Berger v. General United Group, Inc., No. 60567

CourtUnited States State Supreme Court of Iowa
Writing for the CourtConsidered by MOORE; REYNOLDSON
Citation268 N.W.2d 630
PartiesJames B. BERGER et al., Appellants, v. GENERAL UNITED GROUP, INC., et al., Appellees.
Decision Date28 June 1978
Docket NumberNo. 60567

Page 630

268 N.W.2d 630
James B. BERGER et al., Appellants,
v.
GENERAL UNITED GROUP, INC., et al., Appellees.
No. 60567.
Supreme Court of Iowa.
June 28, 1978.

Page 632

David C. Bayne, Iowa City, William R. Stengel, Jr., of Coyle & Gilman, Rock Island, Ill., and Bennett Cullison, Jr., of Cullison & Cullison, Harlan, for appellants.

C. Carleton Frederici and Patricia A. Shoff, of Thoma, Schoenthal, Davis, Hockenberg & Wine, Des Moines, and J. Asa Rountree and Mary Jo White, of Debevoise, Plimpton, Lyons & Gates, New York City, for appellees.

Considered by MOORE, C. J., and MASON, * RAWLINGS, UHLENHOPP and REYNOLDSON, JJ.

REYNOLDSON, Justice.

Plaintiffs in this derivative action were stockholders in General United Group, Incorporated (GUG), an Iowa insurance holding company. They alleged defendant Wheelabrator-Frye, Inc. secured control of GUG by purchasing the stock of defendants, GUG president Chapman and chairman Schroeder, for $1.3 million over its fair market value, which constituted a commercial bribe. The twice-substituted petition ultimately alleged GUG was merged in 1973 into defendant All American Delaware Corporation, a Delaware corporation, and the latter corporation in turn merged into defendant All American Life and Casualty Company, conceded by the parties to be an Illinois corporation. Numerous other individual defendants were alleged to have constituted the GUG board of directors (old board) just before the transaction complained of was launched; other named defendants were alleged to have been directors thereafter (new board).

Page 633

The petition asserted that in July, 1967, Wheelabrator agreed to sell to GUG its subsidiary, United Security Life Company, in return for 10,623,150 shares of a new class of GUG stock. Wheelabrator thus acquired approximately 80% Of all GUG voting shares. As an integral part of this transaction, conditional upon Wheelabrator gaining 80% Voting control in GUG, defendants Schroeder and Chapman received a "stock option": a right to sell their stock for $10 per share although its market value was only $3.25 per share, the price differential being approximately $1,315,000. Wheelabrator then installed its own board of directors of GUG. In February, 1972, defendants Schroeder and Chapman exercised their "stock option" and were paid approximately $1,948,640.

Plaintiffs further alleged the "premium bribe," the issuance of the stock, and the "sale of the offices of the board of directors" were effected by "the intentional, malicious and conscious acts of all of the defendants to deprive GUG of a corporate asset." This, plaintiffs alleged, was in violation of § 741.1, The Code, 1975:

"It shall be unlawful for * * * any * * * officer * * * of a private corporation * * * acting in behalf of a principal in any business transaction, to receive, for his own use, directly or indirectly, any gift, commission, discount, bonus, or gratuity connected with, relating to, or growing out of such business transaction * * *."

Division I prayed for $1,315,000 actual and $2,000,000 punitive damages. Division II alleged a breach of fiduciary duty and was grounded on a constructive trust theory. It prayed for restitution and damages in the same amounts. Division III sounded in tort and prayed for $1,000,000 actual damages and $2,000,000 punitive damages.

Each division contained the allegation:

"Plaintiffs have not made a demand on the directors of GUG that the company bring this suit against the other twenty-one substantive defendants because such a demand would be futile because the directors would never authorize suit against themselves."

Wheelabrator filed a motion to dismiss. As amended, it asserted plaintiffs' petition should be dismissed for failure to comply with rule 44, Rules of Civil Procedure, which required plaintiffs to make demand on GUG to bring the action, and because under § 496A.74(2)(c) and applicable Delaware law the cause of action passed to the Delaware corporation and could not be asserted by stockholders of the corporation extinguished by merger.

Trial court sustained the motion to dismiss on both grounds and plaintiffs appeal. We affirm.

I. Motion to dismiss and scope of review.

The manner this controversy was litigated below and presented here presents a perplexing threshold question.

