In the

United States Court of Appeals

For the Seventh Circuit

No. 10-3509

ALBERT TROSTEL & SONS COMPANY,

Plaintiff-Appellee,

v.

EDWARD NOTZ and SANDRA K. NOTZ,

Defendants-Appellants.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 07-C-0763—C.N. Clevert, Jr., Chief Judge.

ARGUED SEPTEMBER 21, 2011—DECIDED MAY 10, 2012

Before EASTERBROOK, Chief Judge, and TINDER and

HAMILTON, Circuit Judges.

EASTERBROOK, Chief Judge. Albert Trostel & Sons

Company (Trostel) was founded in 1858. By 2007 the

founder’s relations still owned about 11% of its stock.

Everett Smith Group, Ltd. (Smith), which owned the

other 89%, decided to acquire the remaining shares via

a freezeout merger. Voting was a formality; Smith’s

shares assured the merger’s approval. Trostel became
2 No. 10-3509

Smith’s wholly owned subsidiary. Edward Notz, one of

Albert Trostel’s great grandchildren, who owned 5.5%

of the stock (some directly, some through a trust), rejected

the proffered compensation of $11,900 per share—which

came to about $7.7 million for his 5.5% interest. Notz

contended that the shares were worth more than twice

that much. The rest of the outside investors accepted

the offer, however.

When investors dissent and reject the compensation offered in a merger or other major restructuring,

a Wisconsin corporation must commence a judicial

proceeding to have the stock appraised. Wis. Stat.

§180.1330(1). Trostel filed in the United States District

Court for the Eastern District of Wisconsin under the

diversity jurisdiction, 28 U.S.C. §1332(a): Trostel is incorporated in Wisconsin and has its principal place

of business there, both Edward Notz and the trustee

(Sandra Notz) are citizens of Illinois, and the amount

in controversy substantially exceeds $75,000. Notz nonetheless contended that the court lacks subject-matter

jurisdiction. He insisted that appraisal proceedings

must be conducted in state court. The district judge

disagreed and denied Notz’s motion to dismiss. 536

F. Supp. 2d 969 (E.D. Wis. 2008). After a trial, the judge

concluded that the fair value of Trostel’s stock on the

merger date was $11,900 per share. 2010 U.S. Dist. LEXIS

108778 (E.D. Wis. Sept. 28, 2010). Notz’s appeal contests

both the jurisdictional ruling and the calculation of

the stock’s value.

Notz’s jurisdictional argument rests on Wis. Stat.

§180.1330(2), which provides that “[t]he corporation
No. 10-3509 3

shall bring [the appraisal action] in the circuit court for

the county where its principal office . . . is located.” Subsection (4) adds that “[t]he jurisdiction of the court

in which the special proceeding is brought under

sub. (2) is plenary and exclusive.”

Wisconsin draws its corporate code from the Model

Business Corporation Act, so this language or something similar appears in the statute books of 30 states.

Several other states, including Delaware, have functionally identical provisions. Truck Components Inc. v.

Beatrice Co., 143 F.3d 1057, 1061–62 (7th Cir. 1998), holds

that Delaware’s version concerns venue rather than

jurisdiction. See also TBK Partners, Ltd. v. Western Union

Corp., 675 F.2d 456, 460 n.3 (2d Cir. 1982) (dictum understanding New York law the same way). Treating the

statute as a claim by a state to oust the jurisdiction of

the federal courts would simply render it unconstitutional, for no state may contract jurisdiction created by an

Act of Congress. See, e.g., M’Kim v. Voorhies, 11 U.S.

(7 Cranch) 279 (1812); Railway Co. v. Whitton’s Administrator, 80 U.S. (13 Wall.) 270 (1872). Cf. Chicago v. International

College of Surgeons, 522 U.S. 156 (1997) (proceeding

for review of a state agency’s decision is removable

notwithstanding the state’s desire that its courts retain

control). Under the Supremacy Clause, federal law

prevails over conflicting state law. We said in Truck

Components that it is best to read language such as Delaware’s (and Wisconsin’s) as allocating authority within

its own judiciary. Why treat a state as claiming more

power than it has? The commentary to the Model

Business Corporation Act shows that the drafters set
4 No. 10-3509

out to create a “provision[] . . . relating to venue”. ABA,

Model Business Corporation Act Annotated §13.30 at 13–100

to 13–101 (4th ed. 2008 & 2011 rev.). There’s no reason

not to take the authors at their word.

