Rosemann v. Roto-Die ( 2002 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 01-1087
___________
Phillip L. Rosemann, *
*
Plaintiff - Appellant, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Missouri.
Roto-Die, Inc., *
*
Defendant - Appellee. *
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Submitted: September 12, 2001
Filed: January 9, 2002
___________
Before LOKEN, RICHARD S. ARNOLD, and FAGG, Circuit Judges.
___________
LOKEN, Circuit Judge.
Philip Rosemann is a minority shareholder of Roto-Die, Inc., a closely held
corporation. He filed this diversity action to enforce a Stock Redemption Agreement,
alleging that Roto-Die is obligated to purchase his shares of Roto-Die stock at their
current fair market value. The district court granted summary judgment in favor of
Roto-Die, concluding (i) that Rosemann’s prior state court action under a Missouri
statute that protects shareholders who object to mergers created a res judicata bar to
this action, and (ii) that the Stock Redemption Agreement unambiguously established
a purchase price of $9.75 per share, the stock’s declared fair market value in 1978
when the Agreement was signed. Rosemann appeals these rulings. We conclude that
res judicata does not bar claims under the Stock Redemption Agreement, and that the
price term in the Agreement is ambiguous. Accordingly, we reverse and remand.
I. The Res Judicata Issue.
Roto-Die is a successful family-owned business that manufactures rotary dies.
Before the Stock Redemption Agreement was signed in March 1978, Rosemann’s
father gave 2,000 shares of Roto-Die stock to Rosemann and to each of his three
siblings, leaving the parents owning 17,000 of the 25,000 outstanding shares. By the
mid-1980s, after additional gifts, the father and each sibling owned 5,000 shares.
Beginning in 1986, family harmony evaporated. Rosemann’s sister and one brother
left the business and sold their 10,000 shares to Roto-Die; Rosemann alleges they
received far more than $9.75 per share. After a falling out with his father and the
remaining brother, Rosemann gave up his position as chief operating officer and
became an inactive, disaffected minority shareholder. In late 1991, Roto-Die merged
with Micrometrics Systems, a transaction that brought Melvin Stanley into Roto-
Die’s management and shareholder group. After the merger, Rosemann, his father,
and his brother each owned 5,000 shares, or 26.14% of the Roto-Die stock. Stanley
owned the remaining 21.57%. Rosemann’s father has died; his 5,000 shares are now
owned by a trust. Since the Micrometrics merger, Rosemann has filed four lawsuits
as a Roto-Die minority shareholder, seeking to force the controlling shareholders to
purchase his shares for their current fair market value, which he alleges to be in
excess of $3,920 per share. The issue is whether any of the first three suits, which
were filed in Missouri state courts, raises a res judicata bar to this suit.
The first state court lawsuit sought to enforce Rosemann’s statutory right, as
a shareholder objecting to the Micrometrics merger, to sell his shares to Roto-Die for
their appraised fair value. See MO. REV. STAT. § 351.455. The state court rejected
the claim because Rosemann initially voted in favor of the merger. See Rosemann
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v. Roto-Die, Inc., 947 S.W.2d 507 (Mo. App. 1997). The district court concluded this
suit created a res judicata bar to his claim under the Stock Redemption Agreement.
The second state court lawsuit asserted various claims to remedy the alleged
oppression of Rosemann as a minority Roto-Die shareholder. The first nine counts
sought relief consistent with his continuing role as minority shareholder (such as
involuntary liquidation). Count X sought a declaratory judgment construing the
Stock Redemption Agreement. However, Count X was dismissed without prejudice
for lack of a justiciable controversy because Rosemann had made no demand under
the Agreement that Roto-Die redeem his stock. Some time later, the remaining claims
were dismissed without prejudice for failure to prosecute. The third state court
lawsuit was a pro se re-filing of most of the second suit, other than Count X. When
Rosemann voluntarily dismissed this case, the court ordered that the dismissal be with
prejudice, no doubt because he had dismissed these claims without prejudice in a
prior lawsuit. See Britton v. Hamilton, 740 S.W.2d 704, 705 (Mo. App. 1987).
In February 1999, following dismissal of the third state court action, Rosemann
made a written demand that Roto-Die redeem twenty shares of his stock under the
Stock Redemption Agreement. Roto-Die replied that the Agreement does not permit
a shareholder to redeem less than all his shares. Rosemann then commenced this
action, seeking damages for Roto-Die’s refusal to redeem twenty shares at their
current fair market value. The district court concluded this suit is barred by res
judicata because Rosemann’s claim under the Stock Redemption Agreement is merely
a “variant theory” for the relief he sought in the first state court lawsuit -- redemption
of his Roto-Die shares for their fair market value. We disagree.
