PJ Acquisition Corp. v. Skoglund, C3-88-1368

• Decision Date: 09 March 1990
• Docket Number: No. C3-88-1368,C3-88-1368
• Citation: 453 N.W.2d 1
• Parties: PJ ACQUISITION CORP., directly on its own behalf and derivatively on behalf of Vikings II, Inc., Appellant, v. John C. SKOGLUND, individually and as Voting Trustee, et al., Respondents, Jaye Dyer, et al., Respondents.
• Court: Minnesota Supreme Court

Page 1

453 N.W.2d 1

PJ ACQUISITION CORP., directly on its own behalf and derivatively on behalf of Vikings II, Inc Appellant, v. John C. SKOGLUND, individually and as Voting Trustee, et al., Respondents Jaye Dyer, et al., Respondents.

No. C3-88-1368.

Supreme Court of Minnesota.

March 9, 1990.

Syllabus by the Court

1. A shareholder complaint which alleges that corporate officers and directors have breached fiduciary duties and dissipated corporate assets and which seeks only remedies beneficial to the corporation itself is derivative in nature requiring the plaintiff to comply with the standing requirements of Rule 23.06, Minnesota Rules of Civil Procedure.

2. The "continuing wrong" exception to the general contemporaneous ownership standing requirement of Rule 23.06, Minn.Rules of Civil Procedure is inapplicable under the facts of this case.

3. Where genuine issues of material fact exist as to whether a corporation had a preexisting policy of acquiring its own stock, summary judgment on the question of whether acquisition of the corporation's stock is a corporate opportunity was erroneous.

Jerome B. Simon, Geoffrey P. Jarpe, Maun, Green, Hayes, Simon, Johanneson and Brehl, St. Paul, for appellant.

John D. French, James Fitzmaurice, Faegre & Benson, Minneapolis, for John C. Skoglund, et al.

Curtis D. Forslund, Richard N. Flint, Gray, Plant, Mooty, Mooty & Bennett, P.A., Minneapolis, for Jaye Dyer, et al.

Heard, considered and decided by the court en banc.

KELLEY, Justice.

The dispute in this case constitutes but one episode in the ongoing contest between competing factions of the present shareholders, directors and officers for control of Vikings II, Inc., the owner of a National Football League (NFL) franchise authorizing it to field the Minnesota Vikings professional football team. ¹ On one side of the conflict is appellant PJ Acquisition Corporation (PJ), owned by Irwin Jacobs and Carl Pohlad, who, by a 1986 purchase, acquired one-third of the corporate voting shares, which had been originally owned by Max Winter. Its adversaries, the respondents, are certain current corporate officers and directors of Vikings II. ²

The controversy ultimately arrives in this court as the consequence of the filing in the district court of an amended complaint by PJ in October 1987 charging respondent officers and directors with various acts of misconduct. ³ Though the amended complaint is lengthy, containing 45 pages plus supporting exhibits, the issues raised by the allegations therein relate to four broad issues: (1) claimed abuse of corporate control and breach of fiduciary duty by Lynn; (2) claimed abuse of corporate control by the officers and directors relative to claimed rights of first refusal to purchase corporate stock and appropriation to themselves of an alleged corporate opportunity; (3) claimed abuse of corporate control in connection with the Lynn employment contract; and (4) claimed abuse of corporate control in the payment of excessive compensation and use of corporate assets for noncorporate purposes. Many, but by no means all, of the specific allegations made in support of these broader issues relate to events that occurred before July 21, 1986, when the purchase by appellant from Winter was closed.

The respondents moved to dismiss: (1) all asserted claims relating to Lynn's employment contract occurring prior to July 21, 1986; (2) asserted claims alleging misuse of corporate assets by respondents occurring before that date; (3) all claims alleging violation of fiduciary duty by the directors relating to the transfer of Boyer stock; ⁴ and (4) all claims made by appellant asserting the corporation's alleged right of first refusal pursuant to March 1984 and December 1985 agreements. ⁵

In granting the respondents' partial summary judgment motion, the trial court dismissed with prejudice: all claims asserted by appellant arising from the Mike Lynn employment and compensation agreements which had been executed or extended before July 21, 1986; all claims arising out of the alleged misuse of corporate assets by respondent directors, Skoglund, Steele, Kaplan, and Lynn occurring before that date; all claims arising out of claimed breach of any fiduciary duties allegedly owed by respondents to the corporation pertaining to the several transfers of the Boyer stock; all claims arising out of the alleged rights of first refusal under the March 1984 and December 1985 agreements; and all claims against the Kaplan law firm. ⁶