Notz concedes all of this but maintains that it is irrelevant. He tells us that the suit belongs in state court not

as a matter of statute, but as a matter of contract. Contractual forum-selection clauses are enforced even

though they point to state courts, arbitral panels, or the

courts of other nations. See, e.g., Carnival Cruise Lines,

Inc. v. Shute, 499 U.S. 585 (1991); Mitsubishi Motors Corp.

v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985); The

Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). Section

180.1330(2) is not part of a private contract between

Trostel’s founders and its investors—and Notz concedes

that neither Trostel’s charter nor its bylaws contains

any language specifying where appraisal proceedings

must be conducted—but Notz submits that all of Wisconsin’s corporate law is part of all articles of incorporation and thus becomes contractual, even though no

private person has assented.

Plenty of Wisconsin decisions contain statements along

the lines of “[t]hese statutes are as effectively a part of

the plaintiffs’ certificates of stock and of the corporate

charter as though printed therein.” Johnson v. Bradley

Knitting Co., 228 Wis. 566, 574 (1938). See also Hull v.

Pfister & Vogel Leather Co., 235 Wis. 653, 666 (1940); Milwaukee Sanitarium v. Swift, 238 Wis. 628, 636 (1941);

Franzen v. Fred Rueping Leather Co., 255 Wis. 265, 272

(1949). But unless Wisconsin believes that corporate
No. 10-3509 5

statutes are contracts—and thus can’t be amended after

a corporation adopts its articles, for states may not

“pass any . . . Law impairing the Obligation of Contracts” (Art. I §10 cl. 1)—these statements are just metaphors expressing the conclusion that state corporate

law binds investors and managers alike.

The proposition that corporate law in force when a

firm receives its charter becomes binding as a contract

led to one of the most famous decisions in the Supreme

Court’s history: Dartmouth College v. Woodward, 17 U.S.

(4 Wheat.) 518 (1819). The Court held that New Hampshire violated Dartmouth College’s rights under the

Constitution’s Contract Clause when a statute enacted

in 1816 changed provisions in the College’s charter,

which had been issued in 1769 by George III while

New Hampshire was a crown colony. Justice Story’s

concurring opinion suggested that states could avoid

similar outcomes for newly chartered corporations by

reserving the right to change either general corporate

law or a particular charter. States quickly took advantage of that opportunity, and the corporate-charter-ascontract doctrine faded into history.

Wisconsin included such a reservation in its first constitution, which was in force when it entered the Union.

Wisconsin Constitution of 1848, Art. XII §1. The current

Wisconsin Constitution has a similar provision in Art. XI

§1: “Corporations without banking powers or privileges

may be formed under general laws, but shall not be

created by special act, except for municipal purposes. All

general laws or special acts enacted under the provi-
6 No. 10-3509

sions of this section may be altered or repealed by the

legislature at any time after their passage.” The Supreme

Court of Wisconsin has held that this clause ensures

that the state can change the terms on which corporations operate. See, e.g., Attorney General v. Chicago &

Northwestern Ry., 35 Wis. 425, 574 (1874); West Wisconsin

Ry. v. Trempealeau County, 35 Wis. 257, 270 (1874). The

provisions of Wisconsin’s corporate law therefore are

legislative; they are not “contracts” as private law understands them, for they do not depend on any private

party’s consent and are outside the scope of the Contract

Clause.

When the Supreme Court of the United States held

in Mitsubishi Motors and similar cases that contractual

forum-selection clauses must be enforced, it used “contractual” in the private-law sense—the word denotes

obligations established by the unanimous and voluntary

consent of the affected parties. That’s not at all what

the Supreme Court of Wisconsin means when using

the metaphor that corporate law is read into a corporation’s articles. There is nothing voluntary about Wis.

