Opinion
No. 22934
October 26, 1999
APPEAL FROM: CIRCUIT COURT OF PHELPS COUNTY, HON. DOUGLAS E. LONG, JR.
Roger A. Carnahan, Counsel for Appellant. Howard H. Mick, John C. Aisenbrey, Mark M. Iba and John Z. Williams, Counsel for Respondent.
AFFIRMED. Shrum, J., and Garrison, C.J., concur and file concurring opinions.
This case involves the question of whether a reverse stock split created by an amendment to a bank's articles of agreement under section 362.325, RSMo 1994, violates Article I, Section 28, of the Missouri Constitution (1945).
Respondent, Phelps County Bank (Bank), is a private Missouri banking corporation with its principal place of business in Rolla, Missouri. Respondent, Phelps County Bancshares Inc. (Bancshares), is a private Missouri corporation organized as a bank holding company. As of November 1997, Bancshares owned 25,856 shares (95.4%) of Bank's outstanding stock.
On the same date, 66 minority shareholders, including Appellants, owned the remaining 1,244 shares of Bank's stock. Appellants owned a total of 92.5 shares, or 0.3%, of Bank's outstanding stock.
In November 1997 Bank's board of directors gave notice of a special shareholders' meeting for December 15, 1997. The purpose of the meeting was to vote on an amendment to Bank's Articles of Agreement which would allow a reverse stock split. The amendment and reverse stock split increased Bank's capital from $650,400 divided into 27,100 authorized shares with a par value of $24 per share to $750,000 divided into 25 shares with a par value of $30,000 per share. In effect, the amendment provided for a one share for 1,000 shares reverse stock split. The amendment also prohibited Bank from issuing any fractional shares. However, as to shareholders whose interest would be less than one share, the amendment provided that those shareholders would receive payment of $560 per share for each share of stock held immediately prior to the amendment's effective date.
Appellants make no claim that the offering price of $560 per share is inadequate.
According to Bank, the amendment was for the purpose of obtaining Subchapter S tax treatment for Bank. In 1996 Congress enabled small banks to utilize Subchapter S tax status. This favorable tax treatment would save Bank $350,000 per year in taxes and increase Bank's ability to compete with other area financial institutions.
At the December 1997 meeting, a majority of Bank shareholders approved the proposed amendment. On December 22, 1997, Bank filed a Statement of Proceedings with the Missouri Director of Finance, as required by section 362.325, setting forth the amendment to its Articles of Agreement. Eight days later, the Director issued his certificate, pursuant to section 362.325.6, certifying that the amendment and reverse stock split complied with the law.
Statutory references are to RSMo 1994, unless otherwise indicated.
Appellants filed their First Amended Petition on February 4, 1998, which contained three counts seeking, respectively, injunctive relief, rescission, and damages. Each remedy was based upon the theory that the reverse stock split violated Article 1, Section 28, of the Constitution and chapter 351.
Appellants subsequently filed a Motion for Summary Judgment. Respondents filed a Cross Motion for Summary Judgment. On July 8, 1998, the trial court granted summary judgment on all issues in favor of Respondents. This appeal followed.
The first of Appellants' three points relied on claims the trial court erred in granting Respondents' Motion for Summary Judgment because the reverse stock split violated "Article I, section 28 of the Missouri Constitution in that the conduct of Respondents constitutes the taking of private property for private use without the consent of the owner."
This point and Appellants' other points also allege trial court error in the denial of their Motion for Summary Judgment. We do not review this allegation because the denial of a motion for summary judgment does not present an appealable issue. Shelter Mut. Ins. Co. v. DeShazo , 955 S.W.2d 234, 238, (Mo.App. 1997.
"When considering appeals from summary judgments, this Court will review the record in the light most favorable to the party against whom judgment was entered." ITT Commercial Fin. v. Mid-Am Marine Supply Corp. , 854 S.W.2d 371, 376 (Mo.banc 1993). "Our review is essentially de novo." Id. "The propriety of summary judgment is purely an issue of law. As the trial court's judgment is founded on the record submitted and the law, an appellate court need not defer to the trial court's order granting summary judgment." Id.
