The opinion
MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2016 ME 68
Docket: BCD-15-287
Argued: March 3, 2016
Decided: May 10, 2016
Panel: SAUFLEY, C.J., and ALEXANDER, MEAD, GORMAN, JABAR, HJELM, and
HUMPHREY, JJ.
NATHALIE TAFT ANDREWS et al.
v.
SHEEPSCOT ISLAND COMPANY
GORMAN, J.
[¶1] After the shareholders of Sheepscot Island Company (SICO) approved
a plan to convert from a for-profit corporation into a nonprofit corporation, several
dissenting shareholders (collectively, the Tafts) sought declaratory and injunctive
relief in the Business and Consumer Docket.1 The court (Murphy, J.) dismissed
the Tafts’ complaint pursuant to M.R. Civ. P. 12(b)(6), concluding that the Tafts
could not make out a claim that SICO’s conversion plan was invalid. The Tafts
appeal, arguing that the court incorrectly applied the law governing corporations
and nonprofit conversions. We disagree and affirm the judgment.
1
Because the conversion has not yet occurred, the use of “SICO” in this opinion refers exclusively to
the for-profit corporation. The seven plaintiffs are: Nathalie Taft Andrews, Frederick L. Taft, Eleanor
Taft Ethridge, Alexander T. Taft III, John Christopher Lee Taft, Alexander T. Taft Jr., and Frances
Pinney.
2
I. BACKGROUND
[¶2] The following facts, which we view as admitted for purposes of this
appeal, are drawn from the Tafts’ complaint and the documents attached to the
complaint. See Nadeau v. Frydrych, 2014 ME 154, ¶ 5, 108 A.3d 1254; Moody v.
State Liquor & Lottery Comm’n, 2004 ME 20, ¶¶ 6-11, 843 A.2d 43.
[¶3] SICO is a Maine corporation that was formed over one hundred years
ago as a for-profit corporation. It owns land and facilities on MacMahan Island,
which is located near the mouth of the Sheepscot River and is part of the town of
Georgetown. There are forty cottages on MacMahan Island. A majority of SICO’s
shares is held by shareholders who own cottages on the island, but there are
numerous shareholders who do not own cottages on the island, including four of
the plaintiffs in this case. SICO issued only one class of shares, and its bylaws do
not distinguish between cottage-owning shareholders and non-cottage-owning
shareholders.
[¶4] SICO first attempted to convert into a nonprofit corporation in 2005.
After a conversion plan was approved by a majority of shareholders, some
dissenting shareholders, including three of the plaintiffs in this case, challenged the
plan’s validity. The Superior Court (Sagadahoc County, Warren, J.) entered a
summary judgment in their favor, concluding that SICO’s conversion plan did not
comply with 13-C M.R.S.A. § 931(3)(B) (2005), which required such plans to
3
“include . . . [t]he manner and basis of reclassifying” the corporation’s shares.2
MacMahan Island Ass’n v. Andrews, No. CV-05-61, 2006 WL 6872297
(Me. Super. Nov. 2, 2006). We affirmed the judgment on appeal. MacMahan
Island Ass’n v. Andrews, 2008 ME 52, 943 A.2d 592.
[¶5] In July of 2014, SICO presented a second nonprofit conversion plan to
its shareholders. The plan proposed the replacement of SICO’s articles of
incorporation with new articles, which would reclassify all SICO shares into two
classes of memberships: “cottage memberships,” available to cottage-owning
shareholders, and “associate memberships,” available to all shareholders who did
not become cottage members. Both cottage and associate members would be
entitled to vote on matters upon which any members could vote; however, each
cottage member would be entitled to twelve votes, while the associate members
would be entitled to no more than twelve votes collectively. All members, or their
successors or assigns, would retain perpetual liquidation rights in proportion to the
shares they held before the conversion. Both cottage and associate members would
be entitled to receive or contract for SICO’s services and both would retain the
right to access and use community lands and facilities. Associate memberships
2
Although the 2005 publication of the Maine Revised Statutes Annotated was in effect at the time,
13-C M.R.S. § 931(3)(B) has not changed. See 13-C M.R.S. § 931(3)(B) (2015).
4
would be non-transferable; as a consequence, each associate membership would
terminate upon the associate member’s death.
[¶6] At SICO’s annual shareholders’ meeting in August of 2014, the Tafts
voted against the plan and preserved their rights as dissenters, but the majority of
the shareholders voted to approve the plan.
[¶7] On December 23, 2014, the Tafts filed a complaint against SICO
claiming that the nonprofit conversion plan should be invalidated because it “fails
to reclassify all shares of the corporation equally” in violation of both 13-C M.R.S.
