mona Energy advances. We shall furnish additional facts as necessary to our discussion of the issues. DISCUSSION APPEAL I. Was the evidence legally sufficient to make Mark’s breach OF FIDUCIARY DUTY CLAIM AGAINST CAP A JURY ISSUE? (a) Mark contends that the evidence adduced in his case-in-chief was legally sufficient to make his breach of fiduciary duty claim against Cap a jury issue, and therefore the trial court erred by granting a motion for judgment in favor of Cap on that claim.

At trial, in accordance with the court’s pretrial rulings, Mark attempted to prove that Cap breached a fiduciary duty to him by taking excessive executive compensation and reimbursements for personal activities. Specifically, Mark sought to prove that Cap had orchestrated the Board’s approval of his own grossly inflated compensation package, thereby violating his fiduciary duty, as the majority shareholder, to Mark, as the minority shareholder; and that likewise Cap had obtained ⁶⁹³ by Board approval reimbursement for expenses that were personal, not business related, in breach of his fiduciary duty to Mark. At the close of Mark’s case-in-chief, Cap moved for judgment on the breach of fiduciary duty claim, making two arguments. First, assuming arguendo that Mark had adduced legally sufficient evidence of duty and breach, the evidence showed only that any injury sustained as a result of the breach was to the company, not to Mark, who “ha[d] not shown that he was the owner of any right that might have been violated here.” In other words, if excessive compensation and improper reimbursements indeed were paid to Cap, in violation of a fiduciary duty owed by Cap, any injury sustained as a consequence was to the company.

On that basis, Cap asserted that any claim to recover any such sums was not a claim personal to Mark, that he could bring directly; rather, it was a claim of the corporation, that Mark only could pursue in the form of a derivative action. Mark had not given the Board the required notice that he was pursuing any such claim derivatively, however. (In Mark’s demand letter to the Board, he had not said anything about excess compensation or improper reimbursements to Cap.) Second, Cap argued that, even if Mark could proceed on the breach of fiduciary duty claim as a direct action, the Board’s compensation and reimbursement decisions with respect to Cap were reasonable and made in good faith, and therefore were protected from scrutiny by the business judgment rule; and that Mark had not generated any evidence to the contrary. In response, Mark countered that he had “standing” to bring a direct action for breach of fiduciary duty against Cap because, as the majority shareholder in a “closely held corporation,” Cap owed him, as the minority shareholder, a fiduciary duty.

He also maintained that the facts adduced in his case-in-chief were sufficient to support a rational finding that Cap breached that fiduciary duty. ⁶⁹⁴ The court granted Cap’s motion for judgment on Mark’s breach of fiduciary duty claim on Cap’s second ground, i.e., the business judgment rule. It reiterated its prior ruling that, to the extent Mark was attempting to recover damages for undeclared or underpaid dividends, MEG, not Cap, owed him a duty of care. The court further determined that the evidence adduced in Mark’s case established that all facets of Cap’s compensation were “authorized by the Board of Directors” and that the “Business Judgment Rule” permits directors to make such decisions, so long as they act in good faith in doing so. The court found that there was “no evidence before [it] that the judgments made by the Board of Directors ... were anything other than in good faith” and that, “consequently, it’s not up to me to mettle [sic] in the government of the corporate entity; Board of Directors being protected in their decision making process by the Business Judgment Rule.” Having granted the motion for judgment in favor of Cap, on the business judgment rule ground, the court did not address Cap’s first argument, that any injury sustained was to the company, not to Mark.

Also at the close of Mark’s case-in-chief, the court granted judgment in favor of Cap on the fraud claim, and in favor of MEG on the derivative claim. (As noted above, neither ruling is being challenged on appeal.) In granting the motion on the derivative claim, the court recapitulated the evidence about the written demand Mark had made upon the Board. That demand was made by letter of November 20, 2002, by Mark’s lawyer to MEG’s lawyer. The court determined that, on its face, the letter did not give notice to the Board that Mark was demanding any remedial action.

Accordingly, the evidence was legally insufficient to support a derivative action. In addition, the court ruled that the evidence presented was legally insufficient to show that the company had sustained any damages. For the reasons we shall explain, we conclude that the trial court correctly granted Cap’s motion for judgment on the ⁶⁹⁵ breach of fiduciary duty count on the ground that the evidence adduced at trial was legally insufficient to rebut the presumption created by the business judgment rule. We further conclude that the evidence adduced at trial established that the damages Mark was seeking against Cap on the breach of fiduciary duty claim were for an alleged injury to the company, not to himself, and therefore were not recoverable in a direct action by Mark.

