Fox v. 7L Bar Ranch Co.

• Decision Date: 03 June 1982
• Docket Number: No. 81-309,81-309
• Citation: 39 St.Rep. 862,645 P.2d 929,198 Mont. 201
• Parties: Melvin L. FOX, Plaintiff and Respondent, v. 7L BAR RANCH COMPANY, a Montana corporation, Defendant and Appellant.
• Court: Montana Supreme Court

Page 929

645 P.2d 929

198 Mont. 201

Melvin L. FOX, Plaintiff and Respondent, v. 7L BAR RANCH COMPANY, a Montana corporation, Defendant and Appellant.

No. 81-309.

Supreme Court of Montana.

Submitted March 2, 1982.

Decided May 13, 1982.

Rehearing Denied June 3, 1982.

Moses Law Firm, Billings, Stephen C. Moses, argued, Billings, Charles E. Snyder, Billings, for defendant and appellant.

Overfelt Law Firm, Billings, Lee Overfelt, argued, and Sidney P. Kurth, argued, Billings, for plaintiff and respondent.

SHEEHY, Justice.

This is an appeal from a judgment and order rendered on May 26, 1981, in the Thirteenth Judicial District, Yellowstone County. Plaintiff Melvin Fox brought this nonjury action as an individual shareholder to dissolve and liquidate the defendant family Montana corporation, 7L Bar Ranch. The District Court ordered the dissolution of the corporation and the appointment of a receiver. This order was based on two propositions. First, the shareholders in the 7L Bar Ranch Corporation had a deadlock in voting power and had failed for a period of at least three consecutive annual meetings to elect successor directors whose terms had expired or would have expired upon election of their successors, in violation of section 35-1-921(1)(a)(iii), MCA. Secondly, the court found oppressive conduct by the members of the board of directors toward Melvin Fox in violation of section 35-1-921(1)(a)(ii), MCA. The District Court ordered liquidation of the 7L Bar to take place pursuant to sections 35-1-922, MCA through 35-1-930, MCA. Defendant appeals, raising the following issues:

1. Whether a motion to dismiss or a directed verdict should have been granted because the matter before the court was res judicata?

2. Whether a motion to dismiss or a directed verdict should have been granted because the plaintiff admitted to "unclean hands?"

3. Whether a motion to dismiss or a directed verdict should have been granted because the plaintiff did not prove his case?

4. Whether the District Court erred in admitting, over objection for lack of relevancy, the corporate minutes and financial statements of Fox Land & Cattle Co. and Fox Ranches, Inc., which were not parties to the action and were not mentioned in the complaint or amended complaint?

5. Whether the court erred by finding "oppression" on the part of defendant?

6. Whether the court erred by finding that there existed "shareholder deadlock?"

7. Whether the court erred by ordering dissolution of defendant corporation?

FACTS

The 7L Bar Ranch Co. was incorporated in 1964 by William Fox and his two sons, Richard and Melvin. Upon William's death, and the subsequent probate distribution of his estate, the shareholders in the 7L Bar Ranch were:

Melvin Fox 1,500 shares

Richard Fox 1,499 shares

Lydia Fox (Richard

and Melvin's

mother) 1 share

They are also the directors and officers of this corporation which owns 17,600 acres of land-1,400 acres of it farmland, with the rest used for grazing. The farmland is worked by a tenant farmer on a sharecrop basis.

Melvin Fox is also a shareholder and director of a second family corporation, Fox Land and Cattle Co. The shareholder breakdown in that corporation is:

Fox Land & Treasury Stock 144 shares

--- ---- -

Cattle Co. Richard Fox 678.5 shares

------ --- Melvin Fox 678.5 shares

Lydia Fox 2 shares

Sharon (Fox) Wolfe 600 shares

(Richard and Melvin's sister)

Marital deduction trust 925 shares

(Principle beneficiary is Lydia)

This corporation began in 1960, and is involved in the cattle and real estate business. Richard, Melvin, and Sharon are the directors and officers, with Richard the general manager.

A third related corporation is Fox Ranches, Inc., started in 1958. It owns a 14,463 acre cattle ranch near Two Dot. Its directors and officers are the same as the 7L Bar, their shares apportioned thusly:

Fox Ranches, Inc. Lydia Fox 120 shares

--- -------- ---- Melvin Fox 1,717.5 shares

Richard Fox

(General Manager) 1,760.5 shares

Melvin managed the ranch in Two Dot for about five years until 1972, when he moved to Denver because of disputes with his father. After his father's death in 1974, he returned to Montana to be co-personal In 1967, the assets of the three corporations were combined in support of common loans. Fox Land and Cattle serves as the financing agent for the other two corporations. All income from the 7L Bar goes into Fox Land and Cattle's account, while 7L Bar maintains about a $430 balance. Fox Land and Cattle is the sole user of 7L Bar's grazing land, the leasing value of which has been appraised at $48,000. The actual annual amounts paid have ranged from $7,848 to $14,400.

representative of the estate with Richard. Difficulties that had long been brewing within the family developed further until both personal representatives were eventually removed. The present controversy stems [198 Mont. 205] from an apparent deep-seated animosity and its effect on the interlocking nature of the family corporations.

