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Blum v. Thompson

Court of Appeals of Minnesota

August 14, 2017

Kathryn Ward Blum, et al., Appellants,
v.
Molly Thompson, et al., Respondents, and Thomas Ward, Co-Appellant, Richard Ward, Respondent, Kevin Ward, Respondent, Ward Family, Inc., Respondent.

         Stearns County District Court File No. 73-CV-14-1829

          John F. Mathews, Kelly A. Larson, Hughes Mathews Greer, P.A., St. Cloud, Minnesota (for appellants Kathryn Ward Blum and Charles Ward).

          Mark V. Steffenson, Henningson & Snoxell, Ltd., Maple Grove, Minnesota (for co-appellant Thomas Ward).

          Paul A. Rajkowski, Matthew W. Moehrle, Christopher A. Wills, Rajkowski Hansmeier Ltd., St. Cloud, Minnesota (for respondents Molly Thompson and Ann Sullivan).

          Robert H. Wenner, Reichert Wenner, P.A., St. Cloud, Minnesota (for respondent Richard Ward).

          Boe M. Piras, Willenbring, Dahl, Wocken & Zimmerman, PLLC, Cold Spring, Minnesota (for respondent Kevin Ward).

          Thomas A. Janson, Janson Law Office, Waite Park, Minnesota (for respondent Ward Family Inc.).

          Considered and decided by Larkin, Presiding Judge; Johnson, Judge; and Reilly, Judge.

         SYLLABUS

         1. A plaintiff who establishes liability on a claim of breach of fiduciary duty may, in appropriate circumstances, obtain relief in the form of monetary damages.

         2. A document that is not an agreement between or among shareholders may be relevant to the reasonable expectations of shareholders in a closely held corporation for purposes of Minnesota Statutes section 302A.751, subdivision 3a.

          OPINION

          JOHNSON, Judge.

         Three minority shareholders of a family-owned corporation, Ward Family Inc., brought this lawsuit after the corporation leased its sole asset, 1, 200 acres of real property, to a corporation owned by another family member, on terms that the plaintiff shareholders believe are unfavorable to them and to Ward Family Inc. The district court entered summary judgment in favor of the defendants on the plaintiffs' claims of breach of fiduciary duty and oppression of minority shareholders' rights. We conclude that the district court erred in those rulings. But we also conclude that the district court did not err by entering summary judgment in favor of the defendants on the plaintiffs' derivative claims. Therefore, we affirm in part, reverse in part, and remand for further proceedings.

         FACTS

         Richard Ward and Rosemary Koop Ward were married in 1958. During their marriage, they had seven children: Kathryn Ward Blum, Charles Ward, Kevin Ward, Thomas Ward, Molly Thompson, Ann Sullivan, and Maggie Motyl.

         History of Corporate Asset

         In the 1960s, Richard and Rosemary acquired 1, 200 acres of rural property in Stearns County from Rosemary's parents. In the 1960s or 1970s, Richard and Rosemary also purchased El Rancho Manana Inc. (ERMI) from Rosemary's parents. Through ERMI, Richard and Rosemary operated a commercial campground and a horse stable on approximately 200 acres of the 1, 200-acre property for approximately two decades. Richard and Rosemary's children worked for the campground during their childhood years, and some children continued to do so in adulthood. Family members generally refer to both the property and the associated business as "the ranch." Family members also have used the property for both recreational and revenue-producing activities, including farming, cross-country skiing, snowmobiling, deer hunting, footraces, concerts, rodeos, cattle grazing, logging, and treasure hunts.

         Richard and Rosemary were divorced in 1985. They stipulated to a dissolution decree that awarded all of the 1, 200-acre property and all shares of ERMI to Richard. But the dissolution decree contained numerous restrictions on Richard's interests in the real property and ERMI. The relevant provisions of the dissolution decree are as follows:

