No. 81-222 

IN THE SUPREPlE COURT OF THE STATE OF MONTANA 

1982 

SKI ROUNDTOP, INC., individually and 

derivatively on behalf of SKI 

YELLOWSTONE INC., 

Plaintiff and Appellant, 

vs. 

JOHN P. HALL, FREDERICK L. MORGENTHALER 

and CHARLES R. MILLER, JR., 

Defendants and Respondents. 

Appeal from: District Court of the Eighteenth Judicial District, 

In and for the County of Gallatin 

Honorable W. W. Lessley, Judge presiding 

Counsel of Record: 

For Appellant: 

Gregory 0. Morgan argued, Bozenan, Montana 

Albert Blakey, I11 argued, York, Pa. 

For Respondents: 

Landoe, Brown Law Firm, Bozeman, Montana 

J. Robert Planalp argued, Bozeman, Montana 

Morrow, Sedivy, Olson & Eck, Bozeman, Montana 

Submitted: September 14, 1982 

Decided: January 31, 1983 
Mr. Justlce Fred J. Weber delivered the Oplnlon of the 

Court. 

This case is a companion case to Naylor v. Hail 

(1982), Mont . , 651 P.2d 1010, 39 St.Rep. 1953. 

Plaintiffs, minority shareholders in Ski YelPowstone, 

Inc., appeal from the decision of the Eighteenth Judicial 

District Court for Gallatin County, denying them relief in 

this stockholders' derivative action arising from the 

alleged misconduct of several of the officers and directors 

of Ski Yellowstone, a Montana corporation. We affirm the 

Distrlct Court with one exception. 

The following issues are presented to this Court by 

plaintiffs: 

(1) Did John Hall breach a duty to minority stockholders, with respect to the "C" and "D" stock issues? 

(2) After acquiring control of the corporation, did 

John Ball engage in a course of conduct which was oppressive 

to minority stockholders? 

(3) After acquiring control of the corporation, was 

John Hall guilty of fraud and self-dealing? 

(4) Was the amendment of the corporation's Articles of 

Incorporation, which authorized stock for the "C" and "D" 

issues, valid under Montana law? 

(5) What relief is appropriate under all of the circumstances? 

Ski Yellowstone is a Montana corporation which planned 

to develop a four-seasons resort in Gallatin County. It was 

organized in 1973 by stockholders in a Pennsylvania corporation, Ski Roundtop, Inc., which is a minority stockholder in 

Ski Yellowstone. The events on which this action is based 

occurred primarily in 1975 and 1976, during which time John 
Hall obtained control of Ski Yellowstone. 

The original stock issue which took place in 1973 was 

1,45O,OUO shares, $1.00 par value, which were relatively 

evenly distributed among twenty-one shareholders. The 

shares were issued at a cost of $1.00 per share, 1,050,000 

shares for cash in the amount of $1,050,000, and 400,000 

shares for land having a value of $400,000. With the exception of defendant John Hall and his family corporation, 

J.M.S. Corporation, all of the shareholders were friends and 

associates oE Irvin S. Naylor, the head of Ski Roundtop and 

the primary organizer, with Hans Geier, of Ski Yellowstone. 

Naylor originally was in a controlling position in Ski 

Yellowstone as well as in Ski Roundtop. 

Ski Yellowstone was low on funds by 1974. The issue 

of the Forest Service use permit to develop a ski area, 

which was essential to the success of Ski Yellowstone, had 

been delayed. In order to finance the expense of delay, in 

November, 1974, $290,000 worth of Series "A" debentures were 

issued. These debentures earned interest and were convertible into the common stock of Ski Yellowstone at $.20 per 

share. The dilution of the shares from the original $1.00 

per share paid in 1973 was recognized by Naylor, but was 

deemed necessary to prevent bankruptcy. John Hall purchased 

his $5,000 pro rata preemptive share of the Series "A" 

debentures and also purchased by agreement an additional 

$42,500 worth of overage (debentures offered to but not 

purchased by other shareholders who were first entitled to 

purchase). Plaintiffs contend there was a "gentlemen's 

agreement" that the Series "A" debentures would not be 

converted into stock unless the company was sold. 
By 1975 Skl Yellowstone again was short of capital and 

in July, 1975, $200,000 worth of Series "8" debentures were 

issued to the shareholders of the company. Series "B" 

debentures earned the same interest rate and had the same 

conversion privileges as Series "A" debentures. 

John Hall became a director (one of ten) of Ski 

Yellowstone in June, 1975. During 1975 and 1976 John Hall 

obtained greater control of Ski Yellowstone by joining 

several "allies" in acquiring all unpurchased Series "A" 

debentures, converting those "A" debentures into stock, 

tnereby increasing the number of Series "B" debentures he 

could purchase; subscribing to Series "B" debentures and 

converting the same into stock. The result of these 

activities was to create a controlling block of shares. 

Other shareholders also converted Series "A" and "B" debentures into common stock, with the exception of plaintiffs 

Naylor and Geier. 

The new voting majority of stockholders reduced the 

number of directors from ten to seven, and elected Fred Pack 

as chairman of the board in place of Irvin Naylor. The 

corporation authorized the sale of $200,000 of Series "C" 

debentures witn the same terms as the "A" and "B" debentures. The success of the issue required a pledge of 80 

percent of the issue. The issue failed. John Hall 

distributed a letter to Ski Yellowstone shareholders 

expressing general confidence in the venture, but pointing 

out that expenses were likely to be higher than anticipated. 

