Court Opinion

ID: 9740064
Source: CourtListenerOpinion
Date Created: 2023-08-26 20:27:17.146594+00
Date Added: 2024-06-11T07:24:15.873471
License: Public Domain

LUNDSTEN, J.
¶ 21. (dissenting in part; concurring in part). The majority concludes that the injuries alleged in claims 1, 3, 4, and 5 of the complaint were primarily to the corporation and secondarily to the Borne Trust. The majority concludes that these claims were correctly dismissed because the Trust was not a registered stockholder at the time of the alleged injury-causing action. Majority at ¶¶ 14-16. I respectfully disagree. I believe the Trust sufficiently alleged a *268breach of fiduciary duty and that this claim is a direct action which may be brought by the Trust, even if the Trust was not a stock owner at the time of the alleged injury-causing action. In addition, with respect to dismissal of the Trust's dissenters' rights claim, I concur with the result, but write separately because I differ in how we should reach that result.
¶ 22. The rules governing the sufficiency of a civil complaint are well established. "The purpose of the complaint is to give notice of the nature of the claim; and, therefore, it is not necessary for the plaintiff to set out in the complaint all the facts which must eventually be proved to recover." Morgan v. Pennsylvania Gen. Ins. Co., 87 Wis. 2d 723, 731, 275 N.W2d 660 (1979). "[I]f any set of facts would support the allegations to make out a legally sufficient claim, these facts must also be considered admitted." Id. at 734. When reviewing a complaint, "we must liberally construe the . . . complaint" and we may sustain a "motion to dismiss only if it is clear that under no circumstances can [the plaintiff] prevail." Barry v. Maple Bluff Country Club, 221 Wis. 2d 707, 723, 586 N.W2d 182 (Ct. App. 1998).
¶ 23. The majority's recitation of the test to determine whether a claim belongs to the corporation (derivative cause of action) or the individual (direct cause of action) is incomplete. The majority states:
[A] derivative claim arises when the injury complained of was not caused by acts against the plaintiff, but rather by acts against the corporation that cause harm to the corporation. Derivative claims are those a corporation could bring because the corporation's assets are affected.
Majority at ¶ 15 (citations omitted). The majority then concludes in cursory fashion that the injury is primarily *269to the corporation because "it is GAT's assets that the Trust complains of being taken from GAT under the plan of liquidation." Majority at ¶ 16. Under the majority's definition of derivative actions, it is difficult to conceive of an action that would belong primarily to a shareholder. Apparently, a shareholder would have to suffer an injury without any corresponding injury to the corporation. I believe the relevant case law does not define individual causes of action so narrowly.
¶ 24. An action is a "direct action," rather than a "derivative action," when the alleged primary injury is to some subset of shareholders rather than to the corporation. See Rose v. Schantz, 56 Wis. 2d 222, 229-30, 201 N.W2d 593 (1972). In order to bring a direct action, a "complaint must allege facts sufficient, if proved, to show an injury that is personal to [the complainant], rather than an injury primarily to the corporation." Reget v. Paige, 2001 WI App 73, ¶ 12, 242 Wis. 2d 278, 626 N.W.2d 302; see also Read v. Read, 205 Wis. 2d 558, 570, 556 N.W2d 768 (Ct. App. 1996) ("[AJbsent an individual right, a shareholder may not bring suit for actions accruing to the corporation."). Shareholders are directly injured when they are affected "in a manner distinct from the effect upon other shareholders." Jorgensen v. Water Works, Inc., 2001 WI App 135, ¶ 16, 246 Wis. 2d 614, 630 N.W2d 230 (Jorgensen II). Conversely, an injury is primarily to the corporation if all shareholders are affected proportionately to the number of shares they own. See id. at ¶¶ 16-18; Jorgensen v. Water Works, Inc., 218 Wis. 2d 761, 776-77, 582 N.W2d 98 (Ct. App. 1998).
¶ 25. In this case, the Trust's amended complaint states:
43. ... Upon information and belief, the assets of GAT are being transferred to a corporation which is *270controlled by at least several of the individual defendants, and in which [Borne] will have no interest.
44. By transferring the assets of GAT to [the charitable foundation], the defendants will have retained possession and control of the assets of GAT to the detriment of plaintiff, whose shares in GAT are worthless if all assets of GAT have been transferred ....
¶ 26. The germane question is whether there exists a set of facts that would support the Trust's allegations sufficient to make out a legally adequate claim, that is, that the Trust suffered an injury "in a manner distinct from the effect upon other shareholders." Jorgensen II, 246 Wis. 2d 614, ¶ 16. The answer is yes.
