Gieselmann v. Stegeman

• Decision Date: 14 July 1969
• Docket Number: 54362,No. 1,Nos. 54361,s. 54361,1
• Citation: 443 S.W.2d 127
• Parties: Russell E. GIESELMANN et al., Plaintiffs (Respondents), v. Robert H. STEGEMAN et al., Defendants, Frank G. Kirtz, etc., Defendant (Appellant)
• Court: Missouri Supreme Court

Page 127

443 S.W.2d 127

Russell E. GIESELMANN et al., Plaintiffs (Respondents), v. Robert H. STEGEMAN et al., Defendants,

Frank G. Kirtz, etc., Defendant (Appellant).

Nos. 54361, 54362.

Supreme Court of Missouri, Division No. 1.

July 14, 1969.

Aubrey B. Hamilton, Edward D. Weakley, St. Louis, David M. Dolan, St. Ann, for respondents.

Frank Mashak, St. Louis, for appellant.

PER CURIAM:

This opinion disposes of two appeals arising out of the same case, originally appearing on our docket as Cases Nos. 54361 and 54362. The two appeals were consolidated. No. 54361 is an appeal by defendant Frank G. Kirtz (hereinafter 'Kirtz') from an order refusing to revoke an order appointing Phillip Bardos receiver pendente lite for Med-Science Electronics, Inc. (hereinafter 'the corporation'). No. 54362 is an appeal by Kirtz from an order cancelling and voiding the issuance to him of two certificates of the capital stock of the corporation totaling 22,840 shares and declaring the ownership of one of them, a certificate for 14,840 shares, to be vested in plaintiffs Norbert W. and Frances F. Burlis (hereinafter 'Burlis'). We have appellate jurisdiction because the amount in dispute exceeds the sum of $15,000.

There is a preliminary question common to both appeals, whether the trial court lacked jurisdiction of the subject matter for failure of the petition, in its original form and as amended, to state a cause of action. Specifically, Kirtz contends that plaintiffs, six shareholders of the corporation claiming to hold a majority of the voting shares, have no legal capacity to sue individually on their own behalf alone; that plaintiffs are claiming that the corporation has been wronged and are attempting secondarily to enforce a right on behalf of the corporation in the interest of and for the benefit of all of the shareholders and not for plaintiffs' sole benefit and interest; that in such an effort plaintiffs were obliged to bring a derivative action under Civil Rule 52.08, V.A.M.R. for the benefit of the corporation, and consequently are asserting a claim for relief unknown to the law under the rules laid down in Schick v. Riemer, Mo.App., 263 S.W.2d 51; Caldwell v. Eubanks, 326 Mo. 185, 30 S.W.2d 976, 72 A.L.R. 621, Saigh ex rel. Anheuser-Busch, Inc. v. Busch, Mo.App., 396 S.W.2d 9; Bailey v. State Farmers Mutual Casualty Co., Mo.App., 377 S.W.2d 485, and Eckelkamp v. Diamonds, Incorporated, Mo.App., 432 S.W.2d 360.

Looking to the original petition, the six shareholders sued several other shareholders, including Kirtz. The corporation was named as a party defendant. Plaintiffs alleged that defendants Kirtz and Morton Schwartz instigated a purported meeting of the shareholders at which defendants Kirtz, Stegeman and Schwartz were allegedly elected directors; that these three unlawfully purported to hold a meeting of the board of directors at which Burlis was summarily ousted as president; unlawfully usurped the offices of director, president, etc.; appropriated the conduct of the business; trespassed upon and occupied the physical premises to the exclusion of plaintiffs; refused to permit plaintiffs to inspect the corporate books and records; prevented plaintiffs from calling or providing notice of a special meeting of the stockholders to legally conduct the affairs and business of the corporation and have continually breached their fiduciary duties to the shareholders. Plaintiffs prayed for injunctive relief against these usurpations; for an order preventing consummation by defendants of a proposed settlement of a suit against the corporation by Mid-States Business Capital Corporation, and granting them access to the corporate books and records for the purpose of inspection.

Not every allegation of wrongdoing in the original petition is a Simon-pure charge of individual injury. Some of the language is appropriate to a derivative action for the corporation. The gravamen of the pleading, however, is injury to plaintiffs as individuals. Most of the grievances and the principal complaints relate to wrongs redounding to the detriment and direct injury of plaintiffs as individuals. Actions based upon torts where the injury is done directly to an individual shareholder, director or officer as such, depriving him of his rights, for instance, wrongfully expelling him or refusing to allow him to inspect the corporate books and records, are actions which may be brought by shareholders as individuals, 13 Fletcher, Cyclopedia of Corporations, Perm. Ed., §§ 5911, 5915, and are not required to be brought as derivative actions.

