Chapter 39
Corporate Formation
and Financing
Case 39.1
977 So.2d 722, 33 Fla. L. Weekly D829
District Court of Appeal of Florida,First District.
Paul R. WILLIAMS and James F. Williams, Jr., on Behalf of Brown & Stanford Company, Inc., a
Florida Corporation d/b/a J.C. Stanford & Company, Inc., Appellants,
v.
corporations law. We decide here whether minority shareholders who object to a total transfer of corporate assets,
and who allege that the majority shareholder has engaged in a course of conduct involving improper self-dealing and
malfeasance over time, are limited to the statutory remedy of offering up their shares for a fair price. We conclude that
Florida law does not so constrain minority shareholders’ rights in the limited cases where such shareholders raise
facially sufficient and serious allegations of unfairness. In such cases, minority shareholders may seek remedies
At some point, the Williams brothers began to harbor suspicions about Mr. Stanford’s management of B & S finances.
When, despite increasing revenues, the once-profitable company recorded a net loss for calendar year 2001, the
Williams brothers asked Mr. Stanford to permit them to examine B & S’s financial records. Mr. Stanford initially made
limited records available, but two days later, on May 6, 2002, he summarily fired the brothers.
Subsequent investigation-much of it in the form of discovery-procured evidence that Mr. Stanford and his wife had
fiduciary duty by paying personal expenses with company monies, and a claim that they breached their common law
duty of loyalty-which are not on appeal.
In July 2003, the Stanfords retained appellee Henderson Keasler, a Florida law firm, to represent themselves
individually *725 and to represent B & S in defense of the derivative action. Sometime afterward, Mr. Stanford
apparently expressed his desire to stop working for B & S, in counsel’s words, as “an indentured servant to [the
Son, Inc., and transfer B & S’s assets to Stanford & Son in exchange for the latter’s assumption of B & S’s liabilities.
The asset transfer, which appellees have loosely characterized as a merger, began on November 1, 2003; the
Williams brothers happened upon the news of the asset transfer during a November 24, 2003, deposition of Mr.
Stanford, at which time the transaction was well under way. Mr. Stanford, through counsel, notified appellants by
letter dated December 4, 2003, that the company would purchase each brother’s B & S stock for $25,000, and that
worth $125,000, substantially more than the $25,000 price Mr. Stanford offered for all twenty-one. In a subsequent
declaratory action filed by appellees, the trial court ruled in May 2004 that the Williams brothers’ “conditional” exercise
of their appraisal rights was a nullity-that a shareholder entitled to appraisal must elect appraisal as to all or none of
the shareholder’s interest. Appellants do not challenge that ruling in this appeal.
Meanwhile, in the still-pending derivative action, the Williams brothers, having learned of the asset transfer, moved to
2006, adding a sixth count for rescission and cancellation of the transfer of B & S’s assets to Stanford & Son.
On March 27, 2006, the trial judge granted the defendants’ motions for partial summary judgment as to counts IV and
V, and granted their motion to strike the prayer for relief in count II, the claim against the Stanfords and Stanford &
Son for breach of fiduciary duty stemming from the asset transfer and which sought imposition of a constructive trust
on Stanford & Son’s profits. On June 21, 2006, the trial court granted summary judgment as to count VI, the
I.
Permeating the causes of action advanced here are the Williams brothers’ specific allegations (though as yet
unproven) of unfair dealing and breaches of fiduciary duty on the Stanfords’ part, which culminated from several years
of alleged value-destroying activities. Although appellants present numerous issues for review, the essential issue is
whether Florida’s “appraisal rights” statute thwarts the Williams brothers in their efforts to obtain judicial scrutiny of the
transfer of B & S assets from B & S to J.C. Stanford & Son, a company Mr. Stanford created with the admitted
(1) A shareholder is entitled to appraisal rights, and to obtain payment of the fair value of that shareholder’s shares,
in the event of any of the following corporate actions:
(c) Consummation of a disposition of assets pursuant to s. 607.1202 if the shareholder is entitled to vote on the
§ 607.1302(1), Fla. Stat. (2003). Appraisal must determine the “fair value” of the dissenting shareholder’s shares.
See
id.
“ ‘[F]air value’ means the value of the corporation’s shares determined: (a) Immediately before the effectuation of
the corporate action to which the shareholder objects.Ӥ 607.1301(4)(a), Fla. Stat. (2003). The trigger here is Mr.