We apply Missouri res judicata principles in determining whether this action
is barred by any of Rosemann’s prior state court lawsuits. See Harmon Indus., Inc.
v. Browner, 191 F.3d 894, 902 (8th Cir. 1999). Rosemann did not assert a claim
under the Stock Redemption Agreement in those lawsuits (except in Count X of the
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second lawsuit, which was dismissed without prejudice). But the absence of such a
claim is not dispositive because Missouri courts apply res judicata to bar a claimant
from splitting a single cause of action. See St. Bethel Missionary Baptist Church, Inc.
v. St. Louis Builders, Inc., 388 S.W.2d 776, 778 (Mo. 1965). Thus, we must
determine whether the claim asserted under the Stock Redemption Agreement in this
lawsuit is part of the same cause of action that was asserted in any claim litigated in
the first or the third state court lawsuits. It is not always easy to define the boundaries
of a single cause of action for this purpose:
In general, the test for determining whether a cause of action is single
and cannot be split is: 1) whether separate actions brought arise out of
the same act, contract or transaction; 2) or whether the parties, subject
matter and evidence necessary to sustain the claim are the same in both
actions. The word “transaction” has a broad meaning. It has been
defined as the aggregate of all the circumstances which constitute the
foundation for a claim. It also includes all of the facts and
circumstances out of which an injury arose.
King Gen. Contractors, Inc. v. Reorganized Church of Jesus Christ of Latter Day
Saints. 821 S.W.2d 495, 501 (Mo. 1992), quoting Burke v. Doerflinger, 663 S.W.2d
405, 407 (Mo. App. 1983).
The district court concluded that the first state court lawsuit bars this action.
In that lawsuit, Rosemann attempted to invoke his statutory rights as a dissenting
shareholder following the Micrometrics merger. A shareholder who timely objects
to a merger has a statutory right to be paid fair value for all his shares “as of the day
prior to the date on which the vote was taken approving the merger or consolidation.”
MO. REV. STAT. § 351.455.1. If the dissenting shareholder and the surviving
corporation do not agree on a purchase price, the shareholder may bring an action to
recover his shares’ fair value as determined by the court. See § 351.455.3. This
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cause of action requires proof of the shareholder’s timely objection to a specific
merger transaction, and proof of fair value on a specific date.
By contrast, a claim under the Roto-Die Stock Redemption Agreement is not
triggered by or limited to a specific corporate transaction or time period. As this
dispute illustrates, depending on how the Agreement is interpreted, such a claim may
or may not require sale of all the shareholder’s stock, and may or may not require
proof of current fair market value. Rosemann could have asserted his statutory rights
as a dissenting shareholder and his contractual rights under the Stock Redemption
Agreement as alternative bases to redeem his Roto-Die shares for their fair market
value after the Micrometrics merger. But we cannot agree that a contract claim under
the Agreement was “merely a variant theory” to his statutory cause of action under
MO. REV. STAT. § 351.455.
One obvious reason why these claims are not part of a single cause of action
is that Rosemann made no demand under the Stock Redemption Agreement prior to
filing the first lawsuit. In general, res judicata does not bar claims that did not arise
until after the first suit was filed. See WEA Crestwood Plaza, L.L.C. v. Flamers
Charburgers, Inc., 24 S.W.3d 1, 9 (Mo. App. 2000); Baker Group, L.C., v. Burlington
N. and Santa Fe Ry. Co., 228 F.3d 883, 886 (8th Cir. 2000). Roto-Die responds that
Rosemann could easily have made a demand under the Stock Redemption Agreement
before filing the first lawsuit and then joined his claim under the Agreement with his
dissenting shareholder statutory claim. But res judicata does not extend as far as the
rules of permissive joinder. The question is whether the two claims are a single cause
of action. We think not. One arose out of a 1978 contract; the other out of a 1991
merger. One requires proof of Rosemann’s rights under a private contract; the other
proof of his rights under a Missouri statute.
Moreover, we think the district court’s application of res judicata is contrary
to the purpose underlying § 351.455. The statute is intended to protect dissenting
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shareholders from being injured by transactions over which they have no control. It
would be exceedingly harsh to hold that a minority shareholder who elects to bring
an action under § 351.455.3 must either assert -- or forever forfeit -- his claims under
a pre-existing shareholders’ agreement. A shareholder who objects to a merger may
be willing to redeem his shares for the price established in the statute, but not for a
lesser price if that is what he would receive under a shareholders’ agreement. Here,
for example, Rosemann was concerned that a court would construe the Stock
Redemption Agreement as freezing the redemption price at $9.75 per share. Thus,
immediately following the Micrometrics merger, he was willing to sell his shares at
the “fair value” prescribed in the statute, but unwilling to risk an unfavorable
redemption price under the Agreement. In our view, the doctrine of res judicata did
not compel him to exercise these disparate rights in a single lawsuit.
