Jackson v. St. Regis Apartments, Inc.
| Decision Date | 04 April 1978 |
| Docket Number | No. 38444,38444 |
| Parties | Lester J. JACKSON et al., Plaintiffs-Respondents, v. ST. REGIS APARTMENTS, INC., Defendant-Appellant. . Louis District, Division Three |
| Court | Missouri Court of Appeals |
Greenfield, Davidson, Mandelstamm & Vorhees, Robert M. Hamlett, Lawrence N. Doreson, St. Louis, for defendant-appellant.
Ira M. Young, St. Louis, for plaintiffs-respondents.
This appeal involves a class action brought by shareholders of a corporation alleging oppression by majority shareholders of the corporation.
Plaintiffs-respondents, as alleged minority shareholders in St. Regis Apartments, Inc., brought a class action against St. Regis alleging oppression by the majority of shareholders. The trial court held that the majority shareholders were guilty of oppression in breach of their fiduciary duties to the minority shareholders by maintaining a system of unequal service charges for equal services. Appellant, as an individual shareholder and as representative for at least three other shareholders, was granted leave to intervene as defendant-appellant to prosecute this appeal after St. Regis Apartments, Inc., the original appellant, was granted leave to withdraw as a party to the proceeding.
The trial court found "that the action of defendant (St. Regis), as carried out by its board of directors and maintained by its majority shareholders in charging unequal service fees for equal services to the shareholder-occupants of the St. Regis Apartments, Inc., is oppressive . . . (and) constitutes a breach of the fiduciary duty owed to the minority shareholder-occupants." St. Regis was thereby enjoined from imposing upon the shareholder-occupants unequal service fees for equal services. For the reasons which follow, we reverse the judgment.
Prior to 1951, the St. Regis Apartments were privately owned rental property in the City of St. Louis. In that year, the tenants joined together to form a Missouri Corporation, St. Regis Apartments, Inc., for the purpose of purchasing the apartment building and operating it as a cooperative apartment. Forty-seven shares, 1 coinciding with specific apartment units in the building, were authorized and issued. A single share of stock was sold to each tenant for $5,319.15, which gave the tenant the right to lease his apartment from the St. Regis Corporation. Subsequent sales of St. Regis stock have been private transactions between the individual shareholder and prospective purchaser, with the value of the shares varying considerably depending on the condition of the apartment and sales skills of the seller.
Although the individual shares of St. Regis stock were originally sold for a uniform amount, the rents have never been uniform among the tenants. At the time of incorporation the shareholders agreed to retain the rental structure then in existence which varied by as much as 30-35% between the most and least expensive apartments. 2 In later years the tenants' monthly payment was referred to as a service fee rather than rent, and the shareholders signed an occupancy agreement rather than a lease. According to the occupancy agreement, which all shareholder tenants were required to sign, the funds received from the collection of service fees were to be used to provide common services to all tenants, i. e., garbage service, water, heat, light and maintenance for common areas, insurance, property taxes, and other items. The by-laws restated the agreement that the rent to be paid for each apartment would be the same amount being paid on the effective date of the by-laws and provided that there could be no increase in rents without an affirmative vote of the holders of 32 shares of St. Regis stock.
The non-uniform rental or service charges have continued to the present with the only change having been made in 1972 when the by-laws were amended to provide for an equal dollar amount increase rather than a percentage increase when rental increases were approved. At the time of the trial the range of rents paid was as follows:
16 units - $264.10
3 " - 272.82
15 " - 281.53
2 " - 290.97
5 " - 309.15
1 " - 328.02
5 " - 336.73
Plaintiffs, who are present shareholders, filed this suit in equity alleging that the system of unequal service fees maintained by St. Regis is illegal and constitutes oppression by the majority of the shareholders. The suit was maintained as a class action 3 and sought injunctive relief to prohibit further imposition of unequal charges for similar services.
Three shareholders testified for plaintiff. Each stated that when he negotiated for the purchase of his share from the previous owner he was informed of the amount of service fee for the apartment but not of the variance in fees between the different apartments. Each acknowledged that the fee paid was reasonable and fair. Moreover, each admitted on cross-examination that neither the seller nor the corporation ever represented that the fees were equal. Each witness merely assumed that the fees charged were equal because of the cooperative nature of the corporation.
When one of the plaintiffs learned that the fees were not equal, she sought an explanation from the directors who told her that the fee structure had been unequal since the corporation was formed. At the plaintiff's behest, a special meeting of the shareholders was called for the purpose of considering her plan for equalization of fees. The plan was defeated by a simple majority, and this suit followed.
After hearing the foregoing evidence the trial court found that the services rendered by St. Regis were equal as to each apartment unit and that there was no evidence to explain or justify the variance in service fees. The court found that the service fee structure was inequitable and arbitrary. It further found that the action of the St. Regis Board of Directors and the majority of the shareholders in maintaining the service fee structure was a breach of their fiduciary duties toward the minority shareholders and constituted illegal oppression. Those 34 shareholders who paid the lowest service fees were regarded as the majority while those 13 shareholders who paid the highest fees were regarded as the minority. The trial court then concluded that as a matter of law the majority had the burden to prove good faith and the inherent fairness of any transaction with the corporation and that they had failed to meet their burden. By way of relief the trial court enjoined St. Regis from imposing a service fee structure which established unequal fees for equal services and ordered it to institute a system of equal fees for the same or similar services.
As a preliminary matter, we must rule on a motion by a resident of St. Regis Apartments to dismiss the case for mootness. While this appeal was pending, Henry C. Lowenhaupt filed a motion to dismiss the appeal alleging that the by-laws of St. Regis had been amended to establish service fee charges different from those previously in effect, as well as from those ordered by the trial court. Movant further stated that all other parties to the suit acquiesced in the by-law revision thereby ending all controversy. For these reasons movant argues that the appeal has been rendered moot.
A cause should be dismissed as moot when the question presented for a decision seeks a judgment which if rendered would have no practical effect on any existing controversy. State ex rel. Seidl v. Jefferson Cty. Bd. of Ed., 548 S.W.2d 853 (Mo.App.1977); Western Auto Supply Co. v. Banner, 288 S.W.2d 402 (Mo.App.1956). In this instance there clearly exists a continuing controversy which may be resolved by a decision of this court. Although movant in his unverified motion provides us with no specific information as to the terms of the new by-law or proof that it was duly approved, he does admit that it is not in conformance with the valid order of the court below. Moreover, it is manifest by intervenor's prosecution of this appeal that all parties do not accept the new by-law provision but seek to retain the original system of unequal fees. Because there remains a continuing controversy as to the appropriate fee structure, the appeal is not moot. The motion to dismiss is overruled.
The trial court in its conclusions of law found that the majority shareholders had the burden to prove the inherent fairness of the service fee structure and held that they failed to meet their burden. We...
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