Sundberg v. Abbott

• Decision Date: 03 May 1988
• Docket Number: No. C8-87-2084,C8-87-2084
• Citation: 423 N.W.2d 686
• Parties: Carol H. SUNDBERG, et al., Respondents, v. Charles M. ABBOTT, et al., Leonard F. Lampert, Appellants, David C. Donnelly, et al., Defendants, Lampert Lumber Company, Appellant.
• Court: Minnesota Court of Appeals

Page 686

423 N.W.2d 686

Carol H. SUNDBERG, et al., Respondents, v. Charles M. ABBOTT, et al., Leonard F. Lampert, Appellants David C. Donnelly, et al., Defendants Lampert Lumber Company, Appellant.

No. C8-87-2084.

Court of Appeals of Minnesota.

May 3, 1988.

Review Denied June 29, 1988.

Syllabus by the Court

1. Decision in former action that respondents were not entitled to relief sought was not a decision based on their lack of standing.

2. Present claims are barred by former action.

James H. Kaster, Nichols, Kaster & Anderson, Minneapolis, for Carol sundberg.

Merlyn C. Green, Maun, Green, Hayes, Simon, Johanneson and Brehl, St. Paul, for Charles Abbott.

Charles W. Faulkner, Faulkner & Faulkner, Minneapolis, for Leonard Lampert.

Eric J. Magnuson, Rider, Bennett, Egan & Arundel, Minneapolis, for Lampert Lumber Co.

Heard, considered and decided by HUSPENI, P.J., and FORSBERG and CRIPPEN, JJ.

OPINION

HUSPENI, Judge.

Respondents brought suit seeking damages for themselves and for the corporation in which they are minority shareholders alleging breach of fiduciary duty, fraud and corporate waste. Appellants moved for summary judgment, arguing the decision in Sundberg v. Lampert Lumber Co., 390 N.W.2d 352 (Minn.Ct.App.1986), pet. for rev. denied (Minn. Sept. 22, 1986) (Sundberg I ) makes this matter res judicata. The trial court denied appellants' motion, ruling that respondents had merely misconceived their remedy in the first action and thus were not barred from bringing the present suit. The trial court then certified the following question as important and doubtful:

Does the decision of the Court of Appeals [in Sundberg I ] constitute a judgment on the merits and bar all or part of the present action under the principles of res judicata?

We answer the certified question in the affirmative and reverse.

FACTS

Respondents, known as the "Hutch Shareholder Group," own ten percent of the outstanding stock of Lampert Lumber Company. In 1983, they brought an action seeking a forced redemption of their shares of the company. In that action, respondents alleged that Lampert's directors had been redeeming shares for members of the control group without making the same offer of redemption to the members of the Hutch Shareholder Group. (A more detailed account of the history of this case is set forth at 390 N.W.2d 354-55.) The trial court found in favor of respondents and ordered appellants to redeem the shares of the Hutch Shareholder Group. This court reversed the trial court in Sundberg I.

On February 18, 1987, respondents filed the present action seeking an "available remedy" other than forced redemption. The allegations of the present action largely parallel those made in the 1983 action. The primary difference between the claims is the addition of an allegation that John R. Lampert fraudulently denied that there had been redemptions of Lampert stock in 1979.

The trial court, in the present action, found that the decision in Sundberg I was not a decision on the merits and therefore the doctrine of res judicata was inapplicable. In reaching its decision, the trial court relied on Ross v. Amiret Farmers' Elevator Co., 178 Minn. 93, 226 N.W. 417 (1929), wherein the court stated:

If plaintiff misconceived his remedy and is defeated on that ground, it is not an adjudication on the merits and he is not barred [from bringing a new action].

178 Minn. at 96-97, 226 N.W. at 419.

In applying the ruling of Ross to the facts of this matter, the trial court stated:

"[I]t is clear that [respondents] misconceived their remedy and were defeated solely on that ground. Sundberg I, therefore, did not result in a judgment on the merits."

The court denied appellants' motion for summary judgment.

ISSUES

1. Was the decision in Sundberg I based on respondents' lack of standing?

2. Is the present action barred by the doctrine of res judicata?

ANALYSIS

I.

The trial court in Sundberg I set forth three separate bases upon which it granted to respondents the relief they requested:

(1) Minn.Stat. 302A.751, subd. 2 (1984) authorizes use by the court of the remedy of a mandatory buy-out when the directors of a corporation act in a manner 'unfairly prejudicial toward one or more shareholders'; (2) Under the equal opportunity rule first enunciated in Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578, 328 N.E.2d 505 (1975), the majority shareholders in a close corporation owe a fiduciary duty to the minority which requires that if the corporation purchases the stock of a member of the controlling shareholder group, it must offer all other shareholders an equal opportunity to sell their stock on the same terms; and (3) Lampert's Board violated the standard of conduct set forth in Minn.Stat. § 302A.251 (1984) by redeeming Bergen's stock without adequate consideration given for the consequences of its decision to the corporation or its shareholders.

