Buss v. J. O. Martin Co.

• Decision Date: 25 March 1966
• Citation: 241 Cal.App.2d 123,50 Cal.Rptr. 206
• Court: California Court of Appeals Court of Appeals
• Parties: Frances M. BUSS as Executrix of the Last Will and Testament of Richard C. Buss, deceased and C. U. Martin by and through John O. Martin, his attorney in fact, Plaintiffs and Appellants, v. J. O. MARTIN CO., Inc., a corporation, and Charles M. Martin, Defendants and Respondents. Civ. 21971.

Page 206

50 Cal.Rptr. 206

241 Cal.App.2d 123

Frances M. BUSS as Executrix of the Last Will and Testament of Richard C. Buss, deceased and C. U. Martin by and through John O. Martin, his attorney in fact, Plaintiffs and Appellants, v. J. O. MARTIN CO., Inc., a corporation, and Charles M. Martin, Defendants and Respondents.

Civ. 21971.

District Court of Appeal, First District Division 1, California.

March 25, 1966.

Alfred Nelson, Oakland, for appellants.

Bronson, Bronson & McKinnon, San Francisco, for respondents.

SULLIVAN, Presiding Justice.

Plaintiffs Frances M. Buss as Executrix of the Last Will and Testament of Richard C. Buss, deceased ¹ and C. U. Martin by and through John O. Martin, his attorney in fact, appeal from an adverse judgment entered on an order sustaining defendants' demurrer to plaintiffs' first amended complaint without leave to amend. ²

The present action is brought under sections 4650 to 4661 of the Corporations Code. ³ The first amended complaint (hereafter for convenience called 'complaint') alleges in substance as follows: That defendant J. O. Martin Co., Inc. (Corporation) is a California corporation with its principal place of business in San Francisco; that Richard C. Buss (Buss) and C. U. Martin are now, and for more than five years next preceding the filing of the complaint have been, the record holders and owners of more than 33 1/3 per cent of the outstanding shares of said Corporation; that defendant Charles M. Martin (Charles) is, and at all times mentioned was, the holder of more than 50 per cent of the outstanding shares of the Corporation; and that the Corporation is not subject to the Bank Act, Public Utilities Act or Building and Loan Association Act referred to in section 4650.

It is further alleged in what plaintiffs call 'charging allegations' that over many decades plaintiff C. U. Martin built up and maintained a competent and highly efficient personnel and organization for the Corporation; ⁴ that Charles has discharged or lost most of the employees and has lost most of the agencies to sell and most of the steady customers; ⁵ that Charles has, through one man dominance, caused the discharge of Buss and C. U. Martin as directors officers and employees and has deprived them of all participation in the business; that Charles operates the business as his private affair to the detriment of Buss and C. U. Martin and that Charles and plaintiffs hold contrary and opposing ideas about operating the business, all discussions being fruitless and productive of quarrels, ⁶ that Charles has denied plaintiffs access to the books, records and property of the Corporation; that the Corporation has paid no dividends to Buss but has used the monies available therefor to pay excessive salaries to Charles; and that the investments of plaintiffs in the Corporation have deteriorated because of Charles' mismanagement. ⁷

The complaint further alleges on information and belief 'that said corporation has lost its more important manufacturing accounts which had produced for said corporation the greatest annual business and gross profits, by reason of the following factors of mismanagement: 1. Discharging by said CHARLES M. MARTIN of certain of the competent employees needed by said corporation to operate its business. 2. Causing the resignation of other competent employees. 3. Failing to hire and keep employed persons competent to carry on the business of said corporation. 4. Personally quarrelling with, criticizing, harassing and denouncing persons previously helpful to said corporation and its business. 5. Quarrelling and wrangling by said CHARLES M. MARTIN with customers of said corporation and manufacturers who normally had supplied said corporation with products to sell. 6. Failure to satisfy customers of said corporation and to, in a business way, comply with their needs and requirements. 7. Failure to hold the trade and goodwill of customers and manufacturers of many years relationship with said corporation. 8. Failure to have available and provide to customers technical and engineering assistance. 9. Failure to have on hand and available products needed by customers of long previous association with said corporation.'

