Court Opinion

ID: 9577028
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:31:02.577165+00
Date Added: 2024-06-11T13:19:51.435159
License: Public Domain

PATIENCE DRAKE ROGGENSACK, J.
¶ 41. (concurring). I agree with, and join the majority opinion's conclusion that, with the exception of Albert Trostei & Sons' (ATS) expenditures for due diligence related to the potential acquisition of Dickten & Masch, LLC, the complaint fails to state a direct claim for breach of fiduciary duty, because the harm alleged is primarily to the corporation, not to Edward Notz (Notz).1 I also agree with and join in the majority opinion's conclusion *669that the complaint has stated a claim for relief sufficient to survive dismissal in regard to a direct injury to Notz based on the Dickten & Masch due diligence expenses paid by ATS.2
¶ 42. And finally, I agree with the majority opinion's conclusion that Notz's claim for dissolution of ATS may proceed, albeit on a different rationale. I would allow the claim to proceed because it is all about money, i.e., how much money can Notz get for the shares he held in ATS. The amount of the payment due Notz is yet to be determined.
¶ 43. I write separately to point out that Notz's claim for judicial dissolution of ATS is proceeding at the same time as is his claim for dissenter's rights due to the merger of ATS into Dickten & Masch. Both claims will provide the same remedy if Notz is able to prove grounds for dissolution; i.e., the fair value of Notz's ATS shares will be paid to him. His dissenter's rights claim is pending in a federal court action, where the fair value of his ATS shares is being adjudicated.3
¶ 44. In regard to these two claims, I make three points. First, Notz must prove that grounds for dissolution exist or that claim will be dismissed.4 Wis. Stat. § 180.1433. Second, even if Notz is able to prove oppres*670sion, the legislature has decided that ATS, the corporation Notz seeks to dissolve, no longer exists due to ATS's merger into the Everett Smith Group, Ltd. (the Smith Group). Wis. Stat. § 180.1106(l)(a). Therefore, there is no corporation to dissolve, and a cash payment is all Notz can receive. Third, due to the merger of ATS, Notz requested to be paid the fair value of his shares in ATS, pursuant to Wis. Stat. § 180.1323. Accordingly, when this case is returned to the circuit court, if grounds for dissolution are proved, the determination of what, if anything, will be paid to Notz must await the federal court's determination of the fair value because Notz is not entitled to be paid twice for the fair value of his interest in ATS.
I. BACKGROUND
¶ 45. Notz was displeased with the management of ATS. He complained that the board of directors decided not to purchase Dickten & Masch, a plastics company, and instead caused the Smith Group to purchase it. He also alleged that selling the assets of ATS's wholly owned subsidiary, Trostel SEG, to Dickten & Masch was not in the best interests of ATS. Notz made demands upon ATS's board of directors pursuant to Wis. Stat. § 180.0742 to correct actions he believed were damaging ATS.5
¶ 46. Notz alleged that the Smith Group, who was the majority shareholder of ATS, breached its fiduciary duty by:
(1) purchasing an interest in Dickten & Masch LLC — a clear usurpation of an ATS opportunity; (2) causing the sale of the thermoplastics business of Trostel SEG (an *671ATS subsidiary) to Dickten & Masch LLC — a conflict of interest; (3) avoiding the declaration of dividends, despite cash reserves of over $82 million, until offering dividends initially conditioned upon approval of the sale of the ATS interest in [the] thermoplastics business to the Smith Group; (4) failing to disclose to the minority shareholders of ATS the administrative expenses of ATS (particularly insider compensation); (5) transferring the ATS pension plan to the Smith Group without explanation; and (6) engaging in bad faith negotiations to buy the shares of minority shareholders.6
¶ 47. In response to Notz's demands, pursuant to Wis. Stat. § 180.0744(2)(b), ATS convened a Special Litigation Committee to evaluate Notz's claims. The Special Litigation Committee was composed of three independent directors who investigated and evaluated the facts relating to Notz's demand that the corporation take certain actions.7 The Special Litigation Committee hired appraisers and met in excess of 20 times to conduct an investigation and to evaluate the allegations in Notz's demand letter.8
¶ 48. Upon the conclusion of its investigation and evaluation, the Special Litigation Committee advised Notz as follows: (1) ATS's board of directors would continue to include at least three independent directors with specified duties relative to minority shareholders, and (2) the Smith Group would pay $1,500,000 to ATS.9 Beyond these two concessions, the Special Litigation Committee concluded that it was in the best interests of ATS to take no further action regarding the matters *672raised by Notz's demands.10 The Special Litigation Committee came to this conclusion after "exercising [its] informed business judgment after conducting, and based upon, a reasonable inquiry."11 The Special Litigation Committee also concluded that it had "identified no intentional behavior or maliciousness on the part of [ATS] fiduciaries to disadvantage the minority shareholders."12 The Special Litigation Committee concluded that, in regard to the Notz demands,
no further action by [ATS] is warranted or in [ATS's] best interests concerning the allegations regarding (i) [ATS's] failure to declare dividends; (ii) the administrative expenses charged to [ATS] by [the Smith Group]; (iii) the negotiations for the purchase of shares held by the minority shareholders; (iv) the consolidation of [ATS's] pension plan; and (v) the claim of oppression of the minority shareholders.13
The Special Litigation Committee then stated that with "the fulfillment of the commitments detailed above, including the payment of $1.5 million to [ATS, the Special Litigation Committee] effectively and adequately responds to the matters raised in the Demand Letters that could be addressed in an action brought on [ATS's] behalf. . . . [B]ased upon our reasonable inquiry, ... it is in the best interest of [ATS] to take no further action on the matters raise[d] in the Demand Letters."14
¶ 49. Notz did not challenge any of the conclusions of the Special Litigation Committee. Instead, he *673began the action that is before us, in which he has made many of the same allegations that he made in his Wis. Stat. § 180.0742 demands, and which the Special Litigation Committee has already addressed.
¶ 50. Subsequent to Notz's filing his claim for judicial dissolution of ATS, ATS was merged into Dick-ten & Masch, a wholly owned subsidiary of the Smith Group. Notz was served with a notice of dissenter's rights, pursuant to Wis. Stat. § 180.1322. When that occurred, Notz demanded payment for his shares in ATS, thereby meeting his obligations under Wis. Stat. § 180.1323. Notz demanded payment at a price acceptable to him pursuant to Wis. Stat. § 180.1328. ATS did not accept Notz's price demand, but instead, ATS filed a court action to determine the fair value of Notz's shares. Wisconsin Stat. § 180.1330 required ATS to do so. That action is currently pending in the United States District Court for the Eastern District of Wisconsin.15
