Petition for Writ of Certiorari — Perl v. Hunegs, 115 S. Ct. 196 (1994) (No. 94-129)

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Suprems Comt, 0.%

FILED

94129 JUL 1 81994

No.

OCric’e OF Fie (iid

In the

Supreme Court of the United States

October Term, 1993

NORMAN PERL,

Petitioner,

Vv.

RICHARD G. HUNEGS,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE MINNESOTA COURT OF APPEALS

PETITION FOR A WRIT OF CERTIORARI

William Z. Pentelovitch

Counsel of Record

David F. Herr

Jonathan S. Parritz

MASLON EDELMAN BORMAN

& BRAND

3300 Norwest Center

Minneapolis, Minnesota 55402

(612) 672-8200

1994 — Bachman Legal Printing @ (612) 339-9518 @ FAX (612) 337-8053

QUESTION PRESENTED

Norman Perl, a minority shareholder in the law firm

formerly known as DeParcq, Hunegs, Stone, Koenig &

Reid, P.A., now in Chapter 7 bankruptcy proceedings,

brought this action in state court in Minnesota to pierce

the corporate veil of the law firm and to hold its

controlling shareholder personally liable to him on certain

state law breach of contract and statutory oppression

claims. The Minnesota Court of Appeals ruled that these

claims became property of the estate of the bankrupt

corporation upon commencement of the bankruptcy case,

and were compromised by the trustee in a settlement with

the controlling shareholder.

This petition presents the following issue:

Whether a state court action by a minority

shareholder of a bankrupt corporation to hold a controlling

shareholder personally liable to the minority shareholder

for buyout of the minority shareholder’s interest in the

corporation is an action to recover "property of the estate”

of the bankrupt corporation under the U.S. Bankruptcy

Code, 11 U.S.C. § 541, which can be mooted by the

bankruptcy trustee’s general release of the majority

shareholder.

ill

PARTIES TO THE PROCEEDING

In addition to the parties named in the caption, the

following persons were parties to the proceedings below:

DeParcq, Hunegs, Stone, Koenig & Reid, P.A., f/k/a

DeParcq, Anderson, Perl, Hunegs, and Rudquist, P.A.,

the estate of Donald J. Rudquist, and Barbara Rudquist.

There are no known subsidiaries or parents of the DeParcq

Corporation.

TABLE OF CONTENTS

SESE PPT PREOED. ee ce eee eee Sees vi

Re a ees hae aa 2

IS Rk hte hs ie GW aCe) ba 0 8 0 oe

pe ts ae ee ee 2

DRORReEeeE OE BPE CASE own cet ec eens 4

I. THE NATURE OF THE STATE LAW

Ris ROR ids 4 Se Ste Soe ws 4

Il. pe ek ge Cd Be. Se 3

Ill. POST-TRIAL FRAUDULENT TRANSFERS . 5

IV. py a eh BC 5

V. THE TRUSTEE’S ACTION AGAINST

8 ere ee ee oe 6

Vil. THE COURT OF APPEALS’ DISMISSAL OF

pe ee Be a 8

REASONS FOR GRANTING THE PETITION ..... 9

eh”) 9

i THE COURT SHOULD RESOLVE THE

WIDE SPLIT IN THE CIRCUITS

REGARDING THE ABILITY OF A

BANKRUPTCY TRUSTEE TO BRING

ACTIONS AGAINST THIRD PARTIES ON

BEHALF OF CREDITORS AND

SHAREHOLDERS OF THE BANKRUPT .. 11

A. A Trustee Of A Bankrupt Corporation

Lacks Standing To Bring An Action To

Pierce the Corporation’s Veil. ..... 13

B. A Trustee Of A Bankrupt Corporation

Lacks Standing To Bring An Oppression

Action Against A Controlling

Shareholder On Behalf of A Minority

ere Se ee aa en eae 15

The Court of Appeals Erred in Ignoring

Caplin and In Holding That The

Bankruptcy Code Entitled the Trustee

To Compromise Petitioner’s Claims .. 17

D. This Court Needs to Clarify the Powers

of Bankruptcy Trustees To Eliminate

Uncertainty and Inconsistency, To Avoid

Forum Shopping, And To Avoid A

Windfall to Respondent ......... 19

ee arr ee ee a go he ee ya

APPENDIX

TABLE OF AUTHORITIES

CASES

Andresen v. Maryland,

Sa SE 6 iene ewe ees 1]

In re Anje Jewelry Co.,

47 B.R. 485 (Bankr. E.D.N.Y. 1983) ..... 14

Baldwin v. Alabama,

ee BM 2. | a ere 1]

Butner v. United States,

Cee We SE os oe oe ia en He BRL 12, 19,

Caplin v. Marine Midland Grace Trust Co..,

ee Gr TG So kc wk ee 4,9,

i, dz

In re Clean Car Systems, Inc.,

165 B.R. 460 (Bankr. W.D. Mo. 1994) .... 9, 14

Commodity Futures Trading Commission v. Weintraub,

8 | ee 17

Cumberland Oil Corp. v. Thropp,

791 F.2d 1037 (2d Cir.),

cert. denied, 479 U.S. 950 (1986) ....... 16

In re Curry & Sorensen, Inc..,

ee eG | re ae 16

Vii

In re D.H. Overmyer Telecasting Co..,

56 B.R. 657 (Bankr. N.D. Ohio 1986)... .. 9, 14

DSQ Prope es Co., Ltd. v. DeLorean,

8917 we &) fg fo | eee 9, 14

In re Dakota Drilling, Inc.,

135 B.R. 878 (Bankr. D.N.D. 1991) ...... 9, 14

E.F. Hutton Co. v. Hadley,

901 F.2d 979 (11th Cir. 1990) ......... 9, 10,

Esselen Associates, inc. v. Crysen/Montenay Energy Co.,

902 F.2d 1098 (2nd Cir. 1990) ......... 12

Evans v. Blesi,

345 N.W.2d 775 (Minn. App. 1984) ...... 15

Farmers & Merchants’ National Bank of Cannon Falls v.

Doffing,

2135 NW. 50s OG. TET 6 ie ES 18

Greene & Kellogg, Inc. v. Oxford Hospital Inc..,

95 BR: BGs TE ov en eee 14

International Broadcasting Corp. v. Turner,

734 F. Supp. 383 (D. Minn. 1990) ....... 10, 16

Interstate Circuit, Inc. v. Dallas,

ae es sob ee oe Oe ee eee 8 2

In re Johnson,

117 B.R. 461 (Bankr. D. Minn. 1990) ..... 18

Koch Refining v. Farmers Union Central Exchange, Inc.,

831 F.2d 1339 (7th Cir. 1987),

cert. denied, 485 U.S. 906 (1988) ....... 10

kk, ah. mapa

Vill

Lewis v. Manufacturers National Bank,

ee ED oe 9 eh Se WR ote es 20

In re M&L Business Machines Co.,

160 B.R. 850 (D. Colo. 1993).......... 9, 14

Masinter v. WEBCO,

202 S.6.26 433 (W.Va. ISD)... 2. 2 ww 16

Matter of Central Ice Cream Company,

836 F.2d 1068 (7th Cir. 1987) ......... 17

In re Medomak Canning,

eb A: 17

In re Morton,

866 F.2d 561 (2nd Cir. 1989) .......... 20

In re N.S. Garott & Sons,

772 F.2d 462 (6th Cir. 1985) .......... 12

Oppegard Agency, Inc. v. Skeie,

152 B.R. 581 (Bankr. D. Minn. 1993) ..... 10, 16

In re Ozark Restaurant Equipment Co..,

816 F.2d 1222 (8th Cir.),

cert. denied, 484 U.S. 848 (1987) ....... 9, 12,

13, 14, 16

P.J. Acquisition Corp. v. Skoglund,

453 N.W.2d 1 (Minn. 1990) ........... 15

Pedro v. Pedro,

489 N.W.2d 798 (Minn. App. 1992) ...... 15

In Re Rare Coin Galleries of America, Inc.,

862 F.2d 896 (Ist Cir. 1988) .......... 9, 14

Roepke v. Western National Mutual Insurance Company,

302 N.W.2d 350 (Minn. 1981) ......... 14

S.I. Acquisition, Inc. v. Eastway Delivery Services,

Si? Pome 200s ee GM. FO: se eee 10

In re Schuster,

132 B.R. 604 (Bankr. D. Minn. 1991) ..... 10, 14

Sullivan v. Texas,

ae Se UG oo CRs a ele eae es 2

St. Paul Fire & Marine Insurance Company v. Pepsico,

Inc.,

884 F.2d 688 (2nd Cir. 1989) .......... 9, 10

Stellwagen v. Clum,

ee iis EWS aw 8 ws 19

Steyr-Daimler-Puch of America Corp. v. Pappas,

Gre F.26 1d C6 Co. TGS) cn ee

Stene’s Pharmacy v. Pharmacy Accounting Management,

875 F.2d 665 (8th Cir. 1989),

cert. denied, 493 U.S. 1043 (1990) ....... 14

Williams v. California First Bank,

859 F.2d 664 (Sth Cir. 1988) .......... 9, 14

Wheeler v. McGee,

1992 LEXIS 1272 (Minn. App. 1992) ..... 15

STATUTES

SS RL a ee i a Sr a a he 13

es 8 ty | See eras ee ae 6

Be hn oe 6 eee eae 8 2, i2

Be ee ho as eas a ke es 13

St USC. 8 ees Oe) ng ce ces 6

Se ee oe 4 ee es es 12, 13

ee es I Oe os we kas ee ee 2

ee ee PO Ok ee eek cass 11

Piimn. Stet. CRONE FA 2k ees 4

Minn. Stat. §§ 302A.751 & 467 ........ 15

LEGISLATIVE HISTORY

H.R. 8200,

95th Cong., Ist Sess. 416-17 (1977) ...... 12, 16

MISCELLANEOUS

J. Olson, A Statutory Elixir for the Oppression Malady,

36 Mercer L. Rev. 627, 635-36 (1985) .... 15

Richard L. Epling, Trustee’s Standing to sue In Alter Ego

or Other Damage Remedy Actions,

6 Bankr. Dev. J. 191, 193 (1989) ........ 10

ae et,

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1994

No.

NORMAN PERL, PETITIONER

RICHARD G. HUNEGS, RESPONDENT

PETITION FOR A WRIT OF CERTIORARI TO THE

MINNESOTA COURT OF APPEALS

Norman Perl respectfully petitions for a writ of

certiorari to review the judgment of the Minnesota Court

of Appeals in this case.

OPINIONS BELOW

The Opinion of the Minnesota Court of Appeals was

reported at 1994 WL 49501 (Minn. App. 1994) and is

reproduced at Appendix ("A-") 1. The Minnesota

Supreme Court’s Order denying further review is

reproduced at A-9. The final judgment of the court of

appeals is reproduced at A-11.

JURISDICTION

The opinion of the court of appeals was filed

February 22, 1994. A-1l. The order of the Minnesota

Supreme Court denying further review was filed April 19,

1994. A-9. Final judgment of the court of appeals was

entered on May 12, 1994. A-11. The jurisdiction of this

Court is invoked under 28 U.S.C. § 1257(a). Because the

Minnesota Supreme Court denied review of the Court of

Appeal’s opinion, the judgment of the court of appeals is

the judgment reviewable under Section 1257. Sullivan v.

Texas, 207 U.S. 416 (1908); Interstate Circuit, Inc. v.

Dallas, 390 U.S. 676, 678, n. 1 (1968.)

STATUTES INVOLVED

The Bankruptcy Code (11 U.S.C.) provides in

pertinent part:

§ 704. Duties of Trustee. The trustee shall--

(1) collect and reduce to money the property

of the estate for which such trustee serves... .

§ 541. Property of the estate.

ee oer es

(a) The commencement of a

case under . . . this title creates

an estate. Such estate is

comprised of all the following

property, wherever located and

by whomever held:

(i). . . aff legal or

equitable interests of the

debtor in property as of

the commencement of the

case.

STATEMENT OF THE CASE

This case presents the court with an opportunity to

resolve a split between courts in the First, Sixth, Eighth,

Ninth, Tenth and Eleventh Circuits on the one side, and

the Second, Fourth, Fifth, and Seventh Circuits on the

other, regarding whether this Court’s ruling in Caplin v.

Marine Midland Grace Trust Co., 406 U.S. 416 (1972)

that a bankruptcy trustee lacks standing to assert non-

debtor claims against third-parties survived passage of the

Bankruptcy Code in 1978. This split creates great

uncertainty and confusion in the courts, causes repeated

and unnecessary litigation, and produces inconsistent

results in important areas of federal law.

I. THE NATURE OF THE STATE LAW CLAIMS

This action was brought by Petitioner Norman Perl

("Perl") as a minority shareholder in the law firm known

as DeParcq, Hunegs, Stone, Koenig & Reid, P.A.

(hereafter “DeParcq") to require DeParcq and _ its

controlling shareholder, Respondent Richard Hunegs,

jointly and severally, to purchase Perl’s minority share in

DeParcq at fair value pursuant to Minn. Stat. Chapter

302A ("Chapter 302A.") A-15. Perl also sought recovery

from both defendants for breach of Perl’s employment

contract. Perl’s claims against Hunegs personally were

based on provisions of Chapter 302A which provide for

personal liability of a controlling shareholder under certain

conditions, as well as upon common law principles of alter

ego liability.

Il. TRIAL COURT RULINGS

Prior to trial, on December 28, 1990, summary

judgment was granted dismissing Hunegs. Following trial,

on May 22, 1991, the court issued an order for judgment

against DeParcq and in favor of Perl on the shareholder

and employment claims, and partially in favor of DeParcq

and against Perl on certain counterclaims. A-53. After

offsets, a net judgment was entered for Perl, requiring

DeParcq to pay Perl more than 2.5 million dollars for his

stock, including $100,000 for attorney’s fees and costs

incurred in the action as a penalty for Hunegs’ bad faith

conduct toward Perl, and $385,000 for breach of his

employment contract. A-58-61. Judgment was ultimately

entered on July 1, 1991. Mr. Perl appealed from the

earlier summary judgment dismissing Hunegs personally

and from the offsets in DeParcq’s favor, and DeParcq

appealed the judgment against it.

Iii. POST-TRIAL FRAUDULENT TRANSFERS

On June 18, 1991, or shortly thereafter, a new law

firm, Hunegs, Stone, Koenig & Reid (the "“Hunegs

Corporation"), under the control of Hunegs, seized control

of DeParcq by occupying DeParcq’s offices, using

DeParcq’s furniture, fixtures, equipment, telephone

number and law library, substituting itself as "sponsor" of

DeParcq’s pension and profit sharing plans, and by

working on the same client files and employing the same

employees.

IV. THE BANKRUPTCY FILING

On November 27, 1991, Hunegs, the Hunegs

Corporation, and two lawyers formerly employed by

DeParcq but then employed by the Hunegs Corporation,

filed an involuntary bankruptcy petition against DeParcq

pursuant to Chapter 7 of the federal Bankruptcy Code.’

Vv. THE TRUSTEE’S ACTION AGAINST HUNEGS

In December 1991, an adversary proceeding in

Bankruptcy court was commenced on behalf of DeParcq

against Hunegs, the Hunegs Corporation, and others to

recover the assets belonging to the Debtor corporation

which the defendants had converted to their own use. The

Complaint did not assert Perl’s shareholder claim, or any

"alter ego" claim on behalf of creditors. On January 29,

1993, the Bankruptcy court, Chief Judge Robert J.

