Frandsen v. Jensen-Sundquist Agency, Inc.

• Citation: 802 F.2d 941
• Decision Date: 01 October 1986
• Docket Number: Nos. 85-2622,JENSEN-SUNDQUIST,85-2293 and 85-3190,s. 85-2622
• Parties: Dennis FRANDSEN, Plaintiff-Appellant, v.AGENCY, INC. and First Wisconsin Corporation, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 941

802 F.2d 941

Dennis FRANDSEN, Plaintiff-Appellant, v. JENSEN-SUNDQUIST AGENCY, INC. and First Wisconsin Corporation, Defendants-Appellees.

Nos. 85-2622, 85-2293 and 85-3190.

United States Court of Appeals Seventh Circuit.

Argued April 14, 1986.

Decided Oct. 1, 1986.

Maclay R. Hyde, Bassford Heckt Lockhart & Mullin, Minneapolis, Minn., for plaintiff-appellant.

Thomas L. Shriner, Jr., Foley & Lardner, Milwaukee, Wis., Steven C. Schroer, Faegre & Benson, Minneapolis, Minn., for defendants-appellees.

Before POSNER and FLAUM, Circuit Judges, and MAROVITZ, Senior District Judge. ^*

POSNER, Circuit Judge.

The appeals in this diversity suit require us to consider issues of Wisconsin contract and tort law in the setting of a dispute over the rights of a minority shareholder in a closely held corporation. The facts are as follows. In 1975 Walter Jensen owned all the stock of Jensen-Sundquist Agency, Inc., a holding company whose principal asset was a majority of the stock of the First Bank of Grantsburg; Jensen-Sundquist also owned a small insurance company. That year Jensen sold 52 percent of his stock in the holding company to members of his family--the "majority bloc," as we shall call them and the interest they acquired; 8 percent to Dennis Frandsen, a substantial businessman who was not a member of Jensen's family and who paid Jensen $97,000 for the stock; and the rest, in smaller chunks, to other non-family members. By a stockholder agreement drafted by Jensen and a lawyer representing the bank and Jensen's family, the majority bloc agreed "that should they at any time offer to sell their stock in Jensen-Sundquist, Inc., ... they will first offer their stock to [Frandsen and six other minority shareholders who had negotiated for this provision] at the same price as may be offered to [the majority bloc] ... and ... they will not sell their stock to any other person, firm, or organization without first offering said stock" to these minority shareholders "at the same price and upon the same terms." The majority bloc also agreed not to "sell any of their shares to anyone without at the same time offering to purchase all the shares of" these minority shareholders "at the same price." Thus if the majority bloc offered to sell its shares it had to give Frandsen a right to buy the shares at the offer price. If Frandsen declined, the second protective provision came into play: the majority bloc had to offer to buy his shares at the same price at which it sold its own shares.

In 1984 the president of Jensen-Sundquist began discussions with First Wisconsin Corporation, Wisconsin's largest bank holding company, looking to the acquisition by First Wisconsin of First Bank of Grantsburg, Jensen-Sundquist's principal property. A price of $88 per share of stock in the First Bank of Grantsburg was agreed to in principle. The acquisition was to be effected (we simplify slightly) by First Wisconsin's buying Jensen-Sundquist for cash, followed by a merger of First Bank of Grantsburg into a bank subsidiary of First Wisconsin. Each stockholder of Jensen-Sundquist would receive $62 per share, which would translate into $88 per share of the bank. (The reasons that the share values were not the same were that there were more holding company shares than bank shares and that the holding company had another asset besides the bank--the insurance company.) Jensen-Sundquist asked each of the minority shareholders to sign a waiver of any rights he "may have" in the transaction, rights arising from the stockholder agreement, but advised each shareholder that in counsel's opinion the shareholder had no rights other than to receive $62 per share.

Each of the minority shareholders except Frandsen signed or was expected to sign the waiver. Frandsen not only refused to sign but announced that he was exercising his right of first refusal and would buy the majority bloc's shares at $62 a share. (He also offered to buy out the other minority shareholders.) The majority did not want to sell its shares to him--Frandsen says because the president of Jensen-Sundquist, who was also the chairman of the board of First Bank of Grantsburg and a member of the majority bloc, was afraid he would lose his job if Frandsen took over. The deal was restructured. Jensen-Sundquist agreed to sell its shares in First Bank of Grantsburg to First Wisconsin at $88 a share and then liquidate, so that in the end all the stockholders would end up with cash plus the insurance company and First Wisconsin would end up with the bank, which was all it had ever wanted out of the deal. All this was done over Frandsen's protest. He then brought this suit against the majority bloc, charging breach of the stockholder agreement, and against First Wisconsin, charging tortious interference with his contract rights. The district judge granted summary judgment for the defendants and Frandsen appeals.