In considering the questioned stock issues, it is 

Important to keep in mind the following findings of fact on 

the part of the District Court: Ski Yellowstone was formed 
in 1973 by Naylor and Hans Geier, both residents of Pennsylvania. Naylor had extensive experience in obtaining venture 

type capital for business entities and Geier had twenty 

years experience in the ski industry, including sixteen in 

upper-level management. The purpose of Ski Yellowstone was 

to acquire private lands and the necessary permits to use 

government land to develop its resort. Naylor simultaneously was chairman of the board of Ski Yellowstone and chief 

executive officer of Ski Roundtop, which operates ski resort 

areas in Pennsylvania. Initially, Naylor represented to 

shareholders of Ski Yellowstone that within a short time a 

shareholder could sell his stock for $10 a share. Ski 

Yellowstone purchased land and undertook a series of 

studies, applied for a Forest Service permit, and filed 

extensive environmental data in 1973. At that time, the 

Forest Service changed its approach and decided to process 

the application in the context of a larger regional study, 

which led to a series of delays. By 1974 it was obvious 

that Geier was unable to quickly obtain the Forest Service 

permit, and Naylor caused John Maples, a plaintiff, to be 

hired for the purpose of liquidating Ski Yellowstone or 

selling the corporation. In 1974, John Maples represented 

to the shareholders that the value of their stock could be 

as low as $.12 per share. Following the offering to the 

snareholders of Series "C" debentures in 1976, plaintiff 

Rosenmiller, also a director of Ski Koundtop and a close 

business associate of Naylor, advised Naylor of the 

conclusions of his committee that Ski Roundtop should 

decline to invest in Series "C" debentures because their 

investments should be made in Ski Roundtop's marketing area, 
that is the ski business in Pennsylvania, and that Ski 

Roundtop should - not convert Series "A" and "B" to stock. 

Because of its insight into the thinking and actions on the 

part of the plaintiffs, the District Court set forth the 

Rosenmiller letter of May 18, 1976, to Naylor in its 

findings as follows: 

"I have concluded my discussions with my 

Committee relative to the advisability of 

Ski Roundtop converting its Ski Yellowstone Debentures into Common Stock and 

subscribing to the forthcoming Series "C" 

Debenture issue. It is the unanimous 

opinion of our Committee that we should 

do the following: 

"1) We auvise that Ski Roundtop, Inc. 

honor its commitment under the existing 

Series "B" Convertible Notes subscription, calling for a payment of $4,843.60. 

Although this Note offers no return for 

one year it does provide a $.20 a share 

conversion feature if it is later determined that the stock is, in fact, worth 

that or a figure in excess of $.20 a 

share. Most importantly, this Debenture 

has been substantially collateralized by 

valuable real estate which has less 

demands placed against it due to the 

recent conversion of the Hall notes. 

"2) It is the unanimous recommendation 

that we do not convert our Series "A" and 

Series "B" notes into common stock of Ski 

Yellowstone, Inc. The only rationale for 

doing so would be to return the control 

of the Company into its former hands but 

the likelihood of this occurring, is 

remote at best. It is felt by our Group 

that we may be in a stronger position to 

allow the new management to go forward 

and if successful, we can convert at a 

later date and hopefully realize a return 

and profit on our investment. If new 

management is unsuccessful, we will be 

able to write off the common equity 

portion of our investment against future 

earnings, developing a tax shelter which 

will pay for a portion of the loss 

incurred. We will further be in a good 

position to take legal action against the 

new management in the event they have 

acted not in the best interest of all 

shareholders. 
"3) Regarding the proposed $200,000 

Series "C" Debenture, we would recommend 

against any further investment in Ski 

Yellowstone, Inc. at this time. Our 

rationale being that our investments 

should be made in Ski Roundtop's marketing area, advancing that which we do best 

and profit from most, namely, the ski 

business and recreation generally here in 

York and Adams Counties. 

"Tnis constitutes the recommendations of 

Jacob A. Barnhart, Dr. Anthony Perlman 

and W. F. 0. Rosenmiller." 

As noted by the District Court, the letter points out 

tne conclusion on the part of those making their recommendations to Naylor: not to convert stock because of the financial risk; consider conversion at a later date if the new 

management is successful; if new management is unsuccessful, 

write off against earnings as a tax shelter; take legal 

action in the event the new management has not acted in the 

best interest of shareholders; and finally, recommending 

against any further investment in Ski Yellowstone. 

John Hall also circulated a letter dated May 21, 1976, 

to Ski Roundtop's board of directors, suggesting that, while 

he as an individual could convert his debentures to stock 

for the good of the company, Ski Roundtop would be "illadvised" to sacrifice the interest on the debentures and 

speculate by so converting. Ski Roundtop might, Hall said, 

"open itself to minority shareholder suits," if it chose to 

convert. 

Tne "C" Series debenture issue failed, although John 

Hall subscribed to the number allocated to him, conditional 

upon tne success of the issue. The Ski Roundtop shareholders 

did not subscribe. 

A stockholders' meeting noticed on July 1, 1976, was 

held July 16, 1976. It was preceded by a directors' meet- 
ing. At that meeting, over Hall's protests that the move 

would dilute the stock, Ski Yellowstone directors voted to 

issue company stock in the amount of $500,000 at $.05 a 

share. The stockholders also approved the issue. (A $.lo 

share issue was voted down.) 