¶ 27. It may well be that the defendants who control the Foundation will receive some benefit as a result of the transfer of GAT assets to the Foundation. For example, members of the board of directors of a charitable corporation are often compensated monetarily for their duties. On the surface, each of these Foundation director shareholders suffers a total loss in the value of his or her GAT stock, just as does the Trust. However, the effect of the transaction may also benefit these shareholders while providing no benefit to the Trust. Therefore, it is inferable from the amended complaint that the Trust will suffer an injury distinct from several of the defendants (those who hold an interest in the charitable corporation) because these defendants may receive some benefit from the transfer of GAT's assets to the Foundation.
¶ 28. Assuming the Trust holds a direct claim against the corporation, the parties still dispute whether the Trust had to own stock at the time of the *271acts complained of (the board's recommendation of the plan and the shareholders' vote), as required by Wis. Stat. § 180.0741. My research reveals no Wisconsin case on point, but I conclude that a plaintiff need not be a shareholder at the times relevant to his or her claim in order to pursue an individual claim for breach of fiduciary duty.1
¶ 29. The general rule is that "a shareholder who seeks to maintain a nonderivative action is not required to have owned stock at the time of happening of events upon which the complaint is based." 12B William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Private Corporations § 5936.10, at 520-21 (perm, ed., rev. vol. 2000) (footnote omitted). Indeed, the logic of having a derivative action statute, such as Wis. Stat. § 180.0741, is that it is an exception to the general rule that, along with stock, a stock purchaser buys the right to sue for past wrongs.2 Section 180.0741 provides:
A shareholder or beneficial owner may not commence or maintain a derivative proceeding unless the shareholder or beneficial owner satisfies all of the following:
(1) Was a shareholder or beneficial owner of the corporation at the time of the act or omission complained of or became a shareholder or beneficial owner *272through transfer by operation of law from a person who was a shareholder or beneficial owner at that time.
(2) Fairly and adequately represents the interests of the corporation in enforcing the right of the corporation.
(Emphasis added.)
¶ 30. If a person buying stock does not usually acquire the right to bring causes of action that the seller could have brought, there would be no need for the derivative action statute. ”[T]he purpose of [the derivative action statute] is to reduce the incidence of 'strike suits' by persons who have purchased the stock with the intention of bringing derivative actions for wrongs sustained by the corporation prior to their ownership." Becker v. Becker, 56 Wis. 2d 369, 373, 202 N.W.2d 688 (1972) (construing the predecessor to Wis. Stat. § 180.0741). Therefore, because no statute directs otherwise, there is no corresponding prohibition on individual causes of action.
¶ 31. I turn my attention now to that portion of the majority decision beginning at paragraph 17, entitled "The Second Claim." Here, the majority addresses the Trust's claim asserting a failure to give notice of dissenters' rights. The majority concludes that because the Trust was not a GAT shareholder at the time of the shareholder vote on the dissolution plan, the Trust cannot complain about the failure to provide dissenters' rights notice. Majority at ¶ 19. I disagree.
¶ 32. Once more I rely on the general proposition that "a shareholder who seeks to maintain a nonderiva-tive action is not required to have owned stock at the time of happening of events upon which the complaint is based." Fletcher Cyclopedia § 5936.10, at 520-21 (footnote omitted). Thus, a stockholder, who has pur*273chased stock from a dissenting shareholder, acquires along with the stock the right to a claim against a corporation for failure to provide dissenters' rights notice under Wis. Stat. § 180.1320. Nothing in the statutes cited by the majority requires that only the shareholder who was entitled to notice may pursue a claim based on a violation of the notice provision.
¶ 33. Nonetheless, I concur in the result reached by the majority because I would deem the issue waived. The Trust does not in any plain manner argue or develop the argument that GAT's failure to provide dissenters' rights notice affords the Trust an alternate ground on which to state a direct action. See Block v. Gomez, 201 Wis. 2d 795, 811, 549 N.W.2d 783 (Ct. App. 1996) (refusing to address amorphous and insufficiently developed arguments).
¶ 34. Accordingly, I respectfully dissent to paragraphs 14-16 of the majority and concur with the result, but not the reasoning, with respect to paragraphs 17-19.

 I note that the Trust fails to persuasively argue that it could pursue its breach of fiduciary duty claim against the defendants who are shareholders but do not own a majority stake in GAT and do not serve on GAT's hoard of directors. We find no support for the proposition that these shareholders owe a fiduciary duty to other GAT shareholders.

 The majority correctly points out that there are exceptions to this general rule, but does not demonstrate that there is no general rule or that any recognized exception applies here.