On that separate basis, Cap was entitled to judgment in his favor on the breach of fiduciary duty claim. (b) As mentioned above, MEG was organized and incorporated in Maryland. Accordingly, Maryland statutory and common law of corporations governs. The shareholders of a corporation are its owners, but not its managers.

Werbowsky v. Collomb, 362 Md. 581, 599 , 766 A.2d 123 (2001). “Except to the extent that a transaction or decision must, by law or by virtue of the corporate charter, be approved by the shareholders, the directors, either directly or through the officers they appoint, exercise the powers of the corporation.” Id.; Md.Code (1975, 1999 Repl.Vol., 2006 Supp.), § 2-401 of the Corporations and Associations Article (“CAA”). The directors of a corporation do not own its property; the corporation itself owns it. Bassett v. Harrison, 146 Md. App. 600, 609-10 , 807 A.2d 695 (2002). Fixing executive compensation is an exercise in corporate management and therefore is among the tasks the directors are charged with carrying out.

See CAA § 2-401 (a) (“The business and affairs of a corporation shall be managed under the direction of a board of directors.”). The directors of a corporation stand in a fiduciary relation to the corporation and to its stockholders. Storetrax.com, Inc. v. Gurland, 397 Md. 37, 53 , 915 A.2d 991 (2007); Booth v. Robinson, 55 Md. 419, 422 (1881). In Maryland, the standard of care a director owes to the corporation, in manag ⁶⁹⁶ ing the Corporation, is set forth in CAA section 2-405.1(a), which states: A director shall perform his duties as a director, including his duties as a member of a committee of the board on which he serves: (1) In good faith; (2) In a manner he reasonably believes to be in the best interests of the corporation; and (3) With the care that an ordinarily prudent person in a like position would use under similar circumstances.

In performing his or her duties, a director “is entitled to rely on any information, opinion, report, or statement, including any financial statement or other financial data, prepared or presented by” reasonably reliable officers and employees, competent and knowledgeable professionals, such as lawyers and accountants, and board-designated committees that the director reasonably believes merit confidence. CAA § 2-405.1(b)(1). If the director “has any knowledge concerning the matter in question which would cause such reliance to be unwarranted,” then the director “is not acting in good faith.” CAA § 2-405.1(b)(2). Pursuant to CAA section 2-405.1(e), “[a]n act of a director of a corporation is presumed to satisfy the standards of [CAA 2-405.1(a) ].” Subsection (e), which was added to the statute by chapter 300, Acts 1999, codifies, with some changes, the judicially-created “business judgment rule.” See Yost v. Early, 87 Md.App. 364, 378, 589 A.2d 1291 (1991) (stating that “the business judgment rule [is] a presumption that corporate directors acted in accordance with” the standard of care imposed upon them).

Under the codified business judgment rule, “ ‘[t]he burden is on the party challenging the decision [of the directors] to establish facts rebutting the presumption’ that the directors acted reasonably and in the best interests of the corporation.” Bender v. Schwartz, 172 Md.App. 648, 667 , 917 A.2d 142 (2007) (quoting Aronson v. Lewis, 473 A.2d 805, 812 (Del.1984)). See also Werbowsky, supra, 362 Md. at 618-19 , 766 A.2d 123 . ⁶⁹⁷ The business judgment rule in its present form in Maryland therefore dictates that a party challenging in court a director’s decision not only introduce evidence that the director did not act with ordinary care under the circumstances but also that the director did not act in good faith and did not act in a manner he or she reasonably believed was in the best interests of the company. “Thus, the business judgment rule in Maryland requires proof sufficient to overcome a presumption of good faith and adequate information before the court will receive evidence on the best interests element of subsection (a)(2) and the elements of subsection (a)(3).” James J. Hanks, Jr., Maryland Corporation Law 183 (Aspen 2005) (footnotes omitted). Maryland common law recognizes that minority shareholders are entitled to protection against fraudulent or illegal action of the majority. Especially in closely held corporations, the majority shareholder owes a fiduciary duty to the minority shareholder (or shareholders) “not to exercise [their] control to the disadvantage of minority stockholders.” Lerner v. Lerner Corp., 132 Md.App. 32, 53 , 750 A.2d 709 (2000).

