Berger v. Amana Soc.

• Decision Date: 08 June 1965
• Docket Number: No. 51623,51623
• Parties: Adolph T. BERGER et al., Appellants, v. AMANA SOCIETY et al., Appellees-Cross-Appellants.
• Court: Iowa Supreme Court

Page 618

135 N.W.2d 618

257 Iowa 956

Adolph T. BERGER et al., Appellants, v. AMANA SOCIETY et al., Appellees-Cross-Appellants.

No. 51623.

Supreme Court of Iowa.

June 8, 1965.

Swift & Swift, Marengo, Edward J. Von Hoene, Williamburg, and Messer & Cahill, Iowa City, for appellants Adolph T. Berger et al.

David G. Bleakley, Harold D. Vietor, and Shuttleworth & Ingersoll, Cedar Rapids, for appellees-cross-appellants Amana Society et al.

D. C. Nolan, Iowa City, for intervenors-appellees and cross-appellants.

GARFIELD, Chief Justice.

Plaintiffs, minority Class A stockholders in defendant Amana Society, and their attorneys applied to the district court for an allowance of attorney fees and reimbursement for the attorneys' expenses in prosecuting a stockholders' derivative action against the corporation, its officers and directors. Following trial in equity an allowance was made from which applicants have appealed and defendants and intervenors, who joined with defendants, have cross-appealed.

These appeals are the fourth taken to this court in the action referred to. The first appeal was from an adjudication of law points under rule 105, Rules of Civil Procedure, 58 I.C.A. Berger v. Amana Society, 250 Iowa 1060, 95 N.W.2d 909, 70 A.L.R.2d 830. The second was from the district court's decision following trial on the merits. Id., 253 Iowa 378, 111 N.W.2d 753. The third was from the judgment and decree implementing the two prior opinions, supra. 254 Iowa 1036, 120 N.W.2d 465.

Before 1932 Amana Society existed as a nonprofit corporation under Iowa laws. In that year it was organized as a corporation for profit. The corporate charter was renewed in 1952 with somewhat, but not greatly, different provisions regarding capital stock. Two thousand shares of Class A stock were authorized, each of a par value of $50. This renewed charter provided that when a holder of Class A stock desired to sell or, if he died or removed from the corporate property, the stock must be offered to the corporation which 'shall purchase and pay for the same at the true value thereof within 30 days from the date the stock is so tendered.' No one could hold more than one share of Class A stock and it could be issued only to members of the former Society or their heirs.

The stockholders adopted an amendment to the 1952 charter on December 12, 1955, which radically changed the stock structure by authorizing issuance of 300,000 shares of Class B common stock of a par value of 50 cents each. The Class A stock was changed to 100,000 shares also of the par value of 50 cents each. Each share of Class A stock outstanding on December 12, 1955, was changed into 100 shares.

The 1955 amendment also radically changed the manner the corporation must pay for shares of Class A stock when tendered or upon death or removal of the holders. Instead of payment by the corporation at true value of the stock, the holder must accept an equal number of shares of Class B stock at a par value of 50 cents a share. Holders of Class B stock were given equal rights with Class A shareholders in rights to vote, receive dividends and distribution of assets.

We held upon the first appeal, supra, the corporation could not issue additional stock which impaired the contract rights of non-assenting stockholders to have their shares redeemed at their true value. Upon the second appeal, after trial on the merits, we held the directors of the corporation did not fully and fairly disclose to the stockholders the effect of the 1955 amendment and it should be held inoperative at least until adopted by the stockholders after being fully and fairly informed thereon.

Following the trial on the merits the district court held fees for plaintiffs' attorneys could be allowed only for services on the first appeal, reserving for future hearing proof as to their value. Plaintiffs urged it was error not to allow fees for the entire case; defendants asserted error in the allowance of any fees. Because it is important upon the present appeal we quote the following portion of our opinion on the second appeal dealing with the question of attorney fees (pages 387-388 of 253 Iowa, page 758 of 111 N.W.2d):

'This action is clearly a stockholders' derivative action brought for the purpose of preserving two heretofore fundamental attributes of corporate structure, or in fact, one attribute--the keeping of the corporation a close one, by confining all corporate control in hands of members of the instant religious belief, by making Class A stockholders the speaking representatives of the faithful. While it is true, the contractual right to cash redemption amounts to a benefit for the recipients thereof, of more or at least of equal importance is that, by this means, control remains in the hands of the members of the religious group. That this has been a matter of prime importance to the Society from the start thereof down to at least 1952 cannot seriously be denied. It still appears to be a prime corporate attribute, at least in the eyes of some stockholders.

