THEODORE PULLEN, EDGAR ) PULLEN, FREDDIE PULLEN, ) and ELISHA PULLEN, ) ) Plaintiffs-Appellants, ) ) vs. ) No. SD34203 ) TIMOTHY FLOWERS, KIMBERLY ) Filed: October 19, 2016 ANN FLOWERS, STANLEY C. ) FLOWERS, TRUSTEE OF THE ) STANLEY C. FLOWERS REVOCABLE ) TRUST DATED 12/09/2005, ) KENNETH R. BELL, DEBRA J. BELL, ) and THE BELL FAMILY PARTNERSHIP,) ) Defendants-Respondents. )
APPEAL FROM THE CIRCUIT COURT OF STODDARD COUNTY
Honorable Michael E. Gardner
AFFIRMED
Theodore Pullen, Edgar Pullen, Freddie Pullen, and Elisha Pullen
("Plaintiffs") appeal from the trial court's dismissal of their petition. Plaintiffs'
petition included two claims involving the conveyance of a family farm property
owned by a closely held corporation to Timothy Flowers, Kimberly Ann Flowers,
and the Stanley C. Flowers Revocable Trust ("the Flowers Defendants") who subsequently transferred the farm to Kenneth R. Bell, Debra J. Bell, and the Bell
Family Partnership ("the Bell Defendants"). The trial court's dismissal is
affirmed because Plaintiffs lack standing to maintain the present action.
Factual and Procedural Background
Review of a trial court's grant of a motion to dismiss is de novo. White v.
Bowman, 304 S.W.3d 141, 147 (Mo. App. S.D. 2009). In conducting such
review, the appellate court must "accept all properly pleaded facts as true, give
them a liberal construction, and draw all reasonable inferences which are fairly
deducible from the pleaded facts." Duvall v. Lawrence, 86 S.W.3d 74, 78
(Mo. App. E.D. 2002). So viewed, these facts control our decision.
Josephus C. Pullen, Sr. ("Father") had nine children ("the children") and
owned a 158-acre farm ("the property") in Stoddard County, Missouri. Among
Father's children were J.C. Pullen, Jr. ("J.C."), Norris T. Pullen, Sr. ("Norris"),
Bertha Luster ("Bertha"), and Everse Pullen ("Everse").1 After Father died in
1972, the children inherited the farm, created a corporation known as Pullen
Farm, Incorporated ("Pullen Farm"), and conveyed the property to Pullen Farm.
At some time not apparent from the record, Plaintiffs, two of whom are
children of Norris and two of whom are children of J.C., became shareholders of
Pullen Farm. By 2012, corporate documents listed Everse as President of Pullen
Farm and Bertha as Secretary of Pullen Farm. On January 25, 2012, Everse and
Bertha executed a deed on behalf of Pullen Farm conveying the property to the
1First names are used because many of the parties share the same surname. No disrespect is intended.
2 Flowers Defendants. Then, on September 7, 2012, the Flowers Defendants
conveyed the property to the Bell Defendants.
On March 11, 2013, Plaintiffs sued the Flowers Defendants, the Bell
Defendants, and Pullen Farm. That petition sought to set aside each of the deeds
involved in the transactions described above and to quiet title to the property in
Pullen Farm. The petition claimed Everse and Bertha were not officers of Pullen
Farm because Pullen Farm had failed to follow its articles of incorporation in
selecting them. The Flowers Defendants and the Bell Defendants moved to
dismiss, arguing that the petition failed to state a claim based on applying Section
351.395 and that Plaintiffs lacked standing.2 In response, Plaintiffs argued
Section 351.400 applied to create a cause of action in their favor because Everse
and Bertha "emptied the corporation out."3 The trial court dismissed the petition
without prejudice as it applied to the Flowers Defendants and the Bell
Defendants but allowed the lawsuit to proceed as to Pullen Farm. The record is
unclear as to the result of the 2013 lawsuit regarding Pullen Farm.
On October 21, 2014, Plaintiffs filed this lawsuit that is the subject of the
present appeal against the Flowers Defendants and the Bell Defendants. The
petition was the same as the 2013 petition except it completely removed Pullen
Farm as a defendant and included three new paragraphs. On December 12, 2014,
2 Section 351.395 provides that "[n]o act of a corporation and no conveyance or transfer of real or
personal property to or by a corporation shall be invalid by reason of the fact that the corporation was without capacity or power to do such act or to make or receive such conveyance or transfer" and lists three ways a conveyance or transfer may be challenged which include (1) a proceeding by the shareholder against the corporation; (2) a proceeding by the corporation; (3) a proceeding by the attorney general. All statutory references are to RSMo (2000). 3 Section 351.400 sets out the procedures by which a corporation may sell, lease, or dispose of all
or substantially all of its property and assets when such sale, lease, or disposal is not in the ordinary course of business. That statute requires notice to the shareholders, a shareholders' meeting, and an "affirmative vote of the holders of at least two-thirds of the outstanding shares entitled to vote at such meeting[.]" §§ 351.400(2), 351.400(3).
