Scrivner v. Twin Americas Agr. & Indus. Developers, Inc.

• Decision Date: 24 June 1977
• Docket Number: No. 48228,48228
• Citation: 1 Kan.App.2d 404,573 P.2d 614
• Parties: Henry SCRIVNER, Stanley Benson, Phyllis McKenna, Quincy Keller, Eugene Watson, Louis Mitchell, et al., Appellants, v. TWIN AMERICAS AGRICULTURAL AND INDUSTRIAL DEVELOPERS, INC., a corporation, Appellee.
• Court: Kansas Court of Appeals

Page 614

573 P.2d 614

1 Kan.App.2d 404

Henry SCRIVNER, Stanley Benson, Phyllis McKenna, Quincy

Keller, Eugene Watson, Louis Mitchell, et al., Appellants, v. TWIN AMERICAS AGRICULTURAL AND INDUSTRIAL DEVELOPERS, INC.,

a corporation, Appellee.

No. 48228.

Court of Appeals of Kansas.

June 24, 1977.

Review Denied Sept. 8, 1977.

Syllabus by the Court

1. The party invoking the jurisdiction of a particular forum has the burden of proving the existence of that jurisdiction.

2. A foreign corporation may be sued in this state on a cause of action arising elsewhere if, at the time the cause of action arose, it was doing business in this state so as to be required to register and qualify.

3. A foreign corporation may be sued here on any cause of action arising "while" it was doing business here, even if it was not qualified.

4. What constitutes doing business in this state, so as to require registration and make the foreign corporation amenable to suit here on actions arising elsewhere, is defined by K.S.A. 17-7303.

5. The presence of a transfer agent does not constitute the maintenance of a corporate "office" within this state, as that term is used in K.S.A. 17-7303.

6. The holding of directors or stockholders meetings or the maintenance of bank accounts in this state does not constitute such doing of business as to require a foreign corporation to register and qualify, even if accompanied by the presence here of a transfer agent.

7. In an action by Kansas stockholders against a Panamanian corporation in which service was made on the secretary of state it is held: (1) the cause of action did not arise while the defendant was doing business in this state; (2) the trial court correctly dismissed the action for lack of personal jurisdiction over the defendant; (3) other grounds asserted for dismissal were unnecessary to the judgment and it is modified to eliminate any adjudication of such other grounds.

Donald R. Newkirk and Gerrit H. Wormhoudt, of Fleeson, Gooing, Coulson & Kitch, Wichita, for appellants.

Charles S. Fisher, Jr., Topeka, for appellee.

Before ABBOTT, P. J., and FOTH and SPENCER, JJ.

FOTH, Judge:

This was an action against a Panamanian corporation by some 170 Kansas shareholders of the corporation, seeking primarily a court supervised election of directors and to enjoin a proposed stock issue. The district court of Kingman county sustained the defendant corporation's motion to dismiss and the plaintiff stockholders have appealed.

The judgment of dismissal was based, among other grounds, on a finding that the court lacked jurisdiction over the person of the defendant. If this was correct, and we find that it was, then dismissal was proper and all other findings of the trial court were unnecessary and constituted mere obiter dicta. Accordingly we shall confine our analysis to the question of personal jurisdiction.

The defendant Twin Americas Agricultural and Industrial Developers, Inc., was incorporated in Panama in 1967 as a subsidiary of Cattlemen's Foundation Corporation, Inc., a Kansas corporation. Cattlemen's had been formed in 1964 as essentially an insurance holding company, with its stock sold only to Kansas residents. Twin Americas, the subsidiary, is also a holding company, owning subsidiaries which directly and indirectly operate ranching, construction, motel and other businesses in Brazil. Cattlemen's and Twin Americas had interlocking boards of directors.

Between 1969 and 1972 a series of corporate financial maneuvers took place which resulted in the elimination from the scene of the parent Cattlemen's. First, there was a public offering of Twin Americas stock aimed at raising over six million dollars in new capital. The offering was only partially successful, but some of the plaintiffs acquired their stock through subscribing to it. Second, Cattlemen's sold for cash its insurance company subsidiary, the ownership of which had been its original primary purpose. It also closed down its broker-dealer subsidiary which had handled the Twin Americas offering. Third, Cattlemen's paid into Twin Americas all its assets, being primarily the proceeds from the sale of the insurance company but also including Twin Americas stock, in return for more Twin Americas stock. Finally, on February 1, 1972, Cattlemen's dissolved and distributed to its stockholders all its then assets, namely, stock in Twin Americas.

