Reget v. Paige
| Decision Date | 08 February 2001 |
| Docket Number | No. 99-0838.,99-0838. |
| Citation | 242 Wis.2d 278,626 N.W.2d 302,2001 WI App 73 |
| Parties | Henry C. REGET, Plaintiff-Appellant, v. Norma Zelazo PAIGE, Samuel Paige, individually and as Trustee under the Maya Zelazo 1981 Trust, the Daniel Zelazo 1981 Trust, and the Nathaniel Zelazo Grandchildren's Trust, Holly Russek, Michael Russek, individually and as Custodian for Evan Russek under the Wisconsin Uniform Gifts to Minors Act, Annette Zelazo Middleton, f/k/a Annette Zelazo, individually and as Trustee for the Ronald Zelazo 1984 Trust, Nathaniel K. Zelazo, individually and as Trustee with his successors in trust of the Helene Zelazo and Nathaniel K. Zelazo 1992 Revocable Trusts dated February 12, 1992 as amended from time to time, Ronald Zelazo, individually and as Custodian for Daniel Zelazo and Maya Zelazo under the Wisconsin Uniform Gifts to Minors Act and as Trustee for the Daniel Zelazo, David E. Zelazo and Maya Zelazo 1991 Trusts dated December 18, 1991, Ziona Zelazo, individually and as Custodian for Daniel Lev-Arie Zelazo under the Wisconsin Uniform Gifts to Minors Act and Astronautics Corporation of America, a Wisconsin corporation, Defendants-Respondents. Henry C. REGET, Plaintiff-Appellant, v. Annette Zelazo MIDDLETON, f/k/a Annette Zelazo, individually and as Trustee for the Ronald Zelazo 1984 Trust, Ronald Zelazo, individually and as Custodian for Daniel Zelazo and Maya Zelazo under the Wisconsin Uniform Gifts to Minors Act and as Trustee for the Daniel Zelazo, David E. Zelazo and Maya Zelazo 1991 Trusts dated December 18, 1991 and Ziona Zelazo, individually and as Custodian for Daniel Lev-Arie Zelazo under the Wisconsin Uniform Gifts to Minors Act, James A. Lovell, Jr., Hans Mark and William L. Staples, Defendants-Respondents. |
| Court | Wisconsin Court of Appeals |
On behalf of the plaintiff-appellant, the cause was submitted on the briefs of James T. Martin and John E. Varpness of Gislason, Martin & Varpness, P.A. of Edina, Minnesota.
On behalf of the defendants-respondents, James A. Lovell, Jr., William L. Staples and Dr. Hans Mark, the cause was submitted on the brief of Craig M. White of Wildman, Harrold, Allen & Dixon of Chicago, Illinois and Mark E. Sostarich of Petrie & Stocking S.C. of Milwaukee.
On behalf of the defendants-respondents, Norma Zelazo Paige, Samuel Paige, Holly Russek, Michael Russek, Annette Zelazo Middleton, Nathaniel K. Zelazo, Ronald Zelazo, Ziona Zelazo, and Astronautics Corporation of America, the cause was submitted on the brief of Stephen E. Kravit, Mark M. Leitner and Joseph S. Goode of Kravit, Gass, Hovel & Leitner S.C. of Milwaukee.
Before Dykman, P.J., Vergeront and Roggensack, JJ.
¶ 1.
Henry Reget, a minority shareholder in Astronautics Corporation of America (Astronautics), sued the officers, directors, other shareholders who are related to Astronautics's founder and the corporation for breach of fiduciary duty. He seeks damages, a judicially ordered payment of dividends and the purchase of his stock at a price acceptable to him. He also seeks dissolution of the corporation based on the same factual allegations that he made to support his claims of breach of fiduciary duty. We conclude that: (1) for all defendants, except those who are directors, Reget's amended complaint fails to state claims upon which relief can be granted; (2) for the directors, he has made no factual showing sufficient to draw into question the initial presumption of the business judgment rule; and (3) there has been no showing of oppression. Therefore, we affirm the circuit court's grant of summary judgment dismissing the amended complaint.
¶ 2. Reget is a minority shareholder of Astronautics, in which he owns nineteen shares. He obtained ten shares in 1971 in lieu of being repaid a $25,000 obligation due him, and he also purchased nine shares in 1972 from a person not a party to this lawsuit, for approximately $25,000. Reget has never been an officer, director or employee of Astronautics, nor has he ever directly invested any money in the company.
¶ 3. Astronautics is a Milwaukee-based corporation that was founded in 1959. It designs, develops and manufactures electronic systems used in commercial land, sea, aerospace and military equipment. Astronautics and Kearfott Guidance and Navigation Corporation (Kearfott), a wholly owned subsidiary Astronautics acquired in 1988, employ more than 2,000 people and maintain facilities around the world.
