Mulder v. Mittelstadt, 83-1635

• Decision Date: 20 June 1984
• Docket Number: No. 83-1635,83-1635
• Citation: 120 Wis.2d 103,352 N.W.2d 223
• Parties: Gerard W. MULDER, Plaintiff-Respondent, v. Norbert F. MITTELSTADT, William Mittelstadt, Mary C. Mittelstadt, and Plymouth Die-Mold, Inc., Defendants-Appellants.
• Court: Wisconsin Court of Appeals

Page 223

352 N.W.2d 223

120 Wis.2d 103

Gerard W. MULDER, Plaintiff-Respondent, v. Norbert F. MITTELSTADT, William Mittelstadt, Mary C Mittelstadt, and Plymouth Die-Mold, Inc. Defendants-Appellants.

No. 83-1635.

Court of Appeals of Wisconsin.

Submitted on Briefs April 30, 1984.

Opinion Released June 20, 1984.

Opinion Filed June 20, 1984.

Review Denied.

Mike P. Fortune of Colwin, Fortune, Colwin & Pomeroy, S.C., Fond du Lac, for defendants-appellants.

James E. Welker and Paul M. Ryan of Brennan, Steil, Ryan, Basting & MacDougall, S.C., Janesville, for plaintiff-respondent.

Before SCOTT, C.J., BROWN, P.J., and NETTESHEIM, J.

BROWN, Presiding Judge.

This is an appeal from a stockholder's derivative action. The trial court held that Norbert Mittelstadt had breached his fiduciary duty as a director of Plymouth Die-Mold, Inc. causing direct injury to the corporation. The appellants, the Mittelstadts and Plymouth-Die Mold, Inc., assert that the trial court erred in ordering certain monetary assessments against Norbert Mittelstadt as a result of this breach. We agree with the trial court's decision and affirm.

Plymouth Die-Mold, Inc. was incorporated on June 3, 1953. Capital stock was issued to all subscribers, which included Gerard Mulder and Norbert Mittelstadt. By June of 1976, Mulder owned 110 shares of stock, Norbert Mittelstadt owned 260 shares, William Pilz owned 200 shares and Raymond Colwin owned 10 shares. Thus, although Norbert Mittelstadt owned the most shares, he did not control the majority of shares.

In early 1976, Pilz approached Norbert Mittelstadt and offered to sell him the 200 shares of stock Pilz owned. Mittelstadt did not accept his offer. Pilz next approached Mulder and made him the same offer. Mulder and Pilz agreed that Mulder would buy 175 shares and that the remaining 25 shares would be sold to Norbert Mittelstadt, resulting in equal stock ownership between Mulder and Mittelstadt. Mulder wrote to both Pilz and Mittelstadt setting forth the proposed agreement and the price per share of $100. Mulder received no response from Mittelstadt.

There followed a series of events in response to Mulder's letter. These actions are reflected in what purports to be the minutes of special meetings of the board of directors of Plymouth Die-Mold.

In the first of these special meetings alleged to have occurred on May 28, 1976, Mittelstadt authorized the corporation to purchase Pilz' 200 shares and Colwin's 10 shares as treasury stock. The purchase price was $100 per share. The minutes show the meeting was attended by Norbert Mittelstadt and William Pilz.

The second meeting, which supposedly took place the next day, was said to have been attended by Norbert Mittelstadt, William Mittelstadt and Mary Mittelstadt. A resolution was passed authorizing the sale of 30 shares of treasury stock to William Mittelstadt at $100 per share in recognition of his contributions to the corporation. The stock would be paid for by a $3,000 reduction of the corporation's indebtedness to Norbert Mittelstadt. Neither Mary Mittelstadt nor William Mittelstadt were directors at the time of this resolution.

The next special meeting took place on June 8th. The minutes reflect that Norbert Mittelstadt and William Pilz were present, and Ray Colwin was absent. The board accepted Colwin's resignation and appointed Mary Mittelstadt as a director. Upon Pilz' motion, Mary Mittelstadt was elected secretary of the corporation. The board also accepted Pilz' resignation and elected William Mittelstadt as a director and vice president/treasurer.

At trial, Pilz denied attending any of the 1976 meetings of the shareholders or board of directors. The trial court, in finding Pilz to be a credible witness, determined that these meetings only took place in "someone's vivid imagination." It found that the minutes of these meetings were "concocted after plaintiff started to question the action taken by the Mittelstadts."

Pilz was paid in full for his stock in October 1976 by a check drawn on the corporation's account.

Mary Mittelstadt was issued 140 shares of treasury stock after a 1980 special meeting of the board of directors. Payment was made by cancellation of the corporation's indebtedness to Norbert Mittelstadt in the amount of $14,000.