Kressel, entered its Order Granting Partial Summary

Judgment for DeParcq’s trustee against Hunegs and the

other defendants. The court found that Hunegs’ transfer

of DeParcq’s assets to his new firm left DeParcq “holding

the bag allowing Hunegs Corporation and its shareholders

to evade any liability and to reap all benefits from the

Debtor’s going-concern assets." The court also found that

these actions were taken "with the actual intent to defraud

creditors," specifically, Norman Perl, and that the

transfers were fraudulent and voidable pursuant to 11

U.S.C. § 548(a)(1) and (2).

Facing substantial exposure on the eve of the trial to

establish DeParcq’s damages, Hunegs and the other

Defendants settled the Trustee’s claims. Perl was not a

‘When the involun bankruptcy petition was filed, all

proceedings by or against DeParcq were stayed by the automatic

stay provisions of the Bankruptcy Code, 11 U.S.C. § 362.

Hunegs argued to the Court of Appeals that the bankruptcy stay

applied to him as well. The Court of Appeals rejected Hunegs’

argument that Perl’s appeal against him personally was subject

to the automatic stay, but stayed Perl’s appeal against Hunegs

anyway in the interests of "judicial economy.” A-72.

party to the settlement agreement, nor was he a party to

the adversary proceeding, having been denied leave to

intervene. The settlement agreement was entered into by

Brian F. Leonard “as Trustee for DeParcq, Hunegs,

Stone, Koenig & Reid, P.A., Debtor." As part of the

settlement, the Trustee gave Hunegs a general release.

The release did not release Perl’s shareholder claim, or an

“alter ego" claim on behalf of creditors, nor did it make

any reference to this action or the claims asserted herein.

Moreover, the release did not purport to, nor could it,

release claims or causes of action which belonged to

parties other than DeParcgq, such as the personal claims of

Perl against Hunegs which were pending in this action.

The settlement was approved by the Bankruptcy court on

March 17, 1993.

VI. THE TRUSTEE’S APPROVAL OF THIS

ACTION AGAINST HUNEGS

On June 7, 1993, the Trustee and Perl settled a

dispute concerning the priority of Perl’s claim; the

Bankruptcy court approved this agreement on June 30,

1993.* In this agreement the Trustee stipulated that the

Judgment entered in this action on July 1, 1991, would

“be the final judgment respecting the rights of the Debtor

and Perl" which were adjudicated in said litigation. The

Trustee further expressly stipulated that Perl could,

*The bankruptcy court granted the trustee’s motion in part,

subordinating more than $2 million of Perl’s claim to the claims

of other creditors on the grounds that it reflected return of equity

in the corporation. As a result, it is undisputed that Perl is

unlikely to recover anything from DeParcq’s bankruptcy estate

for the value of his shares.

without objection by the Trustee, pursue his claims on

appeal against Hunegs.”

Vil. THE COURT OF APPEALS’ DISMISSAL OF

THIS ACTION AS MOOT

The Minnesota Court of Appeals then lifted its stay,

and Hunegs moved to dismiss the appeal, contending that

the Trustee’s settlement with him included Perl’s personal

claims against Hunegs. After consolidating this motion

with the appeal on the merits, the court of appeals in an

order filed February 22, 1994 granted the motion to

dismiss this appeal as "moot." A-1. The court of appeals

found that under the U.S. Bankruptcy Code, Perl’s claims

against Hunegs, regardless of whether they were

individual or derivative, were "property of the estate” of

the bankrupt corporation and, therefore, included within

the trustee’s settlement with Hunegs.

On April 19, 1994, the Minnesota Supreme Court

entered its order denying, without explanation, Mr. Perl’s

petition for discretionary review of the court of appeals’

decision.

‘

*At the hearing for approval of the settlement between the

Trustee and Perl, it was expressly called to the Bankruptcy

Court’s attention that the agreement provided for Perl to take

legal action against Hunegs “for remedies which are available to

Perl individually pursuant to statutory or common law." Indeed,

Bankruptcy Judge Kressel yolunteered his understanding that the

agreement would preserve Perl’s appeal against Hunegs.

bob ee eRe a

REASONS FOR GRANTING THE PETITION

SUMMARY OF ARGUMENT

The court of appeals’ ruling that a bankruptcy trustee

has standing to prosecute a minority shareholder’s

oppression claim and piercing action against the

controlling shareholder of a bankrupt corporation is

contrary to this Court’s ruling in Caplin v. Marine

Midland Grace Trust Co., 406 U.S. 416 (1972), and with

the rulings of courts in approximately half of the federal

circuits which have interpreted Caplin.

Courts in the First, Sixth, Eighth, Ninth, Tenth and

Eleventh Circuits have interpreted Caplin to mean that a

bankruptcy trustee does not have the power under the

Bankruptcy Code to assert general causes of action on

behalf of a bankrupt estate’s creditors. See In Re Rare

Coin Galleries of America, Inc., 862 F.2d 896, 900 (lst

Cir. 1988); DSQ Property Co., Lid. v. DeLorean, 891

F.2d 128, 131 (6th Cir. 1989); In re D.H. Overmyer

Telecasting Co., 56 B.R. 657, 659 (Bankr. N.D. Ohio

1986); In re Ozark Restaurant Equipment Co., 816 F.2d

1222, 1227-30 (8th Cir.), cert. denied 484 U.S. 848

(1987); In re Clean Car Systems, Inc., 165 B.R. 460, 463

(Bankr. W.D. Mo. 1994); In re Dakota Drilling, Inc. , 135

B.R. 878, 884 (Bankr. D.N.D. 1991); Williams v.

California First Bank, 859 F.2d 664, 665-67 (9th Cir.

1988); In re M&L Business Machines Co., 160 B.R. 850,

851 (D. Colo. 1993); and E.F. Hutton Co. v. Hadley, 901

F.2d 979, 985 (11th Cir. 1990).

Courts in the Second, Fourth, Fifth, and Seventh

Circuits have held to the contrary, that trustees have

standing to assert such causes of action. See St. Paul Fire

& Marine Insurance Company v. Pepsico, Inc., 884 F.2d

688, 700-01 (2nd Cir. 1989); Steyr-Daimler-Puch of

America Corp. v. Pappas, 852 F.2d 132 (4th Cir. 1988);

S.1. Acquisition, Inc. v. Eastway Delivery Services, 817

F.2d 1142 (Sth Cir. 1987); Koch Refining v. Farmers

Union Central Exchange, Inc., 831 F.2d 1339, 1348-49

(7th Cir. 1987), cert. denied, 485 U.S. 906 (1988).

A number of courts and commentators have

expressly noted the split among the circuits on this issue.

See, e.g., Hadley, 901 F.2d at 985 ("we recognize that

there has been divergence among the circuits concerning

the ability of a bankruptcy trustee to bring actions against

third parties on behalf of creditors of the bankrupt"); Sv.

Paul Fire & Marine, 884 F.2d at 696 ("the courts that

have considered this issue . . . have reached differing

conclusions"); Richard L. Epling, Trustee’s Standing to

Sue In Alter Ego or Other Damage Remedy Actions, 6

Bankr. Dev. J. 191, 193 (1989) (Caplin settled issue until

passage of Bankruptcy Code in 1978).

Even more troubling is the split which the court of

appeals’ opinion in this case creates within the state of

Minnesota, because it conflicts with the ruling of the

Eighth Circuit in In re Ozark, and with the rulings of

lower federal courts in Minnesota. See Oppegard Agency,

Inc. v. Skeie, 152 B.R. 581 (Bankr. D. Minn. 1993), In

re Schuster, 132 B.R. 604, 608 (Bankr. D. Minn. 1991),

and International Broadcasting Corp. v. Turner, 734

F. Supp. 383, 392 (D. Minn. 1990).

The court of appeals’ ruling is a significant and

unfounded expansion of the rights of bankruptcy trustees

at the expense of creditors and shareholders holding

legitimate personal claims against non-bankrupt parties. If

the decision is allowed to stand, well-established

- protections for minority shareholders and creditors will de

rendered worthless. Controlling shareholders facing the

prospect of personal liability for their abuse of minority

shareholder rights will simply do what Respondent did

here--fraudulently strip the company of its assets, place it

in bankruptcy, and settle with the Chapter 7 trustee.

Congress certainly never intended for the bankruptcy laws

to be abused in this manner.

A conflict between the decision of a state court and

a decision of either this Court or one or more federal

courts of appeals are established reasons for granting

certiorari. Sup. Ct. R. 10.1{b) & (c); Andresen v.

Maryland, 427 U.S. 463, 470, n. 5 (1976); Baldwin v.

Alabama, 472 U.S. 372, 374 (1985). Petitioner

respectfully submits that it is urgent that the Court issue a

writ of certiorari in this case to correct the Court of

Appeal’s failure to follow Caplin, and to resolve the

uncertainty and inconsistency on this issue nationwide and

within the state of Minnesota.

ARGUMENT

I. THE COURT SHOULD RESOLVE THE WIDE

SPLIT IN THE CIRCUITS REGARDING THE

ABILITY OF A BANKRUPTCY TRUSTEE TO

BRING ACTIONS AGAINST THIRD PARTIES

ON BEHALF OF CREDITORS AND

SHAREHOLDERS OF THE BANKRUPT.

The issue of whether a bankruptcy trustee owns

causes of action belonging to creditors or shareholders of

the bankrupt against non-bankrupt parties is one which this

Court squarely addressed under the Bankruptcy Act in

Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416

(1972), but which has deeply divided federal courts since

passage of the Bankruptcy Code in 1978.

A Bankruptcy Trustee has the right under the

Bankruptcy Code to "collect and reduce to money the

property of the estate for which the trustee serves... ."

11 U.S.C. § 704(1) (emphasis added). “Property of the

estate" is defined as “all legal or equitable interests of the

debtor in the property as of the commencement of the

case." 11 U.S.C. § 541(a)(1). State law determines the

nature and extent of a debtor’s interest, and

correspondingly the estate’s interest, in property. Butner

v. United States, 440 U.S. 48, 54 (1979); In re N.S.

Garott & Sons, 772 F.2d 462, 466 (8th Cir. 1985);

Esselen Associates, Inc. v. Crysen/Montenay Energy Co.,

902 F.2d 1098, 1101 (2nd Cir. 1990).

In Caplin v. Marine Midland Grace Trust Co., 406

U.S. 416 (1972), this Court held that a reorganization

trustee under the prior Bankruptcy Act lacked standing to

assert on behalf of the bankrupt corporation’s debenture

holders claims of corporate misconduct against a third

party. In Caplin holders of debentures issued by a

bankrupt corporation alleged that an indenture trustee had

engaged in misconduct. The bankruptcy trustee attempted

to assert the debenture holder’s claim against the indenture

trustee. This Court held that the trustee lacked standing to

bring the action. 406 U.S. at 421.

The Court expressly invited Congress to enlarge the

powers of the bankruptcy trustee. 406 U.S. at 434-35. As

the Eighth Circuit observed in Ozark, however, when

Congress overhauled the bankruptcy laws in 1978 (six

years after Caplin) it considered, but explicitly rejected,

the following language which would have overruled

Caplin: “A trustee may enforce any cause of action that a

creditor, a class of creditors, an equity security holder, or

a class of equity security holders have against any person"

under certain conditions. H.R. 8200, 95th Cong., Ist

Sess. 416-17 (1977), quoted at In re Ozark, 816 F.2d at

1227, n.9. Because Congress chose not to include this

language when enacting Section 544 of the Code, the

Eighth Circuit concluded that Congress essentially ratified

Caplin. In re Ozark, 816 F.2d at 1228.

As discussed below, Caplin, as interpreted in

roughly half of the federal circuits, clearly means that the

claims which Petitioner seeks to assert against Respondent

are not "property of the estate” of the bankrupt

corporation and were not included in the trustee’s general

release of Respondent.

A. A_Trustee Of A Bankrupt Corporation

Lacks Standing To Brine An Action T

In Ozark, the Eighth Circuit held that a bankruptcy

trustee did not have standing under the Code to pierce the

corporate veil of a bankrupt corporation for the benefit of

the estate’s creditors. The court held that, because such a

cause of action belonged to the estate’s creditors rather

than to the bankrupt, such a claim was not "property of

the estate" of the debtor and the trustee lacked standing to

prosecute the claim.

The Ozark court noted that the trustee’s power to

invoke an alter ego remedy could spring from only three

sources: 11 U.S.C. §§ 704 & 541; 11 U.S.C. § 544(a);

and 11 U.S.C. § 105. The court held that none of these

provisions conferred such power upon the trustee.

Because under Arkansas law the alter ego remedy ran only

to a corporation’s creditors, and not to the corporation-

debtor, the court held that the trustee did not succeed to

the remedy under Sections 541(a)(1) and 704 because the

debtor/predecessor-in-interest never had the remedy under

applicable law before the bankruptcy filing. 816 F.2d at

1225-26. The court further held that Section 544(a) did not

empower the bankruptcy trustee “to assert general causes

of action, such as the alter-ego claim, on behalf of the

bankrupt estate’s creditors." 816 F.2d at 1228. The court

also declined to recognize an "implied" standing to invoke

the alter ego remedy under the “all writs” provision of

Section 105(a). 816 F.2d at 1230.

In In re Schuster, 132 B.R. 604, 608 (Bankr.D.

Minn. 1991), the Bankruptcy Court for the District of

Minnesota followed Ozark, and held that under Minnesota

law the remedy of “piercing the corporate veil" runs to a

corporation’s creditors, not to the debtor corporation. See

Roepke v. Western National Mutual Insurance Company,

302 N.W.2d 350, 352 (Minn. a se to piercing

as "generally a creditor’s remedy . Ps

Courts in five other federal circuits have joined

Ozark in holding that Congress has ratified Caplin and that

under Caplin claims by creditors against corporate alter

egos are not property of the bankrupt estate. See In Re

Rare Coin Galleries of America, Inc., 862 F.2d 896, 900

(1st Cir. 1988); DSQ Property Co., Lid. v. DeLorean, 891

F.2d 128, 131 (6th Cir. 1989); In re D.H. Overmyer

Telecasting Co., 56 B.R. 657, 659 (Bankr. N.D. Ohio

1986); In re Clean Car Systems, Inc., 165 B.R. 460, 463

(Bankr. W.D. Mo. 1994); Jn re Dakota Drilling, Inc. , 135

B.R. 878, 884 (Bankr. D.N.D. 1991); Williams v.

California First Bank, 859 F.2d 664, 665-67 (9th Cir.

1988); In re M&L Business Machines Co., 160 B.R. 850,

851 (D. Colo. 1993); and E.F. Hutton Co. v. Hadley, 901

F.2d 979, 985 (llth Cir. 1990). See also, Stone’s

Pharmacy v. Pharmacy Accounting Management, 875 F.2d

665, 667-668 (8th Cir. 1989), cert. denied, 493 U.S. 1043

(1990) (Code’s automatic stay of actions against “property

of estate” does not extend to actions against controlling

shareholders of bankrupt corporations). Accord, Greene

& Kellogg, Inc. v. Oxford Hospital Inc., 95 B.R. 26

(E.D.Pa. 1989); In re Anje Jewelry Co., 47 B.R. 485

(Bankr. E.D.N.Y. 1983). Indeed, the court of appeals

coh eid

itself expressly recognized this principle in this case when

it ruled that Perl’s claim against Hunegs was not subject to

the automatic stay under Section 362. A-72.

Here, Mr. Perl holds a final judgment against

DeParcq and is therefore a "creditor" of that entity. Asa

creditor, he, not the trustee, holds the right under the

Ozark line of cases to pierce the corporate veil and hold

Hunegs personally liable to him outside of bankruptcy.