The result was that all those persons who had originally purchased stock in a Kansas insurance holding company (Cattlemen's) found themselves owning nothing but stock in a Panamanian holding company (Twin Americas) operating in Brazil. A number of the plaintiffs (perhaps most) acquired their stock in the defendant through the exchange route.

It is important to note that plaintiffs' petition is wholly unrelated to the corporate restructuring which was completed in 1972. The equitable relief now sought is based solely on events which occurred and were threatened in 1975.

This lawsuit was precipitated by a letter to shareholders dated September 19, 1975, from James D. Ratliff, president and chairman of the board of Twin Americas. In it he announced the resignation of four of the company's five directors, including three who resided in Kansas. They had been replaced by two company employees, residents of Brazil, and the number of directors reduced from five to three by amendment of the by-laws. The new board proposed to issue 1,500,000 additional shares of the company (which would dilute the present stockholders' ownership from 100% To considerably less than 50%) and to sell at least part of its land holdings in Brazil. The letter also reported that the company was unable to meet its current obligations, including past-due salaries of its employees.

The petition, filed September 30, 1975, alleged the foregoing and incorporated the letter. Named as defendants were the corporation and several individuals, including the three members of the board. The petition also alleged, among other things, that the new composition of the board was in violation of the by-laws and of plaintiffs' rights as stockholders, and that the proposed stock issue and sale of assets were intended to "ruin the corporation," to confer control of the corporation on the individual defendants, and to destroy plaintiffs' rights as stockholders.

The relief prayed for was that the proposed stock issue be declared void; that the 1975 selection of new directors be declared void and they be temporarily and permanently enjoined from managing the affairs of the corporation; and that the corporation be enjoined from disposing of any of its assets until a stockholders meeting could be called and held and new directors elected. Plaintiffs also asked that their attorney be appointed receiver to manage the corporation's affairs until a stockholders meeting could be held.

The same day the trial court entered an ex parte order granting all the temporary relief prayed for, fixing November 1, 1975, as the date for a stockholders meeting, and fixing October 29, 1975, as the date on which the individual defendants should show cause why they should not be permanently enjoined from further participation in the affairs of the corporation.

On October 30, 1975, the defendant Twin Americas filed a motion to dismiss under K.S.A. 60-212(b ), based on the first six statutory grounds (i. e., all but failure to join a necessary party). Attached were a brief in support and voluminous corporate records and other documents. The motion was argued and sustained on November 3, 1975, and this appeal followed.

As previously stated, the threshold question facing the trial court (and now this court) was one of personal jurisdiction. In this case that question turns on the manner in which plaintiffs elected to serve process.

As to the individual defendants service was by mail. Plaintiffs do not contend that such service was good, or that the individuals named ever became parties to this lawsuit. We are therefore concerned only with jurisdiction over the corporate defendant Twin Americas.

Twin Americas was served by delivery of the summons and petition to the secretary of state by the sheriff of Shawnee county. The petition requested that service be effected in this mode based on the allegation, "(t)hat under and by virtue of K.S.A. 17-6702 and K.S.A. 17-6703(e), said defendant, Twin Americas Agricultural and Industrial Developers, Inc., has irrevocably appointed the Secretary of State of the State of Kansas as its agent to accept service of process in any suit or other process arising out of the activities of said corporation." The first statute referred to deals with mergers of domestic with foreign corporations. Subsection (d ) provides that a foreign corporation surviving such a merger shall designate the secretary of state its agent for service of process in two types of cases: suits on obligations of previously existing Kansas corporations which have been merged into the foreign corporation, and suits against the foreign corporation arising out of the merger itself. The present suit is of neither type. The second statute pleaded, 17-6703(e ), merely recognizes the right of a Kansas corporation to merge with a parent or subsidiary domiciled outside the United States if permitted by the laws of the country of the foreign corporation's domicile. Neither of the statutes pleaded authorizes service on the secretary of state under the circumstances existing here, and at the hearing below plaintiffs abandoned their reliance on these "merger" statutes.

Plaintiffs also specifically disclaimed any reliance on the "long-arm" statute, K.S.A. 60-308. It is not contended that the petition alleges a cause of action "arising from" the "transaction of any business within this state" by Twin Americas. (K.S.A. 60-308(b ) (1).)

What they are left with are the statutes requiring foreign corporations wishing to do business in this state to register with the...