(4)(b) and constitute facially sufficient allegations that raise factual issues for resolution by a finder of fact. The
argument has force. Pending a fact-finder’s determination as to the truth of the Williams brothers’ allegations, the
brothers suggest they have shown “fraud or material misrepresentation” entitling them, in their shareholder-derivative
stance, to rescission or such other curative remedies as might restore the parties to the status quo ante. We reject the
concept, implicit in appellees’ argument, that a buy-back at the fair value of the stock immediately before the
significant of these holds that dissenting minority shareholders should be entitled to remedies beyond appraisal when
challenging corporate transactions as allegedly not entirely fair, and certainly where such transactions have
fraudulently devalued the stock.
In
Weinberger v. UOP, Inc.,
the Delaware Supreme Court sketched, in broad strokes, the principle that a shareholder
can challenge a corporate transaction premised on unfair dealing by exercising rights beyond mere appraisal. 457
we do not intend any limitation on the historic powers of the Chancellor to grant such other relief as the facts of a
particular case may dictate.
The appraisal remedy we approve may not be adequate in certain cases, particularly
where fraud, misrepresentation, self-dealing, deliberate waste of corporate assets, or gross and palpable
overreaching are involved.
Id.
at 714 (emphasis added).
would have been entitled to equitable remedies beyond an appraisal of their shares.
Id.
at 1107 (quoting
Cole v. Nat’l
Cash Credit Ass’n,
156 A. 183, 187-88 (Del.Ch.1931)).
Beyond the Delaware Supreme Court’s exposition of persuasive common law tenets, we note that a Delaware
chancery court has now applied the
Weinberger
–
Rabkin
framework to its own construction of the 2003 version of
section 607.1302(4)(b), Florida Statutes (2003). *729
Berger v. Intelident Solutions, Inc.,
911 A.2d 1164
Stanford resigned as B & S’s qualifying agent, depriving B & S of its ability to conduct an ongoing construction
business. The complaint raises more than a specter that, at the time appraisal rights would have arisen, the Williams
brothers’ shares could not have been worth much.
In cases such as the present controversy, involving dissenting shareholders who seek more than appraisal of their
shares in the wake of objectionable transactions, courts must balance the principle that an adequate remedy should
Stanfords’ part, would not have afforded the Williams brothers adequate recourse in this particular case. We find the
allegations of the Stanfords’ various activities analogous to those advanced against the defendants in
Rabkin,
who
allegedly manipulated the timing of a merger to reduce the cash-out price paid to minority shareholders upon
appraisal.
See Rabkin,
498 A.2d at 1107.
Appellants’ right to appraisal would have been as of the November 2003 asset transfer; we find nothing in the statute
607.1302(1)(c), Fla. Stat. (2003) (providing*730 that appraisal right is triggered upon,
inter alia,
“[c]onsummation of a
disposition of assets”). Because the appraisal must be conducted with regard to the shares’ value “[i]mmediately
before the effectuation of the corporate action to which the shareholder objects,”Section 607.1301(4)(a), Florida
Statutes (2003), appraisal would likely have yielded an inequitable result. The 2003 asset transfer represents
precisely the type of transaction contemplated in
Rabkin
and
Weinberger
-one so procedurally and structurally unfair
2005). Assuming
Rudolf
supplies the controlling rule, we find the present case distinguishable, in that only the
Stanfords, instead of all shareholders, acting for B & S, approved the conflict waiver. Any conflict of interest that arose
from Henderson Keasler’s representation of the Stanfords individually and its concomitant representation of B & S
was therefore not properly waived, and the trial court should not have dismissed appellants’ claim against the firm
alleging breach of fiduciary duty.
fiduciary duty to B & S. Accordingly, we reverse and remand with instructions that the trial court consider both
appellants’ claim against Henderson Keasler and their demand for the imposition of a constructive trust in light of their
allegations of fraud and unfair dealing surrounding the transfer of B & S assets.
III.
[8] Because we conclude appellants presented legally sufficient claims and reverse the summary judgment entered
judgment as to Count IV, we reverse the fee award, concluding that the claim for trade name infringement, though
unsuccessful, did not fall below the bar set by section 57.105.