In early August, 1976, a falling out took place 

between Naylor and Hall, accompanied by a series of acrimonious exchanges personally and by mail, which led Naylor 

to withdraw his support of the "C" Series issue and to 

exercise his right to review the issue for sixty days as set 

forth in the 1973 founders' agreement, thus moving the 

closing date for subscriptions to October 4, 1976. Naylor's 

friends, and Hall as well, then also withdrew their 

subscribed support and the issue, which had until then been 

over 80 percent subscribed, appeared doomed to fail. The 

financial situation of the corporation was desperate; land 

payments and salaries were due and bank notes overdrawn; 

even the company's president, Geier, was convinced Ski 

Yellowstone would fail. In October, 1976, Hall subscribed 

to a total of $401,000 worth of "C" shares, notwithstanding 

his previous indicated intention to subscribe to $100,000 to 

$150,000 worth of the shares. Four other shareholders 

subscribed for $10,480 worth of stock. John Maples, a 

minority shareholder and one of the plaintiffs, wrote Wall a 

letter stating, "Congratulations--you have saved the 

corporation. " 

When Hall paid the 25 percent due on the "C" Series 

subscription in October and assumed ownership of 25 percent 

oi the stock, he became owner of 50.7 percent of the Ski 

Yellowstone stock outstanding (full payment would have given 
him over 77 percent ownership). Naylor and three associates 

resigned from the board of directors and were replaced by 

two personal friends of Hall who were not shareholders. The 

new board made a number of changes, including (1) changing 

the bylaws to place more power in the chairman, Hall; (2) 

agreeing to postpone further payments due on the "C" issue, 

first for one month and then (on January 7, 1977) until 

needed; (3) adopting a two-tier budget, under which the "C" 

Series payments would be applied to those long-term financial obligations essential to the survival of the company, 

and the costs of obtaining the Forest Service permit would 

be funded by a subsequent stock issue. 

On December 10, 1976, Ski Yellowstone sought to raise 

$450,000 in cash by its offer of the "Dl1 Series stock issue 

of 9,000,000 shares at $.05 per share, with purchase rights 

to be allocated in proportion to shares owned as of that 

date. The prospectus notified shareholders of the first 

postponement of "C" Series payments, and the adoption of the 

two-tier budget suggested by director Morgenthaler. It also 

informed them that the sixty-day review period would be 

shortened due to the pressing need for cash and would expire 

on December 23, 1976. The prospectus stated: 

"Should it be determined that a shareholder of the Company retains his right 

to exercise his rights after December 23, 

1976, the Company may be required to 

issue additional shares to such 

shareholders." 

The subscription to the initial "D" Series attracted virtually no subscribers, only one or two small pledges. One 

shareholder, John Maples, notified John Hall that he refused 

to return his proxy and waive his sixty-day review right. As 

a result, on January 7, 1977, the Ski Yellowstone directors 
decided that the oifering was unsuccesstul, dropped the 

price of shares to $.01 each, and increased the number of 

shares offered to 45,OU0,000. The amended prospectus indicated the postponement of payments due on the "C" issue 

until needed, and warned, as had those for earlier issues, 

that failure to subscribe would result in substantial 

dilution of ownership, should the issue succeed. The number 

of payments was increased from two to four, the first due 

February 10, 1977, and the last three due on specified dates 

"or thereafter at the call of the Directors." The stated 

purpose of the amendment was to "promote the success of the 

offering." The closing date for the offering was extended 

to February 10, 1977. Only John Hall and defendant Morgenthaler were present at the January 7, 1977 meeting. 

The "D" issue was successful, again because of John 

Hall's subscription to $400,000 of stock, with $2,725 of 

stock subscribed by four other stockholders. As a result of 

his subscription to the Series "D" issue and his previous 

subscription to the Series "C" issue, Hall gained the right 

to obtain 94 percent stock ownership in the corporation. 

The plaintiffs point out that he had invested only 37 

percent of the money invested in order to get that share of 

ownership. A letter dated March 10, 1977, from John Hall to 

the shareholders indicated that the first payment on the "D" 

issue was sufficient to meet the present needs, and that the 

further installments would be called for as needed. 

From autumn of 1976 on, Hall rejected Naylor1s 

repeated attempts to sell Hall his interest in Ski Yellowstone. Naylor com~nenced this shareholders' suit in Pennsylvania. The cause was transferred to Montana and after 
extensive d~scovery, heard before the Eighteenth Judicial 

District Court in September, 1981. The District Court 

denied plaintiffs relief, concluding that the defendants had 

acted in good faith for the benefit of Ski Yellowstone, and 

committed no fraudulent, oppressive or illegal acts in the 

course of their management of and membership in that 

corporation. Plaintiffs appeal. 

Because of the complex facts and a number of nondispositive accusations by the plaintiffs, we will consider a 

number of these accusations first in order to eliminate the 

same before proceeding to the substantive issues. 

Plaintiffs concede that defendant Hall had the legal 

rlght to convert his "A" and "B" debentures to stock, and 

that he had the right to purchase unsubscribed debentures 

and unsubscribed "C" and "D" stock. All shareholders 

possessed those rights. No shareholder was required to give 

warning to others of his intent to convert to common stock 

or purchase overages. 