§ 601(1) (2015) and statutes governing nonprofit conversion, specifically,
13-C M.R.S. § 931 (2015). They attached various documents related to the
proposed conversion, including the conversion plan itself. The Tafts sought a
declaratory judgment invalidating the plan and a permanent injunction barring its
implementation. On SICO’s motion, the trial court (Business and Consumer
Docket, Murphy, J.) dismissed the Tafts’ complaint with prejudice pursuant to
M.R. Civ. P. 12(b)(6). The court reasoned that SICO’s plan complied with the
plain terms of the nonprofit conversion statute and that there is no requirement that
shares be reclassified into “equal” memberships in the resulting nonprofit entity.
This appeal followed.
5
II. DISCUSSION
A. Standards of Review
[¶8] When we review a trial court’s grant of a motion to dismiss for failure
to state a claim upon which relief can be granted, “we view the facts alleged in the
complaint as if they were admitted.” Frydrych, 2014 ME 154, ¶ 5, 108 A.3d 1254
(quotation marks omitted). We also consider “documents referred to in the
complaint . . . when the authenticity of such documents is not challenged.” Moody,
2004 ME 20, ¶ 11, 843 A.2d 43. “We review the legal sufficiency of the complaint
de novo and view the complaint in the light most favorable to the plaintiff to
determine whether it sets forth elements of a cause of action or alleges facts that
would entitle the plaintiff to relief pursuant to some legal theory.” Frydrych,
2014 ME 154, ¶ 5, 108 A.3d 1254 (quotation marks omitted).
[¶9] To determine the legal sufficiency of the Tafts’ complaint, we must
consider relevant provisions of the Maine Business Corporation Act, 13-C M.R.S.
§§ 101-1702 (2015), including the provisions that specifically govern nonprofit
conversion, 13-C M.R.S. §§ 931-936. Interpreting statutes de novo, we first
“examine the plain meaning of the language to avoid absurd, illogical or
inconsistent results.” Wong v. Hawk, 2012 ME 125, ¶ 8, 55 A.3d 425 (quotation
marks omitted). Because the statutes at issue in this case are not ambiguous, we do
6
not look beyond their plain language. See, e.g., Strout v. Cent. Me. Med. Ctr.,
2014 ME 77, ¶ 10, 94 A.3d 786.
B. Compliance with the Nonprofit Conversion Statute
[¶10] Pursuant to 13-C M.R.S. § 931(1), “[a] domestic business corporation
may become a domestic nonprofit corporation pursuant to a plan of nonprofit
conversion.” Section 931(3) sets forth the elements that must be included in a
domestic nonprofit conversion plan:
A. The terms and conditions of the conversion;
B. The manner and basis of reclassifying the shares of the corporation
following its conversion into memberships, if any, or securities,
obligations, rights to acquire memberships or securities, cash, other
property or any combination thereof; [and]
C. Any desired amendments to the articles of incorporation of the
corporation following its conversion.
[¶11] Section 931(3) is broad, but its language is not ambiguous. It contains
no express limitations on the actual manner of reclassification or the basis on
which shares may be reclassified, providing only that the plan “must include . . .
[t]he manner and basis of reclassifying the shares of the corporation following its
conversion.” 13-C M.R.S. § 931(3)(B). Accordingly, when a business
corporation’s conversion into a nonprofit corporation becomes effective, “[t]he
shares of the corporation are reclassified into memberships, securities, obligations,
rights to acquire memberships or securities or into cash or other property in
7
accordance with the plan of conversion.” 13-C M.R.S. § 935(1)(E) (emphasis
added).
[¶12] “[W]e do not read exceptions, limitations, or conditions into an
otherwise clear and unambiguous statute,” Adoption of M.A., 2007 ME 123, ¶ 9,
930 A.2d 1088, and we agree with the official comment to the applicable section of
the Model Business Corporation Act, which confirms that the nonprofit conversion
statute “imposes virtually no restrictions or limitations on the terms and conditions
of a nonprofit conversion,” Model Bus. Corp. Act § 9.30 cmt. 2 (Am. Bar Ass’n
2008).3 SICO’s conversion plan tracks the requirements of the statute, describing
in detail the terms and conditions of the conversion and the manner and basis of
reclassifying the SICO shares, and it includes new articles of incorporation to
replace SICO’s articles of incorporation when the articles of nonprofit conversion
become effective. We therefore conclude that SICO’s conversion plan complies
with the plain terms of section 931(3).
