Title: Andrews v. Sheepscot Island Co.

State: maine

Issuer: Maine Supreme Court

Document:

MAINE SUPREME JUDICIAL COURT 
Reporter of Decisions 
Decision: 
2016 ME 68 
Docket: 
BCD-15-287 
Argued: 
March 3, 2016 
Decided: 
May 10, 2016 
Corrected: 
September 27, 2016 
 
Panel: 
SAUFLEY, C.J., and ALEXANDER, MEAD, GORMAN, JABAR, HJELM, and 
HUMPHREY, JJ. 
 
 
NATHALIE TAFT ANDREWS et al. 
 
v. 
 
SHEEPSCOT ISLAND COMPANY 
 
 
GORMAN, J. 
[¶1]  After the shareholders of Sheepscot Island Company (SICO) approved 
a plan to convert from a for-profit corporation into a nonprofit corporation, several 
dissenting shareholders (collectively, the Tafts) sought declaratory and injunctive 
relief in the Business and Consumer Docket.1  The court (Murphy, J.) dismissed 
the Tafts’ complaint pursuant to M.R. Civ. P. 12(b)(6), concluding that the Tafts 
could not make out a claim that SICO’s conversion plan was invalid.  The Tafts 
appeal, arguing that the court incorrectly applied the law governing corporations 
and nonprofit conversions.  We disagree and affirm the judgment. 
                                         
1  Because the conversion has not yet occurred, the use of “SICO” in this opinion refers exclusively to 
the for-profit corporation.  The seven plaintiffs are: Nathalie Taft Andrews, Frederick L. Taft, Eleanor 
Taft Ethridge, Alexander T. Taft III, John Christopher Lee Taft, Alexander T. Taft Jr., and Frances 
Pinney. 
 
2 
I.  BACKGROUND 
 
[¶2]  The following facts, which we view as admitted for purposes of this 
appeal, are drawn from the Tafts’ complaint and the documents attached to the 
complaint.  See Nadeau v. Frydrych, 2014 ME 154, ¶ 5, 108 A.3d 1254; Moody v. 
State Liquor & Lottery Comm’n, 2004 ME 20, ¶¶ 6-11, 843 A.2d 43. 
 
[¶3]  SICO is a Maine corporation that was formed over one hundred years 
ago as a for-profit corporation.  It owns land and facilities on MacMahan Island, 
which is located near the mouth of the Sheepscot River and is part of the town of 
Georgetown.  There are forty cottages on MacMahan Island.  A majority of SICO’s 
shares is held by shareholders who own cottages on the island, but there are 
numerous shareholders who do not own cottages on the island, including four of 
the plaintiffs in this case.  SICO issued only one class of shares, and its bylaws do 
not distinguish between cottage-owning shareholders and non-cottage-owning 
shareholders.  
 
[¶4]  SICO first attempted to convert into a nonprofit corporation in 2005.  
After a conversion plan was approved by a majority of shareholders, some 
dissenting shareholders, including three of the plaintiffs in this case, challenged the 
plan’s validity.  The Superior Court (Sagadahoc County, Warren, J.) entered a 
summary judgment in their favor, concluding that SICO’s conversion plan did not 
comply with 13-C M.R.S.A. § 931(3)(B) (2005), which required such plans to 
 
3 
“include . . . [t]he manner and basis of reclassifying” the corporation’s shares.2  
MacMahan Island Ass’n v. Andrews, No. CV-05-61, 2006 WL 6872297 
(Me. Super. Nov. 2, 2006).  We affirmed the judgment on appeal.  MacMahan 
Island Ass’n v. Andrews, 2008 ME 52, 943 A.2d 592. 
 
