Herbik v. Rand

• Decision Date: 16 June 1987
• Docket Number: No. 52151,52151
• Citation: 732 S.W.2d 232
• Parties: Jon HERBIK, et al., Plaintiffs-Respondents, v. Thomas RAND, et al., Defendants-Appellants.
• Court: Missouri Court of Appeals

Page 232

732 S.W.2d 232

Jon HERBIK, et al., Plaintiffs-Respondents, v. Thomas RAND, et al., Defendants-Appellants.

No. 52151.

Missouri Court of Appeals,

Eastern District,

Division Three.

June 16, 1987.

Joseph E. Martineau, St. Louis, for defendants-appellants.

John P. Zimmerman, St. Charles, for plaintiffs-respondents.

PUDLOWSKI, Presiding Judge.

Appellants, defendants below, Thomas Rand, Timothy Rand, Edward Lemay, James Banker and American Winery Incorporated, appeal from an order of the Circuit Court of St. Charles County enjoining the issuance of any stock of American Winery, Inc. at ten dollars or less per share and awarding attorney's fees, paralegal fees and expenses against American Winery, Inc. and in favor of respondents, plaintiffs below, Jon Herbik and Frank A. Conrad. Appellants contend that the grant of the injunction was erroneous because the issuance of new stock at ten dollars per share was approved by the necessary quorum of shareholders and was not illegal, fraudulent or oppressive. They also contend that the trial court erred in awarding attorney's fees because no special circumstances required for assessment of attorney's fees against the non-prevailing party were present.

American Winery, Inc. is a closely held corporation with six shareholders. When incorporated in March 1982, American Winery was authorized to issue one thousand shares of no par value stock, and it did so. Respondents Jon Herbik and Frank A. Conrad received 300 shares and 50 shares respectively. Appellants Thomas Rand and Timothy Rand jointly received 550 shares. Appellants Edward Lemay and James Banker each received 50 shares. During the time period relevant to this cause, the shareholders, except for respondent Herbik also each held positions with the corporation.

Respondent Frank A. Conrad served as a corporate director. Appellant Timothy Rand served as a corporate director and as president and secretary of the corporation. Appellant Thomas Rand served as Chairman of the Board of Directors. Appellant Edward Lemay was the corporation vice-president; and appellant James Banker was the executive vice-president, general manager and treasurer. Banker's duties included managing the corporation's plant facility.

On March 3, 1986, a meeting of the shareholders was held at which the corporation's immediate need for capital was discussed. All shareholders were present. Previous unsuccessful attempts had been made to secure new loans. According to witnesses, including respondent Conrad, there had been discussions regarding the serious need for an influx of capital as far back as November of 1985. At the March 3, meeting, Timothy Rand moved that the shareholders approve a proposed "1986 Capital Plan" which called for an amendment to American Winery's Articles of Incorporation to increase the number of shares which the corporation would have authority to issue from 1,000 to 50,000 shares at no par value. The plan also proposed that 20,000 of the shares be immediately issued at a ten dollar per share price. An unspecified second offering was to follow shortly in order to provide the funds necessary to keep the corporation solvent. All offerings were to be limited to existing shareholders, each of whom would be permitted to purchase the number of shares necessary to maintain his proportional interest in the company. Each shareholder's preemptive rights were thus protected. The plan called for the sale of the first 200,000 shares to be issued under the plan to be consummated "on or before April 1, 1986."

On March 24, 1986, respondent's Herbik and Conrad initiated the cause sub judice requesting injunctive and equitable relief. The petition contains six counts. Counts I and II were brought against the corporation pursuant to Section 351.485 RSMo 1986. Count I sought injunctive relief and Count II sought various equitable remedies. Count III was brought against Thomas Rand. Count IV was against Timothy Rand; and Counts V and VI were against Edward Lemay and James Banker respectively. All four of the counts against the individual defendants alleged breach of fiduciary duty and fraud and sought unstated actual damages and one million dollars in punitive damages.

Only Count I is before this court. The counts against the individual defendants were separated from Counts I and II, and they remain unadjudicated. Count II was dismissed with prejudice and no appeal was brought from that dismissal.

The court's order specified that the basis for the injunction was that "said price of Ten Dollars ($10.00) per share is below fair market value of said stock." That order was issued April 9, 1986 after a combined hearing on the preliminary and permanent injunctions. The order was amended July 24, 1986 to award the attorney's fees, paralegal fees and expenses alleged in appellant's second point to be erroneous. The trial court found unusual circumstances sufficient to justify the award in that plaintiffs-respondents, Conrad and Herbik, had no alternative method to stop the sale of the stock and "that the intent of the 1986 Capital Plan in addition to raising capital was to put pressure on and/or oust plaintiffs as minority stockholders."

We note first that Count I was against the corporation alone. The individual defendants were not parties under that count and nothing in the record before this court indicates that the petition was amended at the hearing either by request or in order to conform to the evidence presented at the hearing. This alone would be a sufficient basis for this court's modification of the injunction to apply only to the corporation.

Under Rule 73.01(c) we "review the case upon both the law and the evidence" giving "due regard to the opportunity of the trial court to have judged the credibility of witnesses" in determining whether the trial court erred in granting the injunction.

Section 351.485 allows a court of equity to intervene on behalf of minority shareholders who demonstrate that the majority shareholders have taken actions which are "illegal, oppressive or fraudulent." See, Fix v. Fix Material Company, Inc., 538 S.W.2d 351, 357 (M...