Notz v. Everett Smith Group, Ltd.
| Decision Date | 13 May 2008 |
| Docket Number | No. 2006AP3156.,2006AP3156. |
| Citation | 754 N.W.2d 235,2008 WI App 84 |
| Parties | Edward U. NOTZ, Plaintiff-Appellant-Cross-Respondent<SMALL><SUP>†</SUP></SMALL> v. EVERETT SMITH GROUP, LTD., Thomas J. Hauske, Jr., Randall M. Perry, Anders Segerdahl, Steven J. Hartung and Albert Trostel & Sons Company, Defendants-Respondents-Cross-Appellants. |
| Court | Wisconsin Court of Appeals |
On behalf of the plaintiff-appellant-cross respondent, the cause was submitted on the briefs of Robert H. Friebert and Matthew W. O'Neill of Friebert, Finerty & St. John, S.C., Milwaukee. There was oral argument by Matthew W. O'Neill.
On behalf of the defendants-respondents-cross-appellants, the cause was submitted on the briefs of Thomas L. Shriner, Jr., G. Michael Halfenger, Rebecca Wickhem House and Suzanne Nowak McManus of Foley & Lardner LLP, Milwaukee. There was oral argument by Thomas L. Shriner, Jr.
Before CURLEY, P.J., WEDEMEYER and FINE, JJ.
Edward U. Notz appeals, pursuant to our leave, a non-final order dismissing the first two claims of his three-claim amended complaint against the Everett Smith Group, Ltd., Thomas J. Hauske, Jr., Randall M. Perry, Anders Segerdahl, and Steven J. Hartung. Those two claims allege that the defendants breached their fiduciary duties to Notz. The Smith Group, Hauske, Perry, Segerdahl, and Hartung cross-appeal the circuit court's denial of their motion to dismiss Notz's third claim, which seeks dissolution of Albert Trostel & Sons Company. We reverse in part the circuit court's dismissal of the first two claims, and, because Notz no longer has standing to maintain his third claim, we vacate that part of the order denying the defendants' motion to dismiss that claim.
¶ 2 This is a dispute between a former minority shareholder of Albert Trostel & Sons on the one hand and the former majority shareholder, the Smith Group, on the other hand. As we discuss in connection with the cross-appeal, Part II.B. below, Albert Trostel & Sons merged with the Smith Group, Trostel's pre-merger majority shareholder, and Notz surrendered his shares pursuant to his exercise of his dissenter's rights under WIS. STAT. §§ 180.1301-180.1331. Notz started this action before the merger, and the defendants do not contend that the merger affects the first two claims of Notz's amended complaint, which allege a breach of their fiduciary duties to him. Notz does not contend on this appeal that the merger was unlawful.
¶ 3 Notz's appeal concerns only the sufficiency of his amended complaint. Accordingly, our review is de novo, and we must take as true the facts alleged in the amended complaint, assessing them in a light most favorable to Notz. See Godoy ex rel. Gramling v. E.I. du Pont de Nemours & Co., 2007 WI App 239, ¶ 2, 306 Wis.2d 226, 229, 743 N.W.2d 159, 161, review granted, 2008 WI 40, ___ Wis.2d ___, 749 N.W.2d 661 (No.2006AP2670). This is why the Dissent's discussion of the Special Litigation Committee and that Committee's conclusions, Dissent, ¶¶ 31, 38, and their effect on the Dissent's analysis are immaterial to our task.
¶ 4 Notz is a descendant of Trostel's founder. He and other descendants of the founder owned 11.1% of Trostel stock, of which Notz owned approximately half, or 5.5%. The Smith Group owned the other 88.9% of Trostel stock. As for the other defendants, the amended complaint alleges their roles as follows (and, despite the merger, which affects only Notz's third claim and the cross-appeal, we use the amended complaint's present-tense, pre-merger references):
• Hauske is a Trostel director and, "[u]pon information and belief, ... is also an officer and director of the Smith Group."
• Perry is a Trostel director and officer and, "[u]pon information and belief, ... is also an officer and director of the Smith Group."
• Segerdahl is Trostel's "Chairman and Chief Executive Officer" and, "[u]pon information and belief, ... is also the Chairman and Chief Executive Officer of the Smith Group."
• Hartung is a Trostel director and officer and, "[u]pon information and belief, ... is also the Vice President, Secretary and General Counsel of the Smith Group."
¶ 5 As material to this appeal, Notz alleges that in March of 2003, the Smith Group "began efforts to acquire" the 11.1% of Trostel stock held by the others, including Notz's 5.5%. The amended complaint alleges that the Smith Group's "offer was not responded to because it was deemed grossly inadequate." According to the amended complaint, the Smith Group made "a second offer" in July of 2004 for the minority shareholders' stock, "including the stock owned by the Plaintiff," and asserts that this second offer "was made in bad faith and for an unfair price."