II. DISCUSSION
A. Standard of Review
¶ 51. The review before us arose from a motion to dismiss for failure to state a claim. We independently review such a motion as a question of law. John Doe 1 v. Archdiocese of Milwaukee, 2007 WI 95, ¶ 12, 303 Wis. 2d 34, 734 N.W.2d 827. In so doing, we accept the facts alleged in the complaint as true. Id. However, we are not required to accept a plaintiffs legal conclusions. Id. Whether the facts alleged in a complaint are sufficient to constitute oppression is a question of law for our independent review. Reget v. Paige, 2001 WI App 73, ¶ 11, 242 Wis. 2d 278, 626 N.W.2d 302.
*674B. Dissolution
¶ 52. Notz has asserted a claim for judicial dissolution of ATS, thereby invoking Wis. Stat. § 180.1430 (grounds for dissolution) and Wis. Stat. § 180.1431 (procedure for judicial dissolution). Dissolution is a harsh remedy, especially when the corporation is a going concern, as was ATS. See Pueblo Bancorporation v. Lindoe, Inc., 37 P.3d 492, 496 (Colo. Ct. App. 2001). Even when grounds for dissolution are proven, it "is well-settled that dissolution of a solvent corporation is a drastic measure to be invoked only in extreme circumstances." Cerami v. Dignazio, 424 A.2d 881, 889 (Pa. Super. Ct. 1980).
¶ 53. The majority opinion has concluded that all except one of the allegations in the amended complaint cannot be proceeded upon by Notz because they allege harm that is primarily to ATS.16 Those allegations therefore are not relevant to Notz's claim for dissolution based on the claim that he, personally, was oppressed by the Smith Group. However, the majority opinion has permitted one of Notz's claims, that "ATS funds were used to complete the due diligence"17 for the purchase of Dickten & Masch by the Smith Group, to proceed. The majority opinion permits this claim to proceed in order to determine whether it was in reality a dividend-like payment to the Smith Group that Notz was not permitted to share.18 Whether this claim is sufficient to constitute oppression will depend upon whether Notz is able to prove this allegation, and upon the defenses that the Smith Group raises in response.
*6751. Fair value
¶ 54. As explained above, petitions for dissolution rarely result in the actual dissolution of a corporation. Id. It is also instructive to note that many jurisdictions have adopted Model Business Corporation Act § 14.34, "Election to Purchase in Lieu of Dissolution," wherein a corporation or the other shareholders can elect to purchase all the shares held by the shareholder who seeks dissolution.19 Under the Model Business Corporation Act, the parties are to try to come to an agreement on the fair value of the shares to be purchased.20 However, if the parties do not come to an agreement on price, the court will determine the fair value of the shares on the day before the petition for dissolution was filed.21 Notz's petition for dissolution was filed September 29, 2006.
¶ 55. The Model Business Corporation Act does not describe the components of fair value under § 14.34 when an action for dissolution is pending. However, the official comments to § 14.34 explain that it may be "useful to consider valuation methods that would be relevant to a judicial appraisal of shares under section 13.30." Section 13.30 of the Model Business Corporation Act is the section that addresses the judicial determination of fair value during a dissenter's rights action subsequent to a corporate merger. This is the same type of action Notz has pending in federal district court pursuant to Wis. Stat. § 180.1330.
*676¶ 56. Wisconsin does not have an Election to Purchase provision in its Business Corporation Act. The absence of a Wisconsin provision parallel to § 14.34 of the Model Business Corporation Act may be due to the fact that § 14.34 was added to the Model Business Corporation Act in 1990 and Wisconsin enacted its Business Corporation Act prior to 1990. However, Wis. Stat. § 180.1330, which provides for determination of the fair value of a dissenter's shares subsequent to a merger, is the parallel provision to the fair value determination of § 13.30 of the Model Business Corporation Act. Therefore, the legislature has provided the components that it has concluded are relevant to determining fair value.22 In addition, we have addressed the components of fair value in a dissenter's rights action. HMO-W Inc. v. SSM Health Care Sys., 2000 WI 46, 234 Wis. 2d 707, 611 N.W.2d 250.
2. Merger
¶ 57. Section 180.1330 is important to the circuit court's consideration of Notz's dissolution claim because ATS has merged into Dickten & Masch. When a corporation is merged into another corporation, Wis. Stat. § 180.1106(l)(a) controls subsequent consider*677ation of the merged corporation and the shares held in that corporation. Section 180.1106(1) provides in relevant part:
(1) All of the following occur when a merger takes effect:
(a) Every other business entity that is party to the merger merges into the surviving business entity, and the separate existence of every business entity that is a party to the merger, except the surviving business entity, ceases.
(b) The title to all property owned by each business entity that is party to the merger is vested in the surviving business entity without reversion or impairment.
(f) The shares... of each business entity that is party to the merger that are to be converted into ... cash or other property are converted, and the former holders of the shares or interests are entitled only to the rights provided in the articles of merger or to their rights under ss. 180.1301 to 180.1331 or otherwise under the laws applicable to each business entity that is party to the merger.
Because of ATS's merger into Dickten & Masch, ATS no longer exists. § 180.1106(l)(a). Because the merger was a cash-out merger, Notz's shares in ATS were converted to cash. § 180.1106(l)(f). Therefore, the most that can result from Notz's dissolution claim is a determination of the fair value of Notz's former shares in ATS.
¶ 58. Notz's conduct shows he understands the effect of the merger on his former shares in ATS, as he filed a claim asserting dissenter's rights pursuant to *678Wis. Stat. § 180.1323. Notz requested payment for his former shares of ATS at a price acceptable to him pursuant to Wis. Stat. § 180.1328. When ATS did not agree to pay what Notz requested, ATS filed a court action to determine the fair value of his shares as it was required to do by Wis. Stat. § 180.1330.
¶ 59. Therefore, in the action before us, any determination of the fair value of Notz's shares must await the fair value determination by the United States District Court for the Eastern District of Wisconsin, where a statutory action to make that determination is currently pending.23 Notz is not entitled to be paid twice for the fair value of his former shares in ATS— once due to his claim for dissenter's rights in the merger proceedings, and once as the only viable alternative for a proven claim of dissolution.
¶ 60. Why Notz would choose to continue with his claim for dissolution is a mystery to me. However, until fair value is determined by the United States District Court, I will go along with the majority opinion's decision to permit Notz's claim for dissolution to proceed. Accordingly, I respectfully concur.
¶ 61. I am authorized to state that Justice MICHAEL J. GABLEMAN joins this concurrence.

