Court Opinion

ID: 4092671
Source: CourtListenerOpinion
Date Created: 2016-10-25 21:09:33.381609+00
Date Added: 2024-06-11T14:35:44.396748
License: Public Domain

THEODORE PULLEN, EDGAR          )
PULLEN, FREDDIE PULLEN,         )
and ELISHA PULLEN,              )
                                )
      Plaintiffs-Appellants,    )
                                )
vs.                             )                  No. SD34203
                                )
TIMOTHY FLOWERS, KIMBERLY       )                  Filed: October 19, 2016
ANN FLOWERS, STANLEY C.         )
FLOWERS, TRUSTEE OF THE         )
STANLEY C. FLOWERS REVOCABLE    )
TRUST DATED 12/09/2005,         )
KENNETH R. BELL, DEBRA J. BELL, )
and THE BELL FAMILY PARTNERSHIP,)
                                )
      Defendants-Respondents.   )

        APPEAL FROM THE CIRCUIT COURT OF STODDARD COUNTY

                           Honorable Michael E. Gardner

AFFIRMED

       Theodore Pullen, Edgar Pullen, Freddie Pullen, and Elisha Pullen

("Plaintiffs") appeal from the trial court's dismissal of their petition. Plaintiffs'

petition included two claims involving the conveyance of a family farm property

owned by a closely held corporation to Timothy Flowers, Kimberly Ann Flowers,

and the Stanley C. Flowers Revocable Trust ("the Flowers Defendants") who
subsequently transferred the farm to Kenneth R. Bell, Debra J. Bell, and the Bell

Family Partnership ("the Bell Defendants"). The trial court's dismissal is

affirmed because Plaintiffs lack standing to maintain the present action.

                       Factual and Procedural Background

       Review of a trial court's grant of a motion to dismiss is de novo. White v.

Bowman, 304 S.W.3d 141, 147 (Mo. App. S.D. 2009). In conducting such

review, the appellate court must "accept all properly pleaded facts as true, give

them a liberal construction, and draw all reasonable inferences which are fairly

deducible from the pleaded facts." Duvall v. Lawrence, 86 S.W.3d 74, 78

(Mo. App. E.D. 2002). So viewed, these facts control our decision.

       Josephus C. Pullen, Sr. ("Father") had nine children ("the children") and

owned a 158-acre farm ("the property") in Stoddard County, Missouri. Among

Father's children were J.C. Pullen, Jr. ("J.C."), Norris T. Pullen, Sr. ("Norris"),

Bertha Luster ("Bertha"), and Everse Pullen ("Everse").1 After Father died in

1972, the children inherited the farm, created a corporation known as Pullen

Farm, Incorporated ("Pullen Farm"), and conveyed the property to Pullen Farm.

       At some time not apparent from the record, Plaintiffs, two of whom are

children of Norris and two of whom are children of J.C., became shareholders of

Pullen Farm. By 2012, corporate documents listed Everse as President of Pullen

Farm and Bertha as Secretary of Pullen Farm. On January 25, 2012, Everse and

Bertha executed a deed on behalf of Pullen Farm conveying the property to the

1First names are used because many of the parties share the same surname. No disrespect is
intended.

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Flowers Defendants. Then, on September 7, 2012, the Flowers Defendants

conveyed the property to the Bell Defendants.

        On March 11, 2013, Plaintiffs sued the Flowers Defendants, the Bell

Defendants, and Pullen Farm. That petition sought to set aside each of the deeds

involved in the transactions described above and to quiet title to the property in

Pullen Farm. The petition claimed Everse and Bertha were not officers of Pullen

Farm because Pullen Farm had failed to follow its articles of incorporation in

selecting them. The Flowers Defendants and the Bell Defendants moved to

dismiss, arguing that the petition failed to state a claim based on applying Section

351.395 and that Plaintiffs lacked standing.2 In response, Plaintiffs argued

Section 351.400 applied to create a cause of action in their favor because Everse

and Bertha "emptied the corporation out."3 The trial court dismissed the petition

without prejudice as it applied to the Flowers Defendants and the Bell

Defendants but allowed the lawsuit to proceed as to Pullen Farm. The record is

unclear as to the result of the 2013 lawsuit regarding Pullen Farm.

        On October 21, 2014, Plaintiffs filed this lawsuit that is the subject of the

present appeal against the Flowers Defendants and the Bell Defendants. The

petition was the same as the 2013 petition except it completely removed Pullen

Farm as a defendant and included three new paragraphs. On December 12, 2014,

2 Section 351.395 provides that "[n]o act of a corporation and no conveyance or transfer of real or

personal property to or by a corporation shall be invalid by reason of the fact that the corporation
was without capacity or power to do such act or to make or receive such conveyance or transfer"
and lists three ways a conveyance or transfer may be challenged which include (1) a proceeding by
the shareholder against the corporation; (2) a proceeding by the corporation; (3) a proceeding by
the attorney general. All statutory references are to RSMo (2000).
3 Section 351.400 sets out the procedures by which a corporation may sell, lease, or dispose of all

or substantially all of its property and assets when such sale, lease, or disposal is not in the
ordinary course of business. That statute requires notice to the shareholders, a shareholders'
meeting, and an "affirmative vote of the holders of at least two-thirds of the outstanding shares
entitled to vote at such meeting[.]" §§ 351.400(2), 351.400(3).

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the Flowers Defendants and the Bell Defendants moved to dismiss. They argued

the petition should be dismissed on seven grounds, among them that Plaintiffs

lacked standing. On October 29, 2015, the trial court dismissed the petition with

prejudice as to both the Flowers Defendants and the Bell Defendants. Plaintiffs

appeal.