In this opinion, which for convenience we denominate the lead opinion, a majority of the court affirms the trial court's dismissal of all of appellant's claims arising from the Mike Lynn employment and compensation agreements which had been executed or extended before July 21, 1986 and its dismissal of all claims arising out of alleged misuse of corporate assets by respondent directors, Skoglund, Steele, Kaplan and Lynn, which occurred before that date. In the accompanying opinion authored by Justice Yetka, which, also for convenience, we designate as the dissenting opinion, a majority of the court reverses the trial court's dismissal of claims alleging violation of fiduciary duty by the directors relating to the transfer of Boyer stock and claims asserting the corporation's alleged right of first refusal pursuant to November 1984 and December 1985 agreements. We remand those issues to be tried together with issues not addressed by the trial court's partial summary judgment.

I. Claims Arising From Pre-July 21, 1986 Events

In dismissing the claims of appellant which alleged that certain respondents had, before July 21, 1986, paid themselves excessive compensation, that respondents Skoglund, Lynn, Steele and Kaplan had dissipated corporate assets, and claims arising from Lynn's 1984 employment contract, the trial court ruled that PJ lacked standing to assert those claims.

Neither in its amended complaint, in its brief, nor in oral argument did appellant identify any direct injury to it as a shareholder in Vikings II as the result of any alleged acts of misconduct on the part of respondents. The prayer for relief in the amended complaint in paragraphs (e), (f), (g), and (h), itself, seemingly acknowledges that any claims for improper diversion of assets belong to the corporation. ⁷ Since the allegations of the amended complaint addressing those issues fail to allege any direct injury to appellant, as shareholders, but rather only to Vikings II, the corporation, itself, and because appellant seeks relief in favor of Vikings II rather than itself, the trial court concluded the action in reality was a shareholder's derivative action, and, accordingly, was subject to the procedural requirements of Minn.R.Civ.P. 23.06 governing such actions. ⁸ That rule precludes the maintenance of a shareholder's derivative action unless the plaintiff alleges it was a shareholder at the time the acts occurred of which it complains and has made a demand on the board. The parties concede PJ became a shareholder on July 21, 1986. Thus, the complaint did not, nor could it, contain an allegation that PJ was a shareholder at the time when the acts alleged to have resulted in diversion and dissipation of corporate assets occurred prior to that date. Hence, if Rule 23.06 is applicable, the trial court correctly held that appellant lacked standing to assert claims for alleged wrongful acts that occurred before it became a shareholder.

Either by statute or court rule, virtually every state requires "contemporaneous ownership" and "demand on board" as preconditions to maintenance of a shareholder's derivative suit. ⁹

Our first inquiry, then, is whether the trial court erred in concluding that the appellant's amended complaint, notwithstanding its allegation of claims under various subsections of Minn.Stat. ch. 302A, sought relief only for Vikings II, and, therefore, was a derivative shareholder's action. Resolution of the issue involves an analysis of the complaint by consideration of the shareholder's claimed injury in conjunction with the remedies requested. When we apply that analysis, we conclude that the trial court correctly determined that those claims were derivative and, therefore, appellant had no standing to bring suit on those claims which occurred prior to July 21, 1986, when it became a shareholder. See, e.g., Miller v. Miller, 301 Minn. 207, 219-220, 222 N.W.2d 71, 77-78 (1974); Westgore v. Grimm, 318 N.W.2d 56, 58 (Minn.1982); Seitz v. Michel, 148 Minn. 80, 87, 181 N.W. 102, 105 (1921). ¹⁰ Appellant seeks to avoid that consequence by asserting that certain provisions in Minn.Stat. ch. 302A permit it to maintain these claims as a direct action for equitable relief even though the acts of the respondent officers and directors of which it complains occurred before appellant became a shareholder. Because its amended complaint alleges violations of Minn.Stat. Sec. 302A.255 and .751 (1988) (provisions generally codifying duties and proscribing certain conduct by officers and directors), it argues that the court may grant equitable relief to it in a direct action under Minn.Stat. Sec. 302A.751 even though, admittedly, it was not a shareholder at the time the alleged acts resulting in corporate waste took place or the alleged breaches of director and officer fiduciary duties occurred. ¹¹

In support of its argument, appellant cites a portion of a law review article entitled A Statutory Elixir for the Oppression Malady, 36 Mercer L.Rev. 627 (1985) authored by Professor Joseph E. Olson who was draftsman of some of the 1983 amendments to Minnesota's Business Corporation Act. In that article Professor Olson states "An action under section 751 is an individual action by the shareholder to gain relief in his own right, it is not a derivative right." Id. 635-36. (Emphasis supplied). In our view appellant's attempt to stretch that statement, which, in context, seemed to relate to a shareholder's...