Plaintiffs' arguments sometimes are misleading in 

seeking to establish that John Hall and his "allies" had 

gained control of Ski Yellowstone, and thereafter oppressed 

the other shareholders. Several of such "allies" were more 

closely associated with Naylor than with defendant Hall. 

John Hall did not take control of Ski Yellowstone until 

October 1976 when he became the majority shareholder. This 

was several months after the previous majority of shareholders had refused to invest further in Ski Yellowstone and 

thereby retain their own control. Prior to October, 1976, 

Hall was just another minority shareholder and director, 

whose vote did not control, and whose responsibility to 
other shareholders was significantly less than that of a 

majority shareholder. 

The record does not establish that Hall's acrimonious 

exchanges with other shareholders are significant in considering the question of oppression. The District Court found 

such letters to be "juvenile and unworthy of all letter 

writers." The exchanges were frequently mutual. The ylaintiffs as well as Hall were a sophisticated lot, knowledgeable in their fields, and unlikely to abandon an enterprise 

to their detriment because of a few caustic exchanges with 

other shareholders. 

Plaintiffs protest the issuance of shares of Ski Yellowstone to a number of stockholders, including the defendants Miller and Morgenthaler, and also Hall's wife, for 

services to the corporation. Section 35-1-606, MCA, provides that labor or services actually performed may serve as 

consideration for shares issued and that "in the absence of 

fraud in the transaction, the judgment of the board of 

directors or the shareholders, as the case may be, as to the 

value of consideration received for shares shall be conclusive." We find no evidence of fraud in these transactions. 

Tliere has been shown no impropriety in the transfer of the 

stock to these parties. It may be noted that prior to the 

gaining of control by Hall, the board of directors headed by 

Naylor had issued stock for services to other parties. 

Plaintiffs' claim in that regard is without merit. 

I 

Did John Hall breach a duty to minority stockholders 

with respect to the "C" and "DM stock issues? This is the 
principal issue urged by the plaintiffs. An extensive 

detailed written prospectus was prepared in connection with 

both the "C" and "D" stock issues. Each of the prospectuses 

was well drafted and contained all of the information reasonably necessary on the part of the shareholders in order 

to evaluate each of the stock issues. Each of the stockholders received copies of the prospectuses and there is no 

dispute in that regard. It is also important to keep in 

mind that John Ball was not the controlling stockholder or 

director or officer until October 1976. Up to that time he 

was at most one of seven directors and of nineteen individual stockholders plus two corporate stockholders. 

Plaintiffs contend that John Hall breached his duties 

to the minority stockholders by actions designed to alienate 

them and to facilitate his acquisition of control. We have 

previously disposed of the acrimonious correspondence as not 

being significant. The District Court did not find any 

limitation on the contractual rights of the defendants to 

convert their shares. No evidence is referred to which 

raises any question as to the sufficiency of such converslons. We therefore have concluded that the stock conversions by the defendants were proper. The plaintiffs argue 

that the failure of John Hall to advise other stockholders 

oi his plans to support the "C" issue was misleading. There 

is no evidence to support that contention. As previously 

indicated, the primary plaintiffs already had concluded they 

would not support the "C" issue. We find that all information reasonably needed by the minority stockholders in order 

that they might conclude whether or not to convert their "A" 

or "B" debentures, or to purchase "C" or "D" stock issues 
was furnished to them and that there was no breach of duties 

with regard to the alienation of stockholder interest in the 

company. 

Plaintiffs contend that John Hall breached his fiduciary duties to minority stockholders by purchasing stock in 

"C" on terms not available to others, and by authorizing the 

"D" issue when that issue was unnecessary. As mentioned, 

the prospectus for the "C" issue and for the "D" issue set 

forth all of the pertinent details needed by the stockholders. The change in the amount of interest to be paid by 

John Hall will be discussed later. 

In connection with the proposed "D" issue, the 

directors, including John Hall, adopted a two-tier budget. 

Under this budget, long-term obligations essential to the 

survival of the company were to be paid out of the proceeds 

of the "C" issue. The second tier related to items to be 

paid in order to meet the costs of obtaining the Forest 

Service permit, and the plan was that such second tier would 

be paid out of the proceeds of the "D" issue. Plaintiffs 

argue that the "D" issue would not have been needed if Hall 

had paid for all of the "C" issue. There is substantial 

evidence contradicting this assertion in the record. 

The District Court found that the actions of the 

directors and Hall were to be measured by the "business 

judgment rule." We approve the statement of this rule 

contained in Nursing Home Building Corp. v. DeHart (1975), 

i3 Wash.App. 489, 535 P.2d 137, 143-144, as follows: 

". . . The 'business judgment rule' 

immunizes management from liability in a 

corporate transaction undertaken within 

both the power of the corporation and the 

authority of management where there is a 

reasonable basis to indicate that the 
transaction was made in good faith. An 

excellent statement of the 'business 

judgment rule' is found in W. Fletcher 

51039 at pages 621-25: 

"'It is too well settled to admit of controversy that ordinarily neither the 

directors nor the other officers of a 

corporation are liable for mere mistake 

or errors of judgment, either of law or 

fact. In other words, directors of a 

commercial corporation may take cnances, 

the same kind of chances that a man would 

take in his own business. Because they 

are given this wide latitude, the law 

wiil not hold directors liable for honest 

errors, for mistakes of judgment, when 

they act without corrupt motive and in 

good faith, that is, for mistakes which 

may properly be classified under the head 

of honest mistakes. And that is true 

zven though the errors may be so gross 

that they may demonstrate the unfitness 

of the directors to manage the corporate 

affairs. This rule is commonly referred 

to as the "business judgment rule."' 

