Opinion
No. C8-93-1381.
Filed February 15, 1994.
Appeal from the District Court, Sherburne County, File No. C4921399.
Albert T. Goins, Sr., Hassan Reed, Ltd. Minneapolis, Mn.
Richard M. Ihrig, Mark A. Jacobson, Lindquist Vennum, Minneapolis, Mn.
Considered and decided by Kalitowski, Presiding Judge, Peterson, Judge, and Harten, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1992)
UNPUBLISHED OPINION
N. Walter Goins appeals summary judgment dismissing his minority shareholder claims arising from a failed corporate merger. We affirm.
FACTS
Goins was president and sole shareholder of L.E.O. Broadcasting, Inc. which owned and operated UHF television stations in Rochester and St. Cloud. From 1982 to 1985, two corporate lenders provided loans to L.E.O., which Goins personally guaranteed. In May 1987, the lenders sold the L.E.O. notes to respondent Dale W. Lang, the president and primary shareholder of respondent Halcomm, Inc. Lang and respondent Ronald R. Jensen, Halcomm's vice-president, controlled the majority of Halcomm's shares. Halcomm acquired L.E.O. and Goins became a 12% shareholder in Halcomm. As part of the reorganization, Lang made a secured loan of $5 million to Halcomm. Goins' personal guarantees on the loans to L.E.O. were released. By September 1988, Lang had loaned Halcomm an additional $2.4 million; Halcomm's shareholders authorized the additional borrowing from Lang.
In November 1988, Halcomm informed its shareholders of a proposed merger with Red River Broadcasting Corporation and KTMA Acquisition Corporation. Later that month, Halcomm, Red River, and KTMA entered into a letter agreement to form a new corporation. In early December 1988, Goins gave Halcomm written notice of his dissent from the proposed merger and his intent to demand the fair market value of his shares. Halcomm's shareholders approved the letter agreement. The merger never occurred, however, because Red River's lenders, whose consent was necessary under the terms of the agreement, rejected the merger.
In December 1989, Jensen notified Halcomm's shareholders that Lang had demanded payment on $9.5 million in secured loans to Halcomm and intended to foreclose unless repaid. No action was taken. Lang foreclosed and purchased the assets at auction for $5 million. Lang agreed to accept Halcomm's real estate and broadcast licenses to satisfy the remaining debt.
In February 1992, Goins commenced actions in federal and state court. In the federal action, Goins sought damages for securities, RICO, antitrust, and civil rights violations. The federal district court granted summary judgment against Goins that was later affirmed by the Eighth Circuit Court of Appeals. Goins then pursued state court claims against Lang, Halcomm, Jensen and respondent KX Acquisition Limited Partnership, claiming damages for violations of statutory dissenting shareholder appraisal and buy-out rights, and breach of fiduciary duty. The district court granted summary judgment for respondents.
DECISION
In a summary judgment appeal, the issues are whether genuine issues of material fact exist and whether the district court correctly applied the law. Offerdahl v. University of Minn. Hosps. Clinics, 426 N.W.2d 425, 427 (Minn. 1988). Questions of law are reviewed de novo. Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn. 1989). The federal district court determined that all of Goins' federal claims derived from his allegation that he was denied minority shareholder appraisal and buy-out rights under Minn. Stat. § 302A.473 (1988). In dismissing Goins' claims, the federal district court found that because the proposed sale was never consummated, minority shareholder rights were not triggered. See Minn. Stat. § 302A.473, subd. 5(a) (remittance for corporate shares occurs after corporate action takes effect) and Minn. Stat. § 302A.471, subd. 1(b) (1988) (sale or merger included as corporate actions to which shareholder may dissent).
Goins argues that the district court erred in applying collateral estoppel (issue preclusion) based on the federal court's determination of the corporate action issue. Goins contends that because his pendent state law claims in the federal action were dismissed without prejudice, collateral estoppel should not apply. See Beutz v. A.O. Harvestore Prods., 431 N.W.2d 528, 531-33 (Minn. 1988). Despite our skepticism of Goins' application of Beutz to an issue squarely decided in federal court, it is unnecessary to address that issue because we agree with the district court's independent determination that no corporate action occurred to trigger appraisal and buy-out rights.
A shareholder's right to payment for shares "does not vest unless the objectionable corporate action is taken." Valando v. Data Boutique, Ltd., 323 N.Y.S.2d 608, 609 (N.Y.App.Div. 1971). The proposed corporate action to which Goins objected, the merger of Halcomm, Red River and KTMA, never occurred. Therefore, Goins' appraisal and buy-out rights did not vest under Minn. Stat. § 302A.473, subd. 5.
Goins' argument that the shareholder merger vote and an alleged untimely notice from the corporation activated his appraisal and buy-out rights also fails because under section 302A.473, subdivision 5, those rights vest "[a]fter the corporate action takes effect." See also Minn. Stat. § 302A.473, subd. 4(b) ("dissenter retains * * * rights as a shareholder until the proposed action takes effect"). Goins' contention that his rights are also triggered because Halcomm "abandoned" the transaction lacks direct authority and is without merit because the transaction terminated due to the failure of the condition that Red River's lenders approve it.
Goins also argues that respondents' counter-motion for summary judgment should not have been considered by the district court because it was untimely under Minn. R. Gen. Pract. 115.03(a) (28 days notice for dispositive motions). Minn. R. Civ. P. 56.03's mandatory minimum notice limitation of 10 days was satisfied, however, and rule 115.03 could be "readily modified" under the circumstances. Minn. R. Gen. Pract. 115 task force cmt. Moreover, rule 56.03 allows the trial court to award summary judgment to either party.
Goins argues that his breach of fiduciary duty claim survives because Lang and Jensen conspired to deprive him of his minority shareholder rights and then stripped Halcomm of its assets. This argument lacks merit for several reasons. First, in 1988 Goins signed a corporate resolution ratifying Lang's secured loans and authorizing additional loans from Lang. Second, no evidence has been presented that Lang's loans were capital contributions masquerading as loans. See, e.g., Houston's, Inc. v. Hill, 826 P.2d 644, 646-47 (Or.App. 1992), pet. for rev. denied (Or. June 23, 1992).
Under Minnesota law, corporate officers are fiduciaries of assets for creditors "[w]hen a corporation is insolvent or on the verge of insolvency," and cannot give themselves preference over other creditors. Snyder Elec. Co. v. Fleming, 305 N.W.2d 863, 869 (Minn. 1981), quoted in Honn v. Coin Stamp Gallery, Inc., 407 N.W.2d 419, 422 (Minn.App. 1987), pet for rev. denied (Minn. Aug. 12, 1987). Goins, however, has presented no evidence as to the identity and priority of other creditors. Even assuming Goins' standing to sue on behalf of the corporation, because he was not a creditor and because the corporate debt exceeded assets, the liquidated damages he seeks personally are inappropriate. See, e.g., Honn, 407 N.W.2d at 422 (directors are liable "to the corporation" for improper distributions of corporate assets). Furthermore, because the liquidated damages Goins seeks equal his estimated value of his minority shares, the breach of fiduciary duty claim here is not independent from his statutory claims.