*1 If is satisfactory testimony this testimony required opinion. supplied discharged. of habeas should be If the writ corpus within that period, is not within testimony provided period, appellant satisfactory be released. should in accord- court with directions proceed to the district
Remanded ance with opinion. &
FRANK E. AIPLE TWIN CITY BARGE COMPANY AND OTHERS. TOWING
143 N. W. 39,793, 39,801. April 1966 Nos. Johnson, Vieno, Johnson, Berryman, & Robert Mark J. Fisher W. Miller, Brook, Roy Peterson, Lord, *2 Bricen C. William Bissell & for and appellants. Leonard, Rohricht, Hannaford,
Richard J. John L. Thomas E. and Doherty, Butler, Rumble & for respondent.
Murphy, Justice.
This is an judgment an from order and district court appeal of the stockholder, a granting the injunctive against relief plaintiff, defendant its corporation grows and executive officers. The litigation out the action in managing directors of corporation creating a in subsidiary corporation subsidiary and assets to ex- transferring change stock, the negative over plaintiff vote The plaintiff. minority rights contends that transfer and has violated exchange this his a is stockholder. suit one in seeks The which the equity plaintiff set aside enjoin to the transfer and to defendant from corporation further to the other transfers in the corporation except ordinary course business.
It appears City the defendant Twin & corporation, Barge Towing Co., was created on May of business is in principal place 1937. Its Paul, in engages St. Minnesota. It river harbor docking and at locations in St. Minneapolis various and around and Paul also in is Chicago and area. This business of car- similar in switching yard railroad terminals. The defendant also corporation and barge barge maintains and own repairs equipment equipment Frank a vice companies. plaintiff, Aiple, president The E. former in became a stockholder defendant originally is management and the dispute Aiple corporation The between chartered plaintiff one of From 1951 1956 standing. through long a The de- year-to-year harbor to the defendant on basis. two tow boats and arrangement pur- this in fendant discontinued corporation the amount boat, after followed as to dispute chased its own which use these boats. This dis- Aiple which the owed to that plaintiff attempted settled. The record indicates eventually pute from it loaning money bank neces- discourage corporation’s replaced equipment. boat the plaintiff’s the tow sary to purchase in is interested enter- financially competing It also that Aiple appears Minnesota Harbor Service which leased two known as the prise At had used. the time formerly boats the defendant $7,500 in the Minnesota Service had invested Harbor litigation, Aiple him for in a sum between and indebted to rentals somewhere they were $60,000. $50,000 grows difficulties of the defend- and Part out interests business activi- plaintiff’s ant claim that the corporation’s Service, ties, the Minnesota connection with Harbor in particularly plaintiff defendant The the interests of the conflict with does his boats he not wish use says that if the defendant justified leasing is retire them and them others. not is required steady has had a It that since 1957 appears far record indicate has as the would growth profited substantial management of the defendant management. corpora- from prudent could and its would be expand operations tion has felt that its business *3 has capital had more and to that end at- equity more if it profitable the capital stock of The defendant tempted to increase the to issue 500 of its charter is authorized shares common corporation by by of the outstanding than one-third the shares are owned More stock. becomes since under the of important provisions This fact plaintiff. 1961, 301.37, an amendment to articles which would Minn. St. its § by stock be the may only adopted it to increase the permit shares, or of by vote of the holders of two-thirds the voting affirmative of majority voting of the of the the shares the affirmative vote holders vote the of more than negative one-quarter not over the of holders but here, far as statute so voting governing applicable shares. 3, (amendment 1965, 504, c. 301.37, by L. Minn. St. action) not to this important provided: “(1) be of any meeting of the articles at may Amendment made amend, shareholders, provided notice of to nature stating proposal entitled of such have been mailed each shareholder shall proposal, thereon, prior meeting, vote at least ten to such or written con- days given provided sent of such shareholders section subdivi- 11; sion
“(2) as hereinafter in section an Except provided, amendment may be if it either: adopted only receives
“(a) vote of voting The affirmative of the holders two-thirds of the vote, of all entitled under the articles to or such power shareholders vote, less larger may or smaller not than a as the articles majority, require;
“(b) articles, If otherwise the affirmative vote provided by not of all majority holders shareholders voting power entitled under articles to and does not receive the vote negative vote of the holders of more than all share- voting power one-fourth holders entitled to vote.”
