Filley v. KICKOFF PUBLISHING COMPANY

• Decision Date: 08 February 1972
• Docket Number: No. 71-1215.,71-1215.
• Citation: 454 F.2d 1288
• Parties: G. William FILLEY and Carole S. Filley, Plaintiffs-Appellants, v. KICKOFF PUBLISHING COMPANY, Inc., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

454 F.2d 1288 (1972)

G. William FILLEY and Carole S. Filley, Plaintiffs-Appellants, v. KICKOFF PUBLISHING COMPANY, Inc., et al., Defendants-Appellees.

No. 71-1215.

United States Court of Appeals, Sixth Circuit.

February 8, 1972.

James C. Lee, Chattanooga, Tenn., for appellants; Fort & Lee, Chattanooga, Tenn., of counsel.

Ford P. Mitchell, Chattanooga, Tenn., for appellees; Swafford & Taylor, Chattanooga, Tenn., of counsel.

Before PHILLIPS, Chief Judge, and CELEBREZZE and MILLER, Circuit Judges.

PHILLIPS, Chief Judge.

Minority shareholders appeal from summary judgment in a diversity action which is controlled by Tennessee law. We affirm.

The relevant facts are undisputed. Kickoff Publishing Company is a closely held Tennessee corporation having its principal place of business in Chattanooga. R. J. Jones, Lela V. Jones and R. K. Jones are officers and directors of Kickoff owning a controlling interest in the corporation. In 1966, G. William Filley and Carole S. Filley inherited shares of Kickoff representing a 22 per cent interest.

Kickoff had been in a marginal financial position since its organization in 1951. In 1969, the condition became critical. Operating capital was badly needed and banks had refused to extend credit in light of the corporation's undercapitalization. On May 8, 1969, the board of directors met to consider the situation. The board decided to increase Kickoff's capitalization from $25,000 to $100,000 by issuing additional shares of common stock with pre-emptive rights in favor of existing shareholders. A resolution to amend the charter to provide for the increase was unanimously passed.

On June 11, 1969, at a stockholders' meeting duly called for that purpose, the resolution was presented for approval. The resolution was adopted over the dissenting vote of the Filleys. The Filleys then announced that they wished to withdraw from the corporation and be paid the value of their stock.

Immediately after adjournment of the stockholders' meeting, the board met to consider the Filleys' action. It was decided to call a special stockholders' meeting to consider recision of the capitalization amendment. At this meeting, on June 30, 1969, the recapitalization amendment was rescinded.¹

The foregoing dates are of particular importance since the new Tennessee General Corporation Law became effective July 1, 1969. This Act repealed the former T.C.A. § 48-712 relied upon by the Filleys, and substituted new provisions regarding the rights of and procedures for dissenting stockholders to withdraw and demand payment for their stock. These new provisions are codified in T.C.A. §§ 48-909 through 48-919.

There is no question that, had this new statute been effective on June 11, 1969, the amendment approved on that date would not have given rise to any withdrawal rights in favor of the Filleys.

Prior to July 1, 1969, T.C.A. § 48-712 provided:

"Legislative repeal or amendment of charter.—If the charter is repealed, or if amended and the amendment or amendments proposed, being not merely auxiliary, but fundamental, be rejected by a vote representing one-half (1/2) of the stock, or more, the corporation shall continue to exist for the purpose of winding up its affairs, but not to enter upon any new business. If the amendments or modifications, being fundamental, are accepted by a majority of the capital stock of the corporation, in a general meeting to be called for that purpose, any minor, or other person under disability, or any stockholder not agreeing to the acceptance of the modification, shall cease to be a stockholder, and the corporation shall be liable to pay said withdrawing stockholder the par value of his stock, if it is worth so much; if not, or it is worth more, then so much as may be its real value in the market, on the day of the withdrawal of said stockholder; provided, that the claims of all creditors are to be paid in preference to any such withdrawing stockholder."

Kickoff contends that the recision of the amendment at the June 30 meeting divested the Filleys of any rights which they may have had under this section. We do not agree. On June 12, 1969, a certificate evidencing the stockholder approval of the amendment was duly filed in the office of the Tennessee Secretary of State and the State seal affixed thereto. At that time, the "amendment was complete, and the validity of the same could not in any legal proceeding and by any person, be collaterally questioned." Former T.C.A. § 48-120, repealed, Acts 1968, ch. 523, § 1 (17.02(j)), now T.C.A. § 48-303(2) (1968 Spec. Supp.).

At the time the charter was amended, asserted rights of the Filleys as dissenting shareholders became fixed. No further action by the corporation could divest such rights. See Johnson v. DeSoto Hardwood Flooring Co., 167 Tenn. 145, 147, 67 S.W.2d 143, 144 (1934). Kickoff urges that it would be inequitable to refuse to give effect to the recision since the Filleys gave no notice prior to the meeting of their intent to dissent and withdraw.² We recognize that principles of equity apply to these actions. However, the emergency board meeting of June 11 considered the Filleys' dissent and recommended consideration by the shareholders of recision. Nonetheless, the corporation deliberately caused the charter to be amended prior to the June 30 meeting. The so-called recision of that date was not reflected in a charter amendment canceling the June 12 amendment. Under such circumstances, we find the lack of pre-meeting notice to be an insufficient basis to withhold relief.

We turn now to the substantive question of whether the amendment was "fundamental" within the meaning of former § 48-712. We conclude that it was not.

The basic principles guiding resolution of this question are well established.

"There is much discussion in the

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