Court Opinion

ID: 4159569
Source: CourtListenerOpinion
Date Created: 2017-04-11 20:00:52.039365+00
Date Added: 2024-06-11T14:24:06.460799
License: Public Domain

NOT FOR PUBLICATION                         FILED
                                                                         APR 11 2017
                    UNITED STATES COURT OF APPEALS
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                             FOR THE NINTH CIRCUIT

 LESLEE SCALLON, a California resident           No. 15-35952
 individually and derivatively on behalf of
 Henry Enterprises Inc. and JAY                  D.C. No. 6:14-cv-01990-MC
 GAIRSON, a Washington resident,
 individually and derivatively on behalf of      MEMORANDUM*
 Henry Enterprises Inc.,

               Plaintiffs - Appellees,

   v.

 SCOTT HENRY’S WINERY CORP.; et
 al.,

               Defendants,

 and

 HENRY ENTERPRISES, INC., Nominal
 Defendant,

               Defendant - Appellant.

                   Appeal from the United States District Court
                             for the District of Oregon
                   Michael J. McShane, District Judge, Presiding

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.

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                       Argued and Submitted March 10, 2017
                                Portland, Oregon

Before: LEAVY and FRIEDLAND, Circuit Judges, and BENITEZ, District
Judge.**

      Henry Enterprises, Inc. (“HEI”) appeals from the district court’s ruling that

Or. Rev. Stat. § 60.952(6), a share buyout provision applicable to close corporation

disputes, does not apply to derivative shareholder actions, like the one Plaintiffs

brought here. Or. Rev. Stat. § 60.952(6) permits a defendant to shortcut litigation

by purchasing the plaintiff’s shares for fair value. We have jurisdiction under 28

U.S.C. § 1292(b) and review questions of statutory interpretation de novo. To

determine whether the statute applies to derivative actions, we examine the

statute’s text and context and, to the extent it appears useful, the legislative history.

State v. Gaines, 206 P.3d 1042, 1050 (Or. 2009) (en banc). Applying this

methodology, we hold that the buyout provision applies to derivative proceedings

and reverse.

      First, the plain meaning of the statute’s text indicates that the buyout

provision applies to derivative actions. The relevant text provides that “the

corporation or one or more shareholders may elect” to exercise the buyout option

“after the filing of a proceeding under subsection (1).” Or. Rev. Stat. § 60.952(6).

      **
            The Honorable Roger T. Benitez, United States District Judge for the
Southern District of California, sitting by designation.

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A “proceeding under subsection (1)” is a “proceeding by a shareholder” alleging

certain types of claims. Or. Rev. Stat. § 60.952(1). A “proceeding by a

shareholder” includes both direct and derivative actions. See In re Conduct of

Kinsey, 660 P.2d 660, 666 (Or. 1983) (per curiam) (explaining that a derivative

action is a lawsuit brought by a shareholder to enforce a corporate right); Lee v.

Mitchell, 953 P.2d 414, 423-24 (Or. Ct. App. 1998) (explaining that a direct

shareholder action is a lawsuit brought by a shareholder to enforce rights owed to

the plaintiff as an individual). In fact, Oregon law requires the person bringing a

derivative proceeding to be a shareholder. Or. Rev. Stat. § 60.261.

      Furthermore, the types of claims set forth in subsection (1) include claims

traditionally brought derivatively. For instance, the statute applies to proceedings

where “[t]he corporate assets are being misapplied or wasted.” Or. Rev. Stat.

§ 60.952(1)(d). Waste or misapplication of corporate assets is a corporate injury.

See, e.g., North v. Union Sav. & Loan Ass’n, 117 P. 822, 825 (Or. 1911); Noakes v.

Schoenborn, 841 P.2d 682, 686 (Or. Ct. App. 1992). Because subsection (1)

describes claims generally brought derivatively, the statute must apply to

derivative proceedings.

      Second, Oregon courts applied similar predecessor statutes in derivative

actions. See, e.g., Chiles v. Robertson, 767 P.2d 903 (Or. Ct. App. 1989); Serbick

v. Timpte-Pac., Inc., 746 P.2d 1167 (Or. Ct. App. 1987); cf. Baker v. Commercial

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Body Builders, Inc., 507 P.2d 387 (Or. 1973). Importantly, the Oregon legislature

enacted Or. Rev. Stat. § 60.952 to reflect this prior judicial practice. Hickey v.

Hickey, 344 P.3d 512, 520 (Or. Ct. App. 2015). Therefore, Or. Rev. Stat. § 60.952

should be applied in the same way.

      Third, the legislative history supports applying the buyout provision in

derivative proceedings. The legislature wanted the provision to be used to end

costly litigation early. See Tape Recording, Oregon Senate Committee on

Business, Labor and Economic Development, SB 116, Jan. 15, 2001, (later

incorporated into SB 118), Tape 2, Side A (statement of Robert Art); see also Or.

Rev. Stat. § 60.952(6) (stating that buyout right must be invoked within 90 days

after the filing of a proceeding). A holding that the statute does not apply to

derivative proceedings would undermine that statutory purpose.

      In conclusion, the text, context, and legislative history of Or. Rev. Stat.

§ 60.952 demonstrate that the statute applies to derivative proceedings.

      REVERSED.

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