[¶5]  In July of 2014, SICO presented a second nonprofit conversion plan to 
its shareholders.  The plan proposed the replacement of SICO’s articles of 
incorporation with new articles, which would reclassify all SICO shares into two 
classes of memberships: “cottage memberships,” available to cottage-owning 
shareholders, and “associate memberships,” available to all shareholders who did 
not become cottage members.  Both cottage and associate members would be 
entitled to vote on matters upon which any members could vote; however, each 
cottage member would be entitled to twelve votes, while the associate members 
would be entitled to no more than twelve votes collectively.  All members, or their 
successors or assigns, would retain perpetual liquidation rights in proportion to the 
shares they held before the conversion.  Both cottage and associate members would 
be entitled to receive or contract for SICO’s services and both would retain the 
right to access and use community lands and facilities.  Associate memberships 
                                         
2  Although the 2005 publication of the Maine Revised Statutes Annotated was in effect at the time, 
13-C M.R.S. § 931(3)(B) has not changed.  See 13-C M.R.S. § 931(3)(B) (2015). 
 
4 
would be non-transferable; as a consequence, each associate membership would 
terminate upon the associate member’s death. 
[¶6]  At SICO’s annual shareholders’ meeting in August of 2014, the Tafts 
voted against the plan and preserved their rights as dissenters, but the majority of 
the shareholders voted to approve the plan.  
 
[¶7]  On December 23, 2014, the Tafts filed a complaint against SICO 
claiming that the nonprofit conversion plan should be invalidated because it “fails 
to reclassify all shares of the corporation equally” in violation of both 13-C M.R.S. 
§ 601(1) (2015) and statutes governing nonprofit conversion, specifically, 
13-C M.R.S. § 931 (2015).  They attached various documents related to the 
proposed conversion, including the conversion plan itself.  The Tafts sought a 
declaratory judgment invalidating the plan and a permanent injunction barring its 
implementation.  On SICO’s motion, the trial court (Business and Consumer 
Docket, Murphy, J.) dismissed the Tafts’ complaint with prejudice pursuant to 
M.R. Civ. P. 12(b)(6).  The court reasoned that SICO’s plan complied with the 
plain terms of the nonprofit conversion statute and that there is no requirement that 
shares be reclassified into “equal” memberships in the resulting nonprofit entity.  
This appeal followed. 
 
5 
II.  DISCUSSION 
A. 
Standards of Review 
[¶8]  When we review a trial court’s grant of a motion to dismiss for failure 
to state a claim upon which relief can be granted, “we view the facts alleged in the 
complaint as if they were admitted.”  Frydrych, 2014 ME 154, ¶ 5, 108 A.3d 1254 
(quotation marks omitted).  We also consider “documents referred to in the 
complaint . . . when the authenticity of such documents is not challenged.”  Moody, 
2004 ME 20, ¶ 11, 843 A.2d 43.  “We review the legal sufficiency of the complaint 
de novo and view the complaint in the light most favorable to the plaintiff to 
determine whether it sets forth elements of a cause of action or alleges facts that 
would entitle the plaintiff to relief pursuant to some legal theory.”  Frydrych, 
2014 ME 154, ¶ 5, 108 A.3d 1254 (quotation marks omitted). 
 
[¶9]  To determine the legal sufficiency of the Tafts’ complaint, we must 
consider relevant provisions of the Maine Business Corporation Act, 13-C M.R.S. 
§§ 101-1702 (2015), including the provisions that specifically govern nonprofit 
conversion, 13-C M.R.S. §§ 931-936.  Interpreting statutes de novo, we first 
“examine the plain meaning of the language to avoid absurd, illogical or 
inconsistent results.”  Wong v. Hawk, 2012 ME 125, ¶ 8, 55 A.3d 425 (quotation 
marks omitted).  Because the statutes at issue in this case are not ambiguous, we do 
 
6 
not look beyond their plain language.  See, e.g., Strout v. Cent. Me. Med. Ctr., 
2014 ME 77, ¶ 10, 94 A.3d 786.   
B. 
Compliance with the Nonprofit Conversion Statute  
[¶10]  Pursuant to 13-C M.R.S. § 931(1), “[a] domestic business corporation 
may become a domestic nonprofit corporation pursuant to a plan of nonprofit 
conversion.”  Section 931(3) sets forth the elements that must be included in a 
domestic nonprofit conversion plan: 
A.  The terms and conditions of the conversion; 
 
B.  The manner and basis of reclassifying the shares of the corporation 
following its conversion into memberships, if any, or securities, 
obligations, rights to acquire memberships or securities, cash, other 
property or any combination thereof; [and] 
 