Accordingly it unless the Articles of appears Incorporation otherwise an amendment provide one two adopted only (1) ways: By the affirmative vote of the holders of two-thirds of the shares; (2) voting the affirmative vote of the holders of a majority shares, but not vote voting negative over the of the holders of more than shares. The Articles of one-quarter voting Incorpora- tion of defendant contain no contrary provisions and ac- to amend cordingly statutory required the Articles of percentages Incorporation applicable. noted,
As have we of more than already Aiple’s ownership one-third of the common stock enabled him to an prevent has amendment Articles of would increase Incorporation capitalization. its After futile amend making attempts legally several the articles as to the increase in permit capitalization, corporate management finally the device of creating subsidiary, part resorted to transferring it, the stock of the new using purpose capital. new acquiring 26, The trial court found on December the board of di- *4 held a a special meeting By rectors which attended. vote of plaintiff 3 to the board authorized the transfer dissenting, of assets plaintiff $5,000 of shipyard its division and to a Delaware working capital Inc., 4,000 in return for as Twin City Shipyard, known corporation shares, the assumption by but unissued and 50,000 capital authorized The transfer shipyard liabilities the division. subsidiary new the the City The Twin Shipyard corporation 1963. effected December was of directors con- its board defendant by the organized was and two corporation supervisory defendant of the officers the sisting as They were department. appointed proxy its shipyard employees in- subsidiary stock in the company the parent to vote voters of the was president parent The structions as to how vote. that would obligations subsidiary of the guarantee authorized to service cooperative parent corporation; interest of the be in the best and approved; was subsidiary the and the parent between agreement resolutions. The out the carry to the authority given officers was represented subsidiary the to the parent of assets from assets of the $52,569.16/$496,000 parent of the total fixed parent transferred from division of June The shipyard as 1,400,000 $400,000/$ of the estimated about subsidiary represented total $57,000/$900,000 of and of the income for 1963 gross parent assets. management for this the reason action given issued; defend- to be there was little stock left
corporation was could which capital cash needed poor ant and working felt subsidiary. They derived the unissued stock of be from discounts, de- could, advantages, utilize among this method they requiring costs, advantage opportunities take of business crease interest division more cash, benefits, shipyard operate secure tax ready that the action court came to the conclusion The trial efficiently. rights was in violation management parent accordingly granted judgment stockholder plaintiff the parent corporation transfer back to requiring a further transfer of assets enjoining so transferred as was the long he rights materially plaintiff alter might common shares of the outstanding or more of of one-third owner defendant. stock increase outset that an agreed It at *5 is a fundamental in change If the stock capital is to be increased, such action be in must conformity with the provisions Act, Minnesota Corporation Business 3(1,2), requiring notice and affirmativevote of required percentage of stock. Inasmuch as the power increase issue an of capital stock is not an or incidental implied power corporation, authority to do so must derive from statute and the articles of incorporation. 18 Am. Jur. Corpora- tions, 244. Allerton,
In Railway (18 Wall.) Co. 233, 235, 85 U. S. 21 L. ed. 902, 903, Mr. Justice Bradley said:
“* * * Changes the purpose object and of an association, inor the extent of its constituency or membership, the amount of involving stock, its capital are necessarily character, fundamental in their cannot, on general principles, made without the or express implied * * * consent members.
“* * * To change [the [*] constituency, [*] [*] [*] or [*] membership] stockholders, consent of the would be to make them members of an association in which never consented to they become such. It would * * * change the relative influence, control, and profit of each member. when the Even additional stock is distributed to pro each stockholder rata, it would often injustice, work because many stockholders might be unable to shares, take respective their and might thus lose their relative interest and influence in the corporate concerns.”
