Court Opinion

ID: 9686082
Source: CourtListenerOpinion
Date Created: 2023-08-24 15:26:03.542338+00
Date Added: 2024-06-11T18:18:14.470219
License: Public Domain

GARDEBRING, Justice
(dissenting).
I respectfully dissent. While I agree with the legal principles articulated by the majority in this case, I would reach the opposite conclusion. My examination of the record before us persuades me that DCDC’s declared purpose and historical conduct plainly demonstrate that it is a nonprofit corporation and, therefore, that its assets may not legally be distributed to its shareholders.
This case calls upon us to determine the legal nature of DCDC. If DCDC is, as the majority states, a corporation formed for-profit, the shareholders have the power under law to dissolve the corporation and distribute the assets, consistent with its articles of incorporation, after payment of outstanding liabilities. Minn.Stat. §§ 302A.721-.725 (1996). A nonprofit corporation, however, may not dissolve and distribute its assets to its members or shareholders. Minn.Stat. § 317A.735, subd. 2 (1996) provides that “[ajssets of the [nonprofit] corporation may not be diverted from the uses and purposes for which the assets have been received and held, or from the uses and purposes expressed or intended by the original donor.” See also Minn.Stat. § 317A.011, subd. 6 (1996).
In construing the nature of an organization, we begin with the statute under which the entity purports to be incorporated. As the majority has correctly observed, however, a recitation in the articles of incorporation of the organization’s statutory basis is not dispositive if the identified statute appears to be inconsistent with the purpose of the organization as expressed by its articles of incorporation. State ex rel. Clapp v. Minnesota Thresher Mfg. Co., 40 Minn. 213, 222, 41 N.W. 1020, 1023 (1889). A corporation’s statement of purpose as contained in its articles, if unambiguous, determines the true nature of the corporation. International Boom Co. v. Rainy Lake River Boom Corp., 97 Minn. 513, 519, 107 N.W. 735, 737 (1906).
A corporation’s articles are interpreted using the same rules of construction as a contract; if the meaning is unambiguous, the court will not look beyond the writing. Noreen v. Park Constr. Co., 255 Minn. 187, 190, 96 N.W.2d 33, 36 (1959). However, legal documents, including articles of incorporation, are ambiguous if they are susceptible to more than one construction.. Republic Nat’l Life Ins. Co. v. Lorraine Realty Corp., 279 N.W.2d 349, 354 (Minn.1979). If the articles are ambiguous, the court next turns to extrinsic evidence to determine their intent. Donnay v. Boulware, 215 Minn. 37, 44, 144 N.W.2d 711, 716 (1966). The “practical construction” given the articles by the dealing and conduct of the corporation may be considered as evidence of the meaning. Leslie v. Minneapolis Teachers Retirement Fund Ass’n, 218 Minn. 369, 374, 16 N.W.2d 313, 316 (1944).
We begin, then, with the statute under which DCDC was formed. DCDC was incorporated under the then-current Minnesota Business Corporation Act, Minn.Stat. ch. 301 (1965). However, since our 1899 decision in Clapp, this court has consistently held that the nature of a corporation is determined by the purpose stated in its articles of incorporation, rather than by the label attached to it by its articles or the statute under which it purports to be incorporated. See, e.g., International Boom, 97 Minn, at 519,107 N.W. at 737. DCDC’s incorporation under the statute governing for-profit corporations does not make DCDC for-profit if its articles indicate a purpose inconsistent with a for-profit organization. In re Red River Valley Livestock Ass’n, 235 Minn. 267, 271, 50 N.W.2d 287, 289 (1951).
Therefore, we must turn our examination to DCDC’s articles of incorporation which state unambiguously that the organization’s purpose is to further the economic development of Delano and vicinity. The articles further state that such economic well-being is to be “measured by increased employment, *240payroll, business volume and corresponding factors rather than monetary profits to the shareholders.” (Emphasis added.)