C. Applicability of 13-C M.R.S. § 601(1)
[¶13] The Tafts further argue, however, that SICO’s conversion plan is
unlawful because it does not comply with 13-C M.R.S. § 601(1), a provision of the
3
The Legislature modeled the Maine Business Corporation Act, 13-C §§ 101-1702 (2015), after the
Model Business Corporation Act. See P.L. 2001, ch. 640, §§ A-1 to B-7 (effective July 1, 2003). Indeed,
“Maine’s [nonprofit conversion] statute is nearly identical to section 9.30” of the Model Business
Corporation Act. Model Bus. Corp. Act § 9.30 annot. (Am. Bar Ass’n 2008).
8
Maine Business Corporation Act found outside the nonprofit conversion statute.
Section 601(1) provides, in relevant part: “Except to the extent varied as permitted
by this section, all shares of a class or series must have terms, including
preferences, rights and limitations that are identical with those of other shares of
the same class or series.” (Emphasis added.) The Tafts contend that SICO’s
nonprofit conversion plan runs afoul of section 601(1) because it proposes the
reclassification of SICO’s shares into two different types of memberships with
disparate rights.
[¶14] This contention is unpersuasive for several reasons. First, at all times,
SICO’s corporate share structure has complied with section 601(1). At the
moment the conversion occurs, SICO ceases to exist but, until that time, all of its
shares have been and are identical.
[¶15] By law, articles of nonprofit conversion become effective on the date
and at the time of filing with the Secretary of State, unless a later effective date is
specified in the document. 13-C M.R.S. §§ 125, 933(3). Pursuant to SICO’s
conversion plan, its new articles of incorporation, which would implement the
plan’s reclassification of SICO’s shares into cottage and associate memberships,
would take effect ten days after the filing of the articles of nonprofit conversion.
See 13-C M.R.S. § 931(3)(B) (requiring a conversion plan to include “[t]he manner
and basis of reclassifying the shares of the corporation following its conversion”
9
(emphasis added)). Until the conversion plan becomes effective, only one class of
shares exists. Thus, SICO’s shareholders approved a plan that proposed disparate
types of memberships in a nonprofit entity. Approval of the plan, however, did not
create disparate classes of shares.
[¶16] Second, neither section 601 nor the nonprofit conversion statute
contains any indication that section 601(1) applies once a conversion takes effect.
Section 601 places limitations on a “corporation’s” share structure, 13-C M.R.S.
§ 601(1)-(4), and “[c]orporation . . . means a corporation for profit or with shares,”
13-C M.R.S. § 102(4). Because nonprofit corporations do “not have or issue
shares of stock,” 13-B M.R.S. § 407 (2015), section 601 can only apply to
for-profit corporations. Nothing in section 601 or the nonprofit conversion
statute—or in any other portion of the Maine Business Corporation Act—imposes
a similar limitation on memberships in a nonprofit corporation or on the nonprofit
conversion plan itself.4
4
For the same reasons, we are not persuaded by the Tafts’ arguments that (1) section 601(1) should
apply to memberships in a nonprofit corporation because conversions are “fundamentally similar” to
corporate mergers, or (2) that, for SICO’s plan to be valid, each “separate class[] of shares” would have to
have voted in favor of the plan. If a corporation has multiple classes of shares, “approval of the plan of
nonprofit conversion requires the approval of each separate voting group by a majority of the votes
entitled to be cast on the nonprofit conversion by that voting group.” 13-C M.R.S. § 932(6). Because
SICO has only one class of shares, no “separate classes of shares” exist, and section 932(6) does not
apply. A majority of SICO’s shareholders voted to approve the conversion plan pursuant to 13-C M.R.S.
§ 932(5), which “requires the approval of the shareholders by a majority of all the votes entitled to be cast
on the plan by the shareholders.”
10
[¶17] Third, even if, as the Tafts argue, section 601(1) continues to apply to
a nonprofit corporation as a “general principle” of Maine corporate law, SICO’s
proposed nonprofit membership arrangement would comply with the statute. That
is because, although the plan’s new articles of incorporation do distinguish
between two membership “classes,” they do not contemplate any differences in
terms among members of the same class.
[¶18] Finally, section 601 itself contains an exception to the rule of equal
treatment, stating that “[a]ny of the terms of shares may vary among holders of the
same class or series of shares as long as the variations are expressly set forth in the
articles of incorporation.” 13-C M.R.S. § 601(6). The new articles of
incorporation, which would implement the conversion plan’s provisions, expressly
set forth the terms applying to all members.
