Motion to Dismiss — Holekamp v. Holekamp Lumber Co.

2 ; f UlliCe-oupretic Uourt, U.o,

hoe Y b FILED ~

APR 26 1961

| JAMES R. BROWNING, Cler!

£4

¥:

IN THE

— COURT OF THE UNITED STATES.

rs

Nigh REE RII I EG) ORS DO ARRON: FH

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e . OCTOBER TERM, 1960.

STATE: OF MISSOURI ex x inf. JOHN M. )

DALTON, Attorney General, ex rel.

_ RICHARD E. ‘HOLEKAMP, et aliy

Popes

e.°

vs. + No. 870.

HOLEKAMP LUMBER-CO., a om.

tion,-et al.,

a Appellee. J a

<oOn Appeal from the Supreme Court of the

State of Missouri. :

MOTION-TO DISMISS APPEAL

es and |

BRIEF IN SUPPORT THEREOF.

J

EUGENE H. BUDER,

LEONARD E. MARTIN,

1795 Railway Exchange Building, -

Sh bs ~ 611 Olive Street,

ae el . St. Louis 1, Missouri,

i Attorneys for Appellees.

”

Sr. Lovis Law Pantineo Co., Inc., 415 N. Eighth Street. CEntral 1-4477.

wre

7 er INDEX, = *

; 7 Page

potion to Disnties Appeal . oo... cies cece slaves: me

Brief in Support of Motion to Dismiss ....... Serr re 2

mae)

Geeetion Presented .. 6.6. ce cece estene a iieles a 2

Statement of the Case Pius ies At aa 3

, Argument ..6.... eee eee eee uel RPE E CE Ee OTe 4

I. Even If the Statute of 1943 for the First Time

Permitted Iyxtension of a Corporate Term by a

Simple Mafority Vote, It Is Free From Con-

stitutional Doubt, Because of Missouri’s«.Re-

- served’ Power ...... Ka Bea Mi wiser eres iets

II. The Right to Extend the Term of Holekamp

Lumber Company by a Simple Majority Vote

Existed From, the Beginning; Hence There Was

No Possible Impair ment of Contract .......... i)

yy

ba

(‘onelusion ......... eh ANAT AW ERE RCA RS ea Ae a 12

Table of Cases,-Text Books and Statutes. ~~

Atlantic Coast Line R. R. Co. v. Phillips, 332 U. 8S. 16s,

67 S. Ct. 1584, 91 L. Ed. 1977 (1947) -........... x

City ef New Orleans v. New Orleans Waterworks Co,,

142 U.S. 79, 12S. Ch 142, 35 L. Ed. 943 (1891) 20... 9

Close v. Glenwood Cemetery, 107 U.S. 466, 2 S. Ct. 267,

BF hs, Te ee CINE, o6 ic eis Pi oc eees 6-7

Ceombes v. Getz,.285 U.S. 434, 52 S. tt. 435, 76 L. Ed.

ih bac: NE Ce Meo ee Bie Stig hoe 78,0

Dodge v. _— of Edueation of Chicago, 02 i. ei

o8-S. Ct. 98, 82 L. Ed. 57 (1937) . slice pate ‘

: . q

Hale v. Towa State Board of Assessment and Review,

102 TS. 95.58 8. Ct MP, O23 1,. Ba. 12 C1)... SS

sg . il

‘7?

Long Safilt Development Co. v. Call, 242 U.S. 272, 37

eS ee ee en 7

Looker v. Maynard ex rel, Dusenbury, 179 U.S. 46,

oe ee oe Oe ) .....1.....5.... 5, 6

Miller v. New York, 15 Wall. 478, 21 L. Ed. = (1873) 6

Missouri ex rel. Hurwitz v. North, 271 U. S. 40; 46

ey oe ee ee) s

Phillips Petroleum Co. v. Jenkins, 297 U. S. 629, 56° |

S. Ct. 611, 80 L. Ed. 943 -(1936) ..... gr eceeee 4, 5, 6,12

Polk v. Mutual Reserve Fund Life Association, 207

U. S. 310, 28 S. ce. Ge, Oe ba Bee. Zee (2907) ......... gk

Shinto v. Smith, 1 Black. 587, ‘17 L. Ed. 163 (1862 (j

Smith v. Eastwood Wire Manufacturing Co., 58 N. J.

a Oe, 0 A OG? C0). ........3......... ee 6

>

Trustees of Dartmouth College v. Woodward, 4 Wheat.

aoe 4 1, Ba: OD (oer) ....:.............0%. 45,8,9

Fletche r( ‘yclopedia of Corporations, Section 3668 . a

Journal of the Missouri Constitutional Convention.