3 the Flowers Defendants and the Bell Defendants moved to dismiss. They argued
the petition should be dismissed on seven grounds, among them that Plaintiffs
lacked standing. On October 29, 2015, the trial court dismissed the petition with
prejudice as to both the Flowers Defendants and the Bell Defendants. Plaintiffs
appeal.
Discussion
The trial court correctly dismissed Plaintiffs' petition because Plaintiffs do
not have standing to assert these claims against the Flowers Defendants and the
Bell Defendants. "[S]tanding is a prerequisite to the court's authority to address
substantive issues and so must be addressed before all other issues." Schweich
v. Nixon, 408 S.W.3d 769, 774 n.5 (Mo. banc 2013). "Standing is the requisite
interest that a person must have in a controversy before the court." Cook v.
Cook, 143 S.W.3d 709, 711 (Mo. App. W.D. 2004) (quoting State ex rel. Mink
v. Wallace, 84 S.W.3d 127, 129 (Mo. App. E.D. 2002)). "A party establishes
standing, therefore, by showing that it has 'some legally protectable interest in
the litigation so as to be directly and adversely affected by its outcome.'"
Schweich, 408 S.W.3d at 775 (quoting Mo. State Med. Ass'n. v. State, 256
S.W.3d 85, 87 (Mo. banc 2008)). "Absent standing, the court lacks the power to
grant the relief requested." Cook, 143 S.W.3d at 711.
"An individual shareholder does not have standing to maintain a personal
action for recovery of corporate funds." Bruner v. Workman Oil Co., 78
S.W.3d 801, 804 (Mo. App. S.D. 2002). The reason for this rule is that "[a]ny
injury is to the corporation, not to individual shareholders[.]" Id. (quoting
Dawson v. Dawson, 645 S.W.2d 120, 125 (Mo. App. W.D. 1982)). Remedy in
4 such situations should be had by way of a shareholders' derivative action. Id.;
see also Cook, 143 S.W.3d at 711. "The courts have adopted this rule because,
since the wrong is against the corporation, judgment in favor of one stockholder
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THEODORE PULLEN, EDGAR ) PULLEN, FREDDIE PULLEN, ) and ELISHA PULLEN, ) ) Plaintiffs-Appellants, ) ) vs. ) No. SD34203 ) TIMOTHY FLOWERS, KIMBERLY ) Filed: October 19, 2016 ANN FLOWERS, STANLEY C. ) FLOWERS, TRUSTEE OF THE ) STANLEY C. FLOWERS REVOCABLE ) TRUST DATED 12/09/2005, ) KENNETH R. BELL, DEBRA J. BELL, ) and THE BELL FAMILY PARTNERSHIP,) ) Defendants-Respondents. )
APPEAL FROM THE CIRCUIT COURT OF STODDARD COUNTY
Honorable Michael E. Gardner
AFFIRMED
Theodore Pullen, Edgar Pullen, Freddie Pullen, and Elisha Pullen
("Plaintiffs") appeal from the trial court's dismissal of their petition. Plaintiffs'
petition included two claims involving the conveyance of a family farm property
owned by a closely held corporation to Timothy Flowers, Kimberly Ann Flowers,
and the Stanley C. Flowers Revocable Trust ("the Flowers Defendants") who subsequently transferred the farm to Kenneth R. Bell, Debra J. Bell, and the Bell
Family Partnership ("the Bell Defendants"). The trial court's dismissal is
affirmed because Plaintiffs lack standing to maintain the present action.
Factual and Procedural Background
Review of a trial court's grant of a motion to dismiss is de novo. White v.
Bowman, 304 S.W.3d 141, 147 (Mo. App. S.D. 2009). In conducting such
review, the appellate court must "accept all properly pleaded facts as true, give
them a liberal construction, and draw all reasonable inferences which are fairly
deducible from the pleaded facts." Duvall v. Lawrence, 86 S.W.3d 74, 78
(Mo. App. E.D. 2002). So viewed, these facts control our decision.
