Helm Financial Corp. v. MNVA Railroad Inc.

• Citation: 212 F.3d 1076
• Decision Date: 14 May 1999
• Docket Number: No. 98-2961,98-2961
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)
• Parties: (8th Cir. 2000) HELM FINANCIAL CORPORATION, A CALIFORNIA CORPORATION, APPELLANT, v. MNVA RAILROAD, INC.; DAKOTA, MISSOURI VALLEY & WESTERN RAILROAD, INC.; LARRY C. WOOD; DIANE WOOD, APPELLEES. Submitted:

Page 1076

212 F.3d 1076 (8th Cir. 2000)

HELM FINANCIAL CORPORATION, A CALIFORNIA CORPORATION, APPELLANT, v. MNVA RAILROAD, INC.; DAKOTA, MISSOURI VALLEY & WESTERN RAILROAD, INC.; LARRY C. WOOD; DIANE WOOD, APPELLEES.

No. 98-2961

UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Submitted: May 14, 1999

Filed: May 1, 2000

Appeal from the United States District Court for the District of Minnesota

[Copyrighted Material Omitted] Before McMILLIAN, Bright and Fagg, Circuit Judges.

McMILLIAN, Circuit Judge.

Helm Financial Corp. (Helm) appeals from an order entered in the District Court¹ for the District of Minnesota denying its motion for summary judgment. Helm Financial Corp. v. MNVA Railroad, Inc., Civil No. 97-1342 (DSD/JMM) (D. Minn. June 24, 1998) (order). For reversal, Helm argues that the district court erred in denying its motion for summary judgment because the transfer of DMVW stock constituted an unlawful preference and a breach of their common law fiduciary duty. Defendants MNVA Railroad, Inc. (MNVA), Dakota, Missouri Valley & Western Railroad, Inc. (DMVW), and Larry C. Wood and Diane Wood argue that the district court did not err in denying Helm's motion for summary judgment because there were genuine issues of material fact in dispute and because, as a matter of Minnesota law, creditors do not have a common law cause of action for breach of fiduciary duty against corporate directors or officers for unlawful distribution of corporate assets to shareholders, absent self-dealing or preferential treatment. For the reasons discussed below, we hold that we have appellate jurisdiction and we affirm the order of the district court.

The district court had subject matter jurisdiction over this case under 28 U.S.C. § 1332 (diversity jurisdiction). We have appellate jurisdiction under 28 U.S.C. § 1291.

The following statement of facts is taken in large part from the district court order. Helm is a locomotive and railcar leasing company and a judgment creditor of MNVA. It is a California corporation with its principal place of business in California. MNVA is a Minnesota corporation with its principal place of business in Minnesota. It was incorporated in July 1986 and operated a short-line freight railroad in Minnesota and North Dakota. Larry and Diane Wood were officers and directors and major shareholders of MNVA. DMVW is a North Dakota corporation organized in 1990, with its headquarters in Bismarck, ND, and a wholly-owned subsidiary of MNVA; DMVW operated several spans of railroad trackage in North Dakota under a long-term lease agreement with the Soo Line Railroad.

In August 1994 MNVA agreed in principle to the terms of a letter of intent with Pioneer Railcorp (Pioneer) under which Pioneer agreed to acquire MNVA's operating assets by purchasing MNVA's stock. MNVA decided to spin off DMVW to MNVA shareholders as part of the reorganization of MNVA in connection with the sale to Pioneer. In October 1994 the deal between MNVA and Pioneer was restructured as a sale of assets instead of a stock purchase. On November 21, 1994, MNVA determined that it would be able to pay its debts in the ordinary course of business after the proposed distribution of DMVW stock to MNVA shareholders (as required by Minn. Stat. § 302A.551 subd. 1) and approved the distribution of DMVW stock to the existing MNVA shareholders in proportion to the percentage of stock they owned in MNVA. No consideration was paid to MNVA for the distribution of DMVW stock. DMVW became an independently-operated entity after the distribution. In December 1994 MNVA sold its assets to Pioneer for the assumption of some secured debts and $1.00 and thereafter ceased operations.

According to MNVA, during the course of winding up its affairs, it was unable to pay all of its creditors in full because it experienced an "unexpected shortfall" after losing several substantial claims, including one against the Minnesota Department of Transportation for reimbursement of track rehabilitation expenses. In May 1996, Helm obtained a state court judgment against MNVA for railcar leasing fees in the amount of $96,028.00, plus interest, and attorney's fees and costs.

In June 1997 Helm filed this complaint in federal district court against MNVA, DMVW, and the individual officers and directors of MNVA (Larry and Diane Wood, Jeffrey Alan Wood, Gilbert A. Gillette, Bennett J. Brown, and Patrick J. Neaton), alleging that the distribution of DMVW stock to MNVA shareholders defrauded MNVA's creditors in violation of the Minnesota Uniform Fraudulent Transfer Act (UFTA), Minn. Stat. § 513.41-.51, and constituted an unlawful preference of defendants as officers, directors, shareholders, and fiduciaries over MNVA's creditors in breach of their fiduciary duty to creditors. Helm alleged that the spin off left MNVA insolvent because DMVW was MNVA's most valuable asset. Defendants filed an answer. Helm later dismissed Gillette and settled with Jeffrey Alan Wood and Brown. Helm then filed a motion for summary judgment.