¶ 6 The crux of the dispute is Notz's contention that the Smith Group was trying to freeze him (and the other minority shareholders, who are not parties in this case) out in order to get for itself increased value attributable to Trostel's profitable plastics business, which the Smith Group had plans to expand. In this connection, the amended complaint makes the following allegations:
• By 2003, Albert Trostel & Sons conducted its manufacturing business via wholly-owned subsidiaries in three product lines, which the amended complaint describes as: (1) "The Leather Group"; (2) "The Plastics Group"; and (3) "The Rubber Group."
• Trostel's plastics-related business was conducted by its wholly owned subsidiary, Trostel Specialty Elastomers Group, Inc., and the Elastomers Group's wholly owned subsidiary, Techniplas.
• The defendants, who controlled Albert Trostel & Sons, viewed the rubber and plastics businesses as fertile fields for profit.
• Trostel's leather business "was under severe economic pressure from its customers and from competition from China, leading to negative forecasts as to its future growth potential and continued profit margins."
• Around June of 2004, the Smith Group and the individual defendants saw a chance to buy Dickten & Masch Manufacturing Company, which the complaint describes as "a competitor of [the Elastomers Group] in the precision molding and thermoplastics industry."
• The purchase of Dickten & Masch "was consistent with [Trostel's] stated `focused acquisition strategy in the rubber and plastics platform that would provide additional scale for future growth,'" and the "stated intent [by Trostel's management] to `emerge as a leader in the thermoplastics industry' in order to ensure the `future growth' of" Trostel. (Quoting statements by Perry and Thomas Sloane, who the amended complaint says is the president of the Elastomers Group.)
• The due-diligence investigation of the potential Dickten & Masch purchase was paid for by Albert Trostel & Sons.
¶ 7 The amended complaint alleges that after Notz (and the other minority shareholders) rejected the July of 2004 buyout offer:
[T]he Smith Group planned to freeze the Plaintiff out of the plastics business by transferring the entire plastics division from [Albert Trostel & Sons] to the Smith Group in two steps. First, the Smith Group rather than [Albert Trostel & Sons] would acquire Dickten & Masch. Second, the Smith Group would combine the Dickten operations with the Trostel [Elastomers Group] operations to achieve the synergy savings identified in the due diligence investigation by acquiring the [Albert Trostel & Sons] plastics division.
According to the amended complaint, this scheme was carried out as follows:
• "Without any notice to the Plaintiff or other minority shareholders of [Albert Trostel & Sons], Defendants Hauske, Perry, Segerdahl, and Hartung, acting in their capacity as officers and directors of [Albert Trostel & Sons], `rejected' the opportunity to acquire Dickten & Masch, and then, acting in their capacity as officers and directors of the Smith Group, authorized the acquisition of Dickten & Masch by the Smith Group."
• The Smith Group bought Dickten & Masch.
• "On information and belief, the Defendants immediately began the process of integrating the business operations of Dickten & Masch with the operations of [the Elastomers Group] and Techniplas so as to reap the benefits of the synergies between the three thermoplastics operations identified in the due diligence work paid for by [Albert Trostel & Sons]."
• The defendants then had "Dickten & Masch purchase the plastics manufacturing assets of [the Elastomers Group] (including Techniplas) from [Albert Trostel & Sons]."
• "Upon information and belief," the purchase by Dickten & Masch of the "plastics manufacturing assets" of the Elastomers Group and Techniplas "was largely funded by upstreaming the funds of [Albert Trostel & Sons], using a one-time dividend issued to the shareholders of [Albert Trostel & Sons], including the Smith Group."
¶ 8 Notz's amended complaint alleges that the purchase of Dickten & Masch by the Smith Group, and Dickten & Masch's earlier purchase of Trostel's "plastics manufacturing assets," were done for three main reasons:
(1) "to retaliate for Plaintiff's refusal to sell his stock at a low price";
(2) to harm Notz by "depriving [him] of the ability to participate in the future expansion of the Plastics Division" of Albert Trostel & Sons; and
(3) "to force Plaintiff to sell his shares to the Smith Group for less than fair value."
Notz also claims that the due-diligence expense shouldered by Albert Trostel & Sons in connection with the Smith Group's purchase of Dickten & Masch was a "constructive dividend" to the Smith Group, the value of which was not also distributed to Notz and the other minority shareholders. As a result, Notz claims that both the Smith Group and the individual defendants breached their fiduciary duties to him. As noted, the circuit court dismissed these two claims.
¶ 9 Notz's amended complaint also claims that he is entitled to a judicial dissolution of Albert Trostel & Sons pursuant to WIS. STAT. § 180.1430.1 The circuit court did not dismiss this claim, and we discuss...
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