Senty v. Senty, No. 2004AP1556 (WI 3/28/2006)
| Decision Date | 28 March 2006 |
| Docket Number | No. 2004AP1556.,2004AP1556. |
| Parties | John L. Senty, Plaintiff-Appellant, v. James A. Senty and Consolidated Midwest, Inc., Defendants-Respondents. |
| Court | United States State Supreme Court of Wisconsin |
APPEAL from a judgment of the circuit court for Trempealeau County: ROBERT W. WING, Judge. Reversed and cause remanded for further proceedings.
Before Cane, C.J., Hoover, P.J., and Peterson, J.
John Senty appeals a summary judgment that dismissed his complaint against his brother, James, and Consolidated Midwest, Inc. (CMI). John argues the trial court erroneously shifted the evidentiary burden for summary judgment and erroneously considered potential remedies. We conclude genuine issues of material fact exist precluding summary judgment. Accordingly, we reverse the judgment and remand the case for further proceedings.
¶2 John and James are both sophisticated businessmen. John has a business degree, has been a bank director and officer, and at one time was president of Northern Investment Company. He is also licensed to sell registered securities, real estate, and insurance. James grew up working in the family's propane business, Midwest Bottle Gas, becoming its general manager in 1960. James also served as president of the National Propane Gas Association and chaired the State of Wisconsin Investment Board.
¶3 In 1985, James and John had the opportunity to purchase 70.1% of the Midwest Bottle stock from their parents and sister. James and John created CMI as a holding company, and CMI acquired the Midwest Bottle stock. At no time, however, did John invest any of his own money, including during the stock purchase. John holds 42% of CMI's voting stock. James owns approximately 55.5%.
¶4 According to documents filed with the Securities and Exchange Commission, CMI is organized under WIS. STAT. ch. 180 (2001-02). Chapter 180 corporations cannot be partnerships. CMI's articles of incorporation state it will continue in perpetuity. A 1985 organizational plan says there is no plan to liquidate or sell CMI except in the ordinary course of business.
¶5 CMI flourished and expanded. In 2000, James began seeking a purchaser for CMI's retail propane assets and entered into negotiations with Star Gas Propane. Ultimately, the transaction was approved with a $29 million purchase price for the assets, a $750,000 payment to John, a $1.825 million payment to James, and a payment to James' son Paul.
¶6 John's complaint arises from a series of agreements he claims he had with James regarding how to run CMI and its eventual sale. James, of course, challenges John's recollections. John also takes issue with a series of events concurrent to the Star Gas transaction that John claims were designed to freeze him out of or alienate him from CMI.
¶7 According to John, when he and James founded CMI in 1985, they agreed to run it as a partnership and build up the company for a few years before selling it and dividing the proceeds. In the mid-1990s, John deferred to James's determination that it was an inopportune time to sell the company.
¶8 From 1988 to 2001, John and James were the only members of the board of directors and never deadlocked on anything. James had day-to-day control of the corporation and John performed whatever tasks James assigned him. In 1997, when John turned sixty-five, James purportedly suggested he retire and collect social security. John rejected this notion, citing an inability to subsist on social security payments. John subsequently stopped receiving assignments from James.
¶9 When James was seeking a buyer for the propane assets, Star Gas initially offered approximately $25 million. The offer was sent in October 2000. On November 13, 2000, Star Gas sent a letter of intent to purchase the propane assets for $32 million plus a $500,000 consulting agreement payment to James. According to John, James informed him of the October offer on November 18, but James never mentioned the November 13 offer.
¶10 On November 22, Star Gas sent a new letter of intent to purchase the propane assets for $29 million. The new agreement also included the $500,000 consulting payment as well as a $3 million goodwill and noncompete payment to James. Allegedly without consulting John, James executed the November 22 offer, sometime prior to December 15. When James and John spoke on December 20, there was no mention of either November offer, but James agreed to call a special shareholder meeting on January 2, 2001.
¶11 John claims that sometime in November or December 2000, James told him that the Star Gas transaction would allow John to receive a $3-4 million payment. John asserts James told him on December 28 that the offer was $4-5 million in exchange for John's stock. John thought this figure too low since the propane assets—a small fraction of a company of which John held 42%— would, as far as John knew, be sold for $25 million.