The interpretation of an unambiguous contract is a question of law. Koenings v. Joseph Schlitz Brewing Co., 126 Wis.2d 349, 366, 377 N.W.2d 593, 602 (1985). The practical significance of this principle is that the question of interpretation is answered by the judge rather than the jury; we need not pause to consider whether this result is desired because judges are thought particularly expert in the interpretation of documents, or because an unambiguous document can by definition be interpreted in only one way (though it may take a skillful reading to arrive at the correct interpretation, see Amoco Oil Co. v. Ashcraft, 791 F.2d 519, 521 (7th Cir.1986)), or because the law seeks to protect contracting parties from the vagaries of juries, which may be swayed by extrinsic factors such as sympathy for an individual's human predicament or hostility to a large enterprise. When, however, the meaning of a contract is inscrutable without oral evidence--evidence for example on the meaning of terms that the contract does not use in their ordinary dictionary senses--there must be a trial, and the issue of interpretation gets resolved by the jury. See Pleasure Time, Inc. v. Kuss, 78 Wis.2d 373, 379, 254 N.W.2d 463, 467 (1977); Central Auto Co. v. Reichert, 87 Wis.2d 9, 19, 273 N.W.2d 360, 364-65 (Ct.App.1978); Western Industries, Inc. v. Newcor Canada Ltd., 739 F.2d 1198, 1205 (7th Cir.1984). Frandsen was therefore entitled to a trial on his breach of contract claim if but only if the stockholder agreement was not clear enough for the judge to be able to decide, on the basis of the agreement itself and the undisputed background facts, whether Frandsen's right of first refusal had been violated.

The case would be easy if the transaction had been structured from the start as a simple acquisition by First Wisconsin of First Bank of Grantsburg from Jensen-Sundquist. Nothing in the stockholder agreement suggests that any minority shareholder has the right to block the sale by Jensen-Sundquist of any of its assets, including its principal asset, a controlling interest in First Bank of Grantsburg. The right of first refusal is a right to buy the shares of the majority bloc in Jensen-Sundquist if they are offered for sale, and there would be no offer of sale if Jensen-Sundquist simply sold some or for that matter all of its assets and became an investment company instead of a bank holding company. Nor did the contract entitle Frandsen to insist that the deal be configured so as to trigger his right of first refusal. Cf. Hariton v. Arco Electronics, Inc., 41 Del.Ch. 74, 188 A.2d 123 (1963); Orzeck v. Englehart, 41 Del.Ch. 361, 195 A.2d 375, 377-78 (1963); Moran v. Household Int'l, Inc., 490 A.2d 1059, 1077 (Del.Ch.1985), aff'd, 500 A.2d 1346 (Del.S.Ct.1985); Broad v. Rockwell Int'l Corp., 642 F.2d 929, 943-48 (5th Cir.1981) (en banc).

The case is a little harder because the transaction was originally configured as a purchase of the holding company rather than just of the bank, an asset of the holding company. Compare Wis.Stat. Secs. 180.62-180.67 with id., Sec. 180.71. And Frandsen points out that under the stockholder agreement his right of first refusal was triggered by an offer, so that the fact the offer was later withdrawn would not affect his right of first refusal if he had already tried to exercise it--and he had tried, before the defendants reconfigured the transaction. But the point is academic, because we agree with the district judge that there never was an offer within the scope of the agreement. The part of the agreement that grants a right of first refusal refers to an offer to sell "their stock," and to a sale of "their stock," and the "their" refers to the majority shareholders. They never offered to sell their stock to First Wisconsin. First Wisconsin was not interested in becoming a majority shareholder of Jensen-Sundquist, in owning an insurance company, and in dealing with Frandsen and the other minority shareholders. It just wanted the bank.

What is more, a sale of stock was never contemplated, again for the reason that First Wisconsin was not interested in becoming a shareholder of Jensen-Sundquist. The transaction originally contemplated was a merger of Jensen-Sundquist into First Wisconsin. In a merger, as the word implies, the acquired firm disappears as a distinct legal entity. Leannais v. Cincinnati, Inc., 565 F.2d 437, 439 (7th Cir.1977); 2 Model Business Corp. Act Ann. 1231 (3d ed. 1985). In effect, the shareholders of the merged firm yield up all of the assets of the firm, receiving either cash or securities in exchange, and the firm dissolves. See Wis.Stat. Secs. 180.62, 180.67. In this case the shareholders would have received cash. Their shares would have disappeared but not by sale, for in a merger the shares of the acquired firm are not bought, they are extinguished. There would have been no Jensen-Sundquist after the merger, and no shareholders in Jensen-Sundquist.

The distinction between a sale of shares and a merger is such a familiar one in the...