B. A_Trustee Of A Bankrupt Corporation

nding To Bring An ion

Acti i ntrolli h Ider

On Behalf of A Minority Shareholder.

Mr. Perl also has a direct personal action against

Hunegs under state law for compulsory buy-out of his

minority shareholder’s interest. Minn. Stat. §§ 302A.751

& 467. See Evans v. Blesi, 345 N.W.2d 775 (Miin. App.

1984), rev. denied (Minn. June 12, 1984); Pedro v.

Pedro, 489 N.W.2d 798, 801-803 (Minn. App. 1992),

rev. denied (Minn. October 20, 1992). It is well-

established under Minnesota law that a minority

shareholder has standing to assert an oppression claim

under Chapter 302A in an individual capacity, as Perl has

done against Hunegs, and that such claims are not

"derivative" claims for the benefit of the corporation. P.J.

Acquisition Corp. v. Skoglund, 453 N.W.2d 1, 6 (Minn.

1990), quoting J. Olson, A Statutory Elixir for the

Oppression Malady, 36 Mercer L. Rev. 627, 635-36

(1985) ("[a}]n action under [Chapter 302A] Section 751 is

an individual action by the shareholder to gain relief in his

own right, it is not a derivative right"); Wheeler v.

McGee, 1992 LEXIS 1272 (Minn. App. 1992)

(“shareholders in a closely held corporation owe one

another a fiduciary duty that requires them to deal openly,

honestly, and fairly with one another . . . . Breach of that

duty is a personal and not a derivative corporate claim.")

Accord, Masinter v. WEBCO, 262 S.E.2d 433, 441

(W.Va. 1980).

Bankruptcy courts in Minnesota have also held that

an action against a controlling shareholder for wrongfu

dilution of stock is “not a derivative action... ."

Oppegard Agency, Inc. v. Skeie, 152 B.R. at 592;

International Broadcasting Corp. v. Turner, 734 F. Supp.

383, 392 (D. Minn. 1990) (shareholder claims against

management not derivative).

These cases are consistent with those which hold that

bankruptcy trustees do not have standing to assert personal

claims which shareholders have against third parties. See,

e.g., Cumberland Oil Corp. v. Thropp, 791 F.2d 1037,

1042-43 (2d Cir.), cert. denied, 479 U.S. 950 (1986); In

re Curry & Sorensen, Inc., 57 B.R. 824, 829 (9th Cir.

1986).

Moreover, Caplin and Ozark compel the conclusion

that not only Perl’s “alter ego" claim, but his minority

shareholder claim as well, are beyond the reach of the

trustee. The version of Section 544 which was rejected

by Congress would have invested the Trustee not only

with causes of action belonging to creditors, but also those

which “an equity security holder, or a class of equity

shareholders has against any person." H.R. 8200, 95th

Cong., Ist Sess. 416-17 (1977), quoted at In re Ozark,

816 F.2d at 1227, n.9. Thus, because that proposal was

not adopted, Caplin and Ozark apply with equal force

whether Perl is a shareholder or a creditor, and the claim

against Hunegs belongs to Perl, not the trustee.

Bank ntitl he >

Compromise Petitioner’s Claims.

Here, the court of appeals acknowledged the

substantial authority that a minority shareholder oppression

action, as a matter of Minnesota law, is a personal, not a

derivative, claim. A-7 (recognizing the "right of a

shareholder to bring a direct action against either the

corporation or another shareholder, for injuries sustained

by the shareholder, as a shareholder.") In dismissing

Perl’s shareholder oppression claim as moot, however, the

court concluded that the Code vested the trustee with the

power to release Hunegs from Perl’s shareholder claim,

even if it was personal and was for injury to Mr. Perl "as

a shareholder."

As for Perl’s alter ego claim, the court cited but

refused to apply Ozark. The court ignored Caplin

altogether.

Instead, the court found controlling three federal

cases, Commodity Futures Trading Commission v.

Weintraub, 471 U.S. 343 (1985); In re Medomak

Canning, 922 F.2d 895 (ist Cir. 1990); and Matter of

Central Ice Cream Company, 836 F.2d 1068 (7th Cir.

1987). These cases are, however, off-point and reflect the

court’s confusion regarding the applicable law. In

Weintraub, the only issue was whether a trustee in

bankruptcy was entitled to waive a bankrupt corporation’s

attorney-client privilege. The case said nothing about a

trustee’s power to litigate causes of action held by

Shareholders or creditors against non-bankrupt parties.

Medomak Canning involved an effort by creditors to

second-guess a trustee’s handling of an equitable

subordination action, a type of claim which Section 510(c)

of the Code expressly empowers a trustee to assert. Here,

Perl only seeks to assert those claims which belong to him

personally and individually -- claims which are not

mentioned anywhere in the Code.‘ Matter of Central ice

Cream merely stands for the proposition that a shareholder

is not a proper party to a lawsuit prosecuted by a

bankruptcy trustee, unless the trustee does not adequately

represent the shareholder’s interest. Here, Mr. Perl does

not seek to prosecute claims which the trustee prosecuted

in the bankruptcy case. The only claims which he seeks

to prosecute are those which belong to him personally, and

which are not property of the bankruptcy estate.”

“Neither the bankruptcy court in this case nor any other

bankruptcy court in the Eighth Circuit has ever applied

Medomak; indeed, in the DeParcq bankruptcy case the Court

explicitly ruled contrary to the court in Medomak, finding that

Perl had standing to seek equitable subordination of other

creditors.

*The Trustee could no more release Hunegs from his liability

to Perl personally than he could had Perl lent money to DeParcq

prior to the bankruptcy and obtained a written guaranty from

Hunegs. In that hypothetical situation, a guaranty would be a

wholly independent legal obligation running from Hunegs to Perl

which would in no way be dependent upon any liability of

Hunegs to the corporation. See Farmers & Merchants’ National

Bank of Cannon Falls v. Doffing, 213 N.W. 375, 376 (Minn.

- 1927). For this reason, the Trustee certainly could not release

Hunegs from his liability to Perl on such a guaranty. Just as a

bankruptcy trustee cannot release a guarantor of a bankrupt’s

debt from the guarantor’s obligation to a third party, the Trustee

here did not and could not release Hunegs from his independent

liability to Perl arising from Minnesota statutes and common

law. See In re Johnson, 117 B. R. 461, 470 (Bankr. D. Minn.

1990) (no release of guarantor after principal debt discharged in

bankruptcy.)

D. This Court Needs to Clarify the Powers of

Bankruptcy Trustees __To Eliminate

Uncertainty and Inconsistency, To Avoid

Forum Shopping, And To Avoid A

Windfall to Respondent.

Caplin and Ozark and the Minnesota cases cited

above stand squarely for the proposition that a minority

shareholder’s statutory oppression claim and common law

alter ego action against an abusive controlling shareholder

belong to the minority shareholder, not to the bankrupt

estate. The court of appeals misapplied the Bankruptcy

Code by ignoring Caplin and determining that such claims

can be released by a bankruptcy trustee. In essence, the

court of appeals second-guessed Congress by applying a

tule of law which Congress expressly declined to adopt

following Caplin.

The recovery Perl seeks from Hunegs, purchase of

his stock or damages for the value of his stock, is

intended to remedy harm to Perl personally, not harm to

the corporation, and is not sought for the benefit of

DeParcq. Accordingly, under the federal Bankruptcy

Code, the Trustee of DeParcq could not pursue or settle

the claims which Perl is asserting. Therefore, the

settlement between the Trustee and Hunegs does not moot

Perl’s claim.

This Court has held that state property laws should

be "suspended only to the extent of actual conflict with the

system provided by the bankruptcy act of Congress."

Butner v. United States, 440 U.S. 48, 54, n.9 (1979),

quoting Stellwagen v. Clum, 245 U.S. 605, 613 (1918).

Here there is no conflict between Minnesota property laws

and the Code; there was no reason, therefore, why the

court of appeals should have suspended Perl’s state law

rights against Hunegs.

The court of appeals’ opinion not only adds to the

nationwide confusion, but also creates a dangerous rift

between state and federal courts in Minnesota on a critical

issue of creditor’s remedies and bankruptcy. This conflict

is of particular concern because, as this Court held in

Butner.

Uniform treatment of property

interests by both state and federal

courts within a state serves to

reduce uncertainty, to discourage

forum shopping, and to prevent

a party from receiving ‘a

windfall by reason of the

happenstance of bankruptcy.’

Butner, 440 U.S. at 55, quoting Lewis v. Manufacturers

National Bank, 364 U.S. 603, 609 (1961). See generally,

In re Morton, 866 F.2d 561 (2nd Cir. 1989).

Petitioner respectfully submits that certiorari is

proper to correct the court of appeals’ refusal to follow

this Court’s holding in Caplin. Certiorari is also urgently

needed to avoid all of the evils cited by the Court in

Butner. to resolve the widespread inconsistency among

federal courts, and between state and federal courts in

Minnesota, regarding the powers of bankruptcy trustees

over claims of creditors and shareholders against non-

bankrupt parties; to avoid the forum shopping within the

state of Minnesota which is likely to occur as a result of

the split between the court of appeals and the federal

courts in Minnesota; and to avoid a windfall for

controlling shareholders who abuse the bankruptcy laws to

avoid legitimate claims of minority shareholders.

The issue which this Court addressed in Caplin, what

rights and causes of action a bankruptcy trustee controls,

is a critical issue of bankruptcy law directly touching upon

the purposes, policy, and efficiency of our system of

eas |

bankruptcy. Continuing confusion and inconsistency will

not only impair and complicate bankruptcy cases but non-

bankruptcy creditor’s remedies litigation as well.

The result of this confusion and uncertainty so far

for Mr. Perl is that a state court has abrogated valuable

state law rights pursuant to a false belief that the

bankruptcy laws confer these rights on a federal

bankruptcy trustee. Congress expressly decided not to

give bankruptcy trustees such rights and they should not

have them. Indeed, the trustee in this case did not believe

he had them.

If the Court denies this petition, not only will Perl

wrongfully be deprived of his rights against Hunegs, but

so will present and future victims of other abusive

controlling shareholders in Minnesota and elsewhere. If

Stratagems like that employed by Hunegs here are

permitted to succeed, closely held corporations will be

stripped and bankrupted to avoid meritorious minority

shareholder and creditor piercing claims. Well-established

rights of minority shareholders and creditors will be lost.

Congress certainly never intended such misuse of the

bankruptcy laws.

CONCLUSION

For all of the foregoing reasons, Petitioner

respectfully submits that the Court should grant this

petition for a writ of certiorari.

Respectfully submitted.

MASLON EDELMAN BORMAN & BRAND

William Z. Pentelovitch

(Counsel of Record)

David F. Herr

Jonathan S. Parritz

3300 Norwest Center

90 South Seventh Street

Minneapolis, MN 55402

(612) 672-8200

ATTORNEYS FOR PETITIONER

NORMAN PERL

INDEX TO APPENDIX

PAGE

Minnesota Court of Appeals Opinion

ee Se. ee eee A-1

Minnesota Supreme Court Order

a Be a eo ak a eR ee A-9

Minnesota Court of Appeals Judgment

Pe a re ee ere A-11

Amended Complaint dated December 30, 1988 A-15

Findings of Fact, Conclusions of Law,

and Order for Judgment dated May 22, 1991 . A-53

Minnesota Court of Appeals Order

ge Se ee ee ae ee ee A-70

STATE OF MINNESOTA

IN COURT OF APPEALS

C7-91-1237

Hennepin County Fleming, Judge”

District Court File No. 89325

Norman Perl, William Z. Pentelovitch

Maslon, Edelman, Borman & Brand

Appellant, 3300 Norwest Center

90 South Seventh Street

Minneapolis, MN 55402

VS.

Deparcq, Hunegs, Stone,

Koenig & Reid, P.A., f/k/a

DeParcq, Anderson, Perl,

Hunegs & Rudquist, P.A..,

Defendants,

Richard G. Hunegs, Robert J. Tansey, Jr.

Robins, Kaplan, Miller & Ciresi

Respondent, 800 LaSalle Avenue, Suite 2800

Minneapolis, MN 55402

The Estate of Donald J.

Rudquist, et al.,

‘Retired judge of the district court, serving as judge

of the Minnesota Court of Appeals by appointment

pursuant to Minn. Const. art. VI § 10.

A-1

Defendants.

Filed February 22, 1994

Office of Appellate Courts

Considered and decided by Davies, Presiding Judge,

Kalitowski, Judge, and Fleming, Judge.

A-2

CITA EF,

VS a Cae ee ene See Ne eek

UNPUBLISHED OPINION

FLEMING, Judge

Appellant Norman Perl challenges the district

court’s grant of summary judgment to respondent Richard

Hunegs. Hunegs moves to dismiss the appeal as moot

because Perl’s claims have been settled by the bankruptcy

trustee for the parties, former corporation. We dismiss

the appeal as moot.

FACTS

Norman Perl sued Richard Hunegs in his individual

capacity as a shareholder of the parties, former law firm,

DeParcq, Hunegs, Stone, Koenig & Reid, P.A. (DeParcq)

seeking either a dissolution of DeParcq or payment for the

value of his shares in DeParcq corporation. Perl also

sought to hold Hunegs pesonally liable as a shareholder,

officer, and director of DeParcq. The district court

granted Hunegs’ motion for summary judgment and

dismissed him as an individual defendant, finding no reason

to “disregard the corporation status." At trial, Perl

obtained a judgment of $2.7 million against the

corporation. Perl challenges the pretrial dismissal of

Hunegs as an individual defendant.

On November 27, 1991, shortly after Perl obtained

his judgment, an involuntary bankruptcy proceeding was

commenced against DeParcq under chapter 7 of the U.S.

Bankruptcy Code. During the course of this bankruptcy

case, the trustee prosecuted an extensive adversary

proceeding against the corporation and Hunegs

individually. In February 1993, the bankruptcy trustee,

the corporation, and Hunegs entered into a settlement

agreement that included complete mutual releases of all

A-3

claims. Notwithstanding Perl’s objections to the trustee’s

settlement, the bankruptcy court approved the settlement.

Perl argues that his claims against Hunegs are

personal and individual and that his suit was not prosecuted

as a derivative action. In addition, Perl argues that the

settlement with the trustees specifically preserved his

appeal from Hunegs’ dismissal as an individual defendant.

Hunegs moves to dismiss the appeal, arguing that the

settlement with the bankruptcy trustee bars Perl’s claims.

We agree and dismiss this appeal as moot.

DECISION

The Minnesota Supreme Court has recognized that

claims resolved by a settlement during the pendency of an

appeal result in the dismissal of the entire appeal as moot.

State v. Rud, 359 N.W.2d 573, 576 (Minn. 1984)

("Ordinarily when a dispute between two litigants is settled

or in some other way resolved during the pendency of

appeal, we dismiss the appeal as moot.").

A bankruptcy trustee represents all the creditors of

the bankrupt organization. See In re Medomak Canning,

922 F.2d 895, 901 (ist Cir. 1990) (trustee in bankruptcy

is a fiduciary representative of the estate and its creditors).

This principle was explained by the court in Medomak:

A trustee in bankruptcy is a fiduciary

representing the estate and creditors. In

order efficiently to administer the estate, a

trustee’s court-approved settlement must

have finality, and settling parties must be

assured that those the trustee represents will

not relitigate settled claims. Such a result is

implicitly recognized in Bankruptcy Rule

9019, which requires notice to interested

A-4

parties prior to approval of such a

settlement.

