Suburban Motors of Grafton, Inc. v. Forester

• Decision Date: 17 September 1986
• Docket Number: No. 85-1918,85-1918
• Citation: 396 N.W.2d 351,134 Wis.2d 183
• Parties: SUBURBAN MOTORS OF GRAFTON, INC., a Wisconsin corporation, Plaintiff and Cross-Appellant, v. Gordon B. FORESTER, as Personal Representative of the Estate of John G. Lange, Deceased, Defendant-Appellant and Cross-Respondent, Allen Knepfel, an individual, Interpleaded Defendant-Respondent, Wayne Houpt, an individual, Interpleaded Defendant and Cross-Appellant.
• Court: Wisconsin Court of Appeals

Page 351

396 N.W.2d 351

134 Wis.2d 183

SUBURBAN MOTORS OF GRAFTON, INC., a Wisconsin corporation Plaintiff and Cross-Appellant, v. Gordon B. FORESTER, as Personal Representative of the Estate of John G. Lange, Deceased, Defendant-Appellant and Cross-Respondent Allen Knepfel, an individual, Interpleaded Defendant-Respondent Wayne Houpt, an individual, Interpleaded Defendant and Cross-Appellant.

No. 85-1918.

Court of Appeals of Wisconsin.

Submitted on Briefs July 16, 1986.

Opinion Released Sept. 17, 1986.

Opinion Filed Sept. 17, 1986.

James H. Morgan of Morgan Law Office, Cedarburg, for defendant-appellant and cross-respondent.

F.M. Van Hecke of Van Hecke & Mank, S.C., Milwaukee, for respondent Allen Knepfel and plaintiff and cross-appellant Suburban Motors of Grafton, Inc. and interpleaded defendant and cross-appellant Wayne Houpt.

Before SCOTT, C.J., BROWN, P.J., and NETTESHEIM, J.

NETTESHEIM, Judge.

The estate of John G. Lange appeals from an order and judgment of the circuit court which imposed a constructive trust upon certain real estate owned by Lange's estate.

The order was premised upon the trial court's conclusion that Lange, as a member of the board of directors of Suburban Motors of Grafton, Inc. (Suburban), had breached his fiduciary duty to Suburban by failing to exercise a corporate opportunity; namely, Lange failed to exercise an option that he had granted to Suburban for the purchase of the real estate upon which Suburban conducted its motor vehicle dealership business. The order ran only to the benefit of Allen Knepfel, a former Suburban stockholder, who had previously been ordered joined as a party by the trial court on its own motion. The court concluded that, as between Knepfel and Wayne Houpt, the sole Suburban shareholder at the time of trial, Knepfel was the only party with clean hands and thus the only party entitled to relief. ¹ We conclude the evidence in this case fails to demonstrate a basis for relief under the doctrine of corporate opportunity. Therefore we reverse. ²

The controlling facts as found by the trial court, or as otherwise established to be undisputed, reveal that Lange had owned and operated an automobile dealership on the site in question for a number of years prior to Suburban's incorporation. On March 15, 1967, Suburban was incorporated by the mutual efforts of Lange, Houpt and Knepfel. At the time of incorporation, 50% of the stock was owned by Lange, 25% by Houpt and 25% by Knepfel. On April 1, 1967, Suburban and Lange entered into separate option and lease agreements. ³ Under the lease, Lange leased the site of his former automobile dealership to Suburban for purposes of its new automobile dealership. The lease was to run for five years with a renewal clause for an additional five years terminating March 31, 1977. The option agreement, although executed in 1967, did not commence until April 1, 1972, and terminated on March 31, 1977. Suburban never exercised the option. Lange died on July 4, 1978. The option price of the property was $80,000. At the time of the expiration of the option, the value of the real estate had increased to $400,000.

Following Lange's death, Suburban purchased a portion of the property covered by the option from Lange's estate. In addition, Houpt purchased all of the Suburban stock previously owned by Lange from Lange's estate. Knepfel's Suburban stock was repurchased by the corporation. Thus, at the time of trial, Houpt was the sole owner of all issued Suburban stock.