Appellants' argument rests on that part of Article I, Section 28, which states: "That private property shall not be taken for private use with or without compensation, unless by consent of the owner. . . ." The only case Appellants cite to support their argument is In re Doe Run Lead Co. , 283 Mo. 646, 223 S.W. 600 (1920), which was a proceeding for the dissolution of the Doe Run Lead Company. The Supreme Court reversed the judgment of dissolution after deciding the result was a "pretended dissolution" (rather than a "real dissolution") under the statute providing for a voluntary dissolution of a corporation. Id. at 610.
The facts in Doe Run are vastly different from the instant case. There, the majority shareholders of Doe Run actually proposed a consolidation (as opposed to dissolution) of Doe Run with the St. Joseph Company. Id. at 609. Both corporations were engaged in the business of mining. At that time, a statute (section 3362, RSMo 1909), long since repealed, restricted the right of consolidation only to manufacturing corporations. Id. at 610. In effect, the "pretended dissolution" was an effort to circumvent the consolidation statute then in effect. The appellants in Doe Run were minority shareholders in that corporation. The majority shareholders proposed to permit all Doe Run shareholders to become shareholders in the St. Joseph Company or to receive fair value for their Doe Run shares. In either event, the St. Joseph Company would become the owner of appellants' stock. Id.
It is true, as appellants claim, the Supreme Court relied on the predecessor section to Article I, Section 28, and said: "The stock which belongs to appellants is their private property, and private property (with certain exceptions not here invoked) cannot, without the owner's consent, be taken for private use by any majority, however great, nor by the payment of any price, however large." Id. at 609. However, this statement was not necessary to a decision of the case. Appellants' claim of error alleged only "that this is not a bona fide dissolution proceeding such as is contemplated by the statute upon which this proceeding is based. . . ." Id. In deciding the dissolution was "pretended" rather than "real," the Supreme Court answered the issue raised by appellants. By discussing a constitutional violation, the Supreme Court spoke beyond the issue presented.
A judicial opinion should be read in light of the facts pertinent to that particular case, and it is improper to give permanent and controlling effect to casual statements outside the scope of the real inquiry of the case. State v. Miles Laboratories , 365 Mo. 350, 282 S.W.2d 564, 573 (1955). Therefore, we need not follow the dictum in Doe Run upon which Appellants solely rely.
Appellants argue that Article I, Section 28, and Doe Run articulate a fundamental rule that, except for condemnation due to public necessity, a person's private property, such as Appellants' bank stock, cannot be taken without that person's consent. Respondents claim that this section, as part of the "Bill of Rights," limits only the power of government to take property for private use and has no application to private relationships between majority and minority shareholders.
Resolving that controversy is unnecessary for our decision because we cannot find any taking of property in this case without the owner's consent. Upon purchasing their bank stock, Appellants consented to the majority shareholders' right to amend Bank's Articles of Agreement under section 362.325.1. This statute allows amendment of a bank's articles of agreement, with approval of a majority of the shareholders, to inter alia "increase . . . its capital stock to any amount" or "in any way not inconsistent with the provisions of this chapter."
Such an amendment becomes effective after the Director of Finance is satisfied "that there has been a compliance in good faith with all the requirements of the law. . . ." section 362.325.6
"A shareholder in a corporation tacitly consents to any subsequent amendment of articles of incorporation designed to enable the corporation to conduct its business in a more profitable manner." Midland Truck Lines v. Atwood , 362 Mo. 397, 241 S.W.2d 903, 907 (1951). Applicable state laws are embodied in the charter of a corporation. Id. at 906. See Shapiro v. Tropicana Lanes, Inc. , 371 S.W.2d 237, 241 (Mo. 1963) (stating that corporations are subject to the requirements of the Missouri Constitution and statutory law and such laws become part of the corporation's charter).
In State v. Holekamp Lumber Co. , 340 S.W.2d 678, 681 (Mo. banc 1960), the Supreme Court explained the nature of share ownership in the following manner:
"The charter of a corporation having a capital stock is a contract between three parties, and forms the basis of three distinct contracts. The charter is a contract between the state and the corporation; second, it is a contract between the corporation and the stockholders; third, it is a contract between the stockholders and the state." Cook on Corporations, Sec. 492. The third is also described as a contract of the stockholders inter sese.