*x* * Kk *

We agree that * * * privity may be

established by identification of interests,

even where representation of those interests

is not authorized.

Id. (citations omitted). The Medomak court explained that

it is the creditor’s obligation to look to the trustee to

vindicate their claims, even where the trustee and creditor

are not in privity. /d.

Perl asks this court to consider whether the

bankruptcy trustee resolved his claims against Hunegs by

entering into the settlement agreement. The effect of the

trustee’s settlement was to resolve and subsequently release

all claims of individual liability against Hunegs, whether

brought by the corporation or another shareholder. Perl’s

claims against Hunegs represent claims that initially

belonged to the corporation. The bankrupt corporation’s

trustee resolved those claims and released Hunegs from

any further liability.

In Commodity Futures Trading Comm’n vy.

Weintraub, 471 U.S. 343, 355, 105 S. Ct. 1986, 1994

(1985) the Supreme Court commented on the relationship

between a trustee and the shareholders of a debtor:

First, the fiduciary duty of the trustee runs

to shareholders as well as to creditors.* * *

[BJankruptcy causes fundamental changes in

the nature of corporate relationships. One of

the painful facts of bankruptcy is that the

A-5

interests of shareholders become

subordinated to the interests of creditors.

Id. a

The fundamental change brought on by the filing of

a bankruptcy petition does not leave shareholders without

rights. Whether shareholders may pursue their contentions

“depends on whether the trustee adequately represents their

interests.” In re Central Ice Cream €o., 836 F.2d 1068,

1073 (7th Cir. 1987). Here, the trustee adequately

represented Perl’s interests. While Perl attempted to

intervene in the adversary proceeding between the trustee

and Hunegs, the bankruptcy court refused to allow such

intervention, finding that Perl’s claims were derivative of

the trustee’s claims. Further, Perl had notice of the

settlement and filed an objection to the proposed

settlement, which was overruled by the bankruptcy court.

Perl further argues that his claims are not

derivative. He contends he does not seek to recover funds

or other assets that Hunegs misappropriated from the

corporation; he concedes such claims did belong to the

corporation and are subject to the settlement release.

Rather, Perl seeks to compel Hunegs to pay the value of

Perl’s shares in the corporation as a consequence of Perl’s

rights as a shareholder. Perl relies on In re Oppergard

Agency, Inc., 152 B.R. 581 (Bankr. D. Minn. 1993)

(cause of action for fraud not derivative for claims brought

against corporation and individual defendants); PJ

Acquisition Corp. v. Skogland, 453 N.W.2d 1 (Minn.

1990) (shareholder may have claims against other

shareholders for breach of fiduciary duty based on

employment contract).

These cases are distinguishable because they do not

involve bankrupt corporations or settlements resolving all

A-6

HS PARED DA RETA Mea WS ae

Ne Do ed Ee OY ce a

"known and unknown" claims by a representative of the

corporation, including the corporation’s shareholders.

Instead, each case involves a narrow principle: the limited

right of a shareholder to bring a direct action against either

the corporation or another shareholder, for injuries

suffered by the shareholder, as a shareholder. See id.

Perl also seeks to pierce DeParcq’s corporate veil

and to hold Hunegs personally liable as the corporation’s

alter ege. Perl contends that a bankruptcy trustee has no

Standing to assert alter ego claims. In In re Ozark

Restauramt Equip. Co., 816 F.2d 1222 (8th Cir.), cert.

denied, 484 U.S. 848 (1987), the Eighth Circuit Court of

Appeals determined that a trustee could not bring an action

in an attempt to “pierce the corporate veil" on behalf of

creditors because “the obligations and liabilities of an

action to pierce the corporate veil in Arkansas do not run

to the corporation, but to third parties, e.g., creditors of

the corporation.” Jd. at 1225. Further, the court stated

that corporate form may be disregarded only where equity

requires the action to assist a third party and that, if the

shareholders of a corporation had rights in such a cause of

action, those rights would be property of the estate and

enforceable by the trustee. For example, the trustee has

authority to bring an action for damages on

behalf of a debtor corporation against

corporate principals for alleged misconduct,

mismanagement, or breach of fiduciary duty,

because these claims could have been

asserted by the debtor corporation, or by its

stockholders in a _ derivative action.

Accordingly, whenever a cause of action

"belongs" to the debtor corporation, the

trustee has the authority to pursue it in

bankruptcy proceedings.

A-7

Id. (citations ommitted). Here, Perl asserts his claims as

a shareholder, not individually. Therefore, the general

release entered into by the trustee did not preserve a claim

for Perl. Likewise, his claims were property of the

bankruptcy estate and thus settled by the trustee.

We conclude the bankruptcy settlement agreement

included claims that related to Hunegs’ individual liability

and therefore released him from any future liability.

Moreover, Perl’s argument that his claims are not

derivative and DeParcq’s corporate veil should be pierced

are unpersuasive. Accordingly, we dismiss the appeal as

moot.

Appeal dismissed.

A-8

STATE OF MINNESOTA

IN SUPREME COURT

C7-91-1237

Norman Perl,

Appellant,

VS.

Deparcq, Hunegs, Stone, Koenig & Reid.

P.A., f/k/a DeParcq, Anderson, Perl,

Hunegs & Rudquist, P.A.,

Defendants,

Richard G. Hunegs,

Respondent,

The Estate of Donald J. Rudquist, et al.,

Defendants.

ORDER

i Based upon all the files, records and

proceedings herein,

IT IS HEREBY ORDERED that the petition

of Norman Perl for further review be, and the same is,

denied.

Dated: April 19, 1994

BY THE COURT:

Chief Justice

A-10

Soret Py er,

TNA on

AAS DURA A Eh BRS IR AARC ik SANS AP tnt tll GA

sah Amat it Nok: hive oes

STATE OF MINNESOTA COURT OF APPEALS

C7-91-1237

Appellate Court Case Number

Norman Perl, 89325

Trial Court Case Number

Appellant,

VS.

Deparcq, Hunegs, Stone,

Koenig & Reid, P.A., f/k/a

DeParcq, Anderson, Perl, JUDGMENT

Hunegs & Rudquist, P.A.,

Defendants,

Richard G. Hunegs,

Respondent,

The Estate of Donald J.

Rudquist, et al.,

Defendants.

Pursuant to an order of Court heretofore duly made

and entered in this cause it is determined and adjudged that

the order of the Court below, herein appealed from, to wit,

of the District Court within and for the County of

Hennepin be and the same hereby is

appeal dismissed

A-1]

and that the judgment be entered accordingly. A

certified copy of the entry of judgment and the Court’s

decision is herein transmitted and made part of the

remittitur.

Dated and signed: FOR THE COURT __May 12, 1994

Attest: _ Frederick K. Grittner

Clerk of the Appellate Courts

A-12

STATE OF MINNESOTA COURT OF APPEALS

Norman Perl,

Appellant,

VS.

Deparcq, Hunegs, Stone, |

Koenig & Reid, P.A., f/k/a TRA F

: DeParcq, Anderson, Perl, MENT

j Hunegs & Rudquist, P.A.,

Defendants,

Richard G. Hunegs,

Respondent,

; The Estate of Donald J.

i Rudquist, et al.,

Defendants.

I, Frederick K. Grittner, Clerk of the Appellate

Courts, do hereby certify that the foreoing is a full and

true copy of the Entry of Judgment in the cause therein

entitled, as appears from the original record in my office;

that I have carefully compared the within copy with said

original and that the same is a correct transcript therefrom.

A-13

Witness my signature at the

Minnesota Judicial Center,

in the City of St. Paul 5-12-94

Frederick K. Gri

Clerk of the Appellate Courts

STATE OF MINNESOTA DISTRICT COURT

COUNTY OF HENNEPIN FOURTH JUDICIAL

DISTRICT

Norman Perl, File No.

Case Type: Other Civil

Plaintiff,

Vs. AMENDED COMPLAINT

AND PETITION FOR

DeParcq, Hunegs, Stone, & DECLARATORY

Reid, P.A.; Richard G. Hunegs; The JUDGMENT

Estate of Donald J. Rudquist; and AND CORPORATE

Barbara Rudquist, DISSOLUTION

Defendants.

For his Complaint, Plaintiff Norman Perl ("Perl")

states and alleges:

I. PARTIES

l. Defendant DeParcq, Hunegs, Stone, Koenig

& Reid, P.A. (the “Corporation") is organized and exists

pursuant to the provisions of Chapters 302A and 319A of

Minnesota Statutes for the purpose of engaging in the

practice of law in the State of Minnesota and elsewhere.

The predecessor to the Corporation was founded as a

partnership known as DeParcq, Anderson & Perl in 1967.

The Corporation was incorporated on October 1, 1971,

under the name of DeParcq, Anderson, Perl & Hunegs,

P.A. On November 3, 1982, the name of the Corporation

A-15

was changed to DeParcq, Anderson, Perl, Hunegs &

Rudquist, P.A. On August 17, 1984, the name of the

Corporation was changed to DeParcq, Perl, Hunegs,

Rudquist & Koenig, P.A. On March 6, 1987, the

Corporation purported to change its name to DeParcg,

Hunegs, Rudquist & Koenig, P.A. Also on March 6,

1987, the Corporation purported to change its name to

DeParcq, Hunegs, Stone, Koenig & Reid, P.A.

2. Plaintiff Perl is an individual residing in

Hennepin County, who is, and has been at all times from

1949 to the present, with the exception of the period from

August 4, 1986, to August 4, 1987, an attorney at law duly

licensed to practice by the Supreme Court of the State of

Minnesota. From August 4, 1986, until August 4, 1967,

Perl’s license to practice law was suspended by the

Supreme Court of the State of Minnesota. At all times

material herein, beginning on the date of incorporation of

the Corporation on October 1, 1971, Perl has been a

shareholder in the Corporation and currently owns 2,000

shares of the issued and outstanding common stock of the

Corporation. At all times material, beginning October 1,

1971, Perl has been a duly elected director and officer of

the Corporation.

3. Defendant Richard G. Hunegs (“Hunegs") iS

an individual residing in Hennepin County, who is, and at

all times material has been, an attorney at law duly

licensed to practice by the Supreme Court of the State of

Minnesota. At all times material herein, beginning on the

date of incorporation of the Corporation on October 1,

1971, Hunegs has been a shareholder in the Corporation as

well as an officer and director thereof. The Corporation

has duly and validly issued Hunegs 2,000 shares of the

‘issued and outstanding common stock of the Corporation.

On information and belief, the Corporation, invalidly, and

A-16

without due authorization, has issued Hunegs 2,100

additional shares of common stock in the Corporation.

4. Donald J. Rudquist, who died on

February 1, 1987, was an attorney at law duly licensed to

practice by the Supreme Court of the State of Minnesota.

On or about May 20, 1982, the Corporation issued to

Donald J. Rudquist 2,000 of the shares of the common

stock of the Corporation. Upon his death on February 1,

1987, said 2,000 shares of the issued and outstanding stock

of the Corporation passed to the Defendant Estate of

Donald J. Rudquist, Deceased ("Estate"), and under the

terms of the Last Will and Testament of Donald J.

Rudquist, said shares of the stock of the Corporation were

bequeathed to Defendant Barbara J. Rudquist ("Ms.

Rudquist"), who at the time of Donald J. Rudquist’s death

was an attorney at law duly licensed to practice by the

Supreme Court of the State of Minnesota and employed as

an attorney by the Corporation. The Estate and Ms.

Rudquist are necessary parties herein.

Il. FACTUAL BACKGROUND

3 On October 1, 1971, the Corporation issued

shares of its stock as follows:

William H. DeParcq 3,000 shares

Jerome T. Anderson 3,000 shares

Norman Perl 3,000 shares

Richard G. Hunegs 1,000 shares

6. By action of the Board of Directors at a

meeting held on February 27, 1973, the Corporation

redeemed the 3,000 shares issued to and held by William

H. DeParcq.

A-17

yA By action of the Board of Directors at a

meeting held on April 16, 1973, the Corporation redeemed

the 3,000 shares issued to and held by Jerome T. Anderson

at the time of his death.

8. On or about October 1, 1974, Perl and

Hunegs entered into a written Agreement, a true and

correct copy of which is attached hereto and incorporated

by reference herein as Exhibit A. Pursuant to said

Agreement, Perl sold Hunegs 1,000 shares of common

stock of the Corporation. By reason of said sale, Perl and

Hunegs were the sole shareholders of the Corporation, each

owning 2,000 shares. The purchase price for said shares

was $50,000, with $14,000 paid in cash upon execution of

the Agreement and the remaining $36,000 to be paid in

equal installments of $18,000 on January 10, 1975 and on

or before January 10, 1976. Interest on the unpaid balance

was to be computed at the rate of six percent per annum.

Upon receipt of such stock, Hunegs agreed to, and did in

fact, endorse said shares in blank and deliver them to Perl

to be held as collateral security for Hunegs’ debt to Perl.

Hunegs failed to fully perform his payment obligations

pursuant to the Agreement, and Perl continued to hold

Hunegs’ stock in the Corporation as collateral security until

January, 1987, at which time Perl delivered such stock

back to Hunegs despite Hunegs’ failure to perform all his

obligations pursuant to the Agreement.

9. On October 1, 1974, Perl, Hunegs, and the

' Corporation entered into a written Buy-Sell Agreement, a

true and correct copy of which is attached hereto and

incorporated by reference herein as Exhibit B.

10. Section 4 of the Buy-Sell Agreement

provides as follows:

A-18

i we Drees i te. i.

SF DOA oS TRE OTR BOTA RLU oe ~~ beet! EF OB MD.

Restrictions on Transfer of Shares. Each

shareholder agrees that for so long as this

Agreement shall continue in full force and

effect, he will not transfer, sell, convey,

assign, encumber or otherwise dispose of all

or any portion of his interest in the shares

owned by him in the Corporation without the

prior written consent of the other individual

party to this Agreement, except where such >

transfer is expressly permitted or required by

this Agreement. It is understood and agreed

that from time to time it may be desirable to

sell stock of the Corporation to other

employees of the Corporation. However, no

stock in the Corporation shall be soid by

either of the Shareholders to any other

person without consent of the other party

hereto, and any proposed sale shall be

subject to the following:

A. Any proposed sale to a third party

shall be made by the Shareholders in equal

proportion; or

B. If either of the individual

Shareholders does not desire to share in the

sale of a portion of his stock to a third

party, the Shareholder desiring to sell must

first offer to sell such stock to the other

individual Shareholder herein on the same

terms and conditions as he can obtain from

a bona fide prospective purchaser. * * *

C. If the other Shareholder is not

desirous of purchasing said stock upon the

terms and conditions above set forth, the

Shareholder so desiring to sell the same may

A-19

sell it to a third party who, under the

applicable provisions of the Professional

Corporation Code of the State of Minnesota,

is permitted to own stock in _ this

Corporation. . .

11. Section 6 of the Buy-Sell Agreement

provides:

Redemption of Shares. If there occurs either

of the events enumerated below, all of a

Shareholder’s right, title and interest in the

shares of stock of the Corporation owned by

him shall be transferred to the Corporation

by a redemption of such shares, which

redemption shall take place on the date

herein determined. Redemption shall occur

on such date as may be agreed upon by the

Corporation and the Shareholder whose

shares are being redeemed, but in no event

more than ninety (90) days after the

occurrence of any such event. On the

redemption date the Shareholder whose

shares are being redeemed shall delivered

the certificate or certificates representing the

shares owned by him duly endorsed by him,

and the Corporation shall pay to the

Shareholder the purchase price or so much

of it as then becomes payable, which

purchase price shall be determined as

hereinafter provided. The events referred to

above are as follows:

A. The death of a Shareholder, in which

event the term “Shareholder” as used in this

paragraph and in the preceding paragraph

shall include the duly appointed legal

A-20

a ee,

representative of said deceased Shareholder,

and the ninety (90) day period shall

commence upon the date of death of the

Shareholder.