Defendants filed a motion to strike the entire complaint or, in the alternative, specified parts thereof. Additionally they demurred to the complaint asserting as specifications of demurrer (1) that it failed to state facts sufficient to constitute a cause of action; (2) that the court lacked jurisdiction of the subject matter; and (3) that it was uncertain in various particulars. ⁸ The court sustained the demurrer without leave to amend on the ground that it did not state facts sufficient to constitute a cause of action and 'upon a wholly separate and independent basis' that the court lacked jurisdiction of the subject matter. ⁹ The record discloses no ruling on the motion to strike. On October 25, 1963 judgment was entered on the order sustaining the demurrer. This appeal followed.

On December 22, 1964 defendants filed a motion in this court to dismiss the instant appeal upon the ground that it is now moot. ¹⁰ We thereafter continued the motion to be heard with the cause on the merits, as has now been done.

The undisputed facts as disclosed by the motion and opposition thereto are these: Defendant Charles M. Martin is the son of C. U. Martin and the brother-in-law of plaintiff Buss. The stock of the Corporation consisted of two classes, preferred and common shares. At the time of the filing of the original and first amended complaints there were outstanding 540 shares of common stock, of which defendant Charles M. Martin owned 460 and Buss 80. At said times there were also outstanding 404 shares of Nonvoting 8 per cent preferred stock, of which Charles M. Martin owned 150, plaintiff C. U. Martin 250 and other persons 4. In December 1963, after the present appeal was taken, the 404 shares of preferred stock were redeemed by the Corporation. At about the same time, plaintiff C. U. Martin and the Corporation, as part of the redemption of said preferred shares, agreed to the redemption price and the former 'agreed to, and thereafter did, on behalf of himself alone, cause the dismissal of this action as to all defendants.'

To recapitulate, at the time of the commencement of the action plaintiffs Buss and C. U. Martin were, and for more than five years prior thereto had been, the record holders of 330 out of a total of 944 shares, both common and preferred, of which only 80 shares were common. Said plaintiffs therefore held more than 33 1/3 per cent of the number of outstanding shares of both classes but less than 33 1/3 per cent of the common stock alone. At the time of the filing of the motion to dismiss, all preferred shares having been redeemed and C. U. Martin having filed a dismissal on his own behalf, Buss, the sole remaining plaintiff, was the record holder of 80 shares of common out of a total of 540 shares, or considerably less than 33 1/3 per cent of the outstanding shares.

Thus defendants' position on the motion to dismiss the appeal supplements their position in the trial court presenting to us common if overlapping issues. In the trial court defendants urged that plaintiffs were required to hold not less than 33 1/3 per cent of the outstanding Voting shares in order to maintain the action. On their motion here they urge that, because of the retirement of the preferred stock, plaintiff and appellant Buss does not have the standing to pursue the appeal or a subsequent action.

The record seems clear and counsel for Buss agrees that the co-plaintiff Martin is no longer a party interested in the above appeal. ¹¹ As to the sole remaining appellant Buss, we are therefore presented with the following two questions: (1) In order to file a complaint for involuntary dissolution under section 4650 subdivision (b) was it necessary that plaintiffs' specified ownership of outstanding shares be calculated only in reference to outstanding shares with voting rights, exclusive of the nonvoting preferred stock? (2) Has Buss, the sole appellant, lost the right to pursue the appeal and further prosecute the action as a result of the retirement of the preferred shares? We have concluded that both of these questions should be answered in the negative.

No reported California case decisive of the first question has been cited or discovered. However, Ballantine & Sterling in discussing the requirements for filing a complaint by shareholders states that 'Such shareholders * * * need not be holders of shares possessing voting privileges.' (1 Ballantine & Sterling, Cal. Corporation Laws, 4th ed., § 359, p. 639.) Witkin, making no distinction between classes or series of shares on any basis including that of voting rights, states that 'the Holders of record for 6 months of one-third of the Shares' can bring the action. (3 Witkin, Summary Cal.Law, p. 2401.) We think that this is a fair and reasonable construction of the statute. By its clear language the statute imposes a limitation on the remedy provided by denying its availability to certain types of corporations and requiring that the shareholder plaintiffs hold a specified percentage of outstanding shares for a specified period. The statute does not expressly state that such shares must be those with voting rights nor does it contain any other limiting description of outstanding shares. If the Legislature intended to restrict the remedy to shareholders having a specified percentage of outstanding Voting shares or of outstanding shares of Common stock, it could very easily have said so. ¹² It would clearly entail a substantial revision of the section to construe the term outstanding shares to mean outstanding Voting shares.

Substantially the same conclusion was reached in Kistler v. Caldwell Cotton Mills Co. (1934) 250 N.C. 809, 172 S.E. 373, brought under a statute authorizing an action for dissolution by...