390 N.W.2d at 355-56.

In reversing the trial court in Sundberg I, this court held (1) the equitable remedy of buyout set forth in Minn.Stat. § 302A.751, subd. 2 is available only where the corporation involved is a "closely held" corporation; (2) the equal opportunity rule of Donahue also applies only to closely held corporations; (3) appellants were not liable to respondents for violating Minn.Stat. § 302A.251 because respondents did not argue and the court did not find that the directors' decision to purchase stock harmed the corporation in any way.

Respondents argue on appeal here that Sundberg I merely held that respondents lacked standing to sue for forced redemption of shares under Minn.Stat. § 302A.751, subd. 1(b)(2) (1984) and therefore the doctrine of res judicata does not apply. We note initially our agreement with respondents' contention that res judicata will not be applicable if in fact the decision in Sundberg I was based on lack of standing. We therefore must address the concept of "standing."

"Standing has been called one of 'the most amorphous [concepts] in the entire domain of public law.' " Flast v. Cohen, 392 U.S. 83, 99, 88 S.Ct. 1942, 1952, 20 L.Ed.2d 947 (1968) (quoting Hearings on S. 2097 before the Subcommittee on Constitutional Rights of the Senate Judiciary Committee, 89th Cong., 2d Sess., 465, 498 (1966); statement of Prof. Paul A. Freund). The concept of standing is filled with "complexities and uncertainties." Flast, 392 U.S. at 99, 88 S.Ct. at 1952. However, "[t]he fundamental aspect of standing is that it focuses on the party seeking to get his complaint before a * * * court and not on the issues he wishes to have adjudicated." Id. (emphasis added). The essential question is "whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues." Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975).

This court in Sundberg I did not address whether respondents were the proper parties to bring suit. It did not address whether respondents were in the proper forum. It did not address issues of procedure to which the doctrine of res judicata would be inapplicable. Instead, the first two issues addressed in Sundberg I dealt with whether or not Lampert Lumber was a closely held corporation. This court focused on the nature of the company, not on the nature of the parties. The third issue addressed by the Sundberg I court dealt with whether or not there had been a violation of Minn.Stat. § 302A.251. All three issues specifically addressed the question of whether respondents were entitled to the relief which they sought. The Sundberg I court made no determination that respondents were not entitled to have the court decide the merits of the dispute.

Respondents cite several cases in support of their contention that this case should not be barred by the doctrine of res judicata. In McCarney v. Ford Motor Co., 657 F.2d 230 (8th Cir.1981), plaintiff initially brought suit under 15 U.S.C. § 1221 et seq., known as the Automobile Dealer's Day in Court Act. The first suit was dismissed "on the ground that McCarney, as an individual, lacked standing under the Dealer's Day in Court Act." 657 F.2d at 231 (emphasis added). McCarney filed a second suit in which he alleged anti-trust violations, wrongful termination of contract, violation of fiduciary duty, and wrongful interference with an employment contract. The defendants challenged the second suit, arguing the applicability of the doctrine of res judicata. The court held that because the first dismissal was based on plaintiff's standing, the doctrine of res judicata did not apply. Unlike this case, it is clear that the dismissal in the first action in McCarney focused on the individual's right to bring suit under 15 U.S.C. § 1221. There is no question but that the respondents in this action, as minority shareholders, had a right to bring suit under Minn.Stat. § 302A.751. Having that right, they failed to prevail in arguing that they were entitled to the equitable relief of mandatory buyout. Simply because they did not succeed in the first action does not mean respondents failed because they lacked standing.

In Warren Co. v. Neel, 284 F.Supp. 203 (W.D.Ark.1968), plaintiff initially brought suit in an Arkansas Chancery Court seeking restitution under a sales contract. The court found that because plaintiff was a Georgia corporation and none of the alleged transactions were interstate in nature, plaintiff's claims were "unenforceable in the Courts of the State of Arkansas * * * and should be dismissed." Id. at 206. When plaintiff subsequently filed suit in federal court, the court rejected defendant's claims of res judicata stating:

The Chancery Court specifically found that [plaintiff] was not authorized to maintain the suit on the written instruments or upon the contracts evidenced by the written instruments, and further found that there was no evidence showing that the transactions between [plaintiff] and [defendant] were...