Trial court had before it a motion to dismiss. See R.C.P. 104(b). (" * * * (b) Failure to state a claim on which any relief can be granted, may be raised by motion to dismiss such claim, filed before answer.") In this jurisdiction certain rules relating to such motions are well established:

"Overruling or sustaining a motion to dismiss does not depend upon trial court's discretion. It must rest on legal grounds and is subject to review by this court. (citation)

"A motion to dismiss is a waiver of any ambiguity or uncertainty in the pleadings. (citation) Such a motion grounded on failure to state a cause of action is sustainable only when it appears to a certainty the pleader has failed to state a claim upon which any relief may be granted under any state of facts which could be proved in support of the claim asserted. In making this determination the pleading should be construed in the light most favorable to the pleader with doubts resolved in his favor and the challenged allegations accepted as true. (citations)"

Weber v. Madison, 251 N.W.2d 523, 525 (Iowa 1977)

See Iowa Truck Center, Inc. v. Davis, 204 N.W.2d 630, 631 (Iowa 1973).

Page 634

Our review of a ruling on a motion to dismiss is limited. We cannot sustain such motion on grounds not asserted in trial court. Symmonds v. Chicago, M., St. P. & P. R. Co., 242 N.W.2d 262, 264 (Iowa 1976); Rick v. Boegel, 205 N.W.2d 713, 716 (Iowa 1973), and citations. However, if any ground asserted in the motion is good, a ruling sustaining the motion will be affirmed even though the ground trial court relied on to make its ruling was not good. Rick v. Boegel, supra.

Like the old demurrer, a motion to dismiss admits the well-pleaded facts in the pleading assailed for the purpose of testing their legal sufficiency. The motion may not sustain itself by its own allegations of fact not appearing in the challenged pleading. State ex rel. Krupke v. Witkowski, 256 N.W.2d 216, 218 (Iowa 1977); Harrison v. Allied Mutual Casualty Company, 253 Iowa 728, 730-731, 113 N.W.2d 701, 702 (1962). We have said such averments are no proper part of the motion and must be ignored. Id.; Herbst v. Treinen, 249 Iowa 695, 699, 88 N.W.2d 820, 823 (1958); see Rick v. Boegel, supra, 205 N.W.2d at 715. The motion to dismiss can neither rely on facts not alleged in the petition (except those of which judicial notice may be taken) nor be aided by an evidentiary hearing. Riediger v. Marrland Development Corp., 253 N.W.2d 915, 916 (Iowa 1977); Ke-Wash Company v. Stauffer Chemical Company, 177 N.W.2d 5, 9 (Iowa 1970); see Kester v. Travelers Indemnity Co. of Hartford, Conn., 257 Iowa 1146, 1151, 136 N.W.2d 261, 264 (1965).

Apparently in this case all parties forgot they were not in federal court. There, matters outside the challenged pleading, submitted upon a motion to dismiss, may be considered when certain safeguards are being followed and the motion is treated as a motion for summary judgment. See rules 12(b) and 56, Federal Rules of Civil Procedure; Basel v. Knebel, 179 U.S.App.D.C. 209, 212, 551 F.2d 395, 398 (1977); Medina v. Rudman, 545 F.2d 244, 247 (1st Cir. 1976); Dayco Corp. v. Goodyear Tire & Rubber Co., 523 F.2d 389, 392-393 (6th Cir. 1975).

Thus, Wheelabrator's amended motion to dismiss alleged a number of factual matters not mentioned in plaintiffs' petition, including the law of Delaware. Attached was Wheelabrator's New York counsel's affidavit submitting further facts for consideration.

We have consistently held the law of a sister state, statutory or common, is a question of fact. In re Drumheller's Estate, 252 Iowa 1378, 1385, 110 N.W.2d 833, 836 (1961). Foreign law must be pleaded. Fetters v. Degnan, 250 N.W.2d 25, 27 (Iowa 1977); Zeman v. Canton State Bank, 211 N.W.2d 346, 349 (Iowa 1973). We may judicially note a sister state's statute asserted and plainly designated in a pleading. R.C.P. 94. Other law of a sister state may be proved as provided by statute. See § 622.61, The Code; Matter of Estate of Allen, 239 N.W.2d 163, 168-169 (Iowa 1976).

But a motion to dismiss is not a pleading. R.C.P. 68 and 109; see Iowa City v. Muscatine Development Company, 258 Iowa 1024, 1032, 141 N.W.2d 585, 591 (1966). Therefore, statutory and case law referred to in a motion to dismiss hardly could be considered properly pleaded. As an evidentiary hearing on a motion to dismiss would be improper in this jurisdiction, Riediger v. Marrland Development Corp., supra, 253 N.W.2d at 916, we cannot assume proof of Delaware law was offered below. See Berghammer v. Smith, 185 N.W.2d 226, 230-231 (Iowa 1971).

Plaintiffs not only failed to raise these issues below, they countered with a brief alleging additional facts not asserted in their petition, and on one facet of their argument rely on Delaware law.