[¶19] With this conversion plan, which provides all current shareholders a
choice to become members of the new nonprofit corporation or to exercise their
appraisal rights and receive the fair value of their shares, SICO has cured the
deficiency we saw in SICO’s first nonprofit conversion plan. In Andrews,
we described the terms of the first conversion plan as follows:
Pursuant to the plan, shareholders who do not own cottages would not
have any right to share in any liquidation, sale, or other realization of
the assets of the corporation. Non-cottage owners would lose any
equity interest in [SICO’s] assets. All shares of [SICO] would be
deemed surrendered, but the owners of each of the forty cottages on
11
MacMahan Island would be entitled to one cottage membership in the
new [nonprofit entity].
2008 ME 52, ¶ 8, 943 A.2d 592. On those facts, we held that the trial court did not
err in concluding that the first plan was invalid “[b]ecause the plan for nonprofit
conversion did not include any provision for the reclassification of the shares of
the for-profit corporation following conversion, as required by” section 931(3)(B).
Id. ¶ 2 (emphasis added). In contrast, the conversion plan at issue in this case does
include a provision for the reclassification of the for-profit corporation’s shares;
also, all persons who held shares in the for-profit corporation—including those
who do not own cottages on the island—retain perpetual liquidation rights, and
thereby retain their proportional equity interest in the corporation’s assets.
D. Control of Corporate Assets
[¶20] We recognize that, based on our holding today, SICO shareholders
who are eligible only to become associate members—and who choose to do so—
will have little control over the management of the assets in which they retain
perpetual liquidation rights. Such a result occurs whenever a corporation’s board
of directors proposes a fundamental change in corporate status and the
shareholders vote to approve the proposed change by a less-than-unanimous vote.
In those circumstances, dissenting shareholders are presented with a choice: they
may leave the corporation, exercise statutory appraisal rights, and thereby receive
12
the fair monetary value of the shares they hold in the corporation, see 13-C M.R.S.
§§ 1301-1341 (2015), or they may stay in the corporation and acquiesce to the will
of the majority.
[¶21] Sections 1301 to 1341 of the Maine Business Corporation Act govern
appraisal rights. In the event of various corporate actions including conversion to
nonprofit status, “[a] shareholder is entitled to appraisal rights and to obtain
payment of the fair value of that shareholder’s shares.” 13-C M.R.S. § 1302. “Fair
value” is statutorily defined as follows:
4. Fair value. “Fair value” means the value of a corporation’s shares
determined:
A. Immediately before the effectuation of the corporate action
to which a shareholder objects;
B. Using customary and current valuation concepts and
techniques generally employed for similar businesses in the
context of the transaction requiring appraisal; and
C. Without discounting for lack of marketability or minority
status except, if appropriate, for amendments to the
corporation’s articles of incorporation pursuant to section 1302,
subsection 5.
13-C M.R.S. § 1301(4). If the Tafts were to exercise appraisal rights, with the
value of their shares being determined by a court if disputed, see 13-C M.R.S.
§§ 1302, 1327, 1331, any property rights associated with their shares, e.g., the right
13
to use docks, community buildings, etc., will have to be considered in determining
the value of the shares.5
[¶22] We described the development of the appraisal remedy in
In re Valuation of Common Stock of McLoon Oil Co.:
The traditional rule through much of the 19th century was that any
corporate transaction that changed the rights of common shareholders
required unanimous consent. The appraisal remedy for dissenting
shareholders evolved as it became clear that unanimous consent was
inconsistent with the growth and development of large business
enterprises. By the bargain struck in enacting an appraisal statute, the
shareholder who disapproves of a proposed merger or other major
corporate change gives up his right of veto in exchange for the right to
be bought out—not at market value, but at “fair value.”
565 A.2d 997, 1004 (Me. 1989). Other courts have noted the shift toward a
majority rule approach and concomitant proliferation of appraisal rights statutes.
See Stringer v. Car Data Sys., Inc., 841 P.2d 1183, 1184 (Or. 1992) (“Legislatures,
courts, and commentators found that the right of a single shareholder to veto
business transactions trammeled the concept of corporate democracy. . . .
[The appraisal] remedy is designed to provide statutory protection to those
5
Concerning “customary and current valuation concepts,” the official comment to the applicable
section of the Model Business Corporation Act acknowledges that “different transactions and different
contexts may warrant different valuation methodologies,” and provides, “For example, if the
corporation’s assets include undeveloped real estate that is located in a prime commercial area, the court
should consider the value that would be attributed to the real estate as commercial development property
in a comparable transaction.” Model Bus. Corp. Act § 13.01 cmt. 2 (Am. Bar Ass’n 2008). The method
of determining the “value” of the shares must necessarily include not just “market value,” but also “all
other elements that may be legitimately considered.” Chicago Corp. v. Munds, 172 A. 452, 453 (Del. Ch.
