Estate of Stephen O'Bryan v. David L. O'Bryan ( 2021 )

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
November 24, 2021
A party may file with the Supreme Court a
petition to review an adverse decision by the
Sheila T. Reiff Court of Appeals. See WIS. STAT. § 808.10
Clerk of Court of Appeals and RULE 809.62.
Appeal No. 2020AP997 Cir. Ct. No. 2018CV691
STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT II
ESTATE OF STEPHEN O’BRYAN, BRENDAN TIM O’BRYAN, JOAN
O’BRYAN HERRIOTT, MICHAEL O’BRYAN, STEPHEN F. O’BRYAN,
JR., TERRENCE O’BRYAN, OISIN HERRIOTT, CONN HERRIOTT,
FIONN HERRIOTT, SUSAN O’BRYAN, KATHY BRUCKS, MICHAEL
BRUCKS, BRENDAN BRUCKS AND KEVIN BRUCKS,
PLAINTIFFS-APPELLANTS,
V.
DAVID L. O’BRYAN, THOMAS O’BRYAN, WILLIAM O’BRYAN, ROBERT
O’BRYAN, DEBORAH O’BRYAN ALM AND LAKEWOOD FARMS, INC.,
DEFENDANTS-RESPONDENTS.
APPEAL from an order of the circuit court for Waukesha County:
WILLIAM DOMINA, Judge. Affirmed.
Before Gundrum, P.J., Neubauer and Reilly, JJ.
No. 2020AP997
Per curiam opinions may not be cited in any court of this state as precedent
or authority, except for the limited purposes specified in WIS. STAT. RULE 809.23(3).
¶1 PER CURIAM. The Estate of Stephen O’Bryan,
Brendan Tim O’Bryan, Joan O’Bryan Herriott, and the remaining plaintiffs-
appellants named in the caption above appeal from an order of the circuit court
dismissing their derivative action against Lakewood Farms, Inc. (LFI) and against
David L. O’Bryan, Thomas O’Bryan, and various other O’Bryan family members,
all on LFI’s board of directors. After a three-day trial to the court and extensive
posttrial briefing and other submissions, the court issued a written decision and
order dismissing the action in its entirety. We affirm.
BACKGROUND
¶2 The parties stipulated to the following facts, as set forth in the circuit
court’s posttrial decision and order. Leslie (“L.L.”) O’Bryan and his wife, Faye
O’Bryan, were the patriarch and matriarch of the O’Bryan family. L.L. and Faye1
had eight children, including defendant William O’Bryan and plaintiffs Michael
“Mickey” O’Bryan, Joan O’Bryan Herriott, Susan O’Bryan, Kathy Brucks, and
Stephen “Buddy” O’Bryan, deceased, whose estate is a plaintiff. (Another of L.L.
and Faye’s children, Tom O’Bryan, is deceased. Patrick O’Bryan, another child,
is still living but is not a party to the lawsuit.) The other plaintiffs and the other
four defendants are grandchildren of L.L. and Faye.
1
To avoid potential confusion arising from the fact that this litigation involves multiple
family members with the same surname, we refer to the parties by their first names throughout
the remainder of this opinion.
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No. 2020AP997
¶3 In the 1930s, L.L. and Faye purchased a large farm that is partially
in Waukesha and partially in Walworth Counties which includes a large residence,
other long-term rental houses, crop land, pasture, woods, many barns and out
buildings, and a lake. L.L. died in 1970, but while he was alive, the property was
a working farm that raised cattle. In 1973, Faye incorporated LFI and began
gifting shares to her children, who each signed a restrictive stock agreement. Faye
also retained a number of shares for herself. The articles of incorporation
authorized the issuance of up to 50,000 common shares.
¶4 In January 1980, the corporation was recapitalized and there was an
exchange of common stock for preferred stock. In 1990, a voting trust was created
to vote the preferred shares in the corporation, and the votes of all 25,200 shares in
the trust were to be decided by a majority vote of trustees. Faye gifted voting trust
certificates to her children and grandchildren. The original five voting trustees
were five of Faye’s children: Kathy, Susan, Buddy, Mickey, and Joan.