Josephus C. Pullen, Sr. ("Father") had nine children ("the children") and
owned a 158-acre farm ("the property") in Stoddard County, Missouri. Among
Father's children were J.C. Pullen, Jr. ("J.C."), Norris T. Pullen, Sr. ("Norris"),
Bertha Luster ("Bertha"), and Everse Pullen ("Everse").1 After Father died in
1972, the children inherited the farm, created a corporation known as Pullen
Farm, Incorporated ("Pullen Farm"), and conveyed the property to Pullen Farm.
At some time not apparent from the record, Plaintiffs, two of whom are
children of Norris and two of whom are children of J.C., became shareholders of
Pullen Farm. By 2012, corporate documents listed Everse as President of Pullen
Farm and Bertha as Secretary of Pullen Farm. On January 25, 2012, Everse and
Bertha executed a deed on behalf of Pullen Farm conveying the property to the
1First names are used because many of the parties share the same surname. No disrespect is intended.
2 Flowers Defendants. Then, on September 7, 2012, the Flowers Defendants
conveyed the property to the Bell Defendants.
On March 11, 2013, Plaintiffs sued the Flowers Defendants, the Bell
Defendants, and Pullen Farm. That petition sought to set aside each of the deeds
involved in the transactions described above and to quiet title to the property in
Pullen Farm. The petition claimed Everse and Bertha were not officers of Pullen
Farm because Pullen Farm had failed to follow its articles of incorporation in
selecting them. The Flowers Defendants and the Bell Defendants moved to
dismiss, arguing that the petition failed to state a claim based on applying Section
351.395 and that Plaintiffs lacked standing.2 In response, Plaintiffs argued
Section 351.400 applied to create a cause of action in their favor because Everse
and Bertha "emptied the corporation out."3 The trial court dismissed the petition
without prejudice as it applied to the Flowers Defendants and the Bell
Defendants but allowed the lawsuit to proceed as to Pullen Farm. The record is
unclear as to the result of the 2013 lawsuit regarding Pullen Farm.
On October 21, 2014, Plaintiffs filed this lawsuit that is the subject of the
present appeal against the Flowers Defendants and the Bell Defendants. The
petition was the same as the 2013 petition except it completely removed Pullen
Farm as a defendant and included three new paragraphs. On December 12, 2014,
2 Section 351.395 provides that "[n]o act of a corporation and no conveyance or transfer of real or
personal property to or by a corporation shall be invalid by reason of the fact that the corporation was without capacity or power to do such act or to make or receive such conveyance or transfer" and lists three ways a conveyance or transfer may be challenged which include (1) a proceeding by the shareholder against the corporation; (2) a proceeding by the corporation; (3) a proceeding by the attorney general. All statutory references are to RSMo (2000). 3 Section 351.400 sets out the procedures by which a corporation may sell, lease, or dispose of all
or substantially all of its property and assets when such sale, lease, or disposal is not in the ordinary course of business. That statute requires notice to the shareholders, a shareholders' meeting, and an "affirmative vote of the holders of at least two-thirds of the outstanding shares entitled to vote at such meeting[.]" §§ 351.400(2), 351.400(3).
3 the Flowers Defendants and the Bell Defendants moved to dismiss. They argued
the petition should be dismissed on seven grounds, among them that Plaintiffs
lacked standing. On October 29, 2015, the trial court dismissed the petition with
prejudice as to both the Flowers Defendants and the Bell Defendants. Plaintiffs
appeal.
Discussion
The trial court correctly dismissed Plaintiffs' petition because Plaintiffs do
not have standing to assert these claims against the Flowers Defendants and the
Bell Defendants. "[S]tanding is a prerequisite to the court's authority to address
substantive issues and so must be addressed before all other issues." Schweich
v. Nixon, 408 S.W.3d 769, 774 n.5 (Mo. banc 2013). "Standing is the requisite
interest that a person must have in a controversy before the court." Cook v.
Cook, 143 S.W.3d 709, 711 (Mo. App. W.D. 2004) (quoting State ex rel. Mink
v. Wallace, 84 S.W.3d 127, 129 (Mo. App. E.D. 2002)). "A party establishes
standing, therefore, by showing that it has 'some legally protectable interest in
the litigation so as to be directly and adversely affected by its outcome.'"
Schweich, 408 S.W.3d at 775 (quoting Mo. State Med. Ass'n. v. State, 256
S.W.3d 85, 87 (Mo. banc 2008)). "Absent standing, the court lacks the power to
grant the relief requested." Cook, 143 S.W.3d at 711.