'The legal questions involved in the allowance of attorney fees in actions of this kind, are fully and clearly set forth in State ex rel. Weede v. Bechtel, 244 Iowa 785, 56 N.W.2d 173, and authorities therein set forth; See also, Bosch v. Meeker Co-op. L. & P. Ass'n, 257 Minn. 362, 101 N.W.2d 423.

'The trial Court recognized plaintiffs' right to attorney fees for services in the interlocutory appeal even though it nullified the results thereof. Those, this court is now restoring and, in addition, has granted further relief by nullifying the amendment in toto and thereby reserving the corporate control in hands of the Class A stockholders. The amount of fees allowable depends upon the substantial benefit gained by the corporation or its stockholders and the time and skill of the attorneys. This is a matter for the trial court to take testimony upon and determine' (emphasis added).

Of course our prior opinions, supra, are the law of the case upon this appeal. Berger v. Amana Society, 254 Iowa 1036, 1038, 1040, 120 N.W.2d 465, 466, 467.

After hearing testimony for five days in support of the application for fees and the resistance to it, the trial court found no substantial or economic benefit was gained by the corporation or its stockholders by this litigation and that nothing could be allowed the attorneys upon the theory of such benefits. However, the court concluded the part of our second opinion quoted above established that the attorneys were entitled to some fees and the amount thereof depended on their time and skill.

The court allowed $15 per hour for the time of Mr. (now district judge) Hamilton, Mr. Cahill, who succeeded Judge Hamilton in the same firm, and Mr. Von Hoene. Only $12 per hour for Mr. Swift was allowed because he was hard of hearing and in semi-retirement during much of the eight to nine year period since he was consulted on behalf of plaintiffs. The court also allowed the combined attorneys an additional $1500 for the three days trial of the merits in the district court and a like additional sum for the three appeals to this court.

The trial court also allowed an additional $200 a day each ($2200 in all) to Mr. Von Hoene and Mr. Cahill for the 5 1/2 days devoted to trial of this application. Total allowed for fees was $59,341. Claimed expenses of $1351 were also allowed the attorneys.

Upon this appeal applicants contend it was error to find the corporation or its stockholders were not benefited by this litigation. They also think the trial court permitted defendants and intervenors to relitigate matters decided adversely to them upon prior appeals to us.

Defendants' and intervenors' cross-appeals challenge the allowance to Mr. Swift as unreasonably large. They also assert no added allowance should have been made for the trial on the merits or the prior appeals to us. Also that nothing should have been allowed for time spent on this claim for fees. They would reduce the allowance for fees by at least $14,728, to not more than $44,613.

Our review is de novo. Rule 334, Rules of Civil Procedure. We give weight to the fact findings of the trial court but are not bound by them. See rule 344(f) 7, R.C.P.

I. We cannot agree no substantial benefit was conferred on the stockholders as a class by this litigation.

As the first of our prior opinions points out, 652 shares of Class A stock were outstanding when this suit was commenced. Under the 1955 amendment, held invalid, 100 shares of new Class A stock would be issued to each holder of one share, 65,200 shares in all. As against this, 300,000 shares of Class B stock were authorized. 'It is evident that the Class A shareholders, who have heretofore had the sole voting rights, may now be outvoted by a large majority, nearly five to one. It is also evident that, since the Class B stock will share equally in dividends and distributive rights, the value of the Class A stock has been very materially reduced' (page 1065 of 250 Iowa, page 912 of 95 N.W.2d).

Our opinion upon the second appeal expressly holds that nullifying the 1955 amendment reserved to the Class A shareholders control of the corporation (page 388 of 253 Iowa, page 758 of 111 N.W.2d). Our third opinion confirms this holding (page 1041 of 254 Iowa, page 468 of 120 N.W.2d).

Under the 1955 amendment the corporation could issue to outsiders for as little as 50 cents per share all the 300,000 shares of Class B stock except 65,200 shares which would go to the Class A shareholders. Thus 234,800 B shares could be sold to new shareholders for a total price payable to the corporation of only $117,400. So in a sense approximately 78 per cent of the assets of the corporation could be sold to outsiders for only $117,400.

There is much basis for finding the true value of the 652 Class A shares was as much as $10,000 per share at the time this action was commenced. (It would be $100 per share after the proposed 100 to...