A majority shareholder owes a fiduciary duty to minority shareholders not to use his voting power for his own benefit or for a purpose adverse to the interests of the corporation and its stockholders. Cooperative Milk Serv. v. Hepner, 198 Md. 104, 114 , 81 A.2d 219 (1951). A shareholder may bring a direct action against the corporation, its officers, directors, and other shareholders to enforce a right that is personal to him. To maintain a direct action, the shareholder must allege that he has suffered “an injury that is separate and distinct irom any injury suffered either directly by the corporation or derivatively by the stockholder because of the injury to the corporation.” Hanks, supra, at 271 (footnote omitted).

Any damages recovered by the shareholder in the direct action go to the shareholder himself. In managing the affairs of the corporation, the directors make business decisions, including deciding whether ⁶⁹⁸ the company should pursue litigation to redress an injury to it. Bender, supra, 172 Md.App. at 665 , 917 A.2d 142 . Ordinarily, a shareholder does not have standing to sue to redress an injury to the corporation.

William Meade Fletcher, 12B Fletcher Cyclopedia of the Law of Private Corporation § 5729 (Perm. Ed., 2000 Rev. Vol.). What is known as a shareholder’s derivative action is an exception to that rule. A derivative action is “an extraordinary equitable device to enable shareholders to enforce a corporate right that the corporation failed to assert on its own behalf.” Werbowsky, supra, 362 Md. at 599 , 766 A.2d 123 .

The derivative form of action was developed as a check on the broad management powers of the board of directors, by permitting “an individual shareholder or a group of shareholders to bring ‘suit to enforce a corporate cause of action against officers, directors, and third parties’ where those in control of the company refuse to assert a claim belonging to it.” Bender, supra, 172 Md.App. at 665 , 917 A.2d 142 (quoting Kamen v. Kemper Financial Servs., Inc., 500 U.S. 90, 95 , 111 S.Ct. 1711 , 114 L.Ed.2d 152 (1991), in turn quoting Ross v. Bernhard, 396 U.S. 531, 534 , 90 S.Ct. 733 , 24 L.Ed.2d 729 (1970)). Any recovery in a shareholder’s derivative suit is in favor of the corporation, not the individual shareholder (or shareholders) who brought the derivative action. In Waller v. Waller, 187 Md. 185, 189-91 , 49 A.2d 449 (1946), the Court explained the Maryland common law of shareholder derivative actions: It is a general rule that an action at law to recover damages for an injury to a corporation can be brought only in the name of the corporation itself acting through its directors, and not by an individual stockholder though the injury may incidentally result in diminishing or destroying the value of the stock. The reason for this rule is that the cause of action for injury to the property of a corporation or for impairment or destruction of its business is in the corporation, and such an injury, although it may diminish the value of the capital stock, is not primarily or necessarily a damage to the stockholder, and hence the stockholder’s derivative ⁶⁹⁹ right can be asserted only through the corporation.

The rule is advantageous not only because it avoids a multiplicity of suits by the various stockholders, but also because any damages so recovered will be available for the payment of debts of the corporation, and, if any surplus remains, for distribution to the stockholders in proportion to the number of shares held by each. Generally, therefore, a stockholder cannot maintain an action at law against an officer or director of the corporation to recover damages for fraud, embezzlement, or other breach of trust which depreciated the capital stock or rendered it valueless. Where directors commit a breach of trust, they are liable to the corporation, not to its creditors or stockholders, and any damages recovered are assets of the corporation, and the equities of the creditors and stockholders are sought and obtained through the medium of the corporate entity.... The rule is applicable even when the wrongful acts were done maliciously with intent to injure a particular stockholder.

It is immaterial whether the directors were animated merely by greed or by hostility toward a particular stockholder, for the wrongdoing affects all the stockholders alike. It is accordingly held that a stockholder cannot sue individually to recover damages for injuries to the corporation, notwithstanding that the directors may have entered into an unlawful conspiracy for the specific purpose of ruining the corporation.... [Even when the actions of the directors force the corporation into a receivership in order to eliminate a large stockholder as an officer and to acquire control], the wrongs are suffered by the injured person in his capacity as a stockholder, and the action to recover for resulting injuries should be brought by the receiver. (Citations omitted.) See also Danielewicz v. Arnold, 137 Md.App. 601, 616-22 , 769 A.2d 274 (2001). “Before bringing a derivative suit in Maryland ..., the shareholder must either make a demand on the board of directors that the corporation bring the suit, or show that demand is excused as futile.” Bender, supra, 172 Md.App. at ⁷⁰⁰ 666, 917 A.2d 142 . “Once a demand is made, the corporation’s board of directors must conduct an investigation into the allegations in the demand and determine whether pursuing the demanded litigation is in the best interests of the corporation.” Id. If after investigation, the corporation, through its directors, fails to bring the requested litigation, the shareholder(s) may bring a “demand refused” derivative action.

