Plaintiffs' claims of breach of fiduciary duty, negligence, and misrepresentation made against officers of an investment fund for failure to timely prosecute claims of unlawful distributions to depositors were not barred by the doctrine of collateral estoppel when issues in plaintiffs' action were not the same as those issues adjudicated in a prior action.
Adjudication on the applicability of a statute of limitations in a prior action did not bar a later action under res judicata when evidence of different facts and circumstances was necessary to sustain each claim.
The opinion of the court was delivered by: Anderson, Paul H., Justice.
Heard, considered, and decided by the court en banc.
In October 2002, plaintiff-appellants Wayne Hauschildt and Patti Richmond Hauschildt, former depositors in the West Publishing Employees' Preferred Stock Association, commenced an action on behalf of themselves and others similarly situated against defendant-respondents who were officers of the association's Governing Board. The Hauschildts' complaint concerned events in late 1998. They allege that the officers failed to timely bring claims related to an allegedly improper 1992 dividend distribution, thus allowing the statute of limitations to expire. The Hauschildts' action is related to an earlier class action, Davies v. West Publishing Co., in which the Hauschildts were named parties and class members. In a 2001 decision rendered in Davies, the Minnesota Court of Appeals answered three certified questions allowing the statute of limitations to be asserted against claims based on 15 dividend distributions the association made from 1967 to 1993. Citing the decision in Davies, the officers moved to dismiss the Hauschildts' action under Minn. R. Civ. P. 12.02(e). The Dakota County District Court granted the officers' motion to dismiss after finding, inter alia, that under collateral estoppel and res judicata, the effect of the earlier Davies judgment was to bar the Hauschildts' action. The court of appeals reversed. We affirm the court of appeals.
The West Publishing Employees' Preferred Stock Association (WPSA) was an unincorporated voluntary association formed in 1913. From the outset, membership in WPSA was limited to West employees. Employees were considered WPSA members even if they had no active account or had no funds on deposit with WPSA. A governing board made investment decisions for WPSA. The eight-member board consisted of six officers, who were usually senior West executives, and two other members elected at the WPSA annual meeting.
West employees could deposit money with WPSA through payroll deductions and receive a variable interest rate on their deposits. WPSA earnings in excess of that distributed as interest to depositors resulted in an unallocated surplus from which dividends were occasionally distributed. Initially, WPSA distributed these dividends on a pro rata basis that was determined by the balance of each member's account. This practice changed in 1967 when WPSA began to pay dividends to all members without regard to whether they had deposit balances or whether they had ever made any deposits. Sixteen of these per capita distributions were made between 1967 and 1996 in amounts between $100 and $250 per member. Each distribution was accompanied by a written disclosure that the same dollar amount dividend was being paid "to every Association member in the permanent employ of West Publishing Company or West Services, Inc."
The last two per capita distributions were made on December 18, 1992 and November 29, 1996 in the amounts of $150 and $250 per member, respectively. The record indicates that the 1992 and 1996 distributions collectively totaled over $2.2 million. Of this $2.2 million, over $1 million was paid to West employees who had no deposits. Approximately $370,000 was paid to certain depositors in excess of the amount they would have received had the dividends been distributed on a pro rata basis. See, e.g., Minn. Stat. § 50.17 (1994) (requiring, in part, that distributions to members of a savings bank's surplus be made pro rata).*fn1 The 1992 distribution totaled $749,100 and was given to 4,994 members. The 1996 distribution totaled $1,479,750 and was given to 5,919 members.
In 1996, West was acquired by The Thomson Corporation. At some time after the acquisition and merger, West and WPSA's board retained outside counsel to review the history and purposes of WPSA. At an October 1, 1998 WPSA board meeting, outside counsel advised the board that WPSA was operating in possible violation of state and federal regulations for financial and/or savings institutions. Counsel also advised the board that WPSA should have made the unallocated surplus distributions pro rata in accordance with the deposits rather than per capita. Counsel told the board that six years appeared to be the longest applicable statute of limitations for any claims arising from the failure to make the distributions pro rata. At this same meeting, the board adopted a resolution detailing how the unallocated surplus would be distributed and proposing to members that WPSA be dissolved.
Two weeks later, on October 15, 1998, the WPSA board held a special meeting. At this meeting, outside counsel advised the board that "WPSA should have from time to time in the past distributed some part of its unallocated surplus in accordance with deposits, but WPSA did not do so." The board then refined the distribution plan adopted at the October 1 meeting and adopted resolutions that superceded the October 1, 1998 resolutions.
The next day, October 16, WPSA held its annual meeting. Approximately 60 people attended this meeting. The meeting's minutes reflect that Board President Dennis Beckingham-a West Executive Vice President, West's Chief Financial Officer, and one of the defendants in the case at bar-"commented about the status" of WPSA. According to the minutes, Beckingham explained that WPSA had been started before there were any state or federal laws governing such investment organizations. He stated that the board had learned that WPSA was "not in compliance with current laws regulating these types of organizations." He also stated that the board had requested help from outside counsel to bring WPSA into compliance with the law and to investigate dissolution of the association. Beckingham also "assured the members that their money is not at risk."
In response to questions from members, Beckingham explained that the dissolution process may take from three to six months depending on federal and state regulatory agencies, and that the board "has bent over backwards to recommend a plan [for distribution of funds] that is fair and equitable to all members." When asked if there could be penalties for noncompliance, Beckingham replied that the board did not know, but it "hope[d] this will be viewed as an honest mistake. Although [WPSA] is not in compliance with the law, members have benefited from its operation. The Board inherited this situation and is taking prudent action." In response to other questions, Beckingham stated that about 2,600 members used WPSA,*fn2 and the distribution of any existing surplus would go only to those with balances on certain record dates "over the past 6 years." The minutes of the annual meeting do not indicate whether members were told at any time during the meeting specifically how WPSA was not in compliance with the law or whether members were told that the past per capita distributions were improper.
Following the annual meeting, Beckingham, in an October 30 letter to WPSA members, again addressed the status of WPSA and issues related to its dissolution. Beckingham again assured members that their individual funds were not at risk and stated that the board "has had and will continue to have the best interests of the members in mind during any dissolution or merger process." The only information in the letter regarding why dissolution had been proposed was a repetition of the statements made at the annual meeting that WPSA was established in 1913 and that the board recently discovered that WPSA "does not comply with current laws regulating such organizations."
WPSA's outside counsel sent a letter, dated December 10, 1998, to the Minnesota Commissioner of Commerce. The letter described the nature of WPSA's noncompliance and proposed various steps to either bring WPSA into compliance or to dissolve the association. The letter requested that the commissioner take no action against WPSA. Six months later, pursuant to a June 18, 1999 ...