Alternatively, Roto-Die argues that the second and third state court lawsuits
create a res judicata bar. This contention is without merit. Count X of the second suit
did assert a claim under the Stock Redemption Agreement, but that count was
dismissed without prejudice for lack of a justiciable controversy. This non-final
disposition did not create a res judicata bar. The third lawsuit resulted in a dismissal
with prejudice, but it involved only minority shareholder claims premised upon
Rosemann remaining a minority shareholder. Roto-Die notes that Rosemann could
have added a claim under the Stock Redemption Agreement in the third lawsuit, and
cured the defect in Count X of the second lawsuit by demanding that Roto-Die
redeem his shares. But again, this would have been the permissive joinder of a
distinct cause of action. Res judicata does not bar the present action because
Rosemann elected not to assert his contract rights in the previous lawsuits.
No court has entered a final judgment construing Rosemann’s rights under the
Stock Redemption Agreement. Instead, a state court in the second lawsuit ruled that
Rosemann must demand redemption under the Agreement to make the parties’
contract dispute justiciable. Rosemann first made a demand in February 1999, after
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the three state court lawsuits. Though his constant objective has been to sell his
minority interest for its current fair market value, his claim under the Stock
Redemption Agreement is a cause of action distinct from his prior statutory and
common law claims as a disaffected minority shareholder. Therefore, res judicata and
the rule against splitting a claim do not bar this action.
II. Construing the Stock Redemption Agreement.
The Stock Redemption Agreement was signed by six Rosemann family
members who owned the Roto-Die shares outstanding in March 1978. The
Agreement prohibited the shareholders from disposing of their shares, except to the
corporation. The district court concluded that the following paragraphs
unambiguously establish that Rosemann is entitled to receive only $9.75 per share if
he redeems shares under the Agreement:
2. The outstanding capital stock of the Company consists of
25,000 shares which are owned and held by the Stockholders as follows:
[Rosemann’s father] 16,980 shares
[Rosemann’s mother] 200 shares
[Rosemann’s brother] 2,000 shares
Phillip L. Rosemann 2,000 shares
[Rosemann’s sister] 2,000 shares
[Rosemann’s brother] 2,000 shares
The value of each share of stock of the Company held by each
Stockholder shall be $9.75, which is the fair market value at the date of
the agreement.
* * * * *
5. If during the lifetime of any Shareholder, said Shareholder
desires to sell any or all of his shares of stock, he shall notify the
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company in writing and then the Company shall purchase all of said
shares of the selling shareholder at the price above set forth under the
following terms and condition. . . .1
In the district court’s view, the term “the price above set forth” in paragraph 5 was
an unambiguous reference to the $9.75 value term in paragraph 2, and the Agreement
contained no provision for “adjusting the $9.75 price upward for changes in fair
market value.” Rosemann argues the contract is ambiguous in this respect.
Under Missouri law, which governs this issue, the determination of whether a
contract is ambiguous is an issue of law we review de novo. Sligo, Inc. v. Nevois, 84
F.3d 1014, 1019 (8th Cir. 1996). To determine whether contract language is
ambiguous, “we look at the context of the entire agreement and determine if the
language, given its plain and ordinary meaning as understood by a reasonable person,
is reasonably susceptible to more than one construction.” Jackson v. Christian
Salvesen Holdings, Inc., 978 S.W.2d 377, 383 (Mo. App. 1998). The determination
is made from the four corners of the contract; we “cannot use extrinsic or parol
evidence to create ambiguity.” Lake Cable, Inc. v. Trittler, Jr., 914 S.W.2d 431, 436
(Mo. App. 1996). If the contract is fairly susceptible of at least two reasonable
interpretations, “summary judgment is inappropriate because extrinsic evidence is
[then] admissible to show the intent of the contracting parties.” Boatmen’s First Nat’l
Bank of Kansas City v. P.P.C., Inc., 927 F.2d 394, 396 (8th Cir. 1991).
While the district court’s interpretation of the Stock Redemption Agreement
is certainly plausible, we cannot agree it is the only reasonable interpretation of Roto-
Die’s redemption obligation. Paragraph 5 of the Agreement obligates Roto-Die to
redeem shares “at the price above set forth” whenever a shareholder desires to sell.