On June 24, 1998, the district court denied Helm's motion for summary judgment. The district court first denied summary judgment on the UFTA claim, holding the UFTA did not apply to the spin off of DMVW stock through a stock distribution by MNVA to its shareholders. See slip op. at 5-6, citing Minnesota Model Business Corporation Act, Minn. Stat. § 302A.551 subd. 3(d) (providing that the UFTA does not apply to distributions of stock made by a corporation to shareholders). The district court next denied summary judgment on Helm's claim that Larry and Diane Wood and Neaton breached their fiduciary duties owed as officers and directors to MNVA's creditors by distributing DMVW stock to MNVA shareholders and thereby preferring themselves over those creditors when MNVA was insolvent or on the verge of insolvency. First, the district court held that Minnesota corporations statutes do not create such a fiduciary duty to creditors based solely on shareholder status and limit such fiduciary duty to officers and directors. See id. at 7. With respect to officers and directors, the district court held that Minnesota cases do not extend such a fiduciary duty over distributions to shareholders. See id. at 8 (citing Minnesota cases and noting that Minnesota statutes provide liability for illegal distributions but Helm did not allege statutory claim).

The district court also denied Helm's motion for summary judgment against Neaton because he was not an officer or director of MNVA at the time he allegedly received payments for certain corporate debts. See id. The district court also found that there was a genuine issue of material fact with respect to whether a certain payment by MNVA to DMVW on January 21, 1997, was an unlawful preference in violation of the Woods' fiduciary duty as directors or officers of MNVA and DMVW. See id. at 9.

Helm then voluntarily dismissed the remaining claims except those based on the UFTA and breach of fiduciary duty. On July 15, 1998, the district court entered an order and judgment, based on the parties' stipulation, dismissing with prejudice the claims against Neaton, dismissing without prejudice the January 1997 payment claim, and stating that the June 24 order constituted a "final adjudication upon the merits of [Helm's] remaining undismissed claims." Id., slip op. at 2 (July 15, 1998). Helm appealed.

We first consider whether we have appellate jurisdiction. As noted above, the district court denied Helm's motion for summary judgment on the UFTA and breach of fiduciary duty claims. In general, denials of summary judgment are interlocutory and thus not immediately appealable. However, this denial of summary judgment was not really an interlocutory order because it had the effect of terminating any further consideration of the UFTA and breach of fiduciary duty claims in the district court. See, e.g., Libbey-Owens-Ford Co. v. Blue Cross & Blue Shield Mutual, 982 F.2d 1031, 1034 (6th Cir.) (Libbey), cert. denied, 510 U.S. 819 (1993); EEOC v. Sears, Roebuck & Co., 839 F.2d 302, 354 n.55 (7th Cir. 1988). Helm then voluntarily dismissed the remaining claims, some with and some without prejudice, in order to expedite appellate review. The voluntary dismissal must be considered in light of the earlier denial of Helm's motion for summary judgment. In general, neither party may appeal from a voluntary dismissal because it is not an involuntary adverse judgment. However, when a party voluntarily dismisses its claims with prejudice in order to expedite appellate review, the dismissal is a final judgment which can be immediately appealed. See, e.g., Libbey, 982 F.2d at 1034; Raceway Properties, Inc. v. Emprise Corp., 613 F.2d 656, 657 (6th Cir. 1980) (per curiam). In this circuit the voluntary dismissal can be without prejudice. See, e.g., Missouri v. Coeur d'Alene Tribe, 164 F.3d 1102, 1105-07 (8th Cir.), cert. denied, 119 S. Ct. 2400 (1999); Chrysler Motors Corp. v. Thomas Auto Co., 939 F.2d 538, 540 (8th Cir. 1991). But see, e.g., Chappelle v. Beacon Communications Corp., 84 F.3d 652, 654 (2d Cir. 1996) (comparing cases from other circuits and holding plaintiff cannot appeal from dismissal of some claims when balance of claims have been voluntarily dismissed without prejudice).

We hold that the "expedite review" exception applies to this case. The denial of summary judgment in effect terminated any further consideration of Helm's breach of fiduciary duty claim because the district court held that, as a matter of law, defendants as officers and directors did not breach their fiduciary duty owed to creditors when they spun off DMVW to MNVA shareholders. Helm's voluntary dismissal of its remaining claims, in order to expedite appellate review, in effect made the denial of summary judgment a final judgment for purposes of appeal. The July 15 order recognized this by stating that the denial of summary judgment constituted a final adjudication on the...