It (E'ootnotes omitted. ) See also H. Henn, 

Law of Corporations S242 (1970)." 

The actions of the board of directors in this case are 

to be rneasureu by the business judgment rule. While it is 

clearly arguable that the two-tier budget might not have 

been tile perfect solution to the financial needs of the 

corporation, we find ample evidence in the record, as 

pointed out by the District Court, demonstrating that this 

financial analysis contained in the two-tier budget was a 

reasonable tneory for the directors and officers to adopt. 

The record does not show any corrupt or fraudulent motives. 

Of particular significance is the absence in the record of 

facts showing an actual mistake of judgment in the adoption 

or the two-tier budget and the issue of the "Dl' stock as 

well as the "C" stock. Following the subscription to the 

"U" issue, for the first time Ski Yellowstone was in an adequate financial posture to meet current operating expenses 
and long-range development expenses. It is lnteresclng to 

note that the plaintiffs, who concluded that it was bad 

business judgment on their own part to invest additional 

funds in this corporation, now contend that the "Dlt issue 

was unnecessary and was oniy a device to obtain control ot 

the corporation. As mentioned previously, the plaintiffs 

haa the option to purchase the stock in tne same manner and 

at the same price and terms as the defendants, and in 

particular John Hall. As determined by the District Court, 

the record contains substantial evidence to support the 

business need for tne "D" issue. 

We approve the "DM issue following the "C" issue under 

the buslness judgment rule, as tne plaintiffs have failed to 

prove any basis tor setting the same aside. 

Plaintitfs also argue that the reduction in price of 

the "0" issue from $.05 to $.01 was an improper sale of the 

stock at less than its value. The record demonstrates that 

all of the shareholders had the opportunity to purchase the 

"DM issue at $.US but failed to do so. The directors then 

reduced the prlce from $.05 to $.01 per share, again giving 

tile opportunity to ail shareholders to purchase the "D" 

issue at S.01 per share. Only John Hall and a few other 

stockholaers purchased. The plaintiffs did not choose to 

do so. Complete information was furnished under the 

prosp2ctus to ail of the stockholciers so that no one was 

misled. Plaintiffs argue that the issue should have been 

held open at the $.05 price for sixty days as required under 

the founders' agreement. In the prospectus, all of the 

stockholders were advised of the tnirteen-day period within 

which a decision was required on the $.05 price, and were 

also advisea that there was a sixty-day provision which 

~rlight give stockholders an opportunity to purchase at the 
$.05 prlce for a longer period. Having found that no one 

desired to purchase at $.05, the directors reduced the 

oLferlng price to $.01 an6 gave the tull sixty-day period 

within which to purchase at s.01. Again, it is to be noted 

tnat the plaintiffs did not attempt to purchase or offer to 

purchase at the $.01 price. Further, there was substantial 

evidence to support the conclusion of the District Court 

that the price of $.01 was the fair market value of the 

stock. The claim as to the purchase price of the "D" issue 

is without foundation. 

We therefore conclude that there was a legitimate 

business purpose in the adoption by the board of directors 

of the two-tier budget, and in the making of the "D" issue, 

as well as the reduction in the subscription price for the 

"D" shares from $.O5 to V.01. Such actions are approved 

under the business judgment rule. 

The District Court prepared extensive and detailed 

findings of fact, supported by a memorandum analyzing the 

facts and rules of law. We will not substitute our judgment 

for that of the trier of fact. As stated in Jensen v. 

Jensen (19bl), Non t . , 629 P.2d 765, 768, 38 

"This Court will not substitute its judgment for that of the trier of fact. We 

will consider only whetner substantial 

credible evidence supports the findings 

and conclusions. Findings will not be 

overturned unless there is a clear 

preponderance of evidence against them, 

recognizing that evidence may be weak or 

conflicting, yet still support the 

findings. Phennicie v. Phennicie (1979), 

Mont., 604 P.2d 787, 790, 36 St.Rep. 

2378, 2381. The judgment of the trial 

court is presumed correct, and tnls Court 

will draw every legitimate inference to 

support that presumption. Marta v. Smith 

(196l), Mont., 622 P.2d 1011, 1015, 38 

St.Rep. 28, 32; Madison Fork Ranch v. L & 

B Lodge, Etc. (1980), Mont., 615 P.2d 

900, 905-906, 37 St.Rep. 1468, 1473." 

On the key questions of the "C" and "D" issues, there 
is substantial credible evidence supporting the findings and 

conclusions of the court. We therefore affirm such conclusions on that basis as well. 

Plaintiffs also contend that John Hall breached his 

fiduciary duties to stockholders when he failed to pay the 

balance of the purchase price on the series "C" issue in the 

time required under the prospectus. We find that this 

failure to pay did deprive the corporation of the purchase 

price of the stock, as a result of which the corporation 

suffered a loss equivalent to the income which it would have 

earned if Hall had paid for the "C" stock on the same basis 

as that offered to all shareholders. We therefore hold that 

the District Court shall determine the interest to be paid 

by John Hall to the corporation, which shall run from the 

due date for the payment of the balance of the purchase 

price on the "C" issue as contained in the offering to the 

date on which it was actually paid. 