; B. The termination of the Employment

ent 4 Contract between the Shareholder and the

; Corporation due to the disability or inability

of the Shareholder to serve as an employee

on account of accident or sickness, which

termination is provided for in_ the

Employment Contracts referred to in

Paragraph 3 above.

12. Section 7 of the Buy-Sell Agreement

provides:

Determination of Purchase Price. The

parties do hereby agree that until otherwise

decided by the unanimous consent of the

Shareholders, the total fair market value of

all of the issued stock of the Corporation

(exclusive of Treasury Stock) as a going

concern is Four Hundred Thousand Dollars

($400,000.00), each one’s share being

valued at Two Hundred Thousand Dollars

($200,000.00).

13. On November 18, 1974, Perl and the

Corporation entered into an Employment Contract, a true

and correct copy of which is attached hereto and

incorporated herein as Exhibit C.

14. Paragraph 2 of said Employment Contract

provides:

A-21

TERM. This Agreement shall be for a

period of ten (10) years commencing on

October 1, 1974, to and __ including

September 30, 1984; subject, however, to

termination as otherwise provided herein.

15. Paragraph 11 of said Employment Contract

provides:

TERMINATION. Notwithstanding the

provisions of Paragraph 2 hereof, this

Agreement shall terminate for any one of the

following reasons:

(A) The death of the Employee;

(B) Inability on the part of the Employee

to perform his services by reason of illness

or accident for a period of twelve (12)

successive months as set forth in Paragraph

6(A) above, unless the Board of Directors

shall determine otherwise;

permanent or in excess of six (6) months to

engage in the private practice of law by any

duly constituted authority within the State of

Minnesota;

(D) Professional misconduct or violation

of the Canons of Professional Ethics of the

Bar Association of Hennepin County, or the

Board of Professional Responsibility of the

State of Minnesota, if such misconduct

continues after its desistance has been

requested by the Employer or by the

President of the Employer;

A-22

;

(E) Action of the Employee that injures

the professional standing of the Employer, if

such action continues after desistance is

requested by the Employer or by the

President of the Employer;

(F) Insolvency of the Employee or his

bankruptcy or assignment of his assets for

the benefit of creditors;

(G) Material breach of any of the

provisions of this Employment Agreement |

which, if after the breach has been specified

as a prospective ground for termination of |

this Agreement by written notice given by

the other Shareholder of the Employer, the

same breach occurs again;

(H) The conviction of any felony or any

crime regarding moral turpitude;

(I) This Agreement shall also be deemed

to be terminated by any voluntary act of the

Employee prior to the expiration of the term

set forth in Paragraph 2 hereof.

16. Paragraph 15 of the Employment Contract

provides:

NO WAIVER. This Agreement shall not be

modified or amended except by further

written document signed by the Employee

and approved by the Board of Directors of

the Employer. No provision hereof may be

waived except by agreement in writing

signed by the waiving party. A waiver of

A-23

any term or provision shall not be construed

as a waiver of any other term or provision.

17. On or about May 20, 1982, the Corporation

issued 2,000 shares of its common stock to Donald J.

Rudquist. From and after May 20, 1982, ownership of the

common stock of the Corporation was as follows:

Norman Perl 2,000 shares

Richard G. Hunegs 2,000 shares

Donald J. Rudquist 2,000 shares

18. From October 1, 1974. through

September 30, 1984, Perl was employed by the

Corporation pursuant to the Employment Contract. During

the term of the Employment Contract, none of the

conditions for termination of Perl’s employment prior to

termination of said Employment Contract, as specified in

Paragraph 11 thereof, occurred, because between

October 1, 1974 and September 30, 1984:

(a) Perl did not die;

(b) Perl did not become unable to

perform his services by reason of illness or accident

for a period of twelve (12) successive months;

either permanently or in excess of six (6) months to

engage in the private practice of law by any duly

constituted authority within the State of Minnesota;

(d) The Corporation did not request Perl

to desist from professional misconduct or violation

of the Canons of Professional Ethics of the Bar

Association of Hennepin County or the Board of

Professional Responsibility of the State of

A-24

Minnesota, and if such request was made, Perl

discontinued such misconduct thereafter;

(e) The Corporation did not request Perl

to desist from engaging in actions which injured the

professional standing of the Corporation, and if

such desistance was requested, Perl discontinued

such action after such desistance was requested;

(f) Perl was neither insolvent nor

bankrupt, nor did he assign any assets for the

benefit of his creditors;

(g) | The Corporation did not specify to

Perl any material breach of any provisions of said

Employment Agreement as a prospective ground for

termination thereof by written notice, nor did

Hunegs or Rudquist give written notice of such

material breach to Perl, nor if written notice of a

material breach was given did such material breach

occur again;

(h) Perl was not convicted of any felony

or crime involving moral turpitude; and

(i) Perl did not voluntarily terminate his

employment.

19. The Employment Contract expired by its

terms on September 30, 1984, and was not modified,

amended, or renewed to continue in effect thereafter.

20. From October 1, 1984 until August 4, 1986,

Perl was employed by the Corporation on an “at will"

; basis at an annual salary and bonus of $600,000.00 per

annum. The terms and conditions of the Employment

Contract which terminated on September 30, 1984 did not

A-25

survive the Employment Contract and, therefore, did not

apply to Perl’s “at will" employment by the Corporation

beginning on October 1, 1984, and continuing thereafter.

21. On August 4, 1986, the Minnesota Supreme

Court suspended Perl’s license to practice law for a period

of one year. On October 6, 1986, the Minnesota Supreme

Court issued an Order withdrawing and vacating said

suspension order. On June 19, 1987, the Minnesota

Supreme Court, after remanding the matter to a Referee

for a full hearing, suspended Perl’s license to practice law

for a period of one year retroactively commencing on

August 4, 1986. Between August 4, 1986 and August 4,

1987, Perl did not engage in the practice of law. During

that period of time, however, he continued to work as an

at will employee of the corporation performing services

and duties which could be performed by a person not

licensed to practice law, and Perl remained as a

shareholder of the Corporation in accordance with the

decision of the Minnesota Supreme Court.

22. During the period of Perl’s suspension,

Hunegs, Perl and the Corporation agreed that Perl would

receive from the Corporation a salary of not less than

$15,000 per month together with benefits and expenses

which the Corporation had theretofore provided Perl.

Hunegs and Perl further agreed that Perl would be

reinstated with full compensation, benefits, and status upon

the expiration of Perl’s suspension. Hunegs and Perl also

agreed that upon reinstatement Perl’s contribution to the

firm during the period of his suspension would be

recognized by the Corporation.

23. On or about March 16, 1987, the

Corporation filed with the Office of the Secretary of State

of the State of Minnesota a Certificate of Modification of

the Articles of Incorporation of the Corporation, a true and

A-26

;

}

LLY

correct copy of which is attached hereto and incorporated

by reference herein as Exhibit D. Said Modification stated

that Article 1 of the Corporation’s Articles of

Incorporation had been amended to read as follows:

The name of this corporation

is: DeParcq, Hunegs, Stone,

Koenig & Reid, P.A.

Said Certificate of Modification indicated that the

Shareholders and Directors of the Corporation had

approved such amendments on February 12, 1987.

However, Perl was given no notice of a meeting of the

Board of Directors or Shareholders of the Corporation at

which such Amendment to the Articles of Incorporation

was considered and approved, Perl was not present at any

such meeting, Perl has not been provided with a copy of

the Minutes of any such meetings, and Perl did not vote in

favor of such action.

24. By letter dated February 13, 1987, true and

correct copies of which are attached hereto as Exhibits E

and F, the Corporation and Hunegs advised the Secretary

of State of the State of Minnesota and the Lawyers

Professional Responsibility Board that “the following law

partnership" had been formed effective February 12, 1987:

Firm name: DeParcq, Hunegs, Stone, Koenig &

Reid, P.A.

Attorneys: Robert N. Stone

William H. DeParcq - Of counsei

Richard G. Hunegs

Ralph E. Koenig

Douglas Dale Reid, Jr.

Patrick J. Foley

Peter W. Riley

A-27

Robert T. Dolan

Michael L. Weiner

Barbara J. Rudquist

Francis S. P. Lie

William Kvas

On or about February 20, 1987, the Senior Assistant

Director of the office of Lawyers Professional

Responsibility wrote to the Corporation and Hunegs

requesting clarification of the corporate status, and in

particular asking for clarification of “the form of the new

association" since the letter from the Corporation and

Hunegs dated February 13, 1987, “indicates it is a law

partnership but also indicates that it is a 319A

corporation.“ Said letter further requests an indication of

who the shareholders in the Corporation are if the

Corporation was a 319A professional corporation. A true

and correct copy of said letter is attached hereto and

incorporated by reference herein as Exhibit G.

25. On March 6, 1987, the Corporation and

Hunegs wrote to the Senior Assistant Director of the office

of Lawyers Professional Responsibility submitting the

Corporation’s Annual Report for 1986. A true and correct

copy of said letter is attached hereto and incorporated by

reference herein as Exhibit H. Said letter states that the

Corporation intended “to proceed as an amendment to the

existing organization, but no final proceedings along these

lines have been formalized. We do intend to proceed as a

vrofessional association pursuant to Chapter 319A." Said

_ctter from the Corporation and Hunegs also states, falsely,

that Perl “has previously been removed as a director and

officer of the corporation, and is not receiving any

compensation and is not acting as a member of the Firm in

‘any Capacity at the present time.“ On the date said letter

bears, Perl was a shareholder of the Corporation and had

received no notice of a meeting of the shareholders or

A-28

EQ eS ae eee

directors of the corporation at which he was to be removed

as an officer and director of the Corporation, Perl had

attended no meeting of the Shareholders or Board of

Directors at which a vote was taken to remove him as an

officer or director of the Corporation, and Perl has been

provided with no Minutes of any such meetings of the

Board of Directors or Shareholders of said Corporation,

and Perl had not voted in favor of any such action. The

1986 Professional Corporation Annual Report submitted by

the Corporation and Hunegs to the Lawyers Professional

Responsibility Board with said letter of March 6, 1987,

explicitly states that Perl is a Shareholder of the

Corporation.

26. | On information and belief, it is alleged that

on some date after February 1, 1987, the Corporation

issued to Hunegs 2,100 additional shares of the common

stock of the Corporation. Perl received no notice of a

meeting of the directors or shareholders of the Corporation

at which the issuance of such shares to Hunegs was to be

approved; Perl did not attend any such meeting of the

Shareholders or Board of Directors; Perl has been

provided with no Minutes indicating that such meetings

were held or such action taken; and Perl did not vote in

favor of such action. Furthermore, pursuant to the

provisions of Minn. Stat. § 302A.413, Perl has preemptive

rights to acquire a certain fraction of the unissued

securities or rights to purchase securities of the

Corporation before the Corporation may offer them to

other persons, and the Corporation is obligated pursuant to

the provisions of Minn. Stat. 302A.413, subd. 7, to cause

notice to be given to Peri at least ten days before the date

by which Perl was required to exercise his preemptive

rights; however, the Corporation failed to give Perl any

notice complying with the provisions of Minn. Stat.

§ 302A.413, subd. 7, regarding its intention to issue

A-29

additional shares or regarding Perl’s right to exercise his

preemptive rights with respect thereto.

27. By letter dated July 23, 1987, a true and

correct copy of which is attached hereto and incorporated

by reference herein as Exhibit I, John M. Mason, the

attorney for the Corporation and Hunegs, advised one of

Perl’s attorneys, in writing, as follows:

The Board of Directors of the

law firm has now taken action

which terminates. the

employment of Mr. Perl and

ratifies and confirms his

earlier terminations. I would

request that on behalf of Mr.

Perl, you make arrangements

to remove his _ personal

belongings and effects from

the Corporation’s offices.

Perl received no notice of a meeting of the Directors of

the Corporation at which the termination of his

employment was to discussed; Perl attended no such

meeting; and Perl has not been provided Minutes of said

meeting, and Perl did not vote in favor of such action.

28. On or about July 24, 1987, Hunegs and the

Corporation locked Perl out of both the Corporation’s

general offices and his personal office within the office

complex maintained by the Corporation and demanded that

Perl remove himself and his belongings from said

premises.

29. From July 31, 1967 to August 17, 1987 and

from September 14, 1967 to the present date, Perl has

been locked out of his office at the Corporation and has

A-30

etter Pers stiles

BLES: ibe i arene nds Sb ara cls.

te alee i wl Ri? ie tie eit ECG Rl ie 3

4 fA aon atest Tak mc Rh

been unable to gain access to the premises occupied by the

Corporation and utilized by the Corporation for the

practice of law. As a result, Perl has been forced to find

alternative suitable office space to carry on his business

and affairs, including his law practice.

30. On or about July 22, 1987, Hunegs and

Koenig sent Perl a letter, a true and correct copy of which

is attached hereto as Exhibit J, which stated:

Pursuant to Section 12.01 of this

Corporation’s Employees’ Pension

Plan and Section 13.01 of this

Corporation’s Profit Sharing Plan for

Employees, you are hereby removed

as Trustee of both Plans, effective

thirty (30) days after the date of

delivery of this notice.

Hunegs signed said letter as “President and Treasurer" of

the Corporation and Koenig signed such letter as "Vice

President and Secretary." However, Perl received no

notice of any meeting of the Board of Directors of the

Corporation at which the election of Hunegs to the offices

of President and Treasurer or the election of Koenig to the

offices of Vice President and Secretary was to be a subject

of discussion; Perl attended no such meeting of the Board

of Directors; and Perl has not been provided copies of the

Minutes of any such meeting; and Perl did not vote in

favor of such actions.

31. Article II, § 3, of the Corporation’s Bylaws

provide:

Special Meetings. Special Meetings

of the Shareholders may be held at

any time and for any purpose and

A-31

may be called by the Chairman of the

Board, the President, any two

Directors, or by one or more

Shareholders holding ten percent

(10%) or more of the shares entitled

to vote on the matters to be presented

to the meeting.

Minn. Stat. § 302.433, subd. 1(d) provides that a Special

Meeting of the Shareholders may be called at any time for

any purpose of purposes by "a person authorized in the

Article or Bylaws to call special meetings." Pursuant to

the provisions of Article II, § 3, of the Corporation’s

Bylaws and Minn. Stat. § 302.433(1)(d), Perl issued a Call

and Notice of a Special Meeting of Shareholders of

DeParcq, Perl, Hunegs, Rudquist & Koenig, P.A. on

July 30, 1987, which meeting was to be held on Tuesday,

August 4, 1987, at 8 A.M. A true and correct copy of

said Call and Notice is attached hereto and incorporated

by reference as Exhibit K. Said Call and Notice states in

pertinent part:

The purposes of the Special Meeting

are to consider and take action on the

following items:

: Unapproved minutes;

Z Adequacy and accuracy of

corporate records;

a Apparent actions by _ the

Shareholders or Board of

Directors under Minn. Stat.

§ 302A.471, subd. 1, trading

shareholders’ rights to dissent

A-32

an? obtain payment of the fair

value of the shares;

4. Management competence;

5. Removal and election of

Directors; and

6. Any other items which may

properly come before the

meeting.