C.  Any desired amendments to the articles of incorporation of the 
corporation following its conversion. 
 
[¶11]  Section 931(3) is broad, but its language is not ambiguous.  It contains 
no express limitations on the actual manner of reclassification or the basis on 
which shares may be reclassified, providing only that the plan “must include . . . 
[t]he manner and basis of reclassifying the shares of the corporation following its 
conversion.”  13-C M.R.S. § 931(3)(B).  Accordingly, when a business 
corporation’s conversion into a nonprofit corporation becomes effective, “[t]he 
shares of the corporation are reclassified into memberships, securities, obligations, 
rights to acquire memberships or securities or into cash or other property in 
 
7 
accordance with the plan of conversion.”  13-C M.R.S. § 935(1)(E) (emphasis 
added). 
[¶12]  “[W]e do not read exceptions, limitations, or conditions into an 
otherwise clear and unambiguous statute,” Adoption of M.A., 2007 ME 123, ¶ 9, 
930 A.2d 1088, and we agree with the official comment to the applicable section of 
the Model Business Corporation Act, which confirms that the nonprofit conversion 
statute “imposes virtually no restrictions or limitations on the terms and conditions 
of a nonprofit conversion,” Model Bus. Corp. Act § 9.30 cmt. 2 (Am. Bar Ass’n 
2008).3  SICO’s conversion plan tracks the requirements of the statute, describing 
in detail the terms and conditions of the conversion and the manner and basis of 
reclassifying the SICO shares, and it includes new articles of incorporation to 
replace SICO’s articles of incorporation when the articles of nonprofit conversion 
become effective.  We therefore conclude that SICO’s conversion plan complies 
with the plain terms of section 931(3). 
C.  
Applicability of 13-C M.R.S. § 601(1) 
[¶13]  The Tafts further argue, however, that SICO’s conversion plan is 
unlawful because it does not comply with 13-C M.R.S. § 601(1), a provision of the 
                                         
3  The Legislature modeled the Maine Business Corporation Act, 13-C M.R.S. §§ 101-1702 (2015), 
after the Model Business Corporation Act.  See P.L. 2001, ch. 640, §§ A-1 to B-7 (effective July 1, 2003).  
Indeed, “Maine’s [nonprofit conversion] statute is nearly identical to section 9.30” of the Model Business 
Corporation Act.  Model Bus. Corp. Act § 9.30 annot. (Am. Bar Ass’n 2008). 
 
8 
Maine Business Corporation Act found outside the nonprofit conversion statute.  
Section 601(1) provides, in relevant part: “Except to the extent varied as permitted 
by this section, all shares of a class or series must have terms, including 
preferences, rights and limitations that are identical with those of other shares of 
the same class or series.”  (Emphasis added.)  The Tafts contend that SICO’s 
nonprofit conversion plan runs afoul of section 601(1) because it proposes the 
reclassification of SICO’s shares into two different types of memberships with 
disparate rights. 
[¶14]  This contention is unpersuasive for several reasons.  First, at all times, 
SICO’s corporate share structure has complied with section 601(1).  At the 
moment the conversion occurs, SICO ceases to exist but, until that time, all of its 
shares have been and are identical.   
[¶15]  By law, articles of nonprofit conversion become effective on the date 
and at the time of filing with the Secretary of State, unless a later effective date is 
specified in the document.  13-C M.R.S. §§ 125, 933(3).  Pursuant to SICO’s 
conversion plan, its new articles of incorporation, which would implement the 
plan’s reclassification of SICO’s shares into cottage and associate memberships, 
would take effect ten days after the filing of the articles of nonprofit conversion.  
See 13-C M.R.S. § 931(3)(B) (requiring a conversion plan to include “[t]he manner 
and basis of reclassifying the shares of the corporation following its conversion” 
 