I1 

After acquiring control of the corporation, did John 

Hall engage in a course of conduct which was oppressive to 

minority stockholders and which justifies liquidation of the 

corporation? Plaintiffs contend that there is oppression 

sufficient to qualify for liquidation of the corporation 

pursuant to section 35-1-921, MCA, which provides in 

pertinent part: 

"Power of court to liauidate assets and 

business of corporation -- venue. (1 ) 

The district courts shall have full power - to liquidate the assets and business of a 

corporation: 

"(a) in an action by a shareholder when 

it is established that: 
"(ii) the acts of the directors or those 

in control of the corporation are illegal, oppressive, or fraudulent . . ." 

We refer to Skierka v. Skierka Bros., Inc. (1981), 

Mont . , 629 P.2d 214, 38 St.Rep. 754, and Fox v. 7L 

Bar Ranch Co. (1982), Mont. , 645 P.2d 929, 39 

St.Rep. 862. These cases discuss at length the rationale 

behind the liquidation of a corporation because of illegal, 

oppressive or fraudulent acts. In the Skierka case, we 

quoted from the case of Fix v. Fix Material Co., Inc. 

(Mo.App. 1976), 538 S.W.2d 351, in which the court makes the 

following observations particularly applicable here: 

"'The Illinois courts made it clear, when 

construing the Illinois Statute (the 

Model for S 351.485 [the Missouri 

statute]), that "oppression" is, in and 

of itself, an independent ground for 

relief not requiring a showing of fraud, 

illegality, mismanagement, wasting of 

assets, nor deadlock, though these 

factors are frequently present . . . 

"'It has often been stated that oppression suggests . . . "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." " . . . Such 

definitions are suggested perimeters of 

the broad term rather than narrow 

definitions which would tend to rob the 

term of its useful flexibility. As we 

read the statute, it is intended the 

courts will proceed on a case-by-case 

basis. "I" ~kierka, 629 P.2d at 221, 38 

St.Rep. at 764. 

It should be noted that both Skierka and - Fox involve 

closely-held family corporations. In contrast, as pointed 

out by the District Court, the present case involves approximately twenty businessmen with extensive financial and 

investment backgrounds. 

The plaintiffs argue that, after gaining control in 
1976, John Hall ran a one-man show with limited meetings of 

the executive committee and board of directors. They also 

argue that the firing of Geier indicated such type of 

conduct, ignoring the finding by the District Court that 

Geier had improperly transferred company funds to a private 

account of his own in order to cover his retirement fund in 

anticipation of the collapse of the corporation. Reference 

is also made to the purchase of the property to which Naylor 

claimed title. That is the subject of the companion case of 

Naylor v. Hall, previously cited, and is not appropriate 

here. 

The District Court analyzed these facts in detail, and 

set forth examples in a number of paragraphs in its findings, showing how the conduct of the defendants was proper 

and for the benefit of the corporation. Ultimately, the 

District Court concluded: 

"The defendants acted in good faith for 

the benefit of the corporation, Ski 

Yellowstone, Inc. 

"The defendants committed no fraudulent, 

oppressive, or illegal acts in the course 

of their management and membership of and 

with Ski Yellowstone, Inc." 

As previously stated in Jenson, we will consider only 

whether substantial credible evidence supports the findings 

and conclusions of the court and the findings will not be 

overturned unless there is a clear preponderance of evidence 

against them. We find no basis in fact for an overturning 

of the findings and conclusions. 

1x1 

After acquiring control of the corporation, was John 

Hall guilty of fraud and self-dealing? 
This contention on the part of the plaintiffs again is 

based on section 35-1-921, MCA, which is above quoted. The 

basic controlling rule of law is also quoted in Skierka, 

above. 

Plaintiffs contend that by the postponement of the 

making of payments on the "C" issue, Hall engaged in inappropriate self-deallng. That issue has been resolved by the 

interest requirement previously set forth in this opinion. 

In a similar manner, the contention is made that the 

improper purchase of the Naylor lot was significant, but 

that has also been resolved in the case of Naylor v. Hall, 

above. Plaintiffs additionally refer to a number of relatively insignificant actions by Hall as a basis for selfdealing. These contentions are answered by the findings and 

conclusions of the District Court described, with which the 

plaintiffs do not take issue. 

Plaintiffs contend that the issuance of corporate 

credits for services was improper. The District Court found 

that this action was not improper, and was similar to the 

acrions on the part of some of the plaintiffs when they were 

in control. 

Again, we find that there is substantial credibie 

evidence supporting the findings and conclusions of the 

District Court that there was neither fraud nor self-dealing 

on the part of John Hall. 

IV 

Was the amendment of the corporation's Articles of 

Incorporation, which authorized stock for the "C" and "D" 

issues valid under Montana law? Plaintiffs argue that these 
issues must be rolled back because of the failure to give 

the statutory notice of the stockholders1 meeting at which 

the stockholders approved the amendment of articles to 

increase the authorized shares. We hold that the plaintiffs 

are equitably estopped from asserting the invalidity of the 

amendment. 