¶ 4. Astronautics is a closely held corporation, the shares of which have no restriction on their sale but are not traded on any public market. However, it is not a statutory close corporation under ch. 180, subch. XVIII of the Wisconsin Statutes. It is also an IRS subchapter C corporation, rather than a subchapter S corporation. There are 1,8112 shares of Astronautics outstanding, of which 2863 shares are owned by shareholders with no family connection to Nathaniel Zelazo, Astronautics's founder.
¶ 5. Although there is no established market for Astronautics, there have been sales, some in which Reget participated or attempted to participate. For example, in 1982 a trust company sold fifty-two shares of Astronautics, and Reget bid $4,000 for one share. His bid was unsuccessful because the trust company preferred to sell the stock as a lot, which it did at $3,333 per share. In 1984, Astronautics offered to purchase all of the shares of any shareholder who owned no more than sixty-five shares for $9,800 a share. Reget declined Astronautics's offer. Single shares of Astronautics were sold for $10,000 each in 1984 and 1995. Ten thousand dollars is the highest price ever paid for a single share of Astronautics.
¶ 6. Astronautics has never paid a dividend. Its board of directors, which decides whether to pay dividends, has concluded that Astronautics would be best served by reinvesting its profits in research, development, acquisition of other companies and their assets, and profit sharing for its employees.4 To compete with such mega-companies as Honeywell, Litton, and Allied Signal, the board has determined that it is necessary to maintain significant cash reserves. The board of directors also sets the compensation for Astronautics's employees, except for those employees who are also directors. Their compensation is set by the three outside directors, James Lovell, Jr., William Staples and Hans Mark, who comprise a separate compensation committee.
¶ 7. Reget's suit claims breaches of fiduciary duty by all officers, all directors and those shareholders of Astronautics who have a family connection to Nathaniel Zelazo. He seeks dissolution of the corporation based on what he alleges is oppression under WIS. STAT. § 180.1430(2)(b) (1997-98),5 perpetrated by the same defendants. He also prays the court to award damages, dividends and the purchase of his stock at its "fair value."
¶ 8. Three concerns drive Reget's claims of breach of fiduciary duty and his allegation of oppression: (1) the defendants have not maintained a market for the sale of his stock or offered to purchase his stock at a price he believes is fair; (2) Astronautics has not paid dividends, despite its cash-rich position; and (3) five family members have received compensation for their services to the corporation that he believes is too high.6 ¶ 9. In their answers, the defendants admit that they do not maintain a market for Astronautics stock, that they have not offered to purchase Reget's stock at a price acceptable to him and that the company has never paid a dividend. However, they deny that excessive compensation has been paid. They assert the following affirmative defenses: failure to state a claim on which relief can be granted, statute of limitations, business judgment rule, derivative claims and claim preclusion under WIS. STAT. § 180.0828.7 The circuit court dismissed Reget's claims on summary judgment. Reget appeals.
Standard of Review.
[1]
¶ 10. We apply the same summary judgment methodology as the circuit court. Cemetery Servs., Inc. v. Department of Regulation & Licensing, 221 Wis. 2d 817, 823, 586 N.W.2d 191, 194 (Ct. App. 1998). We first examine the complaint to determine whether it states a claim, and then we review the answer to determine whether it joins a material issue of fact or of law. Id. If we conclude that the complaint and answer are sufficient to join issue, we examine the moving party's affidavits to determine whether they establish a prima facie case for summary judgment. Id. If they do, we look to the opposing party's affidavits to determine whether there are any material facts in dispute which entitle the opposing party to a trial.
[2-4]
¶ 11. Whether a minority shareholder has been oppressed within the meaning of WIS. STAT. § 180.1430(2)(b) is a mixed question of fact and law. Whether certain events occurred are questions of historic fact determined by the circuit court, which we will not reverse unless they are clearly erroneous. WIS. STAT. § 805.17; State v. Badker, 2001 WI App 27, ¶ 8, 240 Wis. 2d 460, 469, 623 N.W.2d 142, 146. However, the determination of whether the historic facts as found by the circuit court, or as agreed to by the parties, constitute oppression is a question of law, which we decide de novo. Davis v. Sheerin, 754 S.W.2d 375, 380 (Tex. Ct. App. 1988)
.
Breach of Fiduciary Duty.
[5, 6]
¶ 12. A corporate officer or director is under a fiduciary duty to act in good faith and to deal fairly in the conduct of all corporate business. Modern Materials, Inc. v. Advanced Tooling Specialists, Inc., 206 Wis. 2d 435, 442, 557 N.W.2d 835, 838 (Ct. App. 1996). This duty extends to the corporation, itself, and to its shareholders. Id.; Grognet v. Fox Valley Trucking Serv., 45 Wis. 2d 235, 241, 172 N.W.2d 812, 816 (1969). Reget asserts he brings his claims for breach of fiduciary duty individually, rather than as a derivative action, wherein he would have...
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