The management of the defendant contends that in organizing did they only what were author they expressly by ized to do their statute, Articles of Incorporation, and the bylaws, that of the stockholders consent was not necessary. They say that Minn. St. 301.10 permits hold, the corporation to “acquire, mortgage, pledge, * * * or dispose of the any shares domestic or foreign corporation,” and even without express authority it the same articles has power if “reasonably or necessary incidental stated to accomplish purposes articles”; in its 301.09(4) “[t]o Minn. gives power it the acquire, St. hold, lease, encumber, convey, or otherwise real and personal dispose * * property *.” further They argue Incorporation that the Articles sell, transfer, lease, or (a) assign, “purchase convey, them
permit or otherwise of real or dispose personal mortgage, pledge, exchange “acquire (b) that the purchase, property”; otherwise, or and to hold for investment or otherwise deal subscription, * ** any manner; any any aid in with stocks * * * stocks, or are held obligations whose bonds * * * do things and to other acts any the value of enhancing protection, improving preservation, stocks owned this corporation.” such ordinary business refer to the general powers is our view these It *6 of the and do extend to a reconstruction transactions of corporation not body itself. corporate the by one limita- only further contend that were restricted
They they ap- indicates the tion, that Minn. St. 301.36 which provided by event only the voting power necessary of two-thirds of the is proval of or all” of substantially a sale “all the assets of reli- principal from the the their gather place brief that defendants We statute. this It provides: ance on action taken of its board of may, meeting
“A at corporation by any directors, sell, lease, all, or or otherwise of substan- exchange, dispose will, all, assets, such of its tially property including good upon considerations, be may money, conditions and for such terms and shares, bonds, money of or other other instruments payment deems when and author- as its board of directors property, expedient, of of shares to exercise at least by entitling ized the vote holders them on such or the vote of such voting two-thirds power proposal classes, not less than a or vote as the majority, proportion, articles at a shareholders’ called for that may require, meeting purpose, or when authorized the written the holders of such upon consent of Notice of of meetings shares. such shall to all shareholders given be record, they whether not shall be entitled to thereat.” vote
We agree cannot with the defendant 301.36 author- § izes a to of and “all or something transfer less than dispose substantially all” of the the assets under circumstances where interferes legal right with the a stockholder. minority the de- a creating subsidiary corporation, device of ingenious By 301.37, subd. 3. have to circumvent attempted Corporations fendants individuals; are confined to those they act with freedom cannot statute and such as are incidental thereto authorized actions expressly are carry Corporations organized by them into effect. necessary the cir- the directions a statute. Under acting natural under persons case the has split cumstances attempted increasing itself into two the obvious corporations purpose provi- stock of without with the parent company complying sions of the has governing statute that subject. parent corporation creature, a divided its with its at fixed capitalized portion own valuation, all and received back of the stock issued shares done, If this can subsidiary. provisions be circumvented to the where a may point corporation might fragment divisions, itself into any number of leaving thus stockholders minority statute protection designed give that the them. The effect of the defendants’ is minority to diminish the interest of the plan stockholder, or force him stock in new buy protect his proportionate interest or investment.