Id. “By making a demand, the shareholder(s) ‘are deemed to have waived any claim they might otherwise have had that the board cannot independently act on the demand[,]’ ” although they still may claim that the board in fact did not act independently or that the demand was wrongfully refused. Id. (quoting Scattered Carp. v. Chicago Stock Exch., Inc., 701 A.2d 70, 74 (Del.1997)) (emphasis in Bender). If no demand is made on the board, and the shareholder(s) proceeds with bringing a derivative action, the shareholder(s) must prove that any demand upon the board would have been futile.

Id. (c) The evidence at trial showed that Cap’s compensation, including salary and bonuses, and any reimbursements for business expenses he incurred, were determined by the Board of Directors. From 2001 through 2004, and part of 2005, Cap’s salary and bonuses were as follows (with the bonuses actually being awarded based upon the prior year’s experience): 2000: Salary: $174,595.94, Bonus $217,000 2001: Salary: $149,570.22, Bonus $200,000 2002: Salary: $235,998.61, Bonus $367,502.04 2003: Salary: $344,086.30, Bonus $367,502.04 2004: Salary: $364,998.40, Bonus $132,497.96 2005: (estimated) Salary: $383,000, Bonus $600,000 For Mark to generate a jury issue as to whether Cap, as the majority shareholder, breached a fiduciary duty to him, as the minority shareholder, by orchestrating an excessive compensation package and reimbursements for himself that somehow deprived Mark of dividends he deserved to receive, ⁷⁰¹ Mark first had to show that the directors breached the standard of care in setting Cap’s compensation and approving his reimbursements. And before that issue could properly be submitted to the trier of fact for decision, it was incumbent upon Mark to adduce some evidence to rebut the presumption that, in setting Cap’s compensation and approving his reimbursements, the directors acted in good faith and in a manner they reasonably believed was in the best interest of the corporation.

Without such evidence, the business judgment rule presumption would remain in place and, as a matter of law, Mark would not have generated a triable issue on his breach of fiduciary duty claim. As noted previously, the court granted Cap’s motion for judgment on a determination that there was “no evidence [adduced in Mark’s case] that the judgments made by the Board of Directors ... were anything other than in good faith,” and therefore the presumption that the directors exercised due care in performing their duties in setting Cap’s salary and bonuses and approving his reimbursements remained. We have reviewed the record, including all of the testimony of the witnesses called by Mark in his case, and the relevant documentary evidence, and agree that Mark made no showing of lack of good faith. There was no evidence adduced whatsoever about the amount of any reimbursements made to Cap for expenses that Mark thought were improper.

Accordingly, with respect to the reimbursement aspect of Mark’s breach of fiduciary duty claim, there was a complete failure of proof. With respect to Cap’s compensation, the record evidence showed that in April 2002, Cap announced that he was returning to the company as CEO. At that time, the members of the Board were John Denison, Cap’s brother in law; Bill Scott, the company’s lawyer; and Cap. That Board terminated Mark from the company.

Mark has never alleged in any of his filings that he was wrongfully terminated. Thus, as of April 2002, Mark no longer was working for MEG and Cap was serving as President and CEO of the company. ⁷⁰² In the fall of 2003, in a vote by Cap, as the sole owner of voting stock in MEG, Janet Miller and Paul Warren replaced Denison and Scott as directors. Miller, whose title was Director of Corporate Affairs, had been employed by the company since 1979, and for many years was Cap’s right hand assistant. Warren was the head of MEG’s Baltimore office.

At trial, Mark called as witnesses Patrick Becker and Robert Wilson. He also called Miller and Cap adversely, testified on his own behalf, and introduced into evidence portions of Cap’s answers to interrogatories and deposition. Becker was hired in 1999 as the company’s controller. He remained in that position until February 2004, when he was made senior vice president of finance.

Originally, he reported to Wilson, who was the company's chief operating officer and chief financial officer. Wilson left the company in May 2002. At that time, Becker was promoted to vice president and controller; he later was promoted to senior vice president. He reported to Cap as the CEO.