9 
(emphasis added)).  Until the conversion plan becomes effective, only one class of 
shares exists.  Thus, SICO’s shareholders approved a plan that proposed disparate 
types of memberships in a nonprofit entity.  Approval of the plan, however, did not 
create disparate classes of shares. 
[¶16]  Second, neither section 601 nor the nonprofit conversion statute 
contains any indication that section 601(1) applies once a conversion takes effect.  
Section 601 places limitations on a “corporation’s” share structure, 13-C M.R.S. 
§ 601(1)-(4), and “[c]orporation . . . means a corporation for profit or with shares,” 
13-C M.R.S. § 102(4).  Because nonprofit corporations do “not have or issue 
shares of stock,” 13-B M.R.S. § 407 (2015), section 601 can only apply to 
for-profit corporations.  Nothing in section 601 or the nonprofit conversion 
statute—or in any other portion of the Maine Business Corporation Act—imposes 
a similar limitation on memberships in a nonprofit corporation or on the nonprofit 
conversion plan itself.4 
                                         
4  For the same reasons, we are not persuaded by the Tafts’ arguments that (1) section 601(1) should 
apply to memberships in a nonprofit corporation because conversions are “fundamentally similar” to 
corporate mergers, or (2) that, for SICO’s plan to be valid, each “separate class[] of shares” would have to 
have voted in favor of the plan.  If a corporation has multiple classes of shares, “approval of the plan of 
nonprofit conversion requires the approval of each separate voting group by a majority of the votes 
entitled to be cast on the nonprofit conversion by that voting group.”  13-C M.R.S. § 932(6).  Because 
SICO has only one class of shares, no “separate classes of shares” exist, and section 932(6) does not 
apply.  A majority of SICO’s shareholders voted to approve the conversion plan pursuant to 13-C M.R.S. 
§ 932(5), which “requires the approval of the shareholders by a majority of all the votes entitled to be cast 
on the plan by the shareholders.” 
 
10 
[¶17]  Third, even if, as the Tafts argue, section 601(1) continues to apply to 
a nonprofit corporation as a “general principle” of Maine corporate law, SICO’s 
proposed nonprofit membership arrangement would comply with the statute.  That 
is because, although the plan’s new articles of incorporation do distinguish 
between two membership “classes,” they do not contemplate any differences in 
terms among members of the same class. 
[¶18]  Finally, section 601 itself contains an exception to the rule of equal 
treatment, stating that “[a]ny of the terms of shares may vary among holders of the 
same class or series of shares as long as the variations are expressly set forth in the 
articles of incorporation.”  13-C M.R.S. § 601(6).  The new articles of 
incorporation, which would implement the conversion plan’s provisions, expressly 
set forth the terms applying to all members. 
[¶19]  With this conversion plan, which provides all current shareholders a 
choice to become members of the new nonprofit corporation or to exercise their 
appraisal rights and receive the fair value of their shares, SICO has cured the 
deficiency we saw in SICO’s first nonprofit conversion plan.  In Andrews, 
we described the terms of the first conversion plan as follows: 
Pursuant to the plan, shareholders who do not own cottages would not 
have any right to share in any liquidation, sale, or other realization of 
the assets of the corporation.  Non-cottage owners would lose any 
equity interest in [SICO’s] assets.  All shares of [SICO] would be 
deemed surrendered, but the owners of each of the forty cottages on 
 
11 
MacMahan Island would be entitled to one cottage membership in the 
new [nonprofit entity]. 
 
2008 ME 52, ¶ 8, 943 A.2d 592.  On those facts, we held that the trial court did not 
err in concluding that the first plan was invalid “[b]ecause the plan for nonprofit 
conversion did not include any provision for the reclassification of the shares of 
the for-profit corporation following conversion, as required by” section 931(3)(B).  
Id. ¶ 2 (emphasis added).  In contrast, the conversion plan at issue in this case does 
include a provision for the reclassification of the for-profit corporation’s shares; 
also, all persons who held shares in the for-profit corporation—including those 
who do not own cottages on the island—retain perpetual liquidation rights, and 
thereby retain their proportional equity interest in the corporation’s assets.   
D. 
Control of Corporate Assets 
 
[¶20]  We recognize that, based on our holding today, SICO shareholders 
who are eligible only to become associate members—and who choose to do so—
will have little control over the management of the assets in which they retain 
perpetual liquidation rights.  Such a result occurs whenever a corporation’s board 
of directors proposes a fundamental change in corporate status and the 
shareholders vote to approve the proposed change by a less-than-unanimous vote.  
In those circumstances, dissenting shareholders are presented with a choice: they 
may leave the corporation, exercise statutory appraisal rights, and thereby receive 
 