It is unnecessary for tous on the speculate effects which possible might flow from the action if parent corporation permitted. might It well be that the is plan constructive from standpoint what might be profitable for the stockholders. But are here we concerned legal We rights. with view that stockholder *7 on stand the legal rights gives which the law is entitled to in him and relief junctive alleging As was said loss. in Schwab E. G. Potter Co. 194 N. Y. 87 N. E. stockholder minority may legal insist upon rights his even refuse to “something better” accept in exchange. legal right is to His continue as a member of the corpora tion and not into a forced of a second membership corporation, all the of which is taken out the assets of the See, which he holds stock. his v. Central Zone Eisenberg Property Corp. 306 N. Y. 115 N. E. agree
We with observation contained in the dissent that the plain- might using tiff well be his substantial interest deny minority which the directors judgment good the benefit Nevertheless, 301.37 That gives right. him this
wish exercise. state, stockholders, the contract between the statute is part If, we are faced with the paradox as it appears, the corporation. to ob- designed for his using protection a statute stockholder prob- the best interests of struct and interfere with An legislature. should be attention lem is one which called.to inconsistent to the would establish a contrary precedent interpretation exists. the clear intent of the statute as it with presently Affirmed. Gallagher,
Thomas (dissenting). Justice of de stockholders majority the actions of my opinion In of the corpora less than transferring percent fendant corporation controlling stock in return for the subsidiary corporation tion’s assets to a it— articles empower not unlawful. Defendant’s of the latter were * * * “* * * boathouses, wharves, loading to lease or sell piers, ** * the necessary in landing operation places other platforms of such business. * * * transfer, lease, mortgage, pledge, sell, assign, convey,
“To such any exchange, property. or otherwise dispose * * * stocks, otherwise, or subscription “To acquire purchase, or corpora- or securities obligations any person or other any bonds stocks, or bonds tion, whose any any to aid in manner corpora- manner this any guaranteed are held or in obligations interested, any and to do tion, way this is in any or in which or things protection, improvement other acts or for preservation, * * * stocks owned of the value of such any enhancement corporation.”
Minn. corporations 301.09 Minnesota business St. empowers encumber, hold, lease, or otherwise of real and convey, dispose acquire, or obligations enter or contracts perform and to into personal property incidental to the transaction of its business expedient acts 301.10 of its Minn. St. that when so purposes. specifies attainment hold, in the articles such corporations acquire, dispose provided
47 foreign necessary of shares of domestic or when corporations reasonably their Under the charter incidental to accomplish purposes. powers as above described under the corporation statutory powers to, above the defendant was fully referred corporation empowered $5,000 transfer to its its division and shipyard working (the 11 total book value of which less than percent assets) book value and in return therefor receive corporation’s 4,000 all stock outstanding amounting shares. The subsidiary, of a act recognized to so has been power frequently 282, and other v. The 215 Dworsky courts. Buzza Co. Minn. 9 N. W. 767; 30, 927; 705, Hill v. & Co. N. Page Hill 198 Minn. 268 W. 544, 379; Bacich v. Co. 185 242 Northland Minn. N. W. Transp. Calnan 830; 533, v. 271 Mass. 171 E. Metcalf v. Guaranty Security Corp. N. (W. Y.) 115; N. American School Furniture Co. 122 D. F. v. Logie 208, Mother Lode 106 Mines Co. 179 P. As stated Copper Wash. (215 769): case W. Dworsky 287, Minn. 9 N. [2d] “* * * to, That a has transfer its assets power of, the stock a new is v. accept Page clear. Hill & Hill 30, 705, 198 Co. 268 W. Minn. N. 927.”
The majority concludes that such transfer was opinion violative of plaintiffs legal rights, as expressed in St. 301.36 presumably Minn. 1961, 301.37, 3(2). and Minn. St. subd. Section 301.36 that § provides a corporation sell or otherwise of “all or all” dispose substantially of its and assets do property when authorized to the vote of holders of shares equal shares; two-thirds of the voting while corporation’s 301.37, 3(2), the articles of a business specifies may be amended affirmative vote of two-thirds stock. voting see I cannot where 11 less than percent corporation’s by the vote its stockholders and directors accomplished majority would constitute a violation of which as indicated provides two-thirds vote is when corporation’s required shares Only (Italics substantially “all or all” of its to be sup assets are transferred. See, 125, 839, 213 5 R. plied.) Hendren v. 279 Mo. S. W. A. L. Neeper, 927; Shaw Hollister 135 Land Co. 166 Cal. P. Improvement 965; 929; Sewell 50 25 May v. East Beach N. J. A. Cape Eq. Co.