1875 (State Historical Society of Missouri), Vol.

pp. 178-179; Vol. 2, pp. 527-528, 831 2.0. OS, — hee

Debates, C ‘onstitutional Convention of 1875 (State His-

torical Society of Missouri),- Vol. — pp. 364-399,

elas one gt gt IER 2 Ae lS a ae a 4

(‘onstitution of Missouri, 1875 ......... ween neeneeone 9,-3-

Revised Statutes of Missouri, 1899, Section 958 ....3, 10, 11

Revised Statutes of Missburi, 1899, Section 972... .3, 10,11

IN THE

SUPREME COURT OF THE UNITED STATES.

wt

OCTOBER TERM, 1960.

F |

STATE OF MISSOURI ex inf. JOHN M. >

DALTON, Attorney General, ex~rel.

RICHARD E, HOLEKAMP, et al.,

, . Appellants,

vs. > No. 870, .

HOLEKAMP LUMBER CO., a Corpora- fll

tion, et al,, ied

bg - Appellees. ) 5,

ag Appeal from the Supreme Gouri of the

State of Missouri.

‘MOTION TO-DISMISS APPEAL.

Appellees, pursuant @p Rule 16 of the Revised Rules of

the Supreme Court of the United States, move that the

appeal to this Court from the final judgment of the

Supreme Court of Missouri be dismissed, on the grown

that it does not present a substantiatefederal question.

EUGENE H. BUDER,

aaa

LKONARD KE. MARTIN,

Attorneys for Appellees

BRIEF-}N SUPPORT OF MOTION TO DISMISS.

QUESTION PRESENTED.

Appellees take exception to Appellants’ statement lot the

* question presented, both in the notice of Appeal and in

the Jurisdictional “Statement, for omitting the essential

element of the opinion of the Supreme Court of Missouri,

Which is that the Missouri Legislature had reserved power

é¥er corporate charters in 1908 at the time of the incorpo-

ration of Holekamp Lumber Company. Appellees further

take exception to Appellants’ statement of the question

presented fer postulating that the authority to extend the

corporate duration by a simple majority vote of the share-

diolders came only from the statutes enacted in 1943 now

under attack by Appellants. Appellees restate the, ques-

tion presented as follows: .

' 3

Where in the Constitution of 1875, as construed by the

Supreme Court of Missouri, the state reserved the power to

its Legislature to repeal, change, or amend, by general

° laws, ‘the general laws authorizing corporations to be

formed and the general laws pertaining to amendment of

corporate charters, and where Holek@mp Rumber Company

Wag incorporated in 1908 under general law for a period

f fifty. years; the maximum then permissible, and extended |

its duration for an additional period of fifty years in 1957

, by a vote of 58% of its sharehglders pursuant to definite

statutory authority enacted in 1943, assuming that such

an Bytension could have been made only by the vote of

* three-fourths of the shareholders prior to the 1943 enact-

ment, does the statute of 1942, in violation of the Federal

Constitution, impair the obligation of any contract of the

mnineritv. shareholders who opposed the exterfgion !

STATEMENT OF THE CASE.

Appellants’ Statement of the Case likewise omits all”

reference to reserved fower afid the Missouri fonstitution

of 1875.7 At 340 S. W. 2d 640-681 (pp. 21-24 of the Juris-

dictional Statemext) the Supreme Court of Missouri con-

strues the“pertinent parts of that coystitution, and con-

cludes: ‘‘We, therefore, hold that thre 1875 Constitution

did contain a sufficient reservation to permit our Lexgisla-

‘ture to adopt general laws authorizing amendments to

articles of incorporation of existing corporations, organ-

ized under general laws, to be made by a majority vote of

their shareholdegs."’