32. on or about August 3, 1987, John M.

Mason, counsel to the Corporation and Hunegs, sent a

letter to one of Perl’s attorneys, a true and correct copy of

which is attached hereto and incorporated by reference

herein as Exhibit L. Said letter stated, among other

things, that Perl’s "Call and Notice” was “not valid under

either the Bylaws of the Corporation or Chapter 302A of

the Minnesota Statutes. Any Shareholder meeting that

occurs on August 4 will be of no legal effect." Mason

further asserts in his letter that “the person who has

purported to call the Special Meeting is not currently a

Shareholder of the Corporation. However, on July 30,

1987, August 3, 1987, and at all times material herein,

Perl was the owner of, and in possession of, a share

certificate issued by the Corporation and signed as

provided in Minn. Stat. § 302A.417, subd. 2, and,

therefore, such share certificate was prima facie evidence

of the ownership of 2,000 shares of the Corporation

referred to in the certificate by Perl.

33. Minn. Stat. § 302A.461, subd. 2, provides:

A corporation shall keep at its

principal executive office, or, if its

principal executive office is outside

A-33

of the state, shall make available at

its registered office within ten days

after receipt by an officer of the

corporation of a written demand for

them made by a person described in

Subdivision 4, originals or copies of:

(a)

(b)

(c)

(d)

(e)

(f)

Records of all proceedings of

shareholders for the last three

years;

Records of all proceedings of

the board for the last three

years;

Its articles and all amendments

currently in effect;

Its bylaws and all amendments

currently in effect;

Financial statements required

by § 302A.463 and the

financial statement for the

most recent interim period

prepared in the course of the

operation of the corporation

for distribution to the

shareholders or to a

governmental agency as a

matter of public record;

Reports made to shareholders

generally within the last three

years;

A-34

(g)

(h)

A statement of the names and

usual business addresses of the

directors of principal officers;

Voting trust agreements

described in § 302A.453; and

Shareholder’ control

agreements described in

§ 302A.457.

Minn. Stat. § 302A.461, subd. 4, provides:

(a)

(b)

A shareholder, _ beneficial

owner, or a holder of a voting

trust certificate has an absolute

right, upon written demand, to

examine and copy, in person

or by a legal representative, at

any reasonable time:

(1) The share register,

and

(2) All documents referred

to in subd. 2

A shareholder, _ beneficial

owner, or a holder of a voting

trust certificate has a right

upon written demand, to

examine and copy, in person

or by a legal representative,

other corporate records at any

reasonable time only if the

shareholder, beneficial owner

or holder of a voting trust

A-35

certificate demonstrates a

proper purpose for the

examination. A “proper

purpose" is one reasonably

related to the person’s interest

as a shareholder, beneficial

owner, or holder or a voting

trust certificate of a

corporation.

Minn. Stat. 302A.461, subd. 5, requires that copies of all

documents referred to in subd. 302A.461, subd. 2, be

furnished at the expense of the Corporation.

34. On or about August 3, 1987, Perl sent the

Corporation a letter, a true and correct copy of which is

attached hereto and incorporated by reference herein as

Exhibit M, making a demand pursuant to Minn. Stat.

§ 302A.461, subd.4, to examine and copy, in person, or

by Perl’s legal representative, the following records:

(a) Records of all proceedings of

shareholders for the last three

years;

(b) Records of all proceedings of

the board for the last three

years;

all amendments currently in

effect;

(d) . The Bylaws of the corporation

and all amendments currently

in effect;

A-36

dob S Staph

~~. ae

(e) The financial statements

required by Minn. Stat.

§ 302A.463, and the financial

statements for the most recent

interim period prepared in the

course of the operation of the

corporation for distribution to

the shareholders or to a

governmental agency as a

matter of public record;

(f) Reports made to shareholders

generally within the last three

years;

(g) A statement of the names of

the directors and principal

officers of the corporation;

(h) All voting trust agreements;

(i) All shareholder control

agreements;

(j) All financial records

(including the accounting of

all client expenses advanced

by the firm) and an inventory

of all firm assets;

(k) All client names, addresses,

and telephone number and a

description of all claims and

cases, including any settlement

offers or evaluations of

potential recovery; and

A-37

(1) An accounting and complete

evaluation of the firm pension

plan.

Perl certified that the information requested in items (j),

(k), and (1) above were requested “for the purpose of

evaluating the Corporation and my stock. I also need this

information to make determinations regarding management

competence." Despite such due demand, the Corporation

and Hunegs have failed and refused to afford Perl the

rights of inspection statutorily guaranteed to him by Minn.

Stat. § 302A.461, subd. 4, as demanded in Perl’s letter of

August 3, 1987.

35. On or about September 29, 1987, one of

Perl’s attorneys sent a letter to Perl and Hunegs, a true

and correct copy of which is attached hereto and

incorporated by reference herein as Exhibit N. Said letter

was written to Perl and Hunegs in their capacity as

Trustees of the Corporation’s Pension and Profit Sharing

Plans and as Representatives of the Plans’ Administrators.

Said letter stated:

On behalf of Norman Perl, I demand

full pension and profit sharing

benefits and rights payable to Norman

Perl on October 1, 1987. If there are

any problems with deficiencies with

this demand, please let me know

immediately.

36. On or about December 17, 1987, Daniel

Schermer, attorney for Ms. Rudquist, sent Hunegs a letter,

a true and correct copy of which is attached hereto and

incorporated by reference herein as Exhibit O. Said letter

makes a demand pursuant to Minn. Stat. § 302A.461,

Subd. 4, on behalf of Ms. Rudquist to examine and copy

A-38

the books and records of the Corporation denominated in

said letter, which books and records are the same books

and records which Perl had requested to inspect and copy

as alleged above. On information and beltef, the

Corporation and Hunegs refused to permit Ms. Rudquist or

her counsel to inspect any of the books and records in

accordance with said demand.

37. On or about December 15, 1987, Ms.

Rudquist issued a “Call and Notice of a Special Meeting of

Shareholders of DeParcq, Hunegs, Stone, Koenig & Reid,

P.A.," a true and correct copy of which is attached hereto

and incorporated by reference herein as Exhibit P. Said

Call and Notice states in pertinent part:

Pursuant to M.S.A. 302A.433, subd.

3, the undersigned as a person

authorized by the Bylaws to call a

meeting, hereby fixes the date of the

meeting as December 28, 1987, the

place of the meeting at 565 Northstar

East, 608 Second Avenue South,

Minneapolis, Minnesota 55402 and

the time of the meeting as 9:00 A.M.

The purposes of the said Special

Meeting are as follows:

l. Removal of the present Board

of Directors and election of a

new Board of Directors.

p 2 Rescinding the attempted

firing of Barbara Rudquist.

A-39

De Equalizing the compensation

to be paid to Richard Hunegs

and Barbara Rudquist.

4. Cancelling the purported

issuance of 2,100 additional

shares of corporate stock to

Richard Hunegs subsequent to

the death of Donald Rudquist.

5. Marndating the payment of

attorneys’ fees to Daniel

Schermer and Frank Butler as

attorneys for Barbara Rudquist

on the same basis and at the

same rate as legal fees are

being paid to attorney Jack

Mason as attorney for Richard

Hunegs.

6. Correcting false, inaccurate,

backdated, forged, or

otherwise incorrect’ or

inaccurate records of the

Corporation, including but not

limited to Minutes. of

Shareholders and Board of

Directors meetings.

4 Directing the Chief Financial

officer to permit any

Shareholder, beneficial owner,

or holder of a voting trust

certificate, upon written

demand, to examine and copy

the books and records of the

Corporation.

A-40

Se ee ee ee ee ee eee eee

’ Gt: aaa antes te P

38. On or about December 23, 1987, John M.

Mason, counsel for the Corporation and Hunegs, sent a

letter to Daniel W. Schermer, counsel for Ms. Rudquist, a

true and correct copy of which letter is attached hereto

and incorporated by reference herein as Exhibit Q. Said

letter states in pertinent part:

The communication from you

denominated “Call and Notice of a

Special Meeting of Shareholders of

DeParcq, Hunegs, Stone, Koenig &

Reid, P.A." which purports to call a

Special Meeting of the Shareholders

of the Corporation on Monday,

December 28, 1987, at 9:00 A.M.

has been received. It is not valid

under either the bylaws of any

corporation nor Chapter 302A of the

Minnesota Statutes. Any shareholder

meeting that purports to occur on

December 28 will be of no legal

effect.

39. On information and belief the Corporation

has unlawfully and without justification paid Hunegs over

two million dollars of its assets since 1986.

A F ACTION

COUNT ONE

40. Perl realleges all and singular Paragraphs 1

through 39 hereinabove.

41. _Hunegs, as an officer, director, or person in

control of the Corporation, has breached his fiduciary

duties and has acted fraudulently, illegally, or in a manner

A-41

unfairly prejudicial toward Perl in his capacity as a

shareholder, director, officer, and employee of the

Corporation in violation of the provisions of the Minnesota

Business Corporation Act, Minn. Stat. § 302A.751,

subd. 1(b)(2).

42. The assets of the Corporation are being

misapplied or wasted in violation of the provisions of the

Minnesota Business Corporation Act, Minn. Stat.

§ 302A.751, subd. 1(b)(4).

43. By reason of the foregoing, Perl is entitled

to such equitable relief as this Court may deem just and

reasonable in the circumstances. Specifically, but without

in any manner limiting the generality of the foregoing,

Perl requests that this Court either liquidate the

Corporation, or alternatively, order the Corporation and

Hunegs to purchase, and Perl to sell, all of Perl’s shares

in the Corporation held by Perl to Hunegs and the

Corporation for the fair value of the shares as of the date

of the commencement of this action or as of such other

date as is found equitable by the Court in accordance with

the provisions of Minn. Stat. § 302A.751.

COUNT TWO

44. Plaintiff ealleges all and _ singular

Paragraphs | through 39 hereinabove.

45. | The actions of the Corporation and Hunegs

in causing the Corporation to issue 2,100 additional shares

of the common stock of the Corporation to Hunegs in

violation of the preemptive nights granted to Perl pursuant

to Minn. Stat. § 302A.413 constitutes an alteration or

abolition of Perl’s preemptive rights to acquire shares,

securities other than shares, or rights to purchase shares or

securities other than shares.

A-42

soc etthewah ON the

CAB AE Pk Arla ner oti teed”. MMR ao HO

46. Pursuant to the provisions of Minn. Stat.

§ 302A.471, subd. 1(3), Perl is entitled to dissent from,

and obtain payment for, the fair value of Perl’s shares in

the Corporation in the event that the Corporation alters or

abolishes Perl’s preemptive rights to acquire shares,

securities other than shares, or rights to purchase shares or

securities other than shares.

47. In connection with the alteration or abolition

of Perl’s preemptive rights, Hunegs and the Corporation

failed to follow the procedures established by the

Minnesota Business Corporation Act, Minn. Stat.

§ 302A.473 for giving notice of its actions to Perl,

providing Perl an opportunity to dissent from said actions,

and for proceeding to determine the fair value of said

shares.

48. Pursuant to the provisions of Minn. Stat.

§ 302A.467, this Court may grant Perl any equitable relief

it deems just and reasonable in the circumstances by

reason of Hunegs’ and the Corporation’s violation of the

provisions of Minn. Stat. §§ 302A.413, 302A.471, and

302A.473. The Court may also award Perl his expenses,

including attorneys’ fees and disbursements.

49. Perl requests this Court, pursuant to Minn.

Stat. § 302A.467, to grant Perl such equitable relief as this

Court may deem just and reasonable in the circumstances.

Specifically, but without in any manner limiting the

generality of the foregoing, Perl requests that this Court

order Hunegs and the Corporation to purchase, and Perl to

sell, all of Perl’s shares in the Corporation to the

Corporation for fair value and upon such terms and

conditions as the Court may deem just and reasonable,

together with Perl’s expenses, including attorneys’ fees and

disbursements.

A-43

COUNT THREE

50. Perl realleges all and singular Paragraphs 1

through 39 hereinabove.

51. | Hunegs and the Corporation have amended

the Articles of the Corporation without complying with the

provisions of the Minnesota Business Corporation Act,

Minn. Stat. § 302A.131, 302A.135, and 302A. 137, in that

(a) no meeting of the shareholders of the Corporation was

held to approve said amendments as required by Minn.

Stat. § 302A.135, subd. 2; (b) Perl did not receive written

notice of the shareholders’ meeting setting forth the

substance of the proposed amendment in the manner

provided in Minn. Stat. § 302A.435, as required by Minn.

Stat. § 302A.135, subd. 3; and (c) said amendments were

not approved by the shareholders of the Corporation in the

manner prescribed by Minn. Stat. § 302A.135, subd. 4.

52. By reason of the violations of the foregoing

provisions of the Minnesota Business Corporation Act

committed by Hunegs and the Corporation, Perl is entitled

to an order of this Court pursuant to the provisions of

Minn. Stat. § 302A.467, granting such equitable relief as

the Court deems just and reasonable in the circumstances

and awarding Perl his expenses, including attorneys’ fees

and disbursements, herein. Specifically, but without in

any way limiting the generality of the foregoing, Perl

requests this Court to enter an Order requiring Hunegs and

the Corporation to purchase, and Perl to sell, all of Perl’s

shares in the Corporation for the fair value of said shares

as determined by the Court.

A-44

> ation

rae ee te ee

ete a Scbanrei > y

COUNT FOUR

53. Plaintiff realleges all and _ singular

Paragraphs 1 through 39 hereinabove.

54. On information and belief, Hunegs and the

Corporation have sold, leased, transferred, or otherwise

disposed of all or substantially all of the property and

assets of the Corporation, or Hunegs and the Corporation

have attempted to sell, attempted to lease, attempted to

transfer, or attempted to otherwise dispose of all or

substantially all of the Corporation’s property and assets,

without complying with the provisions of Minn. Stat.

§ 302A.661.

55. By reason of Hunegs and the Corporation’s

actual or attempted violation of Minn. Stat. § 302A.661,

Perl is entitled to an Order of this Court pursuant to the

provisions of Minn. Stat. § 302A.467 granting such

equitable relief as the Court deems just and reasonable in

the circumstances, together with Perl’s expenses, including

attorneys’ fees and disbursements, herein. Specifically,

but without in any manner limiting the generality of the

foregoing, Perl requests this Court to enter an Order

requiring Hunegs and the Corporation to purchase, and

Perl to sell, all of Perl’s shares in the Corporation for the

fair value of said shares as determined by the Court.

COUNT FIVE

56. Perl realleges all and singular Paragraphs 1

through 39 hereinabove.

57. Despite due demand, Hunegs and the

Corporation failed and refused to permit Perl or Ms.

Rudquist to inspect and copy documents of the Corporation

A-45

demanded by them in accordance with the provisions of

Minn. Stat. § 302A.461, subds. 2 and 4.

58. By reason of the violation by Hunegs and

the Corporation of their obligations to Perl and Ms.

Hunegs pursuant to Minn. Stat. § 302A.461, subds. 2 and

4, Perl is entitled to an Order of this Court pursuant to the

provisions of Minn. Stat § 302A.467 granting such

equitable relief as the Court deems just and reasonable in

the circumstances, together with Perl’s expenses, including

attorneys’ fees and disbursements, herein. Specifically,

but without in any manner limiting the generality of the

foregoing, Perl requests this Court to enter an Order

requiring Hunegs and the Corporation to purchase, and

Perl to sell, all of Perl’s shares in the Corporation for the

fair value of said shares as determined by the Court.