¶5 From 1973 to 2010, LFI sold approximately half of its acreage,
primarily to pay off loans and fund operating expenses. By 2010, it had
approximately 1,200 noncontiguous acres left. LFI has not sold additional acreage
since 2010. In 2010, LFI received a letter from the Wisconsin Department of
Natural Resources (“DNR”) expressing interest in purchasing most of LFI’s real
estate (except a noncontiguous parcel) for $10,180,000. Although LFI’s Board of
Directors voted to accept the DNR offer, when the matter was put to a shareholder
vote, three of the then-current voting trustees, Buddy, Mickey, and Joan, voted
against the transaction. As a result, the voting trust voted its shares against the
transaction, and the motion failed.
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¶6 Buddy subsequently purchased the common shares of Susan and
Kathy, and both resigned their positions as voting trustees. They were replaced by
successor trustees. In 2010, a new board of directors and officers was elected, and
in 2012 the board included Mickey, Buddy, and Joan.
¶7 From 2015 to August 22, 2016, the officers and directors of LFI
were Mickey, President and Director, and the individual defendants: his son
David, Vice President and Director; William (“Bill”), Director; Thomas, Jr.
(“Tommy”) Director; Robert M., Director, and Deborah (“Debbie”), Secretary.
Between the recapitalization in January 1980 and August 22, 2016, there were
3200 common shares and 25,200 preferred shares of LFI outstanding. Prior to
August 22, 2016, no shareholder had paid anything either to Faye or LFI for any
of his or her shares, and no shareholder had made any monetary investment in LFI.
¶8 LFI’s net income for the years 2009 through 2015 was as follows:
2009: -$14,961.16; 2010: -$4,324.36; 2011: -$1,114.30; 2012: $170.64; 2013:
$7,823.60; 2014: -$8,329.27; 2015: -$120.93.
¶9 The plaintiffs-appellants (collectively, the Estate) are all
shareholders or preferred stock certificate holders of LFI. The individual
defendants-respondents (collectively, the Directors) were the officers and directors
of LFI when the action was filed and were officers and/or directors from at least
August 22, 2016, to the time of filing.
¶10 The circuit court made several additional findings of fact after the
trial. These include the following:
1. This litigation really [began in] 2016 in an action
filed by a smaller group of the current plaintiffs
against the same defendants in Waukesha County
Case No. 16-CV-1607, then assigned to the
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No. 2020AP997
Honorable Kathryn Foster. The claims included
counts for alleged breach of “fiduciary duty of
care, and loyalty against director defendants”,
declaratory judgment voiding issuance of stock
shares issued to the defendants, and a demand for
temporary restraining order. Ultimately, Judge
Foster granted the defendants’ motion for summary
judgment ....
2. No appeal from this earlier case was taken. Rather
[the Estate,] the original plaintiffs along with other
LFI shareholders[,] filed this action. The
complaint bears the bolded title “Shareholder
Derivative Complaint” and alleges claims for
“Breach of Fiduciary Duty,” “Unjust Enrichment,”
and “Gross Mismanagement.”
….
4. No dispositive motion was filed by any party to
this action[.]
5. The matter was tried to the Court over three
days…. The parties were directed to submit post-
trial briefing and proposed findings of fact and
conclusions of law.
¶11 One of the main disputes before the circuit court at trial was whether
a “written correspondence dated February 18, 2016[, ] … meet[s] the demand
requirements of [WIS. STAT. § ]180.0742” (2019-20),2 which sets forth the
procedure that a corporate shareholder must take before bringing a derivative
action against a corporation. The parties entered the 2016 letter into evidence at
trial as a joint stipulated exhibit. The letter was written on behalf of individual
shareholders Joan and Buddy and directed to then-board members, Mickey,
William, Robert, David, and Tommy, with a copy sent to the other corporate
shareholders. Among other things, the letter complained that the property was not
2
All references to the Wisconsin Statutes are to the 2019-20 version unless otherwise
noted.
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No. 2020AP997
generating profits and asked that the then-directors “explore selling the farm.”
The Estate argued that the letter was sufficient to meet the statutorily required
demand requirement and the Directors took the opposite position.
