First Nat. Bancshares of Beloit, Inc. v. Geisel, Civ. A. No. 92-4279-DES.

• Decision Date: 18 May 1994
• Docket Number: Civ. A. No. 92-4279-DES.
• Citation: 853 F. Supp. 1337
• Parties: FIRST NATIONAL BANCSHARES OF BELOIT, INC.; Jerome J. Eilert; Thomas H. Conroy; Frances Gronewoller; Robert L. Lampert; Phil G. Thull; F.W. Lampert Trust B; Andra V. Lampert; Frances Gronewoller as Custodian for Eric, Paul, and Aaron Lampert; and Robert D. Meats, Plaintiffs, v. Joseph S. GEISEL, Jr., Edward P. O'Connor, Terrence J. Lillis, Co-Trustees of Frances H. Giblin Trust No. 1; and Terrence J. Lillis, Guardian and Conservator of Frances H. Giblin, Defendants.
• Court: U.S. District Court — District of Kansas

853 F. Supp. 1337

FIRST NATIONAL BANCSHARES OF BELOIT, INC.; Jerome J. Eilert; Thomas H. Conroy; Frances Gronewoller; Robert L. Lampert; Phil G. Thull; F.W. Lampert Trust B; Andra V. Lampert; Frances Gronewoller as Custodian for Eric, Paul, and Aaron Lampert; and Robert D. Meats, Plaintiffs, v. Joseph S. GEISEL, Jr., Edward P. O'Connor, Terrence J. Lillis, Co-Trustees of Frances H. Giblin Trust No. 1; and Terrence J. Lillis, Guardian and Conservator of Frances H. Giblin, Defendants.

Civ. A. No. 92-4279-DES.

United States District Court, D. Kansas.

May 17, 1994.

As Corrected May 18, 1994.

COPYRIGHT MATERIAL OMITTED

Charles D. Green, Arthur, Green, Arthur, Conderman & Stutzman, Manhattan, KS, James L. Grimes, Jr., Foulston & Siefkin, Topeka, KS, for First Nat. Bancshares of Beloit, Inc.

Charles D. Green, Arthur, Green, Arthur, Conderman & Stutzman, Manhattan, KS, for Jerome J. Eilert, Thomas H. Conroy, Frances Gronewoller, Robert L. Lampert, Phil G. Thull, F.W. Lampert Trust B., Andra V. Lampert, Robert D. Meats.

Roger D. Stanton, Stinson, Mag & Fizzell, Overland Park, KS, John C. Noonan, Teresa L. Clark, Stinson, Mag & Fizzell, Kansas City, MO, M.J. Willoughby, Lawrence, KS, for Joseph S. Geisel, Jr.

Roger D. Stanton, Stinson, Mag & Fizzell, Overland Park, KS, John C. Noonan, Teresa L. Clark, Stinson, Mag & Fizzell, Kansas City, MO, for Edward P. O'Conner, Terrance J. Lillis.

MEMORANDUM AND ORDER

SAFFELS, District Judge.

This matter is before the court on the motion of the defendants seeking dismissal of several of the claims advanced by the plaintiffs (Doc. 97).

The plaintiffs, a bank holding company and its minority shareholders, initially filed this action in the District Court of Mitchell County, Kansas, on November 5, 1992. The defendants, the co-trustees of the Frances H. Giblin Trust No. 1 and the conservator of Frances H. Giblin,¹ removed the action to this court on the basis of diversity pursuant to 28 U.S.C. § 1332. The defendant trust was established in 1985 for the benefit of Frances H. Giblin during her lifetime, and it is presently the majority shareholder of plaintiff First National Bancshares of Beloit, Inc. ("the holding company"). The holding company in turn owns 100 percent of the stock of First National Bank of Beloit.

Plaintiffs assert eight different counts in their first amended complaint.² They essentially seek equitable relief in the form of specific performance of an alleged stock option agreement originally executed by Frances H. Giblin in 1982 and modified in 1989 by Frances H. Giblin individually and by the co-trustees of the trust. In the alternative, they seek specific enforcement of the 1982 option agreement. Plaintiffs also seek an injunction barring defendants from voting the trust's stock in the plaintiff holding company and prohibiting them from disposing of the stock.

The option agreement at issue purports to give the plaintiff holding company a first right and option to purchase the trust's stock in the holding company for a flat price of $1,898,803 within one year after the death of Frances H. Giblin. All parties agree that this figure significantly understates the present value of the trust's 770 shares,³ which constitute 61 percent of the outstanding voting stock of the holding company. The remaining 39 percent of the outstanding stock is collectively owned by the minority shareholder plaintiffs to this action.