Appellants’ statement, in referring to R: S. Mo. 1899,

gunger which Holekamp LugiberaCompany was organized,

sets out part of Section 972 thereof, providing for accepting

the general corporation laws by a three-fourths vote and

taking an extension of duration jncidental thereto, but

makes no mention of Section 958, R. S. Mo. 1899, which

authorized charter amendments in geo: terms, only

restricting them to powers that could originally have, been’

invoked by the corporation. The-Jurisdictional Statement,

however, does cite Section 958 as a statute involved, and

sets it out at pp. 65-66. Section 958 ig treated by the opin-

iow of the — Court of Misaouri at 340 S. W. 2d

682-683 % Jurisdictional Statement, pp. 26-27),

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Pay ro

ARGUMENT.

_ LI. Even if the Statute of 1943 for the First Time Per-

mitted Extension of a Corporate Term by a Simple Ma-

jority Vote, It Is Free From Constitutional Doubt Because

of Missouri’s Reserved Power.

The Supreme @®urt of Missouri held that the State,

nnder its Constitution of FR75 (in effeet until 1945), had

reserved the power to its Legislature to repeal, change,

or amend, by general laws, the general laws authorizing

corporations to be formed, and the general laws pertain-

ing to charter amendments (340 S. W. 2d at §80-681, 683;

Jurisdictional Statement, pp. 21-24, 28). ‘This finding

of ee, power with respect to the charters of corpora-

tions Sich as Holekamp is the very heart of the opinion.

This finding is clearly right. The Court construes the

words of the Constitution to fiidd the necessary intent of

the constitutional convention. That such was indeed the

intent of the framers is shown by the record of their

debates. Journal of the Missouri Constitutional Conven-

tion, 1875 (State Historical Society of Missouri), Vol. 1,

pp. 178-179, Vol. 2, pp. 527-528, 831; Debates, Constitu-

tional Convention of 1875 (State Historical Society of

Missouri), Vol. VIII, pp. 264-399, 490-493.

Appellants do not now question the correctness of the

Missouri Supreme Court’s finding of reserved power.’

They recognize such finding and claim only: ‘‘Both the

St. Louis Court of Appeals and the Supreme Court® held

that the only way Appellees’ action could be sanctioned

is by a holding that no Constitutional right was involved"

i. Joyisdictional Statement, pp. 14-15). But ‘ho constitu-

tional right is involved; exactly such a holding was made

ly this Court in Phillips Petroleum Co. v. Jenkins, 27

U.S. 624, 634; 56S. Ct. O11, 615, 80 1. Bd. 948, 947-948

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between the state cand the corporation, as in the case at

bar, the élause.of the Federal Constitution on obligation of .

contacts does not apply. There is really nothing more

to argue about; Appellants are relying solely on Article I

Section 10 of the Fedefal Constitution (Ifipairment of J

the Obhgation of Contracts) (Jurisdictional “ Statement,

pp. 6-7, 8-9; the Notice of Appeal’ refers only to this

clause). Although ‘the priuciple is well established ‘by the

Phillips case, we’ discuss very briefly-the history of re-

exerved power as treated in other cases decided by this

Court. . ‘

In response to Justice Story's concurring opinion in

Trustees’ of Dartmouth College v. Woodward, 4 Whioeat.

518, 712, 4 L. Ed. 629, 677 (1819), virtually all the states

of the Union put reserved power over corporations into

théir constitutions, or statutes (Fletcher, °Cyclopedia of

Corporations, Vol. \ Section 3668, Note 9). By the de-

cision now appealed from, Missouri was simply shown to

he in the same position as virtually all the other states.

Since the Missouri Legislature had this reserved power,

the enactmént of the Corporation Code of 1943 (ineluding

the seetions thereof now under attack) was an exercise

: \ ‘ os q

of that power to the extent necessary to the validity of

Coe,

the new code. Under an unbroken line of decisions of~

this Court, this crucial element of reserved power pre-

. . Nal : Yo

cludes all constitutional doubf concerning the statutes

presently under attack.