¶12 At the January 2 special shareholder meeting, John, James, and James' son Paul were present. Paul—one of the holders of the 2.5% of stock not owned by John or James—moved to amend the bylaws to authorize up to five directors. James and Paul voted for the amendment while John abstained. Ultimately, a new board of directors was appointed, consisting of John, James, Paul, and two of James's business acquaintances.
¶13 On January 5, 2001, new company officers were elected, but John was not one of them. This left John unable to call board meetings. On January 5, James disclosed the November 22 offer for $29 million, but still did not disclose the $32 million offer.
¶14 James called a January 18 meeting for the sale's approval. The sale as proposed to the board was $29 million for the propane business, a $1 million payment to Paul, and a $2.5 million payment to James. But Star Gas had also expressly required John's approval of the sale. As a result of discussions with the board, it was agreed that John would receive a $750,000 payment out of the $3.5 million that was to go to James and Paul. James also purportedly agreed to engage in good faith negotiations to buy out John's stock. Ultimately, on the advice of counsel, John approved the sale. But in the final agreement executed with Star Gas, James ended up with $375,000 more than the board had approved, although the propane assets were still sold for the negotiated price.
¶15 John attempted to review the financial documents of the sale, but James refused. John asked James to call a special board meeting, and James finally agreed to a meeting on June 29. James, Paul, and one other board member arrived at the meeting, where John and his attorney were waiting. The meeting was called to order and immediately adjourned.
¶16 John filed this lawsuit on August 20, 2001. On October 10, the majority shareholders voted John off of CMI's board and removed him from all of CMI's subsidiaries. James then terminated John's employment.
¶17 John complains that he no longer has a benefit from holding 42% of the stock, that he has no voice and no way out of the company.1 Further, he alleges James personally used corporate assets and committed waste. John's amended complaint contains essentially two parts: an action for breach of fiduciary duty against James as an officer and director of CMI and an action seeking corporate dissolution based on "illegal, oppressive, or fraudulent conduct."
¶18 James moved for summary judgment. The court granted his motion. John contends the trial court granted summary judgment to James because it concluded dissolution was not an appropriate remedy. James asserts the court never reached the issue of remedies because it concluded John's summary judgment evidentiary submissions failed to make a case for oppression.
¶19 The court first noted the business judgment rule—that the judiciary should be reluctant to interfere in board decisions—and then noted that the power to dissolve a corporation should be used sparingly and with great caution. The court determined that John's expectations regarding running the business as a partnership, the sale of the business, and his continued employment were unreasonable because they were contrary to written documents, like the articles of incorporation and bylaws, that John had signed. The court determined there was no oppression because: when CMI added directors, John abstained rather than voting no; John's firing, after he sued CMI, was incident to a business goal; and his claim of waste was unsupported, barred by the unclean hands doctrine, and derivative in any event.
¶20 The court also ruled that the Star Gas transaction events were protected under the business judgment rule, that John waived any complaint when he approved the transaction, and that any complaints about injury resulting from the transaction were to the company, not John himself, and were therefore derivative. The court further stated that everything John complained of was protected by the business judgment rule. John appeals.
¶21 We review summary judgments de novo, using the same methodology as the circuit court. Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315-17, 401 N.W.2d 816 (1987). We first determine whether the pleadings set forth a claim for relief. Baumeister v. Automated Prods., Inc., 2004 WI 148, ¶12, 277 Wis. 2d 21, 690 N.W.2d 1. If a claim is properly stated, we examine the moving party's affidavits and other proof to determine whether there is a prima facie case for summary judgment. Id.
¶22 If the moving party establishes a prima facie case, the nonmoving party must establish disputed material facts, or undisputed material facts from which reasonable alternative inferences could be drawn, that would entitle the party to a trial. Id. We review all the evidence in the light most favorable to the nonmoving party. State Bank of La Crosse v. Elsen, 128 Wis. 2d 508, 512, 383 N.W.2d 916 (Ct. App. 1986). Summary judgment is...
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