Nor do plaintiffs argue on appeal the alleged Delaware law was not pleaded or proved or properly before trial court. They do not assert we should disregard it.

Some of the events complained of in this petition occurred almost 12 years ago. This action is more than two years old. There is no issue and no controversy concerning the

Page 635

Delaware law referred to in both briefs. If trial court committed error, the parties gave the court no chance to correct it. In this instance we are inclined to dispose of this appeal on the issues framed and argued by the parties. We shall consider the Delaware statutory and case law referred to in the briefs. This decision should not be accepted as precedent for ignoring our rules of pleading or proof relating to foreign law, or our rules which confine the scope of inquiry on an R.C.P. 104(b) motion to dismiss a...

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36 practice notes
  • Haskenhoff v. Homeland Energy Solutions, LLC, No. 15-0574
    • United States
    • United States State Supreme Court of Iowa
    • June 23, 2017
    ...the legal principle is not a holding in the case that was a product of an adversary proceeding. See ≠ Berger v. Gen. United Grp., Inc. , 268 N.W.2d 630, 635 (Iowa 1978) (holding that because plaintiffs assumed Delaware law was properly pled and proven by defendants, we would consider Delawa......
  • Johnson v. Fireman's Fund Ins. Co., No. 60931
    • United States
    • United States State Supreme Court of Iowa
    • December 20, 1978
    ...fact nor may it rely on facts not alleged in the petition, except those subject to judicial notice. Berger v. General United Group, Inc., 268 N.W.2d 630, 634 (Iowa I. The language of the arbitration clause. The relevant provisions of the uninsured motorist endorsement of the Fireman's Fund ......
  • National City Lines, Inc. v. LLC Corp., Nos. 81-2044
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • August 17, 1982
    ...of domestic insurers, see, e.g., Roussel v. Boren, --- F.Supp. ----, No. 78-2345 (E.D.La. Nov. 6, 1978); Berger v. General United Group, 268 N.W.2d 630 (Iowa 1978), or the acquisition of control of parent companies primarily engaged in the business of insurance, see, e.g., In re Application......
  • National Equipment Rental, Ltd. v. Estherville Ford, Inc., No. 64988
    • United States
    • United States State Supreme Court of Iowa
    • December 23, 1981
    ...with respect to issue preclusion. Iowa Kemper Insurance Co. v. Cunningham, 305 N.W.2d 467 (Iowa 1981); Berger v. General United Group, 268 N.W.2d 630 (Iowa 1978); Matter of Estate of Allen, 239 N.W.2d 163 (Iowa 1976); Peters v. Peters, 214 N.W.2d 151 (Iowa 1974). In the trial court, New Yor......
  • Request a trial to view additional results
36 cases
  • Haskenhoff v. Homeland Energy Solutions, LLC, No. 15-0574
    • United States
    • United States State Supreme Court of Iowa
    • June 23, 2017
    ...the legal principle is not a holding in the case that was a product of an adversary proceeding. See ≠ Berger v. Gen. United Grp., Inc. , 268 N.W.2d 630, 635 (Iowa 1978) (holding that because plaintiffs assumed Delaware law was properly pled and proven by defendants, we would consider Delawa......
  • Johnson v. Fireman's Fund Ins. Co., No. 60931
    • United States
    • United States State Supreme Court of Iowa
    • December 20, 1978
    ...fact nor may it rely on facts not alleged in the petition, except those subject to judicial notice. Berger v. General United Group, Inc., 268 N.W.2d 630, 634 (Iowa I. The language of the arbitration clause. The relevant provisions of the uninsured motorist endorsement of the Fireman's Fund ......
  • National City Lines, Inc. v. LLC Corp., Nos. 81-2044
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • August 17, 1982
    ...of domestic insurers, see, e.g., Roussel v. Boren, --- F.Supp. ----, No. 78-2345 (E.D.La. Nov. 6, 1978); Berger v. General United Group, 268 N.W.2d 630 (Iowa 1978), or the acquisition of control of parent companies primarily engaged in the business of insurance, see, e.g., In re Application......
  • National Equipment Rental, Ltd. v. Estherville Ford, Inc., No. 64988
    • United States
    • United States State Supreme Court of Iowa
    • December 23, 1981
    ...with respect to issue preclusion. Iowa Kemper Insurance Co. v. Cunningham, 305 N.W.2d 467 (Iowa 1981); Berger v. General United Group, 268 N.W.2d 630 (Iowa 1978); Matter of Estate of Allen, 239 N.W.2d 163 (Iowa 1976); Peters v. Peters, 214 N.W.2d 151 (Iowa 1974). In the trial court, New Yor......
  • Request a trial to view additional results

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