In addition to receiving $20,000 for his 200 shares of stock, Pilz also received $15,000 between July 26, 1977 and May 26, 1978 in payment for bonuses accrued between 1968 to 1970. During this same period, Norbert Mittelstadt was authorized to receive bonuses of $22,500. ¹ The corporate minute book, however, failed to show any action by the board of directors establishing bonuses for any employee from 1968 to 1970. In fact, until the retroactive action of 1977, the corporate minute book showed no bonuses after May 20, 1963.

After not hearing from Norbert Mittelstadt in response to his letter, Mulder wrote another letter on August 18, 1976 to Mary Mittelstadt reviewing his agreement with Pilz and enclosing a down payment check to Pilz for $3,500. This check was still outstanding at the time of trial.

Mulder brought this action seeking both specific performance of his agreement to purchase the Pilz stock and, as a stockholder, a derivative claim seeking both repayment of the bonuses and the setting aside of the sale of treasury stock to William Mittelstadt and Mary Mittelstadt. The trial court denied Mulder's specific performance request, holding that there was no clear acceptance of the terms of the stock sale by Norbert Mittelstadt. Without evidence of an acceptance, there was no oral contract which could be enforced by a decree of specific performance.

Turning then to the stockholder's derivative action, the trial court found that Norbert Mittelstadt had acted in an intentional and willful way to deprive Mulder of his interest in the corporation.

All of the Mittelstadts were intimately involved with the corporation. Mary served as a long-time office manager. William was also an employee. Additionally, he used the first floor of the corporation's facilities for the refinishing and sale of antiques, without the approval of the board of directors. As for Norbert Mittelstadt, not only was he an original subscriber, he also devoted his time to designing molds for production by the corporation. For over twenty years, he devoted his fulltime attention to the corporation serving as a director, officer and employee.

The trial court found that because of this intimate relationship, "Norbert Mittelstadt, Mary Mittelstadt and William Mittelstadt considered Plymouth Die-Mold, Inc., as their private fiefdom and operated it solely for their financial gain to the detriment of the corporation and its minority shareholders.... [T]hey were of the opinion that plaintiff was to receive no benefit from the corporation because he had never contributed any physical labor."

The trial court found much of the activity of the corporation was ultra vires and ordered the following:

(1) Payment of $18,652.25 by Norbert Mittelstadt to the corporation. (This was the excess of the purchase price of the Pilz stock over the retained earnings of the corporation which was available for such use at the time of the purchase).

(2) The sale of the treasury stock to the Mittelstadts be set aside and that the stock be transferred back to the corporation.

(3) Payment of $15,000 in damages by Norbert Mittelstadt to compensate the corporation for a bonus paid to Pilz on Mittelstadt's authorization without proper corporate authority.

(4) William and Mary Mittelstadt's appointment to the board of directors be set aside because they were not properly elected according to the corporation's bylaws or Wisconsin statutes.

(5) That Mulder be given an opportunity to purchase treasury stock of the corporation to the extent of a 50% interest in the corporation.

The court also assessed $3,050 in punitive damages against Norbert Mittelstadt and $7,737.64 in reasonable attorneys fees and expenses. This appeal followed.

The appellants, the Mittelstadts and the corporation, allege several grounds of error in their appeal. These will be determined seriatim.

First, the appellants challenge the trial court's order that Norbert Mittelstadt reimburse the corporation for the $15,000 in bonuses paid to Pilz. Specifically, they assert that regardless of whether the bonuses were authorized by the corporation at a properly called meeting, the compensation is valid as long as valuable services were rendered by the individual. They cite Gauger v. Hintz, 262 Wis. 333, 55 N.W.2d 426 (1952), as authority for this proposition.

The court in Gauger stated:

[T]he fact that there was no valid directors' resolution or contract in existence authorizing the increased compensation drawn by these defendants does not mean that they are not entitled to pay for the services rendered by them. Such services were not rendered by them in performing the duties of directors and officers, but rather in the capacity of skilled executives in operating a large and thriving business.

Id. at 348, 55 N.W.2d at 434. Therefore, had it been established that Pilz' bonuses were reasonable compensation for services rendered, he would have been entitled to receive these bonuses under an implied contract theory. Id. The appellants concede, however, that no evidence other than Pilz' own self-serving statement was received establishing the value of the services rendered. The burden of proof for establishing the reasonable value of such services is on the defendant. d.

The trial court's finding of fact will not be set aside unless clearly erroneous. Sec. 805.17(2), Stats. The trial court specifically noted in its decision that the defendant failed to establish that the payment of the bonuses was reasonable compensation for services rendered. We hold that this finding is supported by the record.

The appellants next assert that should the repayment be sustained, Pilz, not Mittelstadt, should...