In the leading case of Looker v. Maynard ex rel. Dusen-

bury, 179 U. S..46, 52; 21S. Ct. 21, 23; 45.1. Bd. 79, st

(1900), this Court held: ’

“The effect of such a provision, whether contained

in an original act.of incorporation, or in a constitu-

tion or general law subject to which a ‘charter. is

accepted, is, at the least, to reserve to the legislature

the power to make any alteration or amendment of a

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charter subject to it, “which will not defeat or sub-’

stantially impair the object of the grant, or any right®

vested. under the grant, and which the legislature

may deem necessary to carry into effect the purpose

of,the grant, or to protect the -rights of the public

or of the corporation, its stockholders or —

or to promote the, die administration, of its affairs."

This doctrine was .approv ed in Phillips Petroleum Co. v.

Jehkins, 297 U. S. 629, 56S. Ct. 611, 80 L. Ed. 943 (1936),

which appears to be the last word on the subject by this

Court. In the Looker case, supra, this Court upheld a

Michigan statute imposing compulsory cumulative voting

on a corporation, against the objection of the majority

shareholders that this law impinged ‘on a vested right of

theirs to elect the entire board of directors. The Court

thus expressly held that reserved power extends to con-

tractual relations ameng the shareholders, explaining dfs

position by reference to prior cases and the dissents

therein. Now the duration of a corporate charter, pres-

ently before this Coust, is a matter which prima facie con-

cerns the state only (opinion of Sup. C*, of Mo., 340 S. W.

2d at 682, Jurisdictional Statement at pp. 25-26, citing

-with approval Smith v. Eastwood Wire Mfg. Co., 58 N. J.

Kq. 331, 43 A, 567, 568). Insofar, however, as the minority

shareholders may have an interest in the limitation of the

corporate pefiiod, that: ‘interest is clearly defeasible under

the Looker doctrine. ek i:

Other Supreme Court cases holding contractual rights

of shareholders to ke within the reserved power, and hence

subject to changes imposed or authorized by subsequent «

law, are the following: Sherman v. Smith, 1 Black. D87, 17-

L. Ed. 163 (1862) (imposing individual liability on share-

holders of a bank); Miiler v. New York, 15 Wall. 478, oy |

L. Edi-98 (187: 3) (reduction in voting power of incorpora-

tors from power to elect nine directors out of thirteen,

to power to elect only six out of thigteen) ; Close v. Glen-

/

ij .

-

wood Cemetery, 107 U.S. 466, 2S. Ct. 267, 27 L. Ed. 408

(1883) (removin vented’ of an ineorporated cemetery

from original proprietors to a board of trustees, and lim-

iting the future returns: to the original proprietors, to

one-fourth of the recejpts); Polk v. Mutual Reserve Fund

Life Association, 207 U. S. 310, 28 S. Ct. 65, 5 d2 L.Ed. 222

(1907) (changing insurance of members from assessment

plan, to flat premium ‘‘old line’’ insurance). (It is sub-

mitted that all these changes are more drastic than ice

ing the corporate term. In Coombes v. Getz, 285 U.

434, 441-442, 52S. Ct. 485, 436, 76 L. Ed. 866, 871 (19: -

this Court refused to let the reserved’ power extend so

far as to permit cutting off the vested quasi-contractual

right of a corporate ¢reditor against directors of the cor-

poration, but expressly recognized once again that. re-

served power does extend to changing’ the interrelations ,

of state, corporation, and stockholders.

This Court has apparently never passed ‘specifically oti

the constitutionality of extending a_ corporate charter

under subsequent law enacted pursuant to reserved power,

but the question is clearly answered in principle by the

eases just discussed, and in the affirmative. Such exten-

sion, moreover, has been specifically approved, against

charges of impairment of obligation of contract, by ,all

the state courts whose opinions are cited by the Supreme

Court of Missouri, 340 S. W. 2d at 628, Jurisdictional

Statement at pp. 25 and 26, and by the St. Louis Court

of Appeals, 331 S. W. 2d at 177-179, Jurisdictional State-

ment at pp. 39- 43. (The Court of Appeals distinguished

these eases on the theory that Missouri had no reserved

power.) Appellants have never cited, aid do not now

cite, a single case holding that such an extension. violates

the clause against impairing the obligation of contracts

or any other provision of the Constitution. .

Concerning the construction placed upon the state Con-

- stitution of 1875 by the'Supreme Court of Missouri, to the

°

=

ffect that ‘the constitution did contain reserved power

over corporate charters, Appellants do ‘not even suggest

that that construction should be reviewed by this Court.