Becker was terminated from his position in February 2004. Becker testified that he knew that, prior to Cap’s returning to MEG as CEO in April 2002, there had been an “owner balancing” formula that was used to set salaries for both Mark and Cap, by which personal advances they had taken from the company over the course of a year would be tallied and equalized. Bonuses for a year were determined in the spring of the following year. Before he left the company in February 2004, he ran some numbers for Cap that would have calculated his bonus for 2003 based upon the owner balancing formula as it was used in 1995.

His recollection was that the formula produced a low number. He testified, however, that he did not know what formula in fact was used to calculate Cap’s bonus for 2003, which was determined after he left the company. Wilson testified that, during his time at MEG, he did not know whether there was any agreement that Cap and Mark would be paid equally. He was not a director in the company.

Miller testified that in 2003, Cap received a bonus of $367,502.04, which was “based on his job performance that he ⁷⁰³ had performed for the prior year.” Contrary to what certain questions posed by Mark’s counsel suggested, Cap was not paid any money above and beyond that sum for taxes. Cap had requested that he be paid a bonus of $440,000 for that year. In an email to the Board, he attached a formula that had been used to set compensation for him and for Mark in the past. If that formula had been applied, Cap’s bonus would have been between $592,000 and $792,000.

Another salary range that was suggested to the Board for Cap by the company’s outside accountant was between $287,000 and $444,000. Miller explained that the company pays bonuses to employees “for going over and beyond your normal compensation, what’s expected of you; for those who reach out and go over.” The company does not pay bonuses to people who are no longer employees, regardless of whether they are shareholders. In 2003, Mark no longer was an employee of the company. In his brief, Mark complains that there was evidence of the following, which was sufficient to make the breach of fiduciary duty claim a jury issue: that Cap used his status as the sole holder of voting stock in the company to appoint friends, employees, and family members to the Board of Directors, so as to “manipulate and control” the internal decisions of the Board; that Cap used the Board to fabricate false claims against Mark, which then were used to deduct sums form Mark’s share of the March 2005 dividend; that Cap directed that financial statements that were being sent to Mark give inaccurate information; that Cap received significant increases in his executive compensation, while Mark’s total compensation was drastically reduced; and that Cap acted with an intent to punish Mark.

This evidence was not legally sufficient to show that the Board of Directors did not act in good faith in setting Cap’s compensation; and the evidence that would be necessary to adduce to make such a showing is not in the record. First, the evidence showed that Cap was the sole owner of voting stock in the company, and had been since its inception ⁷⁰⁴ in 1966. The evidence also showed that, before the period of time relevant to this case, the company’s directors were not “outside directors,” but were friends, relatives, employees, and professionals with whom Cap had a personal relationship. In other words, there was no evidence that the directors Cap voted onto the Board in the fall of 2003 were less independent than the directors who preceded them.

Moreover, there was nothing in the evidence to show that any of the directors’ votes were controlled by Cap. To the contrary, the only evidence about the setting of compensation for Cap by the Board showed that Cap, who did not vote on his own compensation, made his desires known to the directors, but that they made their decision based upon information from a number of sources, and their decision was not always in line with what Cap requested. Indeed, the evidence showed that the directors gave Cap less income than what he had requested. Second, the evidence showed that the significant increases in Cap’s compensation and the significant decreases in Mark’s compensation, to zero, occurred when Mark was terminated from employment and Cap took over management of the company.

Obviously, after April 2002, Mark was not going to receive a salary and bonuses, which are paid to employees, because he was no longer an employee. Equally obvious, beginning in April 2002, Cap was going to receive additional compensation for his work as president and CEO of the company, because he now held those positions. Given the circumstances, it would be surprising if there had not been a dramatic increase in Cap’s compensation at the same time that there was a dramatic decrease in Mark’s compensation. Third, there was no evidence of any sort, including expert testimony, that the amount of compensation paid to Cap from 2002 forward was not commensurate with compensation paid to executives at similar corporations dining times of similar performance.

On the contrary, the only evidence on that point was that Cap’s compensation was within an acceptable range compared to other executive compensation packages. ⁷⁰⁵ Finally, Mark is correct that there was evidence at trial that Cap was hostile toward him. Indeed, there was evidence of mutual hostility. There was no evidence, however, that the Board’s decisions about the amount of compensation Cap was to receive somehow were made with a purpose to punish Mark, as opposed to with a purpose to fairly compensate Cap. (d) As stated above, we also conclude that Mark’s breach of fiduciary claim against Cap failed as a matter of law on damages, because his damage claim was for an alleged injury to the company, not to himself.