¶12 After considering the stipulated facts, the evidence adduced at trial,
and the parties’ legal arguments, the circuit court concluded that the 2016 letter
did not meet the statutory requirements to bring a derivative action under any of
the arguments presented and thus dismissed the Estate’s complaint while at the
same time denying the Directors’ request to remove any of the voting trustees. In
its posttrial written decision, the court found:
At most, the injury or claim complained about related to
the shareholder value of certain individual shareholders, not
the corporation. Additionally, it appears that the
February 18, 2016 correspondence fell short of
“demanding” suitable action as it softened to merely
request that then-existing board members merely “explore
selling the farm” and “provide a report … identifying
efforts to market the property.” The [c]ourt concludes that
the shareholders upon whose behalf the February 18, 2016
correspondence was written didn’t want the corporation or
its assets sold for “maximum” value, but rather, they
wanted to see what the “achievable” value was before
deciding to further demand that the corporation or its assets
be sold. Thus, they fell short in demanding the kind of
remedial action contemplated by the statute. The
February 18, 2016 letter also set a deadline well short of the
90-day time limit contemplated by [the statute].
The court further found that the letter failed because it was not addressed to those
“board members in office at the time that the derivative action is commenced” and
that the letter failed under the statute for other reasons as well, some of which we
provide and discuss below.
¶13 Because it concluded that the 2016 correspondence did not meet the
written demand requirements under the statute (meaning that the Estate could not
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No. 2020AP997
bring the 2018 derivative action), the circuit court did not reach the merits of the
dispute. The Estate appeals.
¶14 We include additional facts below as necessary to our discussion.
DISCUSSION
Applicable Legal Standards
¶15 Before bringing a derivative suit, a corporation’s shareholders must
make a written demand on the corporation. WIS. STAT. § 180.0742(1). The
demand requirement states, in its entirety:
Demand. No shareholder or beneficial owner may
commence a derivative proceeding until all of the following
occur:
(1) A written demand is made upon the corporation to
take suitable action.
(2) Ninety days expire from the date on which the
demand was made, unless the shareholder or beneficial
owner is notified before the expiration of 90 days that the
corporation has rejected the demand or unless irreparable
injury to the corporation would result by waiting for the
expiration of the 90-day period.
Sec. 180.0742. The demand requirement operates as a “valuable screen of
potential lawsuits, both by giving corporations a crack at resolving shareholder
complaints before litigation and by giving courts more information on which to
decide the merits of those suits that remain after demand.” Boland v. Engle, 113
F.3d 706, 712 (7th Cir. 1997).
¶16 This case calls on us to review facts found by the circuit court
following a trial and to apply WIS. STAT. § 180.0742 to those facts. We will
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No. 2020AP997
overturn factual findings in a case tried to the court only if they are clearly
erroneous. WIS. STAT. § 805.17(2).
¶17 We consider here whether the 2016 letter discussed above
constitutes a sufficient demand under WIS. STAT. § 180.0742, which requires us to
apply that statute to the factual findings, which here are undisputed. “‘Statutory
interpretation and the application of a statute to a given set of facts are questions
of law that we review independently, but benefiting from’ the analysis of the
circuit court.” Marx v. Morris, 2019 WI 34, ¶21, 386 Wis. 2d 122, 925 N.W.2d
112 (citation omitted).
The 2016 Letter Does Not Constitute a Sufficient Demand Pursuant to WIS. STAT.
§ 180.0742
¶18 The Estate brought the claims at issue here in 2018 as a derivative
action and asserts that the 2016 letter served as a written demand sufficient to
satisfy WIS. STAT. § 180.0742.3 Specifically, the Estate argues that the court erred
in finding that the letter raised only individual claims and fell short of demanding
specific action and that the letter’s request for action within fifteen days of its
receipt and the fact that the board’s makeup changed from the time the letter was
sent to the time this action was filed made it legally insufficient. Because each of
3
In its appeal, the Estate takes issue only with the conclusion of the circuit court that the
2016 letter does not meet the statutory demand requirements. At trial, the Estate offered two
other arguments regarding whether it met the statutory demand requirements: (1) a demand
would have been futile and (2) the complaint in the 2016 lawsuit served as a statutory demand.