This recitation of purpose closely resembles that of the Red River Valley Livestock Association, the subject of an earlier ease addressing the same type of issue. There, the Association was organized for “the improving of [livestock] and to aid, assist and encourage the raising, ⅜ * * selling and developing of [livestock] and poultry ⅞ * * and the promotion of the general welfare of said territory.” Red River Valley, 235 Minn, at 269, 50 N.W.2d at 288. In that case, this court held that the association more closely resembled a nonprofit corporation than a for-profit corporation and disallowed the shareholders from dissolving the corporation and distributing its assets among themselves. Red River Valley, 235 Minn, at 270-71, 50 N.W.2d at 289.
Similarly, economic development of a city necessarily benefits the residents of the city and its environs. Insofar as the benefits which flow to the shareholders (almost all of whom are also residents of Delano) are the same as those flowing to the general public, “increased employment, payroll, business volume,” and the like, the purpose of DCDC is more consistent with a nonprofit corporation than a for-profit business.
A for-profit corporation, on the other hand, may be incorporated under the Business Corporation Act “for any business purpose.” Minn.Stat. § 302A.101 (1996). A for-profit business corporation is generally intended to financially benefit the shareholders of the corporation. 18 Am.Jur.2d Corporations § 32 (1985). In this case, however, DCDC’s articles of incorporation clearly express a purpose to benefit the community of Delano in general, and not the shareholders specifically. Indeed, the measure of success in meeting the stated objective of benefiting the community specifically excludes “profits to the shareholders.” It is hard to imagine a more precise rejection of profitmaking as a purpose!
In addition to the explicit nonprofit intent spelled out in the statement of purpose, other language in the articles of incorporation further supports the notion that DCDC is a nonprofit organization by requiring that any monetary profits shall be “merely incidental” to DCDC’s purpose. The majority interprets “incidental” to mean “secondary” or “peripheral,” which is, admittedly, part of the common definition. The majority disregards, however, that “incidental” equally encompasses the idea of something that is “minor” and “insignificant.” The American Heritage Dictionary of the English Language 912 (3d ed.1992); 20A Words and Phrases, “Incident; Incidental” (1959). I would hold that a return of 2000% or more on an initial investment of $50, as proposed by the shareholders who voted to dissolve DCDC, is not “merely incidental” to the purpose of DCDC as stated in its articles.
Based on these provisions, I would hold that the DCDC articles of incorporation unambiguously prohibit profit-taking by shareholders seeking to reap a personal financial reward, contrary to the avowed purpose of the organization.
However, even assuming there is some ambiguity in the articles concerning the corporation’s purpose, extrinsic evidence provided by the pattern and history of conduct of DCDC further illuminates the drafters’ intent and makes clear that DCDC was, from its inception, conceived of and operated as a nonprofit organization. The evidence of DCDC’s corporate actions throughout its history is consistent with a nonprofit purpose and inconsistent with a for-profit purpose. I note first the facts surrounding the creation of DCDC: a group of Delano businessmen wanted to improve the Delano economy and to benefit the overall community by bringing more business and industry to town. Further, the operation of the DCDC prior to the dispute that led to this litigation is also consistent only with a charitable purpose: DCDC has never paid its shareholders any dividends during its 30-year history and its directors and officers never received compensation, but conducted all the work of the corporation on a volunteer basis. It is also undisputed that DCDC shares were always purchased and transferred in the original 50-share blocks at the issuance price of $1.00 per share, rather than trading at market value. Indeed, there is no evidence on the *241record that the corporation engaged in any profit-making activity. Only after the completion of one of the corporation’s development projects left a balance of approximately $150,000 in DCDC’s coffers did a group of shareholders decide to dissolve the corporation and distribute its assets. The history and practice of DCDC’s conduct for the previous 30 years confirm the proposition that the purpose of the corporation has always been a charitable purpose, inconsistent with a for-profit corporation.