12 
the fair monetary value of the shares they hold in the corporation, see 13-C M.R.S. 
§§ 1301-1341 (2015), or they may stay in the corporation and acquiesce to the will 
of the majority. 
[¶21]  Sections 1301 to 1341 of the Maine Business Corporation Act govern 
appraisal rights.  In the event of various corporate actions including conversion to 
nonprofit status, “[a] shareholder is entitled to appraisal rights and to obtain 
payment of the fair value of that shareholder’s shares.”  13-C M.R.S. § 1302.  “Fair 
value” is statutorily defined as follows: 
4. Fair value.  “Fair value” means the value of a corporation’s shares 
determined: 
 
A. Immediately before the effectuation of the corporate action 
to which a shareholder objects; 
 
B. Using customary and current valuation concepts and 
techniques generally employed for similar businesses in the 
context of the transaction requiring appraisal; and 
 
C. Without discounting for lack of marketability or minority 
status except, if appropriate, for amendments to the 
corporation’s articles of incorporation pursuant to section 1302, 
subsection 5. 
 
13-C M.R.S. § 1301(4).  If the Tafts were to exercise appraisal rights, with the 
value of their shares being determined by a court if disputed, see 13-C M.R.S. 
§§ 1302, 1327, 1331, any property rights associated with their shares, e.g., the right 
 
13 
to use docks, community buildings, etc., will have to be considered in determining 
the value of the shares.5 
[¶22]  We described the development of the appraisal remedy in 
In re Valuation of Common Stock of McLoon Oil Co.: 
The traditional rule through much of the 19th century was that any 
corporate transaction that changed the rights of common shareholders 
required unanimous consent.  The appraisal remedy for dissenting 
shareholders evolved as it became clear that unanimous consent was 
inconsistent with the growth and development of large business 
enterprises.  By the bargain struck in enacting an appraisal statute, the 
shareholder who disapproves of a proposed merger or other major 
corporate change gives up his right of veto in exchange for the right to 
be bought out—not at market value, but at “fair value.” 
 
565 A.2d 997, 1004 (Me. 1989).  Other courts have noted the shift toward a 
majority rule approach and concomitant proliferation of appraisal rights statutes.  
See Stringer v. Car Data Sys., Inc., 841 P.2d 1183, 1184 (Or. 1992) (“Legislatures, 
courts, and commentators found that the right of a single shareholder to veto 
business transactions trammeled the concept of corporate democracy. . . . 
[The appraisal] remedy is designed to provide statutory protection to those 
                                         
5  Concerning “customary and current valuation concepts,” the official comment to the applicable 
section of the Model Business Corporation Act acknowledges that “different transactions and different 
contexts may warrant different valuation methodologies,” and provides, “For example, if the 
corporation’s assets include undeveloped real estate that is located in a prime commercial area, the court 
should consider the value that would be attributed to the real estate as commercial development property 
in a comparable transaction.”  Model Bus. Corp. Act § 13.01 cmt. 2 (Am. Bar Ass’n 2008).  The method 
of determining the “value” of the shares must necessarily include not just “market value,” but also “all 
other elements that may be legitimately considered.”  Chicago Corp. v. Munds, 172 A. 452, 453 (Del. Ch. 
1934). 
 