To some extertt at least, they say they have never ques-

tioned it (Jurisdictional Statement, p. 14). The general

rule is that the consiruction of state constitutional pro-

visions or staiutes by the highest court of the state: is

binding on this Court. Missouri ex rel. Hurwitz v. North,

271 U.S. 40, 46S. Ct. 384, 70 L. Ed. 818 (1926). True, an

exception to this rule has been made in eases on obliga-

tion of coniract (Coombes v. Getz, supra), but even there

the state construction is to be, given great page Dudge

v. Board of Education of Chicago, 302 U. S. 74, 58 S. Ct.

9%, 82 L. Ed. 57 (1937), and will be followed pert mani-

festly Wrong. Hale v. Iowa State Board of Assessment

and Review, 302 U. S. 95, 58 S. (t. 102, 82 L. Ed. 72

(1937); Atlantic Coast Line R. R. Co. v. Phillips, 332

U.S. 168, 67 S. Ct. 1584, 91 L. Ed. 1977 (1947). Here

Missouri has interpreted its 1875 Constitution, not so as

to give the state extraordinary or novel powers, but only

to give it such powers as*it certainly did have under its

1865 Constitution (340 S. W. 2d at 680, Jurisdictional

Statement at p. 22), certainly could hawe without violat-

ing the Féderal Constitution, and such powers as virtually

every state has suecessfully claimed for itself since the

decision of the Dartmouth College case. The decision now

appealed from potentially -affeets every extant Missouri

corporation formed between 1875 and 1943, and sets at

rest, onee and for all, vague doubts that have heietofore

heen entertained concerning the powers of. those corpora-

tions fo modernize themselves in keeping with current

law. Practically speaking, the decision restores Missouri

to its competitive position in holding and attracting cor-

porate b¥ajness with its home hase in Missguri, after a

long period of vague uneasiness and a short panic caused

hy the opinion of the St. Louis Court of Appeals. On

broad lines ‘of poliey, there is nothing in a federal -svs-

ee, ) ee

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tem requiring federal review of a state decision which

so eminently well disposes of a state problem.

Even on narrow legal grounds, there is no eall for re-

view of the state constitutional interpretation here in-

volved. The broadest authority asserted by this Court is

that it will deferentially re-examine the facts said to have

given rise to the contract and the law said to ‘have im-

paired it. Coombes v. Getz, supra. Here these questions

are not open: there was a contract. in the form of the

corporate charter under the Dartmouth Gdllege doctrine,

but its obligation was not impaired if the state had re-

served power at the time of meorporation. The om; open

question is the underlying one of whether Missouri had

such reserved power, answered in the affirmative by the

Supreme Court of Missouri. State construction of such

underlying questions of state law will not be reviewed by

the Supreme Court. City of’ New ‘Orleans v. New Orleans

- Waterworks Co., 142 U.S. 79, 12S. Ct. 142, 35 L. Fd. .943

(1891); Long Sault Development Co. v. Call, 242 U. S..272,

37S. Ct. 79, 61 L. Ed. 294 (1916).

To sum up, there is no reason why this Court should

review Missouri’ s finding ‘of reserved power in its former

constitution, which is certainly not manifestly wrong, and

onee reserved power is in the case there is no substantial

federal question, hecause it has heen repeatedly held by

this Court that reserved power takes a corporate charter

out of the class of contracts protected against impairment

_of obligation by the Federal Constitution, even. as_ to

rights of shareholders claimed under the charter.

II. The Right to Extend the Term of Holekamp Lumber

Company by a Simple Majority Vote Existed From the

‘Beginning; Hence There Was No Possible Impairment of

Contract.

Appellees contended in the Missouri courts that a simple

majority of the shareholders had the power under the cor-

— 1()--

é

poration laws of Missouri‘in effeet in 1908 to extend the,

corporate term for’an additiona) period of fifty years, as

vas done by Holekamp Lumber Company in 1957, In this

additional respect, we take exception to Appellants’ state-

ment of the question on appeal, because it postulates that,

ouly the corporation Code of 1943 authorized an extension

by a simple majority. We submit that the Supreme Court

of Missouri held, or almost held, that in 1908 stockholders

- could extend the corporate term by a simple majority

vote. If this Court should review that decision, it would

‘undoubtedly come to the same conclusion, particularly ‘as

it deferred to the Missouri Court’s eonstruction of the- ”

pertineat Missouri statutes, On this view there would

he no significant change in the law between. 19Q8 and 1948,

and henee no possible impairment of contract.