3. That [Richard] shall assume ownership and title to certain real estate, commonly referred to as El Rancho Manana Campgrounds and Riding Stable which is legally described as follows:
b. Should [Richard] remarry, he shall execute a valid premarital agreement pursuant to Minnesota Statutes to be signed by both himself and his new spouse. Said premarital agreement will confirm that the above-described real estate will always be a part of [Richard]'s Estate, singly and separately, and [Richard]'s new spouse and/or issue of that marriage will not acquire any right, title or interest in the [land] by virtue of the marriage or in any other way.
c. [Richard] within ninety (90) days of the entry of the judgment and decree in this matter [shall] execute a will which shall devise the above referenced real estate in the following proportions:
(1) An undivided 3/10 interest to Rosemary Ward, if living and an undivided 7/10 interest or all thereof if Rosemary Ward is not then living, to the then living children of this marriage or the living issue of any predeceased child by right of representation.
(2) The above referenced provisions of [Richard]'s will shall remain in effect at his death, and shall not be subject to change by [Richard].
(3) In the event [Richard] fails to have a will with the above referenced provision in full force and effect at the time of his death, [Rosemary] and the children of this marriage or the living issue of any predeceased child by right of representation shall have a claim against [Richard]'s estate in an amount equal to the value of their respective interests as stated above.
d. [Richard] shall prior to selling said property give to [Rosemary] and each of the children of this marriage the option to purchase said real estate at or below the same price and upon the same terms as offered by a bona fide purchaser.
e. [Richard] may encumber [the land] to secure a loan or any other indebtedness only if said loan or indebtedness is used to improve [the land] or the business presently being conducted thereon.
f. [Richard] and the parties' children shall have sole discretion as to whether [the land] should be sold in the future. Any sale shall be for not less than the [land]'s fair market value. In the event said real estate is sold the proceeds, after payment of all mortgages, liens, taxes, and reimbursement to [Richard] for costs incurred by him for any capital improvement made to the real estate from the date of transfer to the time of sale, which has been paid for by him, shall be divided as follows: Thirty-five percent (35%) of said net proceeds paid to [Richard], Thirty percent (30%) paid to [Rosemary], and Thirty-five percent (35%) to the parties' seven natural children or the living issue of any predeceased child by right of representation. In the event that [Rosemary] is deceased at the time of sale, her respective share of the net proceeds shall be divided equally between [Richard] and the children of this marriage or the living issue of any predeceased child by right of representation.
4. [Rosemary] shall execute any and all documents necessary to transfer her shares of stock in the Minnesota Corporation El Rancho Manana, Incorporated to [Richard].
a. [Richard] shall draft an agreement relating to the operation of [ERMI] and its business providing that [Richard] and the seven natural children of the parties shall have direct, decision making authority relating to the conduct of the business, expansion and/or improvements.

         After the divorce, Richard continued to operate the campground on the property that he was awarded in the dissolution decree.

         Formation of WFI

         On December 7, 1998, Richard formed Ward Family Inc. (WFI). His stated purpose in doing so was to allow him to give the 1, 200-acre property to his seven children incrementally, with minimal gift taxes and estate taxes. Three days after forming the corporation, Richard transferred his interest in the 1, 200-acre property to WFI by a quitclaim deed. At the same time, WFI's counsel asked Rosemary to transfer any interest she may have in the 1, 200-acre property to WFI by a quit-claim deed. In a letter dated December 10, 1998, corporate counsel explained to Rosemary the reasons for the request:

First, the purpose of all of this is to have the ranch real estate transferred to the seven children. In your divorce decree there are provisions requiring the property to be left to the children in the event of Dick's death, or the granting of a claim against his estate if it is sold. By transferring the real estate to the corporation, Dick will be able to gift the shares to the children over a period of a few years and retain some or all of his credit against estate and gift tax. . . .
Second, by transferring the real estate to the corporation, the title should be cleared of the claims in the divorce decree so the children will be able to eventually work with the property without any title problems.
Third, the Stock Redemption and Alternate Purchase Agreement goes a few steps beyond protecting the shares of stock. In order to continue the desire you have to keep the title to the real estate in the children I have specifically provided that the real estate, once in the corporation, may not be sold without the agreement of all of the shareholders until sufficient shares have been transferred to the children to give them, collectively, control of the corporation. After that I stated that the real estate could only be sold upon agreement of seventy-five percent of the outstanding shares. I did this so if the children should decide that the land, or part of it, is to be sold, the sale would not be prevented by any one or two stockholders. . . . Also, I included provisions that were requested in terms of keeping the real estate in the blood line. . . .

         Drafts of a quit-claim deed and a redemption-and-purchase agreement were enclosed with the letter. On December 16, 1998, Rosemary executed a quit-claim deed in favor of WFI.

         On December 17, 1998, Richard gave approximately two percent of the outstanding shares of WFI to each of his seven children. On December 25, 1998, WFI's counsel met with the seven children. After some discussion, each of them executed a quit-claim deed in favor of WFI. The proposed redemption-and-purchase agreement never was ...


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