Accordingly, Melvin claims that the 7L Bar is a "captive corporation." The cash flow of the corporation in which he has a 50 percent interest is controlled by one in which he has a 25 percent interest.

Since its inception the 7L Bar has not declared any dividends. Melvin has never received dividends or remuneration of any kind from the 7L Bar, nor have any of the other stockholders. He has, however, borrowed from the corporations. He has never received dividends or remuneration of any kind from the other two corporations, though both show retained earnings of over $400,000, and Fox Land and Cattle has cash assets that exceed $400,000.

Melvin brought this claim because he had pledged all his stock in the three corporations for $241,500 in loans to support various business activities. The bank threatens to call its loans because the stock has no real value for loan purposes. Richard has told the bank that he would purchase the stock in the event of a foreclosure of Melvin's loan.

The District Court found that the conduct of the shareholders of 7L Bar, namely Richard and Lydia, revealed calculated and planned oppressive conduct designed to deprive Melvin of his rightful portion of the corporate holdings and profits by making sure he had no access to them. Further, the District Court found that the actions of the directors have not been in the best interests of Melvin effectively depriving him of any voice in its management.

RES JUDICATA

This issue arises from a ruling made by the District Court during the probate of the William Fox estate. Melvin, as legatee, moved to have the corporations liquidated and distributed in cash or assets. The court denied his motion and ordered distribution to be made "in kind."

The probate court determination, it is argued, bars Melvin from obtaining a corporate dissolution or liquidation in this case. The criteria to be used in determining whether an action is barred by res judicata are set out in S-W Co. v. John Wight, Inc. (1978), 179 Mont. 392, 405, 587 P.2d 348, 355, quoting from Smith v. County of Musselshell (1970), 155 Mont. 376, 378, 472 P.2d 878, 880:

"... These criteria are: (1) the parties or their privies must be the same; (2) the subject-matter of the action must be the same; (3) the issues must be the same, and must relate to the same subject-matter; and, (4) the capacities of the persons must be the same in reference to the subject-matter and to the issues between them."

Regardless of Melvin's motives for seeking a liquidation during probate, the court's ruling there did not make the matter res judicata for the purposes of this action.

Of the four criteria set out above, an important one is the identity of issues. Harris v. Harris (1980), Mont., 616 P.2d 1099, 1101, 37 St.Rep. 1696, 1699. In Brannon v. Lewis and Clark County (1963), 143 Mont. 200, 207, 387 P.2d 706, 710-11, this Court approved the following language from Phoenix Mut. Life Ins. Co. v. Brainard (1928), 82 Mont. 39, 44, 265 P. 10, 12: "Unless it clearly appears that the precise question involved in the second case was raised and determined in the former, the judgment is no bar to the second action."

Here, the question involved is whether, pursuant to statute, the corporation should be liquidated because of oppression and shareholder deadlock. That precise question was neither raised nor determined during probate proceedings. There, the court's decree of distribution, over Melvin's objection, was essentially an interpretation of the will. It is no bar to this action.

Furthermore, we are not convinced in this case by appellant's argument that judgment in the first of two suits involving the same claim, demand, or cause of action bars not only all matters actually determined, but also every other matter which might have been litigated and decided as incident to or essentially connected therewith as a claim or defense. Western Baptist Home Mission Board v. Griggs (1967), 248 Or. 204, 433 P.2d 252, 254-55. See also State v. District Court (1925), 75 Mont. 122, 127, 242 P. 421, 423.

Under section 26-3-102, MCA:

"That only is deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged or which was actually and necessarily included therein or thereto."

In this case, oppression and shareholder deadlock were not matters which the probate court adjudicated. In fact, it would have been impossible for those issues to have been considered at that time. The rule concerning matters which "might have been litigated," "does not mean that matters that could not, in any state of case, have been determined in the first action will nevertheless be treated as having been determined by the judgment of that action." Phillips v. Big Sandy Co. (1912), 149 Ky. 555, 149 S.W. 957, 959. Where two causes, although seeking the same relief, rest upon a different state of facts, the adjudication in the one constitutes no bar to a recovery in the other. County...