 Majority op., ¶ 4.

 Id.

 See Albert Trostel & Sons Co. v. Notz, Case No. 07-C-0763, United States Dist. Ct., E. Dist. of Wisconsin.

 Notz has alleged oppression, ■ pursuant to Wis. Stat. § 180.1430(2)(b). The circuit court will be required to determine whether issue preclusion bars further proof of oppression, given that this issue was among those already addressed by the Special Litigation Committee to the Board of Directors of Albert Trostel & Sons Company in its report dated June 15, 2006 (the Report). Joint App. at 95. Notz did not challenge the Special Litigation Committee's conclusions.

 August 2, 2005 demand letter, Joint App. at 106.

 Id. at 107.

 The Report, Joint App. at 92-93.

 Id. at 92.

 Id. at 93.

 Id.

Id.

 Id. at 94.

 Id. at 95.

 Id.

 Supra, note 3.

 Majority op., ¶ 4.

 Amended Complaint, ¶ 31.

 Majority op., ¶¶ 24-28.

 Model Business Corporation Act § 14.34(a); see, e.g., Ala. Code § 10-2B-14.30; Alaska Stat. § 10.06.630; Ariz. Rev. Stat. Ann. § 10-1434; Cal. Corp. Code § 2000 (West).

 Model Business Corporation Act § 14.34(c).

 Id., § 14.34(d).

 Courts in other jurisdictions have concluded that fair value in a dissenter's rights action subsequent to merger is equivalent to fair value determined subsequent to a petition for dissolution. See e.g., Balsamides v. Protameen Chemicals, Inc., 734 A.2d 721, 733 (N.J. 1999) (concluding that fair value in an action alleging oppression means the same thing as fair value in a dissenting shareholder action); Robblee v. Robblee, 841 P.2d 1289, 1294 (Wash. Ct. App. 1992) (concluding that fair value in a dissenter's rights action is equivalent to fair value in an action based on oppression).

 Supra, note 3.