This question breaks down to determining whether such

an extension could be effected undergRevised Statutes of

Missouri 1899, Section 958, generally authorizing charter

- amendments, as destinguished from Section 972, which

pertained to accepting the new laws, requiring’ a three-.

fourths majority therefor, {nd granting an extension in-

cidental to such, acceptance. The St. Louis Court of Ap-

peals considered the question at length, and. decided it

against Appellees, (331 S, W. 2d at 181-184, Jurisdictional

Statement at pp. 48-54). We submit that the Supreme

(‘ourt of Missouri also decided the question, although

somewhat unobtrusively, and decided it in favor of Ap-

pellees and the existence of ¢he prior power (340 S. W.

2d at 682-683, Jurisdictional Statement, at pp. 26-27). The

(‘ourt held that only specially chartered corporations (not

Holekamp) Were intended to ageept the general laws under i

Section ‘942, ang that corporations organized under gen-

eral laws (like Holekamp) were included in the terms of

Section 972 ‘‘undoubtedly’’ for the purpose of collecting a

fee from them when they extended. The opinion also sug-

gests that the three-fourths vote was required only be-

"aes «te °

canse there was: a qnestion of relinquishing the special

privileges conferred by a special incorporation. Then the

opinion refers to Section 95 os, generally ‘authorizing amend-

ments, and cites an earlier case holding it in pari materia

with Section $72, and requiring the tax to “he paid under

Section 972 when extension was.made by charter amend-

‘ment. Only Section 95s, not Section ht authorized char-

ter amendments.” The conclusion is, not expressly drawn

by the Court, Hut we will draw it here: Section 972, in-

sofar as it pertained to accepting the new laws, applied

anly to special-charter* corporations, ant® extension was

incidental_to such acceptance; insofar as ‘it called for a

tax on extension it applied to all corporations; Section 95%’

applied generally to amendmenfs and was in pari materia -

with 972; taking the two together, a general- law cor pora-

‘tien extending by corporate amendment had to pay the

tax called for by Section 972; but since the acceptance pro-

vision$ (and hence the incidental extension pfovisionis)

of 972 were not intended to apply to such a corpotation,

its power of extension, clearly recognized here and in the

earlier case ejted, could only have come’ from Section 958.

And the earlier case, as stated in the Current opinion, rec-

ognized extension by gharter amendment, which means by

Segtion 958. It was never expressly de¢gided what majority

was required under Section 958, as the’ 6pinion observes;

but in the absence .of any special ‘requirement im-

posed by statuté or decision, on eencral principles or cor-

poration law, a simple majority. was enough. (Note again

he nik’ eemaaeae that a three-fourths vote was re-

Mivoa only for purposes of relinquishing special priv-

ileges.) . _All the fotegoing premises are stated in the

Court’s ‘opinion, and the conclusion ‘necessarily follows.

It is submitted that the only reason why the conclusion

was not drawn as. we have drawn it is that the Court con-

sidered that the question would nexer arise again. If a

conclusion were foreed, it would inevitably be as above

stated. .

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CONCLUSION,

The appeal should me dismissed. because the federal

question raised by Appellants i is insubstantial. Appellants

do not question the Missouri Court’s finding of reserved

_ power, With reserved pow er in the case, the question has

heen decided against Appellants by a long line of decisions

of this Court, that last of which (Phillips Petroleum,

supra) states that there remains no constitutional ques-

tion, and hence no. federal question. Finally, a review

would only confirm@an agditional ground for supporting

the judgment: namely, that the statute under’ attack

‘merely expressed more clearly what had always been the

law and the-centractual rights of the parties, and hence

could not possibly have impaired those contractual rights.

Res{&ctfully suhmitted,

EUGENE H. BUDER,

LEONARD E. MARTIN,

. Attorneys for Appellees.