Initially, Lange argues that Suburban's action fails because it was not commenced within the time limits fixed for filing claims in the probate action. Suburban argued, and the trial court agreed, that the doctrine of corporate opportunity sounds in tort. Section 859.01(1) and (3), Stats., provides that such tort claims are not barred by the statutory time limits for filing claims in an estate proceeding. ⁴ As to this issue, Lange, Suburban and the trial court are in error. The remedy provided as a result of the improper seizure by a fiduciary of a corporate opportunity is the imposition of a constructive trust upon the benefit obtained. See Gauger v. Hintz, 262 Wis. 333, 351-52, 55 N.W.2d 426, 435-36 (1952). A constructive trust is imposed by a court of equity to prevent unjust enrichment which arises when one party receives a benefit the retention of which would be unjust as against the other party. First National Bank v. Nennig, 92 Wis.2d 518, 539, 285 N.W.2d 614, 625 (1979). The timeliness of the commencement of actions at law is governed by statutes of limitations whereas equitable actions are governed by considerations of laches. Elkhorn Area School District v. East Troy Community School District, 127 Wis.2d 25, 31-32, 377 N.W.2d 627, 630-31 (Ct.App.1985). Because it incorrectly concluded that Suburban's action was one at law in tort, the trial court did not address whether laches barred the action. This omission, however, is not fatal to this case because we nonetheless conclude that the evidence does not allow for application of the doctrine of corporate opportunity.

The trial court, invoking the doctrine of corporate opportunity, determined that Lange violated his fiduciary duty owed to the corporation by failing to exercise the option. The order imposed a constructive trust on that portion of the Lange property covered by the option agreement not previously conveyed by Lange's estate to Suburban. As previously noted, recovery was limited only to Knepfel and then only to the extent of the 25% ownership which he had previously held.

We first address our standard of review. We note that the issue here is not a question of the correctness of the trial court's factual determinations nor the sufficiency of the evidence to sustain those determinations. Rather, the issue on this appeal is whether the facts as determined by the trial court permit judgment for Knepfel. The issue raised by Lange is the equivalent of a motion for judgment notwithstanding the verdict in a jury case. ⁵ Such a motion does not raise the issue as to whether there is sufficient evidence to support the verdict; rather, it challenges whether the facts as found in the verdict are sufficient to permit recovery. Herro v. D.N.R., 67 Wis.2d 407, 413, 227 N.W.2d 456, 462 (1975). The question of whether facts fulfill a particular legal standard is itself a question of law. Eastman v. City of Madison, 117 Wis.2d 106, 112, 342 N.W.2d 764, 767 (Ct.App.1983). When reviewing a question of law, this court need not defer to the lower court's reasoning. Kramer v. Horton, 128 Wis.2d 404, 414, 383 N.W.2d 54, 58 (1986).

The seminal case from which the law of corporate opportunity springs is Guth v. Loft, Inc., 23 Del.Ch. 255, 5 A.2d 503 (1939). The doctrine was first pronounced in Wisconsin law in Gauger v. Hintz as follows:

"The doctrine of 'corporate opportunity' is nothing new to the law. It is but one phase of the cardinal rule of 'undivided loyalty' on the part of fiduciaries. In other words, one who occupies a fiduciary relationship to a corporation may not acquire, in opposition to the corporation, property in which the corporation has an interest or tangible expectancy or which is essential to its existence. This corporate right or expectancy, this mandate upon directors to act for the corporation, may arise from various circumstances; such as, for example, the fact that directors had undertaken to negotiate in the field on behalf of the corporation, or that the corporation was in need of the particular business opportunity to the knowledge of the directors, or that the business opportunity was seized and developed at the expense, and with the facilities of the corporation. So, it has been said that a director cannot be allowed to profit personally by acquiring property that he knows the corporation will need or intends to acquire, and that this interest, actual or in expectancy, must have existed while the person involved was a director or officer....

"If it is the duty of officers in a particular case to enter into a contract, or to purchase or take a transfer of property, on behalf of the corporation, and, in violation of this duty, they enter into the contract or acquire the property personally, they will not be permitted to retain the benefit, but will be held as trustees for the corporation."

Gauger, 262 Wis. at 351-52, 55 N.W.2d at 435-36 (quoting 3 W. Fletcher, Cyclopedia of the Law of Private Corporations § 861.1 (rev.perm.ed. 1975)). Our research reveals no further Wisconsin case which has addressed or refined this theory.

From the very outset, the courts have had little difficulty articulating the corporate opportunity doctrine but have recognized the vagaries of its application. "The occasions for the determination of honesty, good faith and loyal conduct are many and varied, and no hard and fast rule can be formulated. The standard of loyalty is measured by no fixed scale." Guth, 5 A.2d at 510. See also Miller v. Miller, 301 Minn. 207, 222 N.W.2d 71, 78 (1974).

We have searched in vain for a corporate opportunity case in which the opportunity to the corporation is occasioned by the action of the defendant fiduciary himself. It is this...