14 
minority shareholders who do not concur with the decision of the majority 
shareholders.”); Yanow v. Teal Indus., Inc., 422 A.2d 311, 316 n.5 (Conn. 1979) 
(“[T]he view that majoritarian decision-making must take precedence over the 
dissent of a minority shareholder . . . reflect[s] a social policy of preferring 
corporate democracy and flexibility over the common-law notion of vested 
shareholder rights.”); Schenley Indus., Inc. v. Curtis, 152 A.2d 300, 301 
(Del. 1959) (“[I]t became necessary to protect the [shareholders’] contractual rights 
. . . by providing for the appraisement of their stock and the payment to them of the 
full value thereof in money.”); Chicago Corp. v. Munds, 172 A. 452, 455 (Del Ch. 
1934) (“In compensation for the lost right[,] a provision was written into the 
modern statutes giving the dissenting stockholder the option completely to retire 
from the enterprise and receive the value of his stock in money.”). 
[¶23]  Here, the Tafts may choose to demand the fair monetary value of their 
property interest pursuant to the appraisal rights statutes, or proceed on terms 
known to them: little control over the management of the corporation’s assets, but 
a right to receive their proportional share of those assets in the event of future 
dissolution and liquidation.  The nonprofit conversion statute expressly 
contemplates this result, stating that when a conversion becomes effective, 
“the shareholders are entitled only to the rights provided in the plan of nonprofit 
conversion or to any [appraisal] rights they may have.”  13-C M.R.S. § 935(1)(E). 
 
15 
[¶24]  This appraisal rights “compromise,” Model Bus. Corp. Act § 13.01 
cmt. 1 (Am. Bar Ass’n 2008), means that in the face of a fundamental corporate 
change, dissenting shareholders may choose to preserve the property rights they 
hold in the corporation’s assets.  Absent noncompliance with the governing 
statutes, fraud, or the like, however, they do not possess a statutory or other right to 
veto a fundamental corporate change that has been approved by a majority of the 
shareholders.6  See 13-C M.R.S. § 1341; Zimpritch, Maine Corporation Law & 
Practice §§ 13.1 at 506-07, 13.7 at 525-26 (3d ed. 2015) (discussing the scope of 
section 1341’s limitation on remedies other than appraisal). 
III.  CONCLUSION 
[¶25]  Neither section 601(1) nor the nonprofit conversion statute prohibits a 
business corporation’s nonprofit conversion plan from reclassifying the 
                                         
6  In 1862, the Massachusetts Supreme Judicial Court explained, 
[E]very person who becomes a member of a corporation aggregate by purchasing and 
holding shares agrees by necessary implication that he will be bound by all acts and 
proceedings . . . which shall be adopted or sanctioned by a vote of the majority of the 
corporation, duly taken and ascertained according to law. . . . A holder of shares in an 
incorporated body, so far as his individual rights and interests may be involved in the 
doings of the corporation, acting within the legitimate sphere of its corporate power, has 
no other legal control over them than that which he can exercise by his single vote in the 
meetings of the company. To this extent, he has parted with his personal right or privilege 
to regulate the disposition of that portion of his property which he has invested in the 
capital stock of the corporation, and surrendered it to the will of a majority of his fellow 
corporators. 
 
Durfee v. Old Colony & Fall River R.R. Co., 87 Mass. (5 Allen) 230, 242 (Mass. 1862).  See also 
Inhabitants of Waldoborough v. Knox & Lincoln R.R. Co., 84 Me. 469, 471, 24 A. 942 (1892) (“When 
there are differences of opinion, aggregate bodies . . . must act by majorities, or they can not act at all.  
It is true that this doctrine subjects minorities to the will of majorities; but it is equally true that the 
contrary doctrine subjects majorities to the will of minorities . . . .”). 
 
16 
corporation’s shares into membership classes with disparate rights.  Because the 
Tafts have not alleged facts that, viewed as admitted, make out a claim that SICO’s 
conversion plan is invalid or that they are entitled to declaratory or injunctive 
relief, the trial court correctly dismissed their complaint pursuant to M.R. 
Civ. P. 12(b)(6). 
The entry is: 
Judgment affirmed. 
 
 
 
 
 
 
 
 
On the briefs: 
 
Albert G. Ayre, Esq., and John A. Turcotte, Esq., Ainsworth, 
Thelin & Raftice, P.A., South Portland, for appellants Nathalie 
Taft Andrews et al. 
 
Paul McDonald, Esq., and Eben M. Albert, Esq., Bernstein 
Shur, Portland, for appellee Sheepscot Island Company 
 
 
At oral argument: 
 
John A. Turcotte, Esq., for appellants Nathalie Taft Andrews et 
al. 
 
Paul McDonald, Esq., for appellee Sheepscot Island Company 
 
 
 
Business and Consumer Docket docket number CV-2015-6 
FOR CLERK REFERENCE ONLY