# Petition for Writ of Certiorari — Perl v. Hunegs, 115 S. Ct. 196 (1994) (No. 94-129) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_0119%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1994 ## Text 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 li 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. iv 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 Vv 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 vi 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, 20 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, 14 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 ix 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 X Be hn oe 6 eee eae 8 2, i2 13 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 V. 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 4 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. 6 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. 8 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 9 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 10 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 1] 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 12 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 13 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 14 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 15 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. 16 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) 17 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.) 18 ge : 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. 19 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 20 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 22 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 4 3 a] 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 2 4 . 5 £ 3 z 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 i] 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 3 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; (C) The legal disqualification, whether 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; (c) Perl was not legally disqualified, 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; (c) Article of Incorporation and 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 m 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 By 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 A-61 ($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 A-62 ($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 A-63 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 A-64 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; A-65 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 a [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_0119%3A1. Public record. Not legal advice.