As early as the Doe Run case, the Supreme Court recognized the above principles and said that a "real dissolution," as allowed by the voluntary dissolution statute then in effect, "is one of the incidents contemplated when the stock was bought," was "a part of the implied contract between the stockholders," and that such a dissolution "is not a violation of the contract." 223 S.W. at 610. Thus, if the majority shareholders in Doe Run had pursued an actual dissolution under the statute in question, the minority shareholders' stock would have been "taken" on the theory that they contemplated the possibility of statutory dissolution when the stock was purchased and by their implied contract with the other shareholders consented to such action. In that respect, Doe Run differs very little from the instant case.
Based on the foregoing authorities, it is clear that chapter 362 was part of Bank's Articles of Agreement wherein Appellants purchased their stock. Appellants tacitly consented to any subsequent amendment of the Articles of Agreement under section 362.325.1 when such an amendment would, as here, enable Bank to operate in a more profitable manner. Midland Truck Lines , 241 S.W.2d at 907.
Article I, Section 28, is not implicated under the facts of this case because the reverse stock split did not take Appellants' stock without their consent. Point I is denied.
Appellants' next two points claim the trial court erroneously granted summary judgment "in that fundamental principles of equity, fair dealing, and shareholder protection prohibit the same" (Point II) and that "the purchase by Respondents of Appellants' stock violated section 362.170(2)3, RSMo 1994" (Point III). We do not address these points because Appellants did not properly present either issue to the trial court.
As noted, Appellants' First Amended Petition sought three remedies. Each remedy was based on a violation of Article I, Section 28, and chapter 351. Appellants' Motion for Summary Judgment was based solely on the alleged constitutional violation. Thus, Appellants' pleadings did not raise the issues presented in Points II or III.
"On appeal, a party is bound by the position he took in the trial court and will not be heard on a different theory." Scott v. Edwards Transp. Co. , 889 S.W.2d 144, 147 (Mo.App. 1994).
"Furthermore, an appellate court will not, on review, convict a trial court of error on an issue which was not put before it to decide." Id. We acknowledge that Appellants' "Supplemental Suggestions," filed over two months after their Motion for Summary Judgment, discussed an alleged violation of section 362.170. However, a party cannot recover on a claim not pleaded. Clay v. Missouri Highway and Transp. Comm'n , 951 S.W.2d 617, 631 (Mo.App. 1997) (stating that a claim must be presented in a petition and not in an after-trial motion). "Courts have power to decide only those questions which are presented by the parties in their pleadings." Sisk v. McIlroy and Associates , 934 S.W.2d 567, 571 (Mo.App. 1996) (holding that an issue not pleaded in plaintiff's petition and not tried by the express or implied consent of the parties was not before the appellate court). For these reasons, Points II and III are denied.
The summary judgment is affirmed.
I concur in the result reached in the principal opinion. I write separately lest the principal opinion be read as saying that Missouri statutes can be used to force minority shareholders to accept cash for their shares merely because the majority desires to own all of the shares.
In that regard, I do not share the view expressed in the principal opinion that the court in In re Doe Run Lead Co., 283 Mo. 646, 223 S.W. 600 (1920), "spoke beyond the issue presented," nor do I agree that the Doe Run court's reliance on Article 2, Section 20 of the Missouri Constitution (now Article 1, Section 28) was merely dicta or "casual statements outside the scope of the real inquiry of the case."
As I read Doe Run, it stands for the following propositions. A "good faith" purpose is required any time majority shareholders use statutory procedures to force minority shareholders to accept money in lieu of stock. Doe Run, 223 S.W. at 610. If there is no good faith purpose for such action, e.g., where majority shareholders use a statute to compel minority shareholders to accept cash for their stock merely because the majority wants to own all of the shares, the courts will intervene if asked. Id. This follows because the use of statutory provisions by majority shareholders to oppress minority shareholders is not contemplated when shares are bought. Id. A visible departure from the standards of fair dealing and a violation of fair play by majority shareholders when dealing with minority shareholders are not part of any implied contract between the shareholders. Id. For majority shareholders to oppressively force minority shareholders to accept cash for their shares by statutory means "is a taking of private property for private use, in defiance of the Constitution." Id. To the extent, if any, that the principal opinion can be read as dismissing Doe Run's recital of these principles as dicta, I disagree.
The word oppression has a well-defined meaning with regard to alleged misconduct toward minority shareholders by those in control of a corporation.
"It has often been stated that oppression suggests 'burdensome, harsh and wrongful conduct,' 'a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members,' or 'a visible departure from the standards of fair dealing, and a violation of fair play on which every shareholder who entrusts his money to a company is entitled to rely.'"