The circuit court rejected both arguments. The Estate has not argued either issue on appeal and
these issues are therefore abandoned and not further addressed in this opinion. See A.O. Smith
Corp. v. Allstate Ins. Cos., 222 Wis. 2d 475, 491, 588 N.W.2d 285 (Ct. App. 1998) (An issue
raised in the circuit court but not raised on appeal is deemed abandoned.).
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No. 2020AP997
the court’s legal conclusions is intertwined with the undisputed facts related to the
letter, we address them together below.
¶19 The Estate first argues that the circuit court erred in its conclusion
that the 2016 letter fails as a demand under the statute because it fails to identify
an injury to the corporation that the shareholders could assert on behalf of the
corporation. In a shareholder derivative action, “a shareholder ‘assumes the
mantle of the corporation itself to right wrongs committed by those temporarily in
control’ of the corporation.” Park Bank v. Westburg, 2013 WI 57, ¶40, 348
Wis. 2d 409, 832 N.W.2d 539 (citation omitted). A derivative action, serves “to
prevent injustice to the corporation by allowing shareholders to enforce corporate
interests, when the directors refuse to take corrective action.” Id. (citation
omitted). The claims in a derivative action belong to the corporation rather than to
individual complainants. Id., ¶41. This is consistent with generally accepted
principles:
The nature of the derivative proceeding is two-fold: first, it
is the equivalent of a suit by the shareholders to compel the
corporation to sue; second, it is a suit by the corporation,
asserted by the shareholder on its behalf, against those
liable to it. The corporation is the real party in interest and
the shareholder is only a nominal plaintiff. The substantive
claim belongs to the corporation.
13 Fletcher Cyclopedia of the Law of Corporations, § 5941.10 (Sept. 2021)
(footnotes omitted).
¶20 The circuit court found that the 2016 letter failed to identify wrongs
to the corporation, explaining as follows:
The very purpose of the demand requirement in a
derivative action is to identify an injury to or claim of the
corporation and to “demand” that such injury or claim be
remedied through “suitable action.” At most, the injury or
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No. 2020AP997
claim complained about related to the shareholder value of
certain individual shareholders, not the corporation.
We agree with the circuit court’s conclusion that nothing in the letter sets forth a
demand that the corporation assert the rights of the corporation to bring claims
against those liable to it. First, the letter begins, “On behalf of Joan Herriott and
Stephen ‘Buddy’ O’Bryan, we request….” No other shareholder joins in the
letter, which states that there were at least fifty shareholders, nor do these two
shareholders purport to demand suitable remedial action by the corporation within
ninety days to assert the rights of the corporation in order to avoid a derivative
lawsuit.
¶21 As the circuit court aptly concluded, the letter sets forth Joan’s and
Buddy’s request to explore selling the farm so that they can receive fair value for
their stock. Specifically, the two shareholders complain that the corporation has
failed to generate profits, and state that the “only way” to extract value from the
“jointly owned asset” is to sell the asset, “the land it owns” (the farm) and
distribute the proceeds to the shareholders. They contend that failure of the then-
directors to pursue the sale, which is the “only action that will return value to the
stockholders, is a breach of [the then-director’s] duties” to act in the best interests
of all the stockholders and wastes the corporate assets.
¶22 The letter fails to identify a wrong to the corporation that the writers
demand it to remedy, instead making a “request that [the directors] pursue a sale
of the Company … and distribute the proceeds as well as any other corporate
assets to the shareholders.” (Emphasis added.) The circuit court concluded that
the letter fell short of demanding action, explaining that “[t]he correspondence
contains some ‘demand-like’ language” in stating “we request that you pursue a
sale of the Company (or, alternatively the land it owns) and distribute the proceeds
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No. 2020AP997
as well as any other corporate assets to the shareholders.” The court further found,
however, that the “language of the letter softens in demand” with its request that:
“any buyout must be for a fair price…. Please let us know whether you will
explore selling the farm. Please provide a report from the broker you retain
identifying efforts to market the property and any offers…. We would appreciate
hearing from you by March 4, 2016.”