After the petition was filed and a temporary restraining order issued the parties agreed to the entry of a consent order authorizing plaintiffs to inspect the corporate books and records. Inspection disclosed that Burlis' certificates of stock for 14,840 shares had been cancelled; that a certificate for that number of shares had been issued to a lawyer associate of Kirtz; that this certificate had been cancelled and a certificate for 14,840 shares then issued to Kirtz; that another certificate of stock had been issued to Kirtz for 8,000 shares. Armed with this information plaintiffs filed an amendment to the original petition charging that defendants Kirtz, Schwartz and Stegeman fraudulently converted the 14,840 shares belonging to Burlis and wrongfully issued these shares to Kirtz, and illegally issued the additional 8,000 shares to Kirtz. Plaintiffs prayed for cancellation of these certificates and reissuance of 14,840 shares in Burlis' name.

The amendment did not convert the claim into a derivative action which had to be maintained for and on behalf of the corporation. Stockholders may maintain an action on an individual basis, as distinguished from a derivative action, against directors, officers, or others for the redress of wrongs constituting a direct fraud upon them, as in the case where wrongdoers by fraud have seized control of the corporation from the complaining stockholders. 19 Am.Jur.2d Corporations § 535, p. 73. The charges that defendants fraudulently deprived Burlis of 14,840 shares of stock allege acts which affected Burlis directly and individually, and not the corporation. The outstanding stock of a corporation is the individual property of the shareholders. It is not the corporation's property and the corporation, as such, has no interest in it or in dealings among shareholders with respect to their stock. Yax v. Dit-Mco, Inc., Mo.App., 366 S.W.2d 363, 367(4). It was not necessary for Burlis to sue in behalf of the corporation to recover stock owned solely by Burlis. For this injury to personal rights Burlis had the right to maintain an individual action for redress. Willcox v. Harriman Securities Corp, D.C.N.Y., 10 F.Supp. 532; Witherbee v. Bowles, 201 N.Y. 427, 95 N.E. 27; Vierling v. Baxter, 293 Pa. 52, 141 A. 728. Another rule aids Burlis, namely, that which gives to a stockholder to whom an erring director or officer owes a special fiduciary dity the right to maintain an individual action. 19 Am.Jur.2d Corporations § 536. Kirtz, who as Burlis' long-time friend, adviser and attorney, occupied a position of special trust and confidence in advising Burlis with respect to the protection of his interest in the 14,840 shares, was subject to be sued individually by Burlis for breach of the special fiduciary obligation.

Less clear is whether an action challenging the transfer of 8,000 shares of unissued shares from the corporate treasury is the type of action which can be maintained by individual shareholders. Ordinarily an action based on acts relating to the capital stock as an entirety is a corporate cause of action and cannot be sued for by a shareholder merely as an individual. 'However, if the acts complained of although relating to the stock as a whole, work an injury to rights belonging to the stockholders individually as between them and the corporation and its other stockholders, as where an unlawful increase of stock ousts the complaining stockholders from their position as controlling shareholders, the action is individual and not derivative.' 13 Fletcher, Cyclopedia of Corporations, Perm.Ed. § 5915, pp. 384, 385. The addition of a total of 22,840 shares to the previous shareholders of Kirtz made him the holder of a majority of the voting shares and deprived plaintiffs of their position as controlling stockholders.

Accordingly, the cause of action, viewed in its entirety, was individual and not derivative; the petition stated a cause of action, and the circuit court had jurisdiction to entertain the action.

Case No. 54362

On conflicting testimony we find these facts: Norbert W. Burlis, Val T. Effinger and Frank G. Kirtz formed the corporation in 1955 for the purpose of designing and manufacturing medical equipment. For his legal services in the incorporation Kirtz was given 500 shares of stock. Kirtz was elected director and secretary. Burlis was issued 4500 shares; Effinger 5900. As the business expanded the capital stock was increased. In 1961 the articles were amended to fix the number of common shares at 112,158 at $1 par each; to change the name of the corporation; to increase the directors from three in number to four; to enlarge the corporate purposes and to waive preemptive rights. These amendments were made pursuant to the requirements of a purchase agreement entered into with Mid-States Business Capital Corporation, which loaned the corporation approximately $110,000 as working capital. The loan was evidenced by debentures with stock purchase warrants attached, authorizing Mid-States to purchase 28,040 shares of stock of corporation. The purchase agreement and warrants required the corporation at all times to reserve and keep available, out of its authorized and unissued capital stock, a sufficient number of shares to provide for the exercise of the warrants then outstanding and in effect. Corporate resolutions of record recited that any restrictions imposed...