[9] Appellants have also appealed the award to appellees of attorney’s fees incurred during the declaratory action, at
the conclusion of which the court determined that election as to some shares does not constitute a valid exercise of
the appraisal right. The court awarded attorney’s fees to appellees pursuant to section 607.1331(2)(b), Florida
607.1331(2)(b), Florida Statutes (2006).
CONCLUSION
In light of the foregoing, we AFFIRM the summary judgment for appellees on *732 the Williams brothers’ claim for
Case 39.2
Ala.,2009.
1061314.
Feb. 20, 2009.
SMITH, Justice.
*1 The plaintiffs below, Alabama MBA, Inc., and Hugh W. Brown, Jr., appeal from a summary judgment in favor of the
defendant, W.P. Media, Inc., in this action seeking damages for breach of contract. We reverse and remand.
separate count, Brown alleged that in 2003 he had personally loaned W.P. Media $100,000 pursuant to a loan
590 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
agreement and that W.P. Media had breached the loan agreement.
In December 2005, Brown moved for a partial summary judgment on the breach-of-loan-agreement claim. The trial
court entered a partial summary judgment for Brown on that claim and awarded damages. The trial court also certified
After a hearing, the trial court issued an order setting aside its previous order denying W.P. Media’s motion for a
summary judgment, entered a summary judgment for W.P. Media on the breach–of-contract claim, and held that the
motions to compel arbitration and for a change of venue were moot. Brown and Alabama MBA appeal.
Standard of Review
[1][2][3][4][5]“ ‘This Court’s review of a summary judgment is de novo.
Williams v. State Farm Mut. Auto. Ins. Co.,
870, 871 (Ala.1989).” ’
*2
Prince v. Poole,
935 So.2d 431, 442 (Ala.2006) (quoting
Dow v. Alabama Democratic Party,
897 So.2d 1035,
1038-39 (Ala.2004)).
Discussion
[6] The issue in this case is whether Alabama MBA was properly incorporated both at the time the operating
Corporate existence begins when articles of incorporation are filed, unless a later effective date is specified in the
articles. Alabama Code 1975, § 10–2B-2.03, states:
CHAPTER 39: CORPORATE FORMATION AND FINANCING 591
“(a) Unless a delayed effective date is specified, the
corporate existence begins when the articles of incorporation
are filed.
Harris v. Stephens Wholesale Bldg. Supply Co.,
54 Ala.App. 405, 408, 309 So.2d 115, 117 (1975).”
Eagerton v. Second Econ. Dev. Coop. Dist. of Lowndes County,
909 So.2d 783, 789 (Ala.2005). In contrast, a “de
jure corporation” is “[a] corporation formed in accordance with all applicable laws and recognized as a corporation for
liability purposes.”
Black’s Law Dictionary
366 (8th ed.2004). It appears undisputed that Alabama MBA was not a de
jure corporation at the time the operating agreement was executed.
instance, estoppel cannot apply to one who has not dealt with the organization or in any way recognized it as
having corporate existence, or who has participated in holding it out as a corporation. In the second instance, where
a party has contracted or otherwise dealt with an organization, believing it to be a corporation, there may have been
no holding out of corporate status by the organization. In either instance, estoppel arises from the contract or
course of dealing by the parties and is applicable in a suit by the party dealing with the organization, as well as in a
and, therefore, it did not have standing to sue. We stated:
“These arguments are also without merit…. Although Perdido Pass’s articles of incorporation were filed before the
signing of the deed, the evidence shows that Perdido Pass was treated as a corporation by all parties, including
592 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
Orange Beach. Orange Beach received various applications from Perdido Pass, issued receipts to Perdido Pass for
de jure-or perhaps even de facto-insofar as the transaction here is concerned, it should be regarded practically as a
corporation, being recognized as such by the parties themselves. In other words,
the incidents of corporate
existence may exist as between the parties by virtue of an estoppel.
Thus, besides corporations de jure and de
facto, there can be a recognition of a third class known as ‘Corporations by estoppel.” ’
Bukacek,
286 Ala. at 145, 237 So.2d at 853 (emphasis added).
Media from denying Alabama MBA’s corporate existence for purposes of challenging the validity of the operating
agreement.
City of Orange Beach, supra; Bukacek, supra.
FN2
[8] WP Media also contends that Alabama MBA was not properly incorporated at the time it filed the instant action;
thus, it argues, Alabama MBA was not a “real party in interest” under Rule 17, Ala. R. Civ. P., and cannot maintain