¶23 Thus, the letter simply sets forth a request that the then-directors
explore a sale in the future. It is not a demand that the corporation pursue legal
action for alleged past breach of fiduciary duty or waste; it is not a demand to
enforce a corporate claim that the corporation could have, but has not, asserted
against the then-directors in order to avoid legal action by the shareholders on its
behalf within ninety days. We agree with the circuit court that the letter failed to
meet the statutory requirements of demanding suitable remedial action on behalf
of the corporation.
¶24 The Estate has not pointed to any legal authority supporting the
contention that the two shareholders’ request that the then-directors pursue a sale
of the farm and distribute the proceeds to the shareholders amounts to a demand
that the corporation promptly remedy an injury giving rise to a claim that the
corporation has failed to assert. The Estate seeks to deflect this fundamental
requirement, arguing that all the shareholders (and not just them) have been
injured as a result of the corporation’s failure to pursue a sale of the farm.
However, it remains the case that a derivative claim is one in which the injury to
the corporation is the primary injury, regardless whether there is secondary injury
to the shareholders. Notz v. Everett Smith Group, Ltd., 2009 WI 30, ¶20, 316
Wis. 2d 640, 764 N.W.2d 904; Link v. Link, No. 2018AP1715, unpublished slip
op. ¶¶60-61 (WI App Nov. 5, 2019), review denied, 2019 WI 104, 389 Wis. 2d
11No. 2020AP997
242, 936 N.W.2d 824.4 Again, derivative suits seek to enforce a corporate right
that the corporation has failed, was unable, or has refused to assert by court action.
¶25 Thus, as the circuit court correctly concluded, the letter fails to
identify a meritorious cause of action that could be enforced by the corporation.
See Link, No. 2018AP1715, ¶65 (explaining that “[t]he shareholder cannot bring a
derivative proceeding unless there is a meritorious cause of action that could be
enforced by the corporation” and that “one precondition for a shareholder’s
derivative claim is ‘a valid claim on which the corporation could have sued.’”
(citation omitted)).
¶26 That there is no identified meritorious claim that could be enforced
by the corporation is underscored by the relief sought by the Estate. Namely, it
ultimately seeks a sale of the shares in the corporation, which are owned by the
individual shareholders, not the corporation. While the Estate contends that the
directors could seek shareholder agreement after the then-directors pursue a sale,
this argument merely underscores that there is no identified claim that the
corporation has failed to assert.
¶27 To the extent that the request to sell the farm and distribute the
proceeds and all other assets to the shareholders is based on a claim of oppressive
conduct to the minority shareholders, this requires a direct action. See Reget v.
Paige, 2001 WI App 73, ¶23, 242 Wis. 2d 278, 626 N.W.2d 302 (a sale of
corporate assets and distribution of all proceeds and assets in liquidation typically
occurs if a claim for judicial dissolution based on oppressive conduct to minority
4
See WIS. STAT. RULE 809.23(3)(b) (permitting the citation of authored, unpublished
opinions issued after July 1, 2009, for their persuasive value).
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No. 2020AP997
shareholder is granted). Dissolution based on oppressive conduct to minority
shareholders is not a derivative claim. Notz, 316 Wis. 2d 640, ¶34 (“We begin by
observing that a claim for judicial dissolution based on oppressive conduct, as
here, is not a derivative claim.”); see also Read v. Read, 205 Wis. 2d 558, 567,
556 N.W.2d 768 (Ct. App. 1996) (“It is hard to conceive of any way in which
dissolution would be beneficial to the corporation in this case.”).
¶28 Tellingly, the letter also raised the possibility of a “buyout” of the
complaining shareholders’ shares. That is a request for individual relief, not
derivative relief. See Reget, 242 Wis. 2d 278, ¶14. Therefore, the alternative
relief sought in the letter also fails to meet the statutory requirements of a written
demand sufficient to bring a subsequent derivative action.
¶29 We further agree with the circuit court’s finding that the fifteen-day
response time provided by Joan and Buddy in the 2016 letter is statutorily
insufficient because it “set a deadline well short of the [ninety]-day time limit
contemplated by [WIS. STAT. § ]180.0742.” As we explained in Jorgensen v.