COUNT SIX

59. Perl realleges all and singular Paragraphs 1

through 39 hereinabove.

60. Perl has performed all of the obligations

required of him pursuant to his unwritten at will contract

of employment in effect from and after October 1, 1984.

61. | Despite due demand, the Corporation has

failed and refused to perform its obligations pursuant to

said at will contract of employment by failing and refusing

to pay to Perl the total amount of compensation due and

owing by the Corporation to Perl, other customary

benefits, and restoration to Perl of his compensation,

benefits, and status upon his reinstatement as a lawyer on

August 4, 1987.

62. As a direct and proximate result of the

Corporation’s breach of contract, Perl has suffered damage

A-46

in an amount in excess of $50,000, and Perl has not been

reinstated as an officer, director, and attorney of the

Corporation.

COUNT SEVEN

63. Perl realleges a!l and singular Paragraphs 1

through 39 hereinabove.

64. At the special instance and request of the

Corporation, its officers, and Hunegs, Perl performed his

duties as an officer and employee of the Corporation

during the period from October 1, 1984 until the date of

his wrongful termination.

65. Asadirect result of Perl’s performance, the

Corporation and Hunegs have benefited greatly and reaped

enormous financial gains.

66. The Corporation and Hunegs have been

unjustly enriched by their failure and refusal to pay Perl

the reasonable and agreed value of his performance for the

period from October 1, 1984, to the date of his

termination.

67. Perl is entitled to the reasonable value of his

performance since October 1, 1984.

68. The reasonable value of Perl’s performance

for the period October 1, 1984 to the date of Perl’s

termination is in an amount of not less than $2,000,000, of

which at least $1,330,000 remains unpaid.

69. Perl is entitled to damages in excess of

$50,000 for the amount by which the Corporation has been

enriched by his efforts.

A-47

COUNT EIGHT

70. Perl realleges all and singular Paragraphs 1

through 39 hereinabove.

71. During the years 1982 through 1987, Perl

was required to participate in, defend, and settle claims,

actions, suits, and proceedings brought against him,

Hunegs, the Corporation and others. Such claims, actions,

suits, and proceedings were brought against Perl by reason

of his activities as a shareholder, director, officer, and

employee of the Corporation.

72. Pursuant to Article 7 of the Bylaws of the

Corporation, Perl is entitled to indemnification by the

Corporation for all costs, expenses, attorneys’ fees,

judgments, fines, and amounts paid in settlement in

connection with said matters.

73. Perl jg also entitled to indemnification by the

Corporation pursuant to the provisions of Minn. Stat.

§ 302A.521. (a) The Corporation has failed and

refused to completely indemnify Perl for his costs,

expenses, attorneys’ fees, judgments, fines, and amounts

paid in settlement as required by the Bylaws of the

Corporation and by the provisions of Minn. Stat.

§ 302A.521.

74. ~~ Perl is entitled to a decree of specific

performance directing Hunegs and the Corporation to

indemnify Perl as required by the Bylaws of the

Corporation and by the provisions of Minn. Stat.

§ 301A.521 and to pay all costs, expenses, attorneys’ fees,

judgments, fines, and amounts paid in settlement incurred

by Perl in connection with said matters.

A-48

PRAYER FOR RELIEF

WHEREFORE, Perl prays for judgment in his

favor, and against Defendant as follows:

A. Directing that the Corporation be dissolved

and its assets and business liquidated in accordance with

the provisions of Minn. Stat. § 302A.751.

B. Alternatively, directing the Corporation and

Hunegs to purchase, and Perl to sell, all of Perl’s shares

in the Corporation pursuant to the provisions of Minn.

Stat. § 302A.751, subd. 2. Specifically, but without in any

manner limiting the generality of the foregoing, Perl prays

that Hunegs and the Corporation be directed to pay Perl

the fair value of his one-third interest in the Corporation

as of the date of commencement of this action or as of

another date found equitable by the Court.

c. Alternatively, for an Order pursuant to

Minn. Stat. § 302A.467 granting Perl such equitable relief

as the Court deems just and reasonable in the

circumstances and awarding Perl his expenses, including

attorneys’ fees and disbursements, herein. Specifically,

but without in any manner limiting the generality of the

foregoing, Perl requests that the Court direct the

Corporation and Hunegs to purchase, and Perl to sell, all

of Perl’s shares constituting one-third of the issued and

outstanding shares of the Corporation in the Corporation

for the fair value of said shares as determined by the

Court.

D. Awarding Perl money damages in an amount

in excess of $50,000.

E. Awarding Perl interest on all amounts

awarded to him.

A-49

F. Awarding Perl his costs, disbursements, and

reasonable attorneys’ fees herein.

G. Granting Perl such other, further, or

different relief as the Court may deem just and equitable.

Dated: December 30, 1988.

Dated: MASLON EDELMAN BORMAN

& BRAND

William Z. Pentelovitch (#85078)

Mallory K. Mullins (#168890)

3300 Norwest Center

90 South Seventh Street

Minneapolis, Minnesota 55402-4140

(612) 672-8200

ATTORNEYS FOR PLAINTIFF

VERIFICATION

STATE OF MINNESOTA _)

) ss.

COUNTY OF HENNEPIN )

NORMAN PERL, being first duly sworn on oath,

States that he is the Plaintiff in the foregoing action, and

that the allegations of fact contained therein are true and

correct to the best of his knowledge, information, and

belief.

A-50

Subscribed and sworn to

before me this

day of December, 1988.

Notary Public

A-51

ACKNOWLEDGMENT

The undersigned hereby acknowledges that pursuant

to Minn. Stat. § 549.21, subd. 2, costs, disbursements,

and reasonable attorney and witness fees may be awarded

to the opposing party or parties in this litigation if the

Court should find that the undersigned acted in bad faith;

asserted a claim or defense that is frivolous and that is

costly to the other party; assert an unfounded position

solely to delay the ordinary course of the proceedings or to

harass; or committed a fraud upon the Court.

William Z. Pentelovitch

STATE OF MINNESOTA DISTRICT COURT

COUNTY OF HENNEPIN FOURTH JUDICIAL

DISTRICT

Norman Perl, File No.

Case Type: Other Civil

Plaintiff, '

VS. FINDINGS OF FACT,

CONCLUSIONS OF

DeParcq, Hunegs, Stone, & ORDER FOR

Reid, P.A.; Richard G. Hunegs; IUDGMENT, AND

The Estate of Donald J.Rudquist; MEMORANDUM

and Barbara Rudquist,

Defendants.

The above-entitled matter came on to be

tried before the Court and an advisory jury in the Hennepin

County Government Center, City of Minneapolis, County

of Hennepin, State of Minnesota, commencing Wednesday,

February 27, 1991, and terminating with the return of the

jury’s Special Verdict on Tuesday, March 26, 1991.

Plaintiff was represented by William Z.

Pentelovitch, Esq., and Mallory K. Mullins, Esq., of the

firm of Maslon, Edelman, Borman & Brand, 1800 Midwest

Plaza, Minneapolis, MN 55402.

Defendant DeParcq, Hunegs, Stone, Koenig

& Reid, P.A. was represented by David F. Fitzgerald,

Esq., of the firm of Rider, Bennett, Egan & Arundel, 2000

Lincoln Centre, 333 S. 7th St., Minneapolis, MN 55402.

A-53

There was no appearance on behalf of either

the defendant The Estate of Donald J. Rudquist or the

defendant Barbara Rudquist.

Issues pertaining to the valuation of the firm

of DeParcq, Hunegs, Stone, Koenig & Reid, P.A. and as

to the existence of any employment contracts between the

said Defendant and Plaintiff for certain specified periods of

time and what, if any, compensation is due the Plaintiff as

the result of the breach of any such contract on the part of

the Defendant were submitted to the jury by means of a

Special Verdict consisting of Special Interrogatories.

Issues pertaining to the liability for payment

of attorneys’ fees and expenses incurred in the defense of

the criminal charges and disciplinary proceedings brought

against the Plaintiff and/or reimbursement therefor, the

liability for the payment of $40,000 in settlement reached

in the action brought on behalf of one Robert Olson against

the defendant firm for compensation claimed to have been

due as bonuses for clients referred to the defendant firm by

the said Robert Olson, and the effect, if any, of the

Arbitration Order of one Allen Oleisky of December 27,

1982, were reserved by the Court for Court determination.

The Court, based upon the jury’s answers to

Special Interrogatories, which the Court does hereby adopt,

the evidence presented by the testimony of witnesses called

by the parties and exhibits received into evidence, the

arguments of counsel, the memorandum briefs submitted,

and all of the files and records herein, being fully advised

in the premises, hereby makes the following:

A-54

FINDINGS OF FACT

3 Defendant DeParcq, Hunegs, Stone, Koenig

& Reid P.A., hereinafter referred to as DeParcq, is a

professional corporation organized and existing pursuant to

the provisions of Minnesota Statutes Chapters 302A and

319A for the purpose of engaging in the practice of law in

the State of Minnesota and elsewhere.

2. The predecessor to DeParcq was founded as

a partnership known as DeParcq, Anderson & Perl in

1967.

3. DeParcq was incorporated on October 1,

1971, under the name of DeParcq, Anderson, Perl &

Hunegs, P.A.

4. On November 3, 1983, the name of DeParcq

was changed to DeParcq, Anderson, Perl, Hunegs &

Rudquist, P.A.

5. On August 17, 1984, the name of DeParcq

was changed to DeParcq, Perl, Hunegs, Rudquist &

Koenig, P.A.

6. On March 16, 1987, the name of DeParcq

was changed to DeParcq, Hunegs, Rudquist & Koenig,

P.A.

J Also on March 16, 1987, the name of

DeParcq was changed to DeParcq, Hunegs, Stone, Koenig

& Reid, P.A.

8. Plaintiff Norman Perl is a resident of

Hennepin County, Minnesota, who is, and has been for the

period from 1949 to the present, an attorney at law duly

licensed by the State of Minnesota except for a period from

A-55

August 4, 1986 through August 3, 1987, during which time

Plaintiff's license to practice law was suspended by the

Supreme Court of the State of Minnesota.

9. Plaintiff Norman Perl was a director and

officer of the DeParcq corporation all during the period

from October 1, 1971 until August 4, 1986.

10. _—‘ Plaintiff Norman Perl practiced law as an

employee of the DeParcq corporation all during the period

from October 1, 1971 until August 4, 1986.

11. As of August 4, 1986, the effective date of

Norman Perl’s suspension from the practice of law, he was

the owner of two thousand (2,000) shares of stock duly

issued by the DeParcq corporation.

12. From and after August 4, 1986 until the

present time, the Plaintiff Norman Perl has not served as

either an officer or director of the DeParcq corporation.

13. From and after August 4, 1986 until the

present time, the Plaintiff Norman Perl has not been

employed by the DeParcq corporation in an attorney at law

capacity. '

14. ‘That after the termination of Norman Perl’s

suspension from the practice of law, as he was not

reinstated as a director or officer of the DeParcq

corporation, he at no time exercised any rights which

otherwise would have been available as a shareholder of a

professional corporation.

15. That at no time subsequent to August 4,

1986 has Norman Perl received any compensation from the

DeParcq corporation either as a shareholder thereof or for

A-56

his interest as the holder of 2,000 shares of corporate

stock.

16. That it would be inequitable to now require

the dissolution of said professional corporation in order to

accomplish the accumulation of funds to compensate

Norman Perl for his interest in said corporation as the

holder of said 2,000 shares of corporate stock.

17. | That equity dictates that the Plaintiff Norman

Perl should be paid by the Defendant DeParcq in an

amount proportionate to his said interest in said corporation

as it relates to the reasonable value of said corporation as

of the commencement of the action herein, August 3, 1988,

by requiring the said DeParcq corporation to thereby

redeem the said stock held by Norman Perl.

18. Richard G. Hunegs is a resident of Hennepin

County, Minnesota, who is, and has been during all times

material herein, an attorney at law duly licensed by the

State of Minnesota.

19. That from the date of the incorporation of

the DeParcq corporation, Richard H. Hunegs has been a

shareholder, officer, director, and an employee in his

capacity as an attorney at law of the DeParcq corporation.

That as of the date of August 3, 1988, Richard G. Hunegs

was president of the DeParcq corporation, and was the

owner of Four Thousand One Hundred (4,100) shares duly

issued by the DeParcq corporation.

20. That for the purpose of determining the

proportionate interest of Norman Perl in the DeParcq

corporation material herein, his said interest represents

32.786% of the reasonable value of the DeParcq

corporation as of August3, 1988, calculated by

consideration of the obligation of the DeParcq corporation

A-57

to the Estate of Donald J. Rudquist as determined

subsequent to August 3, 1988 but prior to the date of trial

of the action herein.

21. That there is due the plaintiff Norman Perl

from the defendant DeParcq the sum of Two Million Five

Hundred Twenty Five Thousand Three Hundred Twenty

Five and 58/100 ($2,525 ,325.58) Dollars as compensation

for the redemption of the said Piaintiff's 2,000 shares of

corporate stock.

22. That there is due the plaintiff Norman Perl

from the defendant DeParcq the sum of One Hundred Sixty

Five Thousand and no/100 ($165,000.00) Dollars as

compensation for services rendered as an attorney at law

employee of the said Defendant for the period October 1,

1984 through September 30, 1985.

23. That there is due the plaintiff Norman Perl

from the defendant DeParcq the sum of Seventy Thousand

and no/100 ($70,000.00) Dollars as compensation for

services rendered as an attorney at law employee of the

said Defendant for the period October 1, 1985 through

August 3, 1986.

24. That there is due the plaintiff Norman Perl

from the defendant DeParcq the sum of One Hundred Fifty

Thousand and no/100 ($150,000.00) Dollars as

compensation for services rendered for the period

August 4, 1986 through August 3, 1987.

25. That in the year 1984 one Robert Olson, a

former employee of the defendant DeParcq, brought legal

action against the Defendant based on a claim for

‘compensation. During the pendency of the action,

settlement negotiations were conducted in which the said

Robert Olson agreed to accept the sum of $40,000.00 in

A-58

full settlement of his claim. The subject of the settlement

was mutually discussed by all of the then shareholders of

the DeParcq corporation, namely, Richard G. Hunegs,

Donald J. Rudquist and the plaintiff Norman Perl, as a

result of which the plaintiff Norman Perl was informed that

Richard G. Hunegs and Donald J. Rudquist, who then held

a majority of the outstanding shares of stock, were opposed

to the payment of any corporate funds to accomplish a

settlement of said litigation. That contrary to the position

of the majority stockholders of defendant corporation, the

plaintiff Norman Perl, in his capacity as President of the

defendant corporation, authorized the payment of the sum

of $40,000.00 in the settlement of said litigation. That as

the Plaintiff did not have authority to pay the said Robert

Olson the sum of $40,000.00 out of corporate funds, there

is due from the plaintiff Norman Perl, to the defendant

DeParcq the sum of $40,000.00.

26. That in the month of January 1980 a Grand

Jury Indictment was returned in which the plaintiff Norman

Perl was charged with several criminal charges alleged to

have been the result of conduct while acting in his capacity

as an attorney at law employee of the defendant

corporation. That pursuant to a resolution duly adopted by

the defendant corporation, the said DeParcq Corporation

paid a total of One Hundred Ninety One Thousand Seven

and 64/100 ($191,007.64) Dollars in payment of attorneys’

fees for services rendered in the defense of the said

criminal charges.