Section 35-1-207, MCA, as then in effect, provided 

that thirty days written notice of a shareholders1 meeting 

must be given if the meeting will consider a vote on a 

proposed amendment of articles to increase shares. Here, 

notice of shareholders1 meeting to be held on July 12, 1976, 

was given by a letter dated July 1, 1976, which indicates 

substantially less than the statutory thirty days. The date 

of the meeting subsequently was changed to July 16, 1976, by 

an undated subsequent notice. That notice announced that 

the purpose of the meeting was to amend the Articles of 

Incorporation in order to draw up the par value and to 

increase the number of authorized shares from 6,000,000 

shares to a number to be determined at the meeting. The 

significance of the meeting was stressed. The effectiveness 

of the notice is demonstrated by the vote cast at the 

meeting where 2,513,000 shares were represented out of a 

total of 2,614,200 shares outstanding, making over 96 

percent of the voting stock present in person or by proxy. 

The vote at the meeting was unanimous in adopting the 

recommendation of the directors to amend the Articles to 

increase the number of shares to 60,000,000 shares and to 

drop the par value of the shares to $.01. In reliance upon 

the validity of the amendment, John Hall alone subscribed to 

a substantial number of Series "C" stock, a subscription 
which assured the success of the issue. As indicated by the 

District Court, this saved the corporation from failure. In 

addition, John Hall alone subscribed to a substantial portion of the "D" issue after the failure of other shareholders to join in that subscription. Again John Hall's 

subscription saved the issue from failure. That subscription 

was clearly a high-risk adventure which funded the second 

tier of the two-tier budget and assured the future financial 

viability of the corporation. Wow, years later, when the 

issuance of the Forest Service permit seems assured, and the 

success of the corporation seems likely, the courts are 

asked to invalidate the amendment of the corporation 

Artlcles and roll back the stock issues. Obviously this is 

directed almost exclusively at John Hall. The plaintiffs 

making this request include several of the directors who 

approved the amendment and particularly Mr. Naylor, who was 

present and abstained from voting, as well as a large number 

ok the minority shareholders who actually voted their approval of the amendment. All of the plaintiff shareholders 

have benefited from the purchase by John Hall of the "C" and 

"D" stock. 

The present action is a stockholders' derivative suit 

which is an invention of the courts of equity and is recognlzable only in equity. Noble v. Farmers Union Trading Co. 

(1950)r 123 Iqont. 518, 529, 216 P.2d 925, 930. This Court 

previously has recognized the flexibility required of courts 

of equity in resolving disputes. See, Skierka and Fox, 

cited above. We hold that it would be inequitable to allow 

the plaintiffs to assert the invalidity of the amendment of 

the Articles because of their involvement and acceptance of 

benefits. 
v 

Wnat relief is appropriate under all the circumstances? Plaintiffs urge us not to view this suit as merely 

the outcome of a corporate power struggle between Naylor and 

Hall. The record demonstrates that the root of the conflict 

was sucn a power struggle, and that the effect of Wall's 

actions was less disastrous than had he failed. The record 

discloses that Hall's actions were taken primarily to 

preserve and promote Ski Yellowstone, regardless of the very 

substantial risk to himself. He converted interest-bearing 

debentures into stock, reducing the financial obligation of 

the financially-strained corporation, and assumed the risk 

that the $.20 per share value of the stock would decrease 

(as it did), and, incidentally, gained more voting power. 

He twice subscribed to sufficient stock in the company to 

insure the success of a subscription which was otherwise 

certain to fail. He legitimately gained ownership of the 

vast majority of Ski Yellowstone stock. 

Naylor, on the other hand, sought to maintain control 

of Ski Yellowstone by means which placed himself and Ski 

Roundtop in the most secure financial situation, but 

threatened the viability of Ski Yellowstone. He originally 

indicated his willingness to invest $200,000, assuring 

prospective investors that their $1.00 per share would 

shortly be worth $10.00, but then only invested $50,000 

hiinself. After his arguments with Hall, he withdrew his 

support for the "C" Series and persuaded many of his associates to do the same despite the company's dire need for 

cash. He did not risk converting his own debentures to 

stock, and invested no more capital in the corporation after 
the summer of 1976. Indeed, very few of the minority stockholders chose to risk further investments in Ski Yellowstone 

after the "0" debentures. They ventured a total of $10,480 

in the "C" offering and less than that in the 'ID" offering. 

Plaintiffs' statement that for 37 percent of the investment 

capital, John Hall obtained over 94 percent of the stock, 

sounds much less significant when we realize that without 

the almost $900,000 which Hall invested, the company would 

have foundered. 

The bulk of the evidence supports the conclusion that 

the shareholders withdrew their support from Ski Yellowstone 

primarily because of their unwillingness to extend themselves further in a risky investment. We have found there 

was sufficient evidence to support the trial court's conclusion that the "D" issue provided funding for the second tier 

of the budget and that the reduction in the price of the "D" 

shares from $.05 to $.01 was not unreasonable or improper. 

We agree with the District Court's conclusion that the 

bottom line is really that plaintiffs chose not to participate and not to invest further in the Ski Yellowstone 

venture, and the remedies sought against the defendants are 

not warranted. We conclude that the record adequately 

supports the trial court's findings that the defendants' 

actions, while not totally blameless, were neither fraudulent, oppressive, nor illegal, but were taken in good faith 

for the benefit of the corporation. 

Therefore, except for our finding that John Hall is 

liable to Ski Yellowstone for interest arising from his 

delayed payments on the "C" Series subscription, we affirm 

the District Court in all respects. We remand the cause to 
the District Court for a determination of the amount of the 

interest due from Mr. Hall. 

/ 

We concur: 

~&we_S t $&$&,,& 

Chief ~ustice 

District Judg tting in 

place of Mr. ce Gene B. 