Water Works, Inc., 218 Wis. 2d 761, 787-88, 582 N.W.2d 98 (Ct. App. 1998),
where the purported demand letter sought a response within three days, “[t]he
response time of seventy-two hours, in and of itself, is an indication that this is not
a demand letter within the meaning of § 180.0742 which gives the corporation up
to ninety days to take the ‘suitable action’ and still avoid suit.” Similarly, here,
given the fifteen-day deadline from the letter and the fact that the letter does not
even mention § 180.0742, we conclude that it did not provide fair notice that the
letter was intended as a statutory derivative demand.
¶30 Moreover, as the circuit court here explained, the 2016 letter is
deficient at least in part because of to whom it is directed—namely, not a clear
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No. 2020AP997
demand explicitly directed to the corporation itself, nor even to the board members
in place in 2018 when the derivative action was brought, but rather it is directed
toward certain individuals who sat on the board in 2016. The statute itself is clear
in its directive that “[a] written demand is made upon the corporation to take
suitable action.” WIS. STAT. § 180.0742(1) (emphasis added). The 2016 letter
was not clearly directed toward LFI as a corporation, further evidenced by the fact
that it was not made on board members in office at the time the derivative action
was commenced. See McCann v. McCann, 61 P.3d 585, 591-92 (Idaho 2002);
see also Jorgensen, 218 Wis. 2d at 786-87 (purported demand letter was “not
addressed to the corporation but to the individual majority shareholders[,]” and it
“proposes a resolution of disputes between the [letter writers] on the one hand and
the majority shareholders on the other.”) For these and the reasons we have
already stated, we conclude that the 2016 letter fails to qualify as a sufficient
statutory demand.
¶31 The Estate appears to ask us to conclude that a court is entitled to
overlook the statutory requirements if the purported demand letter comes close
enough to meeting the statutory elements. Specifically, it argues “that the purpose
and language of the statute are satisfied by the February 18, 2016 letter,” as such,
we should ignore the flaws in the letter discussed above. We decline to overlook
the clear intent of the legislature to require anyone attempting to bring a
shareholder derivative action first meet the demand requirements clearly set forth
in WIS. STAT. § 180.0742.5 See State ex rel. Kalal v. Circuit Ct. for Dane Cnty.,
5
Along similar lines, the Estate asks us to adopt a test used in Virginia and North
Carolina to determine whether a demand is sufficient under the statute. We decline to
unnecessarily create a new test to apply in Wisconsin because we conclude that WIS. STAT.
§ 180.0742 clearly states the demand requirements that the legislature intended to impose on
those seeking to bring a derivative action.
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No. 2020AP997
2004 WI 58, ¶44, 271 Wis. 2d 633, 681 N.W.2d 110 (“Judicial deference to the
policy choices enacted into law by the legislature requires that statutory
interpretation focus primarily on the language of the statute. We assume that the
legislature’s intent is expressed in the statutory language.”).
CONCLUSION
¶32 For the foregoing reasons, we conclude that the circuit court did not
err in dismissing the Estate’s claims against the Directors. The 2016 letter from
Joan and Buddy to the then-board members fails to meet the requirements set forth
in WIS. STAT. § 180.0742 because it fails to identify a wrong to the corporation,
fails to demand specific remedial action for the corporation to take, sets a deadline
for a response well short of the ninety-day deadline required under § 180.0742(2),
and is directed to the 2016 board members rather than to the board members when
the derivative action was filed in 2018.6
By the Court.—Order affirmed.
This opinion will not be published. See WIS. STAT.
RULE 809.23(1)(b)5.
6
Our decision as to the insufficiency of the 2016 letter is dispositive of this appeal and,
therefore, we do not reach the merits of the Estate’s claims or discuss the other issues raised by
the parties. See Barrows v. American Family Ins. Co., 2014 WI App 11, ¶9, 352 Wis. 2d 436,
842 N.W.2d 508 (2013) (“An appellate court need not address every issue raised by the parties
when one issue is dispositive.”).
15