Stat. 180.1330(2) and (4). These are rules established by

the legislature, not decisions by private actors. We therefore conclude that Wisconsin, like Delaware (see Truck

Components) has established a rule of venue applicable

within its own judicial system and has not attempted

to block corporations from using the diversity jurisdiction of §1332(a).

Notz does not contend that the district court’s finding

of fact that Trostel’s shares were worth $11,900 apiece
No. 10-3509 7

is clearly erroneous. He does contend, however, that

the judge made a legal error by excluding from the calculation a claim against Smith that Notz believes Trostel

possessed. In 2004 Trostel had an opportunity to

acquire the assets of Dickten & Masch Manufacturing

Co., which made plastics. Trostel passed on that opportunity, but Smith (whose nominees controlled Trostel’s

board) did not; what’s more, Smith then purchased

Trostel’s plastics subsidiary, Trostel SEG. Notz contends that these transactions misappropriated one of

Trostel’s corporate opportunities and diverted assets

from Trostel to Smith.

Notz tried to litigate these claims in his own name,

but both Trostel and Smith contended that the only way

to pursue them is derivative litigation. Trostel appointed

a special litigation committee of independent directors, which gave its blessing to the transactions and

squelched any derivative suit. Then the Supreme Court

of Wisconsin held that Notz’s principal theory is

indeed derivative in nature. Notz v. Everett Smith Group,

Inc., 316 Wis. 2d 640, 652–56 (2009). The court also held,

however, that Notz could pursue two theories in his

own name: first, that by causing Trostel to investigate

the Dickten & Masch assets, Smith created the functional equivalent of a dividend to itself (the value of

the information), a dividend that was withheld from

the minority investors, id. at 656–60; second, that Trostel

was being run in a way that oppressed minority shareholders and should be dissolved, id. at 660–67. Because

the minority investors had been cashed out in 2007,

the demand for dissolution was equivalent to a demand
8 No. 10-3509

for payment in excess of $11,900 (for on dissolution, as

in a merger, all investors receive the value of their

shares) and therefore duplicated the appraisal proceeding then pending in federal court. Id. at 675–78

(Roggensack, J., concurring). On remand, the Circuit

Court of Milwaukee County concluded that the dissolution claim had no value to Notz and that the evidence

did not establish the constructive-dividend claim.

The Circuit Court entered judgment for all defendants.

Notz v. Everett Smith Group, Ltd., No. 06CV3068 (Sept. 7,

2011). Notz did not appeal.

His argument that the federal district court should

have included elements of value growing out of the way

the Dickten & Masch assets ended up in Smith’s hands

(without any dividend to the minority shareholders)

amounts to an effort to relitigate these adverse decisions. Wisconsin entitles shareholders to the fair value

of their shares on the date of the transaction that creates

the right to dissent and appraisal. Wis. Stat. 180.1328.

As of that date, Trostel’s shares did not include any

element of value attributable to the Dickten & Masch

transaction—except for the payment Trostel received

for Trostel SEG, and Notz received full credit for that.

By the time the merger closed, the special litigation committee had decided not to pursue a claim on Trostel’s

behalf. Derivative litigation was a dead issue.

The special litigation committee concluded that a suit

would not be in Trostel’s interest—in other words, that

the discounted value of any recovery was less than the

litigation costs. Thus even though the law of preclusion
No. 10-3509 9

may not block Notz’s effort to resuscitate a corporateopportunities claim, the rationale behind the committee’s decision implies that litigation would make

Trostel worse off. Notz relies on a decision holding

that “fair value” in an appraisal proceeding includes

rights of recovery by a firm against its managers for

wrongs they inflicted on the firm. See HMO-W Inc. v. SSM

Health Care System, 234 Wis. 2d 707 (2000). This does not

help, for the upshot of the derivative claim is that

pursuing the members of Trostel’s board would have had

negative present value. And Wisconsin’s courts have

determined that there is nothing to Notz’s independent

claims. The district court thus toted up all of the elements of value that Trostel possessed when the merger

closed.

AFFIRMED

5-10-12