Daly 
Mr. Justice Frank B. Morrison, Jr., dissenting: 

I respectfully dissent: 

Both the District Court and the majority of this Court 

defeated the claim of minority shareholders because the 

actions of John Hall salvaged Ski Yellowstone from the 

throes of financial ruin. Whether John Hall saved the 

"corporate bacon" is not the issue in this case. 

In determining whether the "D" stock issue was proper, 

the majority rely upon the "business judgment" rule. The 

"business judgment" rule is not applicable to this case. 

However, this Court's reliance upon the rule indicates that 

the majority simply did not understand the essence of plaintiff's 

constructive fraud allegation. 

The "business judgment" rule is employed to immunize 

corporate officers and directors where they act in good 

faith, but, as a matter of hindsight, it can be determined 

that they did not take the course of action which hindsight 

shows to have been the best selection. The rule simply has 

no application in this case. Here we must determine whether 

the desired corporate objective of obtaining much needed 

revenue could have been achieved without "watering" the 

stock of minority shareholders. If the revenue could have 

been raised without diluting their interests, then the means 

Hall employed constituted a "constructive fraud" within the 

meaning of Montana law. 

John Hall decided to pay for his subscribed stock under 

the "C" issue through a deferred payment plan instead of 

paying cash as he was supposed to do under the original 

offering. This was justified by reliance on a two-tier 

budget. Hall claimed it was unnecessary to pay cash for the 

stock as there were not sufficient immediate cash needs of 

the corporation to require a cash subscription. Then, 

without first paying for the "C" issue, Hall caused a "D" 
issue. As I hereafter point out, this was a constructive 

fraud. 

To compound the constructive fraud committed in the 

issuance of the "D" stock, Hall and his board of directors 

further diluted the interest of the minority shareholders by 

replacing the original five cent "D" issue with penny stock. 

Of course, this maneuver did not enable the corporation to 

raise more money, it simply gave Hall more shares of stock. 

The corporate interest was not being further enhanced by 

Hall's maneuvering; rather, the minority stockholders' 

interests were being further "watered." This again constituted 

a constructive fraud. 

Corporate directors, in issuing additional shares of 

stock, owe a fiduciary duty to minority stockholders. See 

Condec Corporation v. Lunkenheimer Company (Del. 1967), 230 

Atl.2d 769. Where a fiduciary relationship adheres, the law 

of "constructive fraud" controls. Constructive fraud involves 

"any breach of duty which, without an actually fraudulent 

intent, gains an advantage to the person in fault or anyone 

claiming under him by misleading another to his prejudice 

. . ." Section 28-2-406(1), MCA. Where a fiduciary duty is 

involved, the trustee is bound to act in the highest good 

faith. Section 72-20-201, MCA. If a transaction is challenged, 

the burden is upon a corporate officer or a corporate director 

to prove that the questioned actions were fair and in good 

faith. First State Bank of Hilger v. Lang (1918), 55 Mont. 

146, 174 Pac. 597. 

It is clear from the evidence in this record that the 

financing technology employed by Hall benefited Hall at the 

expense of minority shareholders. Of course, it is no 

defense to argue that Hall benefited the corporation because 

the same corporate funds could have been realized without 

unnecessarily diluting the interests of minority shareholders. 
œ he majority seems to grasp at defendants' argument that 

minority shareholders were offered the same price Hall paid 

for all stock issues. This rationale makes very bad corporate 

law and greatly erodes the protection previously afforded 

those benefiting from a fiduciary relationship. Under the 

law articulated in the majority opinion, minority shareholders 

can now be coerced into purchasing additional shares in a 

corporation in which they will have no voice. Further, 

unless the minority shareholders are willing to participate 

under such adverse circumstances, they will be denied standing 

to claim a breach of the fiduciary duty owed. If they have 

no money to invest in additional shares, they will be totally 

helpless. 

There is an old adage that "bad facts make bad law.'' I 

can think of no better example than this case. The majority 

is rewarding John Hall for rescuing Ski Yellowstone when it 

was at the verge of bankruptcy. I certainly understand the 

equity in that position. However, in doing so, the majority 

has emasculated the law of constructive fraud. 

In enacting the laws on constructive fraud, the legislature 

sought to prevent the weak from becoming prey of the strong. 

The statutory law of this State which sought to advance the 

legislature's laudable objective gained added significance 

with its application in Skierka v. Skierka Brothers, Inc. 

(1981) Mont. , 629 P.2d 214, 38 St.Rep. 754. I can 

only conclude from the majority decision in this case, that 

the law of constructive fraud as it exists in Montana will 

be applied on an ad hoc basis. 

I wish to point out to those who attempt to rely upon 

this case in the future, that it is nothing but an "aberration" 

in the law. Misplaced reliance on the "business judgment" 

rule and refusal to apply the law of constructive fraud 
resulted from the facts which were here at issue. John Hall 

saved this corporation from bankruptcy. All of the investors 

in this case were highly-experienced business persons. Hall 

carefully made all investment opportunities available to 

those with whom he occupied a position of trust. These 

factors have permitted him to prevail here, notwithstanding 

clear legal principles which should mandate plaintiff's 

success. 

I would roll back the "D" issue as a matter of law 

because under the undisputed evidence in the record, the 

issue caused a constructive fraud on minority shareholders. 

Mr. Justice John C. Sheehy, dissenting: 

I join in the dissent of Mr. Justice Morrison.