Bosch v. Meeker Co-op. Light and Power Ass'n, 37792

• Decision Date: 26 February 1960
• Docket Number: No. 37792,37792
• Parties: Richard E. BOSCH, for himself and other stockholders as a class, Appellant, v. MEEKER COOPERATIVE LIGHT AND POWER ASSOCIATION et al., Respondents.
• Court: Minnesota Supreme Court

Page 423

101 N.W.2d 423

257 Minn. 362

Richard E. BOSCH, for himself and other stockholders as a

class, Appellant, v. MEEKER COOPERATIVE LIGHT AND POWER ASSOCIATION et al., Respondents.

No. 37792.

Supreme Court of Minnesota.

Feb. 26, 1960.

Syllabus by the Court

1. This court has approved the common-law rule that, where an action brought by a stockholder on behalf of himself or other stockholders, or of the corporation, involving the internal affairs of the corporation, results in a pecuniary benefit to the corporation, attorneys' fees and other expenses incurred by the stockholder in the prosecution of the action are chargeable to the corporation

2. The foregoing rule is extended to provide that where an action by a stockholder results in a substantial benefit to the corporation he should recover his costs and expenses even though no cash fund is produced.

3. As to whether a stockholder's action results in substantial benefit to the corporation is for the trial court to determine in the light of the facts and circumstances in the particular case.

4. Where it is found by the trial court that the corporation has received a substantial benefit as a result of a stockholder's action, the amount of expenses and attorneys' fees to be allowed rests within the sound discretion of the trial court.

5. Once it is established that the stockholder's action has in fact substantially benefited the corporation, it necessarily follows that he should recover his costs and expenses. His right to reimbursement should not depend on whether the action is a derivative or representative action.

Dorsey, Owen, Scott, Barber & Marquart, Minneapolis, for appellant.

Nieman & Bosard, Minneapolis, P. J. Casey, Litchfield, for respondents.

MURPHY, Justice.

This is an appeal from an order of the district court denying the plaintiff's application for allowance of attorneys' fees. The issue grows out of Bosch v. Meeker Co-op. Light & Power Ass'n, 253 Minn. 77, 91 N.W.2d 148, which was a derivative action prosecuted by a stockholder against certain directors and counsel of the defendant corporation. The action resulted in a determination that a purported election of directors and of a proposed amendment to the corporate bylaws was illegal. The prevailing plaintiff-stockholder now seeks reimbursement from the corporation for his litigation expenses including attorneys' fees. The lower court was of the view that since the plaintiff's action did not result in pecuniary benefits to the corporation or its stockholders no recovery may be allowed.

The trial court relied upon authorities to the effect that a corporation is not liable for a stockholder's expenses in prosecuting a suit in regard to corporate affairs which does not result in pecuniary benefit to the corporation. The authority most often quoted in support of this proposition is Burley Tobacco Co. v. Vest, 165 Ky. 762, 178 S.W. 1102.

1. We have approved the common-law rule that, where an action brought by a stockholder on behalf of himself and other stockholders, or of the corporation, involving the internal affairs of the corporation, results in a pecuniary benefit to the corporation, attorneys' fees and other expenses incurred by the stockholder in the prosecution of the action are chargeable to the corporation. Eriksson v. Boyum, 150 Minn. 192, 184 N.W. 961; In re Dissolution of E. C. Warner Co., 232 Minn. 207, 45 N.W.2d 388. ¹

2--3. Both parties rely on the latter authority. That case, however, involved the question whether the reasonable costs and expenses incurred by a corporate director in defending an action brought against him charging him with dereliction of duty could be paid out of corporate funds. We there came to the conclusion that a judicially vindicated corporate officer is entitled to such reimbursement. This is on the theory that to hold otherwise would be to discourage responsible men from accepting corporate offices, and (232 Minn. 214, 45 N.W.2d 393) 'this right of reimbursement has its foundation in the maintenance of a sound public policy favorable to the development of sound corporate management as a prerequisite for responsible corporate action.' We took the view that the vindication of the integrity of corporate management 'is in a certain general sense' beneficial to the corporation from the standpoint of preserving the confidence of its creditors and of its prospective investors. We think there is merit to the plaintiff's argument that the same public-policy reasons favor his position. He argues that certain ultra vires acts of the directors of the defendant were prevented and, although none of the property rights of the corporation were protected, the action served 'as a deterrent to irresponsible leadership' which resulted in a sufficiently substantial benefit to the corporation to justify an award of attorneys' fees. The plaintiff's argument presents a novel question under Minnesota law and one on which there is apparently little clear-cut authority throughout the nation.

It should be conceded that where a corporation stands to suffer loss if some action is not taken to protect its interests and those in authority fail or refuse to act a stockholder may proceed on behalf of the corporation without incurring personal expense. Since the corporation is the beneficiary of the recovery of funds or of the corrective benefit of the action, it should stand the expense of it. It should further be conceded that there may be stockholder's actions which do not result in the creation of cash funds or in the protection or conservation of corporate assets, but which nevertheless result in a correction or straightening out of corporate affairs, so as to provide a substantial benefit which will warrant recovery of costs and attorneys' fees. Annotations, 152 A.L.R. 921 and 39 A.L.R.2d 587.

In Schechtman v. Wolfson, 2 Cir., 244 F.2d 537, 540, Chief Judge Clark stated:

'* * * The modern equity practice is to allow counsel fees to successful prosecutors of derivative suits although no judgment has been obtained if they show substantial benefit to the corporation through...