"An individual shareholder does not have standing to maintain a personal
action for recovery of corporate funds." Bruner v. Workman Oil Co., 78
S.W.3d 801, 804 (Mo. App. S.D. 2002). The reason for this rule is that "[a]ny
injury is to the corporation, not to individual shareholders[.]" Id. (quoting
Dawson v. Dawson, 645 S.W.2d 120, 125 (Mo. App. W.D. 1982)). Remedy in
4 such situations should be had by way of a shareholders' derivative action. Id.;
see also Cook, 143 S.W.3d at 711. "The courts have adopted this rule because,
since the wrong is against the corporation, judgment in favor of one stockholder
would be no bar to the maintenance of additional actions for the same wrong to
the corporation by other shareholders or by a creditor." Bruner, 78 S.W.3d at
804 (quoting Centerre Bank of Kansas City Nat. Ass'n. v. Angle, 976
S.W.2d 608, 613 (Mo. App. W.D. 1998)).
Here, the property belonged to Pullen Farm before the challenged
transactions. Any interest in that property which Plaintiffs had arose based on
their status as shareholders of Pullen Farm. They had no standing to sue third
parties in their individual capacities. See id.
Plaintiffs attempt to avoid this conclusion by reference to Section 351.400.
This reliance is misplaced because it overlooks the specific remedies for violation
of Section 351.400 provided in Section 351.405. Section 351.400 provides
procedures to be followed when a corporation sells, leases, or disposes of all or
substantially all of its property and assets. As relevant to the present case,
Section 351.400 requires written notice of the shareholders' meeting at which the
decision is to be made and, at that meeting, "the affirmative vote of the holders of
at least two-thirds of the outstanding shares entitled to vote at such meeting[.]"
§ 351.400(3). Under the allegations in the petition, which this Court must take as
true given the procedural posture of this case, these conditions were not met.
However, that fact does not end the inquiry.
"[T]he purpose of section 351.400 is to protect the stockholders of the
corporation. It does not implicate public policy and a sale not in compliance with
5 its procedures is not 'of necessity, unlawful or void.'" Cowbell, LLC v. BORC
Building and Leasing Corp., 328 S.W.3d 399, 404 (Mo. App. W.D. 2010)
(quoting Beaufort Transfer Co. v. Fischer Trucking Co., 451 S.W.2d 40,
43 (Mo. banc 1970)). For this reason, the statute does not give minority,
dissenting shareholders a right to follow the assets into the hands of innocent
third-party purchasers. Instead, "the rights of the dissenting shareholders are
defined in Section 351.405[.]" In re Landau Boat Co., 13 B.R. 788, 794 (W.D.
Mo. 1981) (applying Missouri law) (overruled on other grounds by In re
Gilbert, 104 B.R. 90 (W.D. Mo. 1989)). Section 351.405 provides, among other
things, that upon a sale or disposition of all or substantially all of the property or
assets of a corporation, any dissenting shareholders may make demand on the
corporation to have their stock redeemed and, if the corporation refuses, the
dissenting shareholders may file a petition against the corporation in an
appropriate court. § 351.405. Section 351.405 demonstrates that Section
351.400 does not create a private right of action for shareholders against
innocent purchasers of corporate property. Rather, the private right of action
created by the statute, if such right exists, is against the corporation.
To support their argument to the contrary, Plaintiffs rely on Kaufman v.
Henry, 520 S.W.2d 152 (Mo. App. St. L. D. 1975), and Shell v. Conrad, 153
S.W.2d 384 (Sfg. Ct. App. 1941), for the proposition that "[w]hen dissenting
shareholders can prove the corporate board members or officers failed to comply
with § 351.400, the pretended transfer of corporate assets is void and a nullity."
This reliance is misplaced because those cases applied the law in existence before
the enactment of Section 351.395. More recent cases have correctly held that "a
6 transaction which does not follow the prescribed procedure is not, of necessity,
unlawful or void." Beaufort, 451 S.W.2d at 43; see also Cowbell, 328 S.W.3d
at 404. Plaintiffs' remedy, if they have one, is by shareholders' derivative suit.
See § 351.395(2).
Because Plaintiffs do not have standing and "[a]bsent standing, the court
lacks the power to grant the relief requested[,]" Cook, 143 S.W.3d at 711, the trial
court correctly dismissed the petition. In view of that conclusion, we need not
reach Plaintiffs' remaining arguments.
Decision
The trial court's judgment of dismissal is affirmed.
MARY W. SHEFFIELD, C.J. – OPINION AUTHOR
JEFFREY W. BATES, P.J. – CONCURS
DON E. BURRELL, J. – CONCURS