48 738; Co. La. So. Brg. Wattley v. New Orleans McCloskey *9 533, 204 122 Misc. N. Y. S. 254. Drug Corp. v. Stores National an Likewise, scarcely can be held constitute the 3(2), articles in violation of to defendant’s amendment vote of stockholders for amendments. a two-thirds requires which which, not amend the articles as present did seek to transfer resolutions of need an amendment. authorize the transfer the ly expressed, acts chal Rather, the of the directors stockholders plaintiff which, in nor acts the nothing more less than lenges as unlawful are essential for the they their business felt were best judgment, exercise of in of its conduct business. Ac proper interests of the corporation stockholder, suing on behalf of the as a cordingly, plaintiff minority actions, as have no valid cause for to such complaint would own obstructive efforts have them. As compelled where his particularly 565, 573, 226 33 N. W. in Warner E. C. Warner Co. Minn. stated v. (2d) 721, 726: * * * allege facts which show a derivative must plaintiff
“In suit is so the true interests of the action far opposed attacked no acting to the clear inference that officer thus lead interests, to secure by have influenced honest desire such could been but must acted with intent subserve some ulterior pur- that he have in a manner to his regardless consequences pose, * * * interests. inconsistent with its for mere recovery does suits justify “The law not representative handling affairs. judgment errors of corporate “ * * The individual shareholders have no [*] [*] [*] [*] [*] authority to dictate to agents what shall or to policy that dis- company’s they impair pursue, Morawetz, by cretion which conferred them 1 charter.’ upon (2 ed.) 243. Private Corporations “ * * stockholders, In by actions which assail acts their trustees, courts interfere directors will not unless the have powers executed, unconscientiously been or unless it be made to illegally that the acts were fraudulent or collusive and appear destructive rights of the stockholders. Mere errors of are not sufficient as judgment
49 interference; of those entrusted with grounds equity powers Lorillard, Leslie v. management largely discretionary.’ are 519, 363, 365, 1 L. N. Y. 18 N. E. R. A. 493, 507, R. 53 N. E. Flynn Brooklyn “In Co. N. Y. City the court said: “ general ‘As a rule to do the internal man- nothing courts have with agement Whatever be done corporations. lawfully or stockholders, acting through directors majorities prescribed law, necessity minority, must be submitted to for corporations can be conducted All within the no other basis. upon questions scope administration, of the corporate which relate to the powers policy measures, or to the consideration of con- expediency proposed tracts, provided grossly inadequate it is not so as to evidence of fraud, beyond directors or province courts. The of a want stockholders cannot come into court upon allegations *10 judgment or lack efficiency on the majority change part the course of administration. furnish the Corporate only elections dissensions, for as internal rule remedy long must as it majority ” within keeps powers conferred charter.’ The in effect of a majority opinion holds that the transfer part subsidiary defendant purpose of obtaining needed to attain cannot be financing objectives corporate regarded as ordinary within the course of the business. corporation’s reason for this must be only because the actions taken appear frustrate the efforts of disruptive minority stockholder cor prevent porate financing because of his in a expansion interest rival corpora my tion. In judgment conduct of through corpo rate subsidiaries formed the personnel of the parent reasons, various tax avoidance as including financing, as well local regarded cannot be than a common or manner of ordinary doing business.
Finally, it cannot be said that the taken the majority actions directors stockholders which here have in challenged any way plaintiff’s rights affected in defendant Ob proportionate he will continue have the same vote and viously, proportionate in the shipyard voice operation the same
exercise proportionate controls through division division was part corpora- when the shipyard had originally as he tion’s assets. v. CHARLES DUNSMORE.
JERILL SJAASTAD 142 N. W. 39,804.
April 1966 No. *11 Berens, O’Connor, Rodenberg & for appellant.
Gislason, Dosland, Reim, & Alsop respondent.