27. That subsequent thereto in the year 1986, the

plaintiff Norman Perl was the subject of disciplinary

proceedings initiated by the Minnesota Board of

Professional Responsibility in which it was alleged that the

said Plaintiff had been involved in unethical conduct while

employed in his capacity as an attorney at law by the

defendant DeParcq corporation. That the defendant

A-59

DeParcq corporation paid a total of Sixty Thousand Eight

Hundred Fifteen and no/100 ($60,815.00) Dollars in

payment of attorneys’ fees and related costs for services

rendered in the defense of said disciplinary action.

28. That by agreement dated May 5, 1982, the

plaintiff Norman Perl became obligated to repay the

defendant DeParcq corporation for such money as the said

DeParcq corporation had paid in the defense of the

criminal and disciplinary actions against Norman Perl if at

some subsequent time any recognized authority determined

that the conduct of the said Norman Perl, while employed

by the defendant DeParcq corporation, was either illegal,

criminal or unethical.

29. That although the plaintiff Norman Perl was,

on November 20, 1982, acquitted of the criminal charges

brought against him, on January 21, 1987 he was

determined to have violated the professional code of ethics

by the Minnesota Supreme Court while employed as an

attorney at law by the defendant DeParcq corporation.

30. That as a result of the determination of

unethical conduct by the Minnesota Supreme Court and the

obligation of the plaintiff Norman Perl under the terms of

the agreement of May 5, 1982, there is due the defendant

DeParcq corporation from the plaintiff Norman Perl the

sum of Two Hundred Fifty One Thousand Eight Hundred

Twenty-two and 64/100 ($251,822.64) Dollars.

31. That the Order In Arbitration dated

December 27, 1982, issued by one Allien Oleisky as

Arbitrator, did not factually involve any of the issues

involved in the litigation herein and does not constitute

either collateral estoppel or res judicata with regard to the

issues which have been determined herein.

A-60

32. That the defendant DeParcq, through its

officers, directors and majority shareholders failed to

negotiate in good faith with the plaintiff Norman Perl for

the redemption of the Plaintiff's 2,000 shares of corporate

stock after the Plaintiff was disenfranchised of the

privileges of a stockholder due to his suspension from the

practice of law as ordered by the Minnesota Supreme

Court, and thereafter not again being re-employed as an

attorney by said Defendant. As a result, it became

necessary for Plaintiff to initiate legal action to obtain

payment for said shares of stock. That the Plaintiff

incurred substantial legal fees in pursuing an action for the

recovery of the value of Plaintiff's stock holding. That it

is reasonable that the Plaintiff be awarded the sum of One

Hundred Thousand and no/100 ($100,000.00) Dollars as

and for such attorneys fees herein.

A N I F LAW

1. That the plaintiff Norman Perl have

judgment against the defendant DeParcq, Hunegs, Stone,

Koenig & Reid, P.A. in the sum of Three Million Ten

Thousand Three Hundred Twenty-five and 58/100

($3,010,325.58) Dollars, with interest on One Hundred

Sixty Five Thousand and no/100 ($165,000.00) Dollars

thereof from October 1, 1985 at the rate of Nine percent

(94) per annum, and with interest on Seventy Thousand

and no/100 ($70,000.00) Dollars thereof from August 4,

1986 at the rate of Eight percent (8%) per annum, and

with interest on One Hundred Fifty Thousand and no/100

($150,000.00) Dollars thereof from August 4, 1987 at the

rate of Eight percent (8%) per annum; less the sum of

Forty Thousand and no/100 ($40,000.00) Dollars with

interest on Fifteen Thousand and no/100 ($15,000.00)

Dollars thereof from July 8, 1985 at the rate of Nine

percent (9%) per annum, on Ten Thousand and no/100

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($10,000.00) Dollars thereof from June 30, 1986 at the

rate of Eight percent (8%) per annum, on Fifteen Thousand

and no/100 ($15,000.00) thereof from August 27, 1987 at

the rate of Eight percent (8%) per annum; and also less the

sum of Two Hundred Fifty One Thousand Eight Hundred

Twenty-two and 64/100) ($251,822.64) Dollars with

interest thereon from January 21, 1987 at the rate of Eight

percent (8%) per annum.

ya That except as reflected in the calculation of

the amount of the judgment specified hereinabove, the

plaintiff Norman Perl have judgment against the defendant

DeParcq, Hunegs, Stone, Koenig & Reid, P.A. that the

said Defendant takes nothing by reason of defendant’s

Counterclaim herein.

3 That upon the filing of the appropriate

Affidavit of Identification of the said Defendant in the

Office of the Court Administrator of Hennepin County,

Minnesota, by the plaintiff Norman Peri, there is no reason

to delay entry of judgment beyond the thirty-day stay

granted hereinbelow, and judgment shall be entered without

delay after the expiration of thirty (30) days from the date

this order is filed in the Office of the Court Administrator

of Hennepin County, Minnesota.

4. That entry of judgment ordered herein is

stayed for a period of thirty (30) days from and after the

date of this filing of the order herein in the Office of the

Court Administrator of Hennepin County, Minnesota.

5. That upon payment by the defendant

DeParcq, Hunegs, Stone, Koenig & Reid, P.A. to the

plaintiff Norman Perl that portion of the judgment ordered

herein represented by the value of the 2,000 shares of

corporate stock owned by the said Norman Perl, together

with the sun of One Hundred Thousand and no/100

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($100,000.00) Dollars as attorneys’ fees allowed, being a

total sum of Two Million Six Hundred Twenty Five

Thousand Three Hundred Twenty Five and 58/100

($2,625 325.58) Dollars, the said 2,000 shares of corporate

stock shall immediately become the property of the said

DeParcq, Hunegs, Stone, Koenig & Reid, P.A., and the

said Norman Perl shall thereby be divested of any and all

interest in said shares of stock.

6. That whereas the evidence during the course

of the trial, together with pretrial proceedings, related to

the issue of the claim by defendant DeParcq, Hunegs,

Stone, Koenig & Reid, P.A. for indemnification for

attorneys’ fees and expenses paid in defense of criminal

and disciplinary proceedings involving the plaintiff Norman

Perl, any and all pleadings herein are amended to such

degree necessary to have presented such issue for

determination.

‘* In partial satisfaction of the monetary awards

made to Plaintiff herein, the District Court Administrator

is directed to immediately pay to Plaintiff and his counsel

all funds now on deposit pursuant to the Order of Judge

Duffy dated and filed September 11, 1990, in Court File

No. 83-9068 and pursuant to prior order of this Court

dated December 28, 1990. The District Court

Administrator is further ordered to enter on the record a

partial satisfaction of judgment in favor of Defendant in an

amount equal to the amount of funds paid by the District

Court Administrator to Plaintiff and his counsel.

8. In partial satisfaction of the monetary awards

made to Plaintiff herein, Plaintiff is hereby granted

permission and authority to pay to himself the sum of

$3,303.25 currently on deposit in the trust account of

Norman Perl & Associates, P.A. The District Court

Administrator is ordered to enter on the record a partial

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satisfaction of judgment in favor of Defendant in the

amount of $3,303.25.

9. That the Memorandum hereinbelow is a part

of the Order as though incorporated herein.

Dated this day of May, 1991.

LET JUDGMENT BE ENTERED ACCORDINGLY.

BY THE COURT:

WALTER H. MANN

JUDGE OF DISTRICT

COURT

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MEMORANDUM

It is not the intention of the Court to review

the numerous pre-trial proceedings or to attempt to detail

in any manner the testimony of witnesses or to review the

numerous exhibits received into evidence. No useful

purpose would be served in doing so. It is rather the

intention of the Court to provide, in a summary manner, an

explanation of the Court’s findings with regard to the

non-jury issues which the Court determined as issues of

law.

Although the Court had convened an

advisory jury, primarily to have a jury determine major

issues concerning which substantial factual disputes existed,

the Court has fully implemented the findings of the jury.

The court is entirely satisfied that the evidence submitted

supports the jury’s answers to the Specia! Interrogatories

submitted to it, and therefore has given legal effect to such

factual findings.

There were five issues reserved for Court

determination. Such issues are as follows:

1. The legal effect and obligation

therefrom, if any, resulting from the action taken by

the plaintiff Norman Perl in the settlement of the

legal action brought by one Robert Olson against the

defendant corporation;

2. The legal obligation, if any, of the

plaintiff Norman Perl to reimburse the defendant

corporation for monies paid to third parties in

defense of both the criminal action and the

disciplinary action taken against him as the result of

claimed criminal and/or unethical conduct while

employed by the defendant corporation;

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3. The legal effect, if any, of the

Arbitration Order issued by Judge Allen Oleisky

under date of December 27, 1982 (Court Exhibit

No. 11);

4. Whether or not the claims of the

defendant corporation as to indemnification for

attorneys’ fees and expenses paid for the defense of

the criminal and/or disciplinary action agaist the

plaintiff Norman Perl were barred by the Statute of

Limitations;

5. What, if any, attorneys’ fees and

expenses should reasonably be awarded the plaintiff

Norman Perl as a result of the litigation herein.

The substance of this Memorandum will be

a discussion of the enumerated Court issues, discussed in

the sequence referred to above.

:. It is the Court’s position that an

informal meeting of all of the shareholders and directors of

Defendant Firm was held at which the majority argued

against settlement of the Olson lawsuit. Contrary to this

majority decision, Plaintiff settled this matter for

$40,000.00. In Heikkenen v. Kylmonen, 180 Minn. 486,

231 N.W. 197 (1934), the Supreme Court lays out the

general rule in Minnesota:

"It is the general rule that it

is essential to the legality of a

directors’ meeting, and

validity of any action taken at

such meeting, either that all

of the directors have notice of

the meeting or that all be

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present.” Id., at 489.

(Emphasis added)

It is uncontradicted that all directors of

DeParcq were present at this meeting whereby settlement

of the Olson matter was discussed with outside counsel. It

is also uncontradicted that Hunegs and Rudquist opposed

settlement. Therefore, Plaintiff Perl is liable to Defendant

Firm for his unauthorized settlement of Olson.

As it would place an unfair burden on

Defendant to require that it must prove that it would have

prevailed on the merits had the Olson matter gone through

trial, and would likewise be too burdensome and/or

speculative to prove up the amount of damages sustained

by Defendant by the unauthorized settlement, the amount

of damages presumed to be sustained by Defendant must

be the actual amount of the settlement, or $40,000.00.

This amount was then subtracted by the Court from the

amount owing Plaintiff.

2. As an outcome of the trial in this

matter, it is the position of the Court that the

indemnification agreement of May 5, 1982 contemplated a

subsequent determination by ‘an authorized entity as to

whether Plaintiff's conduct, for which the DeParcq firm

advanced legal fees and costs in defense of both the

criminal and disciplinary actions, was illegal or unethical.

It would be unreasonable to conclude that it was intended

that Defendant DeParcgq, through its officers, directors, or

shareholders, had the responsibility to determine at the

time of the initiation of either the criminal or disciplinary

actions whether Plaintiff's conduct was either criminal or

unethical. Therefore, the mere fact that DeParcq, through

its officers, directors, or shareholders, may have had or

Should have had personal knowledge that the conduct

which resulted in the suspension of Plaintiff from the

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practice of law by the Supreme Court, was unethical, is

irrelevant as to the requirement that DeParcq initiate action

to obtain reimbursement of legal fees and costs expended

on behalf of Plaintiff.

3. It appears to the Court that,

subsequent to trial, Plaintiff requested an affidavit of the

arbitrator to furnish the Court with the factual basis for

conclusions drawn by the arbitrator. It appears to the

Court that when Defendant became aware of such

affidavit, Defendant approached the arbitrator for the same

purpose. As a result, contradictory affidavits were filed.

In the first affidavit of Judge Oleisky, filed April i2,

1991, the stated reason that Plaintiff received less

compensation than Richard Hunegs and Donald Rudquist

was to reflect a reimbursement by Plaintiff to DeParcq for

legal fees and costs incurred in defense of the criminal

action against Norman Perl paid by DeParcq on Plaintiff's

behalf. In the second affidavit of Judge Oleisky, filed

April 24, 2991, the stated reason that Plaintiff received

less compensation was to reflect the disparity of work

performed by the parties for the firm. Since these two

affidavits are completely contradictory, it is the Court’s

obligation to base its decision on the arbitration order

itself, which makes no reference to the indemnification

agreement.

4. It is the position of the Court that, as

delineated above, it is irrelevant whether DeParcq was

aware of the conduct of Plaintiff that later resulted in a

finding of ethics violations for which Plaintiff was

suspended from the practice of law. It is likewise

irrelevant as to whether DeParcq knew or should have

known, at the time of said conduct, that this conduct was

unethical. Only upon a finding of unethical conduct by an

authorized entity would any statute of limitations

commence running. The January, 1987 suspension by the

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Supreme Court constituted such a finding. Therefore, the

Statute of Limitations commenced running as referred to

hereinabove and as the action by defendant DeParcq for

reimbursement of legal fees and costs was initiated within

the applicable six-year Statute of Limitations, it is not

time-barred.

> It is the position of the Court that

Plaintiff has adequately met the requirements delineated in

Chapter 302A generally, and specifically in M.S. Sections

302A.467, .251 and .361, for reimbursement by Defendant

of Plaintiff's reasonable legal fees and expenses. The

Court, based upon its evaluation of the billing documents

submitted, has determined that $100,000.00 represents a

reasonable figure for Plaintiff's legal fees and costs.

W.H.M.

STATE OF MINNESOTA

IN COURT OF APPEALS

Meshbesher, Singer & Spence, Ltd.,

Respondent (C5-91}-1236),

ORDER

VS.

#C5-91-12369,

C7-91-1237

#CX-91-1362

Norman Perl,

Appellant (C5-91-1236, C7-91-1237),

Respondent (CX-91-1362),

VS.

Deparcq, Hunegs, Stone, Koenig & Reid,

P.A., DeParcq, Anderson, Perl, Hunegs

& Rudquist, P.A.,

Respondents (C5-91-1236, C7-91-1237),

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The Estate of Donald J. Rudquist, et al.,

Respondents (C7-91-1237),

Walter Baker, as Receiver for DeParcaq,

Hunegs, Stone, Koenig & Reid, P.A.,

Appellant (CX-91-1362),

Richard G. Hunegs, et al.,

Defendants (CX-91-1362).

Considered and decided by Huspeni, Presiding J.,

Klaphake, J., and Davies.

A-71

BASED UPON THE FILE, RECORD AND

PROCEEDINGS HEREIN, AND BECAUSE:

Deparcq, Hunegs, Stone, Koenig & Reid is the

subject of bankruptcy proceedings. By order on

December 9, we stayed all further proceedings on these

appeals.

Appellant Norman Perl moves to lift the stay in

part, to proceed on his appeal from the trial court’s grant

of summary judgment on claims Perl brought against

Richard Hunegs. The automatic stay does not extend to

non-debtor co-defendants, in the absence of the co-

defendant's demonstration that permitting the action would

cause irreparable harm to the debtor’s estate or would

impair successful reorganization, but Perl has not

established a compelling reason for this court to reinstate

one smali portion of the three appeals. Review of the

adverse summary judgment would not dispose of the entire

action. Judicial economy is served by deterring review of

that issue until all other issues may be briefed and argued.

IT IS HEREBY ORDERED: appellant’s motion for

»artial relief from the order staying these appeals is denied.

Dated: January 7, 1992

BY THE COURT

Doris Ohlsen Huspeni

Presiding Judge

CLL:mbs

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