1934).
14
minority shareholders who do not concur with the decision of the majority
shareholders.”); Yanow v. Teal Indus., Inc., 422 A.2d 311, 316 n.5 (Conn. 1979)
(“[T]he view that majoritarian decision-making must take precedence over the
dissent of a minority shareholder . . . reflect[s] a social policy of preferring
corporate democracy and flexibility over the common-law notion of vested
shareholder rights.”); Schenley Indus., Inc. v. Curtis, 152 A.2d 300, 301
(Del. 1959) (“[I]t became necessary to protect the [shareholders’] contractual rights
. . . by providing for the appraisement of their stock and the payment to them of the
full value thereof in money.”); Chicago Corp. v. Munds, 172 A. 452, 455 (Del Ch.
1934) (“In compensation for the lost right[,] a provision was written into the
modern statutes giving the dissenting stockholder the option completely to retire
from the enterprise and receive the value of his stock in money.”).
[¶23] Here, the Tafts may choose to demand the fair monetary value of their
property interest pursuant to the appraisal rights statutes, or proceed on terms
known to them: little control over the management of the corporation’s assets, but
a right to receive their proportional share of those assets in the event of future
dissolution and liquidation. The nonprofit conversion statute expressly
contemplates this result, stating that when a conversion becomes effective,
“the shareholders are entitled only to the rights provided in the plan of nonprofit
conversion or to any [appraisal] rights they may have.” 13-C M.R.S. § 935(1)(E).
15
[¶24] This appraisal rights “compromise,” Model Bus. Corp. Act § 13.01
cmt. 1 (Am. Bar Ass’n 2008), means that in the face of a fundamental corporate
change, dissenting shareholders may choose to preserve the property rights they
hold in the corporation’s assets. Absent noncompliance with the governing
statutes, fraud, or the like, however, they do not possess a statutory or other right to
veto a fundamental corporate change that has been approved by a majority of the
shareholders.6 See 13-C M.R.S. § 1341; Zimpritch, Maine Corporation Law &
Practice §§ 13.1 at 506-07, 13.7 at 525-26 (3d ed. 2015) (discussing the scope of
section 1341’s limitation on remedies other than appraisal).
III. CONCLUSION
[¶25] Neither section 601(1) nor the nonprofit conversion statute prohibits a
business corporation’s nonprofit conversion plan from reclassifying the
6
In 1862, the Massachusetts Supreme Judicial Court explained,
[E]very person who becomes a member of a corporation aggregate by purchasing and
holding shares agrees by necessary implication that he will be bound by all acts and
proceedings . . . which shall be adopted or sanctioned by a vote of the majority of the
corporation, duly taken and ascertained according to law. . . . A holder of shares in an
incorporated body, so far as his individual rights and interests may be involved in the
doings of the corporation, acting within the legitimate sphere of its corporate power, has
no other legal control over them than that which he can exercise by his single vote in the
meetings of the company. To this extent, he has parted with his personal right or privilege
to regulate the disposition of that portion of his property which he has invested in the
capital stock of the corporation, and surrendered it to the will of a majority of his fellow
corporators.
Durfee v. Old Colony & Fall River R.R. Co., 87 Mass. (5 Allen) 230, 242 (Mass. 1862). See also
Inhabitants of Waldoborough v. Knox & Lincoln R.R. Co., 84 Me. 469, 471, 24 A. 942 (1892) (“When
there are differences of opinion, aggregate bodies . . . must act by majorities, or they can not act at all.
It is true that this doctrine subjects minorities to the will of majorities; but it is equally true that the
contrary doctrine subjects majorities to the will of minorities . . . .”).
16
corporation’s shares into membership classes with disparate rights. Because the
Tafts have not alleged facts that, viewed as admitted, make out a claim that SICO’s
conversion plan is invalid or that they are entitled to declaratory or injunctive
relief, the trial court correctly dismissed their complaint pursuant to M.R.
Civ. P. 12(b)(6).
The entry is:
Judgment affirmed.
On the briefs:
Albert G. Ayre, Esq., and John A. Turcotte, Esq., Ainsworth,
Thelin & Raftice, P.A., South Portland, for appellants Nathalie
Taft Andrews et al.
Paul McDonald, Esq., and Eben M. Albert, Esq., Bernstein
Shur, Portland, for appellee Sheepscot Island Company
At oral argument:
John A. Turcotte, Esq., for appellants Nathalie Taft Andrews et
al.
Paul McDonald, Esq., for appellee Sheepscot Island Company
Business and Consumer Docket docket number CV-2015-6
FOR CLERK REFERENCE ONLY