                                    Discussion

       The trial court correctly dismissed Plaintiffs' petition because Plaintiffs do

not have standing to assert these claims against the Flowers Defendants and the

Bell Defendants. "[S]tanding is a prerequisite to the court's authority to address

substantive issues and so must be addressed before all other issues." Schweich

v. Nixon, 408 S.W.3d 769, 774 n.5 (Mo. banc 2013). "Standing is the requisite

interest that a person must have in a controversy before the court." Cook v.

Cook, 143 S.W.3d 709, 711 (Mo. App. W.D. 2004) (quoting State ex rel. Mink

v. Wallace, 84 S.W.3d 127, 129 (Mo. App. E.D. 2002)). "A party establishes

standing, therefore, by showing that it has 'some legally protectable interest in

the litigation so as to be directly and adversely affected by its outcome.'"

Schweich, 408 S.W.3d at 775 (quoting Mo. State Med. Ass'n. v. State, 256
S.W.3d 85, 87 (Mo. banc 2008)). "Absent standing, the court lacks the power to

grant the relief requested." Cook, 143 S.W.3d at 711.

       "An individual shareholder does not have standing to maintain a personal

action for recovery of corporate funds." Bruner v. Workman Oil Co., 78
S.W.3d 801, 804 (Mo. App. S.D. 2002). The reason for this rule is that "[a]ny

injury is to the corporation, not to individual shareholders[.]" Id. (quoting

Dawson v. Dawson, 645 S.W.2d 120, 125 (Mo. App. W.D. 1982)). Remedy in

                                          4
such situations should be had by way of a shareholders' derivative action. Id.;

see also Cook, 143 S.W.3d at 711. "The courts have adopted this rule because,

since the wrong is against the corporation, judgment in favor of one stockholder

would be no bar to the maintenance of additional actions for the same wrong to

the corporation by other shareholders or by a creditor." Bruner, 78 S.W.3d at

804 (quoting Centerre Bank of Kansas City Nat. Ass'n. v. Angle, 976
S.W.2d 608, 613 (Mo. App. W.D. 1998)).

       Here, the property belonged to Pullen Farm before the challenged

transactions. Any interest in that property which Plaintiffs had arose based on

their status as shareholders of Pullen Farm. They had no standing to sue third

parties in their individual capacities. See id.

       Plaintiffs attempt to avoid this conclusion by reference to Section 351.400.

This reliance is misplaced because it overlooks the specific remedies for violation

of Section 351.400 provided in Section 351.405. Section 351.400 provides

procedures to be followed when a corporation sells, leases, or disposes of all or

substantially all of its property and assets. As relevant to the present case,

Section 351.400 requires written notice of the shareholders' meeting at which the

decision is to be made and, at that meeting, "the affirmative vote of the holders of

at least two-thirds of the outstanding shares entitled to vote at such meeting[.]"

§ 351.400(3). Under the allegations in the petition, which this Court must take as

true given the procedural posture of this case, these conditions were not met.

However, that fact does not end the inquiry.

       "[T]he purpose of section 351.400 is to protect the stockholders of the

corporation. It does not implicate public policy and a sale not in compliance with

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its procedures is not 'of necessity, unlawful or void.'" Cowbell, LLC v. BORC

Building and Leasing Corp., 328 S.W.3d 399, 404 (Mo. App. W.D. 2010)

(quoting Beaufort Transfer Co. v. Fischer Trucking Co., 451 S.W.2d 40,

43 (Mo. banc 1970)). For this reason, the statute does not give minority,

dissenting shareholders a right to follow the assets into the hands of innocent

third-party purchasers. Instead, "the rights of the dissenting shareholders are

defined in Section 351.405[.]" In re Landau Boat Co., 13 B.R. 788, 794 (W.D.

Mo. 1981) (applying Missouri law) (overruled on other grounds by In re

Gilbert, 104 B.R. 90 (W.D. Mo. 1989)). Section 351.405 provides, among other

things, that upon a sale or disposition of all or substantially all of the property or

assets of a corporation, any dissenting shareholders may make demand on the

corporation to have their stock redeemed and, if the corporation refuses, the

dissenting shareholders may file a petition against the corporation in an

appropriate court. § 351.405. Section 351.405 demonstrates that Section

351.400 does not create a private right of action for shareholders against

innocent purchasers of corporate property. Rather, the private right of action

created by the statute, if such right exists, is against the corporation.

       To support their argument to the contrary, Plaintiffs rely on Kaufman v.

Henry, 520 S.W.2d 152 (Mo. App. St. L. D. 1975), and Shell v. Conrad, 153
S.W.2d 384 (Sfg. Ct. App. 1941), for the proposition that "[w]hen dissenting

shareholders can prove the corporate board members or officers failed to comply

with § 351.400, the pretended transfer of corporate assets is void and a nullity."

This reliance is misplaced because those cases applied the law in existence before

the enactment of Section 351.395. More recent cases have correctly held that "a

                                           6
transaction which does not follow the prescribed procedure is not, of necessity,

unlawful or void." Beaufort, 451 S.W.2d at 43; see also Cowbell, 328 S.W.3d

at 404. Plaintiffs' remedy, if they have one, is by shareholders' derivative suit.

See § 351.395(2).

       Because Plaintiffs do not have standing and "[a]bsent standing, the court

lacks the power to grant the relief requested[,]" Cook, 143 S.W.3d at 711, the trial

court correctly dismissed the petition. In view of that conclusion, we need not

reach Plaintiffs' remaining arguments.

                                     Decision

       The trial court's judgment of dismissal is affirmed.

MARY W. SHEFFIELD, C.J. – OPINION AUTHOR

JEFFREY W. BATES, P.J. – CONCURS

DON E. BURRELL, J. – CONCURS

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