Since I would hold the purpose of DCDC to be charitable rather than profitmaking, I would also conclude that DCDC cannot dissolve as a corporation and disburse its assets to the shareholders. Currently, most nonprofit corporations incorporate under the Minnesota Nonprofit Corporation Act, Minn. Stat. eh. 317A (1996). Under that act, the “[ajssets of the [nonprofit] corporation may not be diverted from the uses and purposes for which the assets have been received and held, or from the uses and purposes expressed or intended by the original donor.” Minn.Stat. § 317A.735. Further, the act also provides that nonprofit corporations are prohibited from paying dividends or pecuniary gain to members (other than members that are nonprofit organizations). Minn.Stat. § 317A.011, subd. 6. Although DCDC was not formed under this statute, inasmuch as I conclude that it has the characteristics of a nonprofit corporation, I believe the statutory prohibition on distribution of assets to shareholders would apply to DCDC, as well. However, even if the statutory prohibition is inapplicable, our longstanding law on charitable trusts would impose the same limitation.1
Under Minnesota law, a charitable trust is defined as a fiduciary relationship with respect to property that arises as a result of a manifestation of an intention to create it and that subjects the holder of the property to an equitable responsibility to manage the property for a charitable purpose. See In re Quinlan’s Estate, 233 Minn. 35, 42, 45 N.W.2d 807, 811 (1951); Minn.Stat. § 501B.35, subd. 3 (1996).
Charitable purposes generally include “an actual or purported charitable, philanthropic, religious, social service, educational, eleemosynary, or other public use or purpose.” Minn.Stat. § 501B.35, subd. 2. Generally, charitable trusts serve a “large shifting class of the public.” Longcor v. City of Red Wing, 206 Minn. 627, 635, 289 N.W. 570, 574 (1940). A trust to promote the well-being of the members of the community is charitable. Restatement (Second) of Trusts § 374 cmt. f (1959). Thus, it is clear that the purpose enunciated in the DCDC articles of incorporation clearly comes within the meaning of “charitable purpose.”
While DCDC is not an express charitable trust, the attorney general has asked this court to impress upon it the legal requirements of a constructive charitable trust in order to protect DCDC’s assets from wrongful distribution to its shareholders.2 This action is in keeping with the legal role of the attorney general, inasmuch as that office is entrusted, both by statute and at common law, with the responsibility of enforcing charitable gifts and trusts which benefit a “large shifting class of the public.” Minn.Stat. § 501B.34 (1996); Longcor, 206 Minn, at 635, 289 N.W. at 574. In order to ensure that the assets of DCDC are used consistent with its nonprofit purpose, I would adopt the view of the attorney general that DCDC holds its assets subject to a constructive charitable trust and would require that those assets be used consistent with the corporation’s purpose, for the economic development and benefit of the citizens of Delano.3
*242In summary, I would hold that the DCDC articles of incorporation unambiguously manifest the nonprofit character of the organization, and that any possible ambiguity is removed by reference to the history and conduct of DCDC, indicating that DCDC is a nonprofit organization. In order to protect the charitable character of DCDC’s assets, I would impress a constructive charitable trust upon them. I respectfully dissent.

. A constructive trust is a remedial measure that arises by operation of law to subject the holder of property to an equitable duty to convey it to another where his retention of the property is wrongful and he would be unjustly enriched by it. Restatement (Second) of Trusts § 1 cmt. e (1959).

.The state cites cases from several other jurisdictions in which courts have impressed a charitable trust on the assets of corporations with charitable purposes. In Attinson v. Consumer-Farmer Milk Coop., 197 Misc. 336, 94 N.Y.S.2d 891, 894 (1950), a milk cooperative similar to the *242Red River Valley Livestock Association was held to be a charitable association and a charitable trust was impressed on its assets. In Illinois, a nonprofit fire department was prevented from disposing of its assets, which the court held were impressed with a trust. Riverton Fire Protection Dist. v. Riverton Volunteer Fire Dept., 208 Ill.App.3d 944, 153 Ill.Dec. 165, 566 N.E.2d 1015, 1020-21 (1991). While I acknowledge that such cases are not binding on this court, I find their reasoning to be persuasive.