Opinion ID: 2616451
Heading Depth: 1
Heading Rank: 7

Heading: Expulsion of Montana Group from Management

Text: On May 28, 1975, at the annual MPI shareholders' meeting, Robert Flowerree, the new president of GP, was elected to MPI's board of directors to replace Robert M. Pamplin, GP's outgoing president. The newly-elected board of directors then met and unanimously elected officers for the following year. [9] Immediately after the election of officers Mr. Flowerree, who presided at the board meeting, abandoned the previously announced agenda and turned the meeting over to Mr. Kane who presented to the board a proposed curtailment plan designed to cut MPI's costs and reduce its losses. This proposal called for the termination of the employment of Robert Delaney and Wayne Knutson. The Montana group was surprised and upset by these proposals, and the meeting adjourned, after protests by the Montana group and some discussion, without any formal action on the matter. There followed a series of special board meetings at which the parties attempted to work out some accommodation. These attempts were not successful, and this lawsuit followed. During the period after the May 28 meeting GP substantially took over all management of MPI. Although the Montana group members remained on the board and on MPI's payroll, policy was dictated by GP. On June 20, according to the trial court's findings:    GP stated that it was placing its representative, Dewey Mobley, at Roundup to check on and oversee the operation, leaving Clifford Rawlings in charge. Mr. Floweree informed Mr. Robert Delaney and Mr. Donald Delaney that they were not to communicate with any employees at the mill as to how to run the mill operation and that they were not to carry on the MPI timber acquisition program. Following that meeting, the Montana officers were removed as authorized signatories on all checking accounts of MPI, and from and after that date the Montana officers have been effectively precluded from functioning as officers of MPI. MPI's bylaws provide that the Chairman (Mr. Flowerree) is to be the chief executive officer, with general and active control of its business and affairs, and that the President (Robert Delaney) is to be the chief operating officer and shall, subject to the direction of the Chairman and the Board of Directors,    have general management of its business properties and affairs. Removal of any officer may be accomplished by a vote of a majority of the whole board of directors. Other bylaw provisions permit ordinary business to be transacted by a majority of a quorum of the board. The separate provision for removal of officers only by a majority of the whole board is, we believe, of significance, particularly in light of the provision in the shareholders' agreement that each party has the right to designate three members of the six-member board of directors. The apparent intent of the parties was to make it impossible for an officer to be removed by one party's designees on the board. Robert Delaney was not formally removed as president of MPI on June 20, but since that date he has been prevented by GP from performing the responsibilities of his office. The fact that the bylaws provide that the president is to exercise his general management responsibilities subject to the direction of the Chairman and the Board does not authorize the chairman to strip the president of his entire authority. A decision of that magnitude is tantamount to his removal, and could be authorized only by a majority of the board. GP has contended that the Delaneys were bad managers of MPI's operations, spending money unnecessarily on travel, exercising poor judgment in matters of timber acquisition, and failing to exercise proper fiscal controls. The trial court, in general, agreed with these contentions. Assuming these charges are true, they are not a justification for GP to take over the entire management of the enterprise in violation of the parties' agreement to share management authority equally. Although we are not convinced that there was, as plaintiffs contend, a complete takeover by GP on May 28, we find that GP effectively ousted the Montana group from management of MPI on and after June 20, that this ouster was unjustified and was a violation of GP's fiduciary duties, and that as of that date, considering the prior pattern of GP's high-handed behavior in relation to the venture, plaintiffs were entitled to dissolution of MPI. The relief we direct is premised on this conclusion. In Baker v. Commercial Body Builders, supra (264 Or. 614, 507 P.2d 387), we pointed out that when those in control of a corporation have engaged in conduct which is oppressive toward other shareholders, an equity court obtains jurisdiction under ORS 57.595 to decree dissolution if the circumstances warrant, or to fashion other appropriate equitable relief [d]epending upon the facts of the case and the nature of the problem involved   . 264 Or. at 631-632, 507 P.2d at 395. In the present case it appears that dissolution and liquidation, always a harsh remedy, would be particularly hazardous to the interests of MPI's owners. Its major assets are the LP timber cutting contract and the Roundup mill; the values of these assets are interdependent. The contracts with the timber owners will expire at varying times in the near future. If anything is to be salvaged from this venture, quick action by persons familiar with the operation is necessary. Plaintiffs prayed for a decree that GP be required to purchase their shares in MPI at a fair and equitable price    reflecting the values thereof had GP performed in a timely manner its representations and promises made at the inception of the joint venture, and conducted the operation in the best interests of MPI   . As evidence of the appropriate value plaintiffs point to a pro forma projection of MPI's anticipated profits over a 10-year period, prepared by GP in support of an application for bank financing. We find these projected profits far too speculative to provide the basis for relief in this case. We do, however, believe that this is an appropriate cause for relief in the form of a requirement that GP purchase plaintiffs' stock at a fair price. See Baker v. Commercial Body Builders, supra (264 Or. at 633, 507 P.2d 387). That price should be determined as of June 20, 1975, the date when we have found that the entire management of the venture was taken over by GP. The case must be remanded to the trial court for further proceedings to determine MPI's value on that date, taking into account the adjustments made necessary by our holding in this opinion that GP has charged MPI with excessive interest. GP contends that the Montana group is not entitled to any relief because it has come into equity with unclean hands. We do not agree. There was evidence that some of the materials used in the construction of the Roundup mill were purchased from suppliers in which the Montana group members held undisclosed interests. The trial court found that the transactions were fair to MPI. There was no showing of a fraudulent intent on the part of the Montana group or of any damage to MPI as a result of these transactions. Although these conflicts of interest should have been disclosed, the circumstances do not require that plaintiffs be denied the assistance of a court of equity. Allowing equitable relief here is not permitting plaintiffs to either profit by, or to extricate themselves from the consequences of, their own wrongdoing. Compare Bergquist v. International Realty, 272 Or. 416, 432-433, 537 P.2d 553 (1975); Martin v. Tikka, 263 Or. 350, 500 P.2d 1209 (1972); Merimac Co. v. Portland Timber, 259 Or. 573, 488 P.2d 465 (1971); Oliphant v. French, 256 Or. 341, 472 P.2d 275 (1970). See, generally, Fadeley, The Clean-Hands Doctrine in Oregon, 37 Or.L.Rev. 160 (1958). Except as indicated in this opinion, the decree of the trial court is affirmed. Remanded for further proceedings in accord with this opinion.