The defendants, who represent the interests of Frances H. Giblin, the lifetime beneficiary of the inter vivos trust, communicated their intent to the plaintiffs to revoke the option agreements. Plaintiffs bring this suit for anticipatory breach of contract on behalf of the holding company and as alleged third party beneficiaries of the option agreements. The minority shareholder plaintiffs also bring a shareholders' derivative action on behalf of the holding company, alleging that the defendants, as recently elected directors of the holding company, wrongfully refuse to take action in the interest of the corporation to enforce the option agreements against the trust. Further, plaintiffs seek a declaratory judgment holding that the 1989 option agreement is valid and enforceable at the present time. In the alternative, they seek a declaration that the 1982 option contract is binding against the conservator of Frances H. Giblin. The defendants have filed a counterclaim seeking a declaratory judgment to the effect that both the 1982 and the 1989 option contracts are unenforceable for lack of consideration.

The defendants seek dismissal of (1) all claims filed by the minority shareholder plaintiffs alleging they are third party beneficiaries of the option agreements, (2) the claim for anticipatory repudiation asserted in Count I of the amended complaint by all plaintiffs, (3) the claim for injunctive relief asserted in Count V of the amended complaint by all plaintiffs, and (4) the claim asserted in Count V of the amended complaint denominated "Conservator May Not Revoke Options." As the court interprets the motion, the defendants seek dismissal of each of the claims as a matter of law pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief may be granted.⁴

The court may not dismiss a cause of action for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of the theory of recovery that would entitle him to relief. Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 746, 96 S.Ct. 1848, 1853, 48 L.Ed.2d 338 (1976); Mangels v. Pena, 789 F.2d 836, 837 (10th Cir.1986). In considering a motion to dismiss for failure to state a claim, "all well-pleaded facts asserted in the complaint, as distinguished from conclusory allegations, must be taken as true." Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir.1984). The court must view all reasonable inferences in favor of the plaintiff and the pleadings must be liberally construed. Id. The issue in reviewing the sufficiency of a complaint is not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

Third Party Beneficiary Claims

The defendants' first argument is that the minority shareholder plaintiffs are not third party beneficiaries of the option agreements in question, and therefore each of the claims brought by them in their individual capacities, and not on behalf of the holding company, should be dismissed.

Recent Kansas caselaw analyzing the law of third-party contract beneficiaries divides them into the general classes of intended beneficiaries and incidental beneficiaries. Noller v. GMC Truck and Coach Div., 244 Kan. 612, 772 P.2d 271, 275 (1989) (citing Fasse v. Lower Heating and Air Conditioning, Inc., 241 Kan. 387, 736 P.2d 930 (1987)). A beneficiary may sue to enforce a contract made by others only if he is an intended beneficiary, i.e., one who the contracting parties intended should receive a direct benefit from the contract. Id., 772 P.2d at 275; Martin v. Edwards, 219 Kan. 466, 548 P.2d 779, 785 (1976).

The determination of the contracting parties' intent as to the rights of a third party beneficiary is a question of contract construction for the court, and the general rules of contract construction apply. Id. The meaning of the contract and the intent of the parties are to be deduced by the court from the instrument itself, as long as its terms are plain and unambiguous. Cornwell v. Jesperson, 238 Kan. 110, 708 P.2d 515, 521 (1985); Martin v. Edwards, 548 P.2d at 785-86. In this case, the court determines that the option agreements⁵ are clear and unambiguous; hence there is no need to consider the facts and circumstances surrounding their execution in order to clarify the parties' intent. See id. at 786.

Contracting parties are presumed to act for themselves. Id. at 785; Ronnau v. Caravan Intern. Corp., 205 Kan. 154, 468 P.2d 118, 122 (1970). Therefore the parties' intent to benefit a third person must be clearly expressed in the contract. Id.; see Fasse v. Lower Heating and Air Conditioning, 736 P.2d at 932; Martin v. Edwards, 548 P.2d at 785; see also United States v. United Services Automobile Ass'n, 968 F.2d 1000, 1001-02 (10th Cir.1992) (applying Kansas law). It is not necessary, however, for the third party to be the exclusive beneficiary of the contract; it may benefit the contracting parties as well. Fasse, 736 P.2d at 932; Martin, 548 P.2d at 785. Nor is it necessary for the third party beneficiary to be personally named in the contract, if he is a member of a designated class or otherwise identifiable as a person intended by the parties' language to benefit from the contract. Hartford Fire Ins. Co. v. Western Fire Ins. Co., 226 Kan. 197, 597 P.2d 622, 632 (1979). However, the third party must show the existence of a provision in the contract that operates to his benefit. Id.; see United States Automobile Ass'n, 968 F.2d at 1002.

In order to determine whether a particular individual is an intended beneficiary of a contract, the court must determine whether the contract provides to that individual a direct benefit by the terms of the agreement. Fasse, 736 P.2d at 933. Neither option agreement in this case includes any language expressly designating any of the plaintiffs individually, or the minority shareholders generally, as intended beneficiaries. The option agreements simply provide an exclusive right to the holding company to exercise an option, within one year after Mrs. Giblin's death, to acquire the 770 shares presently owned by the inter vivos trust. The clear and unambiguous language of the option agreements does not reveal an intent by the parties to directly benefit any or all of the minority shareholders of the holding company.⁶ In fact, both option agreements include a provision clearly indicating that the option is personal...