Mark attempted to show at trial that the salary and bonuses Cap received were excessive. For the reasons we have explained, he did not produce evidence sufficient to overcome the presumption, under the business judgment rule, that the Board of Directors acted properly in setting Cap’s compensation. Even if he had produced such evidence, however, the evidence did not show that Mark himself sustained any injury for which he could recover damages in an action for breach of fiduciary duty against Cap. Mark argues that Maryland case law supports the proposition that a majority shareholder in a closely held corporation, that is, one in which there are few stockholders, owes a fiduciary duty to the minority shareholders, and that a minority shareholder thus has standing to bring a direct action against the majority shareholder for breach of fiduciary duty. 8 What Mark does not adequately address, however, is how the injury for which he sought damages — the alleged overpayment of compensation to Cap by the company — was personal to him.

It does not follow that, merely because MEG has two shareholders, Cap and Mark, an overpayment of compensation to Cap is a loss to Mark. Cap’s compensation was paid to him by MEG for his role as an officer of the company. Any wrongful overpayment by the company of compensation to an officer is at most a loss to the company. ⁷⁰⁶ The damages Mark was seeking to recover, therefore, were for an injury that, if it was sustained at all, was sustained by MEG, not by Mark. For that reason, Mark could not pursue recovery of damages for that injury in a direct action against Cap.

His only vehicle for doing so was a derivative action against MEG. As we have discussed, Mark included in his complaints a derivative claim, which eventually was narrowed to a derivative claim against Cap only. As required, Mark had made a written demand upon the company, by letter of November 20, 2002, prior to filing suit in the form of a derivative action. However, his demand letter said nothing whatsoever about excessive compensation or reimbursements paid by the company to Cap.

In other words, he did not demand, prior to filing suit, that the Board of Directors initiate litigation on behalf of the company against Cap to recover excessive compensation paid to him. For Mark to pursue that form of derivative relief on the part of the company, it was essential that he give the company notice. See, e.g., Bender, supra, 172 Md.App. at 666 , 917 A.2d 142 (discussing necessity of demand). He did not do so, and therefore could not attempt to recover derivatively damages to the company for excessive payments to Cap.

Indeed, the court disposed of Mark’s derivative claim on motion for judgment because his demand letter did not seek any remedial action by the Board, and thus was legally insufficient to give the Board required notice. For both of the reasons argued by Cap in support of his motion for judgment on the breach of fiduciary duty claim, the evidence at trial was not legally sufficient to submit the claim to the trier of fact for decision. Accordingly, the trial court’s decision to grant judgment in favor of Cap on Mark’s breach of fiduciary duty claim was legally correct.

II

Did the trial court err by Reducing the Jury verdict upon A FINDING THAT MARK DID NOT COME TO COURT WITH “CLEAN Hands” with respect to one item of damages? The facts pertinent to this issue are as follows. ⁷⁰⁷ At trial, both Mark and Cap introduced into evidence a “tax basis letter” dated December 31, 1998, and signed by Mark. 9 It states, “I hereby agree to assume the liability to repay advances made to Mona Energy, LLC of $428,753 and $25,000 ... if such amounts should become uncollectible.” Wilson testified that, by means of the tax basis letter, Mark and Cap were guaranteeing the debts of Mona Energy to MEG, and that doing so gave each of them a tax advantage. Specifically, guaranteeing the advances made by MEG to Mona Energy enabled them to write off losses on their personal tax returns, up to the amount guaranteed. Wilson further testified that, during his tenure with MEG, he did not know of any occasion when the company had forgiven an advance made to a shareholder, officer, or employee.

Becker testified that he knew by November 20, 2002, that the advances made by MEG to Mona Energy had been personally guaranteed by Mark and Cap. On August 4, 2003, he wrote a letter to Mark, on behalf of MEG, making demand for payment of the debts of MEG he had guaranteed, including his one-half share of the Mona Energy debt. Cap instructed him to write that letter. Mark did not pay the sum demanded.

Cap testified that he and Mark had guaranteed the Mona Energy advances, and that he had repaid his half ($581,789) of the advances. On direct examination, Mark denied ever having agreed to personally guarantee the advances MEG made to Mona Energy. He acknowledged, however, that on October 5, 1999, his accountant faxed the tax basis letter to him, with a cover sheet stating: “Mark this is a ‘basis letter’ protecting your deduction.” Mark explained that the accountant’s note on the cover sheet meant that the tax basis letter “was something [the accountant] needed on an