Fix v. Fix Material Co., Inc., 538 S.W.2d 351, 358 (Mo.App. 1976) (citations omitted) (emphasis added).
Claims that majority shareholders "oppressed" minority shareholders do not have to be rooted in statutory or constitutional provisions. For instance, Kirtz v. Grossman, 463 S.W.2d 541 (Mo.App. 1971), is a case in which alleged "oppressive" conduct by those in control of a closely-held corporation was analyzed in terms of the "fiduciary duties" owed by a majority shareholder to the minority. Specifically, the Kirtz court gave minority shareholders equitable relief on the basis that "[i]n the same sense that equity considers corporate directors as actual if not technical trustees for the shareholders, majority stockholders are considered trustees for the minority." Id. at 544[4] (citation omitted).
I agree, however, that Appellants' first point should be denied. As Appellants structured it, the point maintains that Respondents' taking of Appellants' shares by reverse stock split, section 351.085(2)(6), followed by use of the section 351.300 procedure for eliminating fractional shares, was per se violative of Article I, Section 28 of the Missouri Constitution. Neither Doe Run nor any other authority I can find supports that view. To the contrary, Missouri courts have long adhered to the view that in conducting a corporation's internal affairs, the principle of majority rule usually attends, absent fraud or oppression. Bates v. Werries, 198 Mo.App. 209, 199 S.W. 758, 761 (1917).
I also share the view expressed in the principal opinion that Appellants failed to properly present their "equitable, fair dealing" claims (Point II) and their Point III issues to the trial court. In that regard, I note that Appellants repeatedly asserted to the trial court that no disputed fact issues existed. That notion is wholly inconsistent with the position Appellants now take in Point II, i.e., that Respondents did not act in good faith when they used statutory procedures to eliminate Appellants as shareholders. On this record, issues regarding Respondents' good faith and fair dealing are necessarily fact-driven; consequently, I can only conclude, as did the principal opinion, that Appellants confined their claim before the trial court to the avowal that the reverse stock split and elimination of fractional shares was, as a matter of law, violative of the constitutional provision cited and of Chapter 351. As the principal opinion stated, Appellants are bound by their position at trial.
For the reasons expressed, I concur in the result of the principal opinion, but with the reservations discussed above.
I concur in the result reached in the principal opinion. Except as indicated herein, I also concur with what is said in the Concurring Opinion. I write separately for two reasons. First, like the conclusion reached by Judge Shrum in his Concurring Opinion, I do not believe the law of this State is that majority shareholders may, for any reason, amend the Articles of Incorporation, so as to leave minority shareholders with only fractional shares, and then eliminate fractional shares and require the owners of those shares to accept cash for them. I do not believe that sections 351.085(2)(6) and 351.300 were intended to be utilized by majority shareholders for oppressive purposes. Rather, I believe that the exercise of such statutes must be in good faith. If not exercised for that purpose, I believe that Article 1, Section 28 of the Missouri Constitution would prevent the utilization of those statutes to achieve the elimination of minority shareholders. Therefore, like Judge Shrum, I am convinced that a "good faith" purpose is required and, if court intervention is sought, must be shown in order to authorize that result. I reach this conclusion based upon my reading of In re Doe Run Lead Co., 283 Mo. 646, 223 S.W. 600 (1920).
I also write to express my disagreement with the conclusion reached in the principal opinion as well as Judge Shrum's Concurring Opinion that Appellant's second point was not properly presented to the trial court. Respondents obviously recognized the necessity of showing a good faith purpose by including in their motion for summary judgment the contention that the amendment and reverse stock split were to enable them to achieve sub-chapter S status in order to enjoy favorable tax treatment and increase the ability to compete, remain independent, and support the local community. Appellants, in their response to that motion for summary judgment, denied that Respondents' action was for the purpose of obtaining sub-chapter S tax treatment and specifically referred the court to testimony indicating that a plan could have been devised to achieve that status without a reverse stock split which eliminated the minority shareholders. In my view, this response was sufficient to demonstrate a genuine issue as to material fact which, according to ITT Commercial Finance v. Mid-America Marine Supply Corp. , 854 S.W.2d 371 (Mo.banc 1993), would be sufficient to defeat the motion. The problem as I view it, however, is that Appellants did not squarely present the issue in this fashion on appeal. Accordingly, I am compelled to agree with the result reached in the principal opinion.