Leslee Scallon v. Scott Henry's Winery Corp. , 686 F. App'x 495 ( 2017 )

NOT FOR PUBLICATION FILED
APR 11 2017
UNITED STATES COURT OF APPEALS
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
LESLEE SCALLON, a California resident No. 15-35952
individually and derivatively on behalf of
Henry Enterprises Inc. and JAY D.C. No. 6:14-cv-01990-MC
GAIRSON, a Washington resident,
individually and derivatively on behalf of MEMORANDUM*
Henry Enterprises Inc.,
Plaintiffs - Appellees,
v.
SCOTT HENRY’S WINERY CORP.; et
al.,
Defendants,
and
HENRY ENTERPRISES, INC., Nominal
Defendant,
Defendant - Appellant.
Appeal from the United States District Court
for the District of Oregon
Michael J. McShane, District Judge, Presiding
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
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Argued and Submitted March 10, 2017
Portland, Oregon
Before: LEAVY and FRIEDLAND, Circuit Judges, and BENITEZ, District
Judge.**
Henry Enterprises, Inc. (“HEI”) appeals from the district court’s ruling that
Or. Rev. Stat. § 60.952(6), a share buyout provision applicable to close corporation
disputes, does not apply to derivative shareholder actions, like the one Plaintiffs
brought here. Or. Rev. Stat. § 60.952(6) permits a defendant to shortcut litigation
by purchasing the plaintiff’s shares for fair value. We have jurisdiction under 28
U.S.C. § 1292(b) and review questions of statutory interpretation de novo. To
determine whether the statute applies to derivative actions, we examine the
statute’s text and context and, to the extent it appears useful, the legislative history.
State v. Gaines, 206 P.3d 1042, 1050 (Or. 2009) (en banc). Applying this
methodology, we hold that the buyout provision applies to derivative proceedings
and reverse.
First, the plain meaning of the statute’s text indicates that the buyout
provision applies to derivative actions. The relevant text provides that “the
corporation or one or more shareholders may elect” to exercise the buyout option
“after the filing of a proceeding under subsection (1).” Or. Rev. Stat. § 60.952(6).
**
The Honorable Roger T. Benitez, United States District Judge for the
Southern District of California, sitting by designation.
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A “proceeding under subsection (1)” is a “proceeding by a shareholder” alleging
certain types of claims. Or. Rev. Stat. § 60.952(1). A “proceeding by a
shareholder” includes both direct and derivative actions. See In re Conduct of
Kinsey, 660 P.2d 660, 666 (Or. 1983) (per curiam) (explaining that a derivative
action is a lawsuit brought by a shareholder to enforce a corporate right); Lee v.
Mitchell, 953 P.2d 414, 423-24 (Or. Ct. App. 1998) (explaining that a direct
shareholder action is a lawsuit brought by a shareholder to enforce rights owed to
the plaintiff as an individual). In fact, Oregon law requires the person bringing a
derivative proceeding to be a shareholder. Or. Rev. Stat. § 60.261.
Furthermore, the types of claims set forth in subsection (1) include claims
traditionally brought derivatively. For instance, the statute applies to proceedings
where “[t]he corporate assets are being misapplied or wasted.” Or. Rev. Stat.
§ 60.952(1)(d). Waste or misapplication of corporate assets is a corporate injury.
See, e.g., North v. Union Sav. & Loan Ass’n, 117 P. 822, 825 (Or. 1911); Noakes v.
Schoenborn, 841 P.2d 682, 686 (Or. Ct. App. 1992). Because subsection (1)
describes claims generally brought derivatively, the statute must apply to
derivative proceedings.
Second, Oregon courts applied similar predecessor statutes in derivative
actions. See, e.g., Chiles v. Robertson, 767 P.2d 903 (Or. Ct. App. 1989); Serbick
v. Timpte-Pac., Inc., 746 P.2d 1167 (Or. Ct. App. 1987); cf. Baker v. Commercial
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Body Builders, Inc., 507 P.2d 387 (Or. 1973). Importantly, the Oregon legislature
enacted Or. Rev. Stat. § 60.952 to reflect this prior judicial practice. Hickey v.
Hickey, 344 P.3d 512, 520 (Or. Ct. App. 2015). Therefore, Or. Rev. Stat. § 60.952
should be applied in the same way.
Third, the legislative history supports applying the buyout provision in
derivative proceedings. The legislature wanted the provision to be used to end
costly litigation early. See Tape Recording, Oregon Senate Committee on
Business, Labor and Economic Development, SB 116, Jan. 15, 2001, (later
incorporated into SB 118), Tape 2, Side A (statement of Robert Art); see also Or.
Rev. Stat. § 60.952(6) (stating that buyout right must be invoked within 90 days
after the filing of a proceeding). A holding that the statute does not apply to
derivative proceedings would undermine that statutory purpose.
In conclusion, the text, context, and legislative history of Or. Rev. Stat.
§ 60.952 demonstrate that the statute applies to derivative proceedings.
REVERSED.
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