But the contract contains no “price above set forth.” Instead, Paragraph 2 declares
1
The remainder of paragraph 5 consisted of deferred payment terms designed
to prevent Roto-Die’s redemption obligations from adversely affecting the company.
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“the fair market value at the date of the agreement,” $9.75. In most contexts, “value”
does not mean “price.” Though fair market value is often used to define a flexible
price term, it seems highly unlikely, though not beyond reason,2 that the declared
“value” on a particular date would be used as the inflexible purchase price for
transactions far in the future. Thus, as a textual matter, it seems as reasonable to
conclude that the Stock Redemption Agreement inadvertently neglected to include
a flexible price term, as to conclude that the Roto-Die shareholders intended to
forever limit themselves to receiving $9.75 per share when they died or desired to
redeem their shares under paragraph 5. Moreover, Paragraph 3 of the Agreement,
which requires the company to purchase a deceased shareholder’s stock, provides:
“The purchase price of such stock shall be in accordance with the provisions of this
agreement.” The reference to “provisions” in the plural seems like more than a
simple incorporation of the $9.75 value provision in paragraph 2.
In addition to these textual problems, the district court’s interpretation of the
redemption price term is also inconsistent with the most likely purposes of the Stock
Redemption Agreement. In 1978, Rosemann’s father undoubtedly used inter vivos
gifts of Roto-Die stock as an estate planning device.3 The normal purposes of a
shareholders’ agreement in this type of situation would be to prevent the children
from transferring gifted shares in the closely held family business to outsiders or
2
In Sligo, we concluded that a Restrictive Stock Transfer Agreement
unambiguously fixed the future purchase price at one and one-half times book value
on a specified date. However, the book value reference appeared in a section of the
agreement that was clearly intended to establish the price term, and our construction
was consistent with the remaining provisions of the agreement. See 84 F.3d at 1016,
1021. Here, the Stock Redemption Agreement has no clear price term.
3
If accepted by the Internal Revenue Service, pegging the March 1978 fair
market value of Roto-Die stock at $9.75 per share meant that 1978 gifts of 2,000
shares to each child would be just under the parents’ combined maximum gift tax
exclusions of $20,000 per donee. See 26 U.S.C. § 2503(b).
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creditors, while leaving them the ability to obtain value for their shares through
redemption in specified situations. If the Stock Redemption Agreement froze the
redemption price at the initial value of the shares, as the district court concluded,
Rosemann’s father denied his children any future appreciation in the value of the
business. That seems both contrary to typical parental desires and undesirable from
an estate planning perspective. In these circumstances, extrinsic evidence probing the
intent of the contracting parties is needed.
In August 1988, the Roto-Die shareholders entered into an agreement which
released the shares owned by Rosemann’s father but otherwise “ratif[ied],
confirm[ed], and republish[ed] the [Stock Redemption] Agreement in its entirety.”
Roto-Die argues this later agreement confirms that $9.75 was intended to be a
permanent stock redemption price. Although several contemporaneous instruments
may be read together as one contract,4 Roto-Die cites no authority for its implied
argument that a subsequent contract is not extrinsic evidence and therefore may be
considered in determining whether an initial contract is ambiguous. But even if this
later agreement may be considered, we fail to see how it cures any ambiguity in the
initial Stock Redemption Agreement. The later agreement may mean that
Rosemann’s father always knew what he intended to accomplish. But that does not
support the grant of summary judgment on the issue of an ambiguity.
Finally, Roto-Die contends that Rosemann’s prior admissions regarding the
Stock Redemption Agreement entitle Roto-Die to judgment as a matter of law even
if the contract is ambiguous. We disagree. In various pleadings and deposition
testimony in the state court lawsuits, Rosemann acknowledged that the Agreement
could be construed as permanently freezing the redemption price at $9.75 per share,
to his great financial disadvantage. But he consistently stated his disagreement with
such an interpretation. Therefore, these so-called admissions fall far short of
4
Ringstreet Northcrest, Inc. v. Bisanz, 890 S.W.2d 713, 718 (Mo. App. 1995).
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providing grounds for a judicial estoppel or any other basis for precluding his claims
in this lawsuit.
For the foregoing reasons, we conclude that res judicata does not bar this
lawsuit and that the Stock Redemption Agreement is ambiguous with regard to the
price at which Roto-Die must redeem Rosemann’s shares. The judgment of the
district court is reversed, and the case is remanded for further proceedings not
inconsistent with this opinion.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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