                IN THE SUPREME COURT OF THE STATE OF MONTANA




KENNETH G. CAMPBELL, individually, and
as a shareholder of Elton Campbell Ranches, Inc.,
for and on behalf of Elton Campbell Ranches, Inc.,
in a derivative shareholders' action,

              Plaintiff and Appellant,
         v.

ELTON CAMPBELL RANCHES, INC., a Montana                                   : !   1   a i9!8
corporation, ELTON CAMPBELL, an individual,                                         i
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MARJORIE CAMPBELL, an individual, and                                :c
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GARY D. CAMPBELL, an individual,                         *.c--       +       ..      .....   ~




              Defendants and Respondents.



APPEAL FROM:          District Court of the Eight Judicial District,
                      In and for the County of Cascade,
                      The Honorable R. D. McPhillips, Judge presiding.

COUNSEL OF RECORD:

              For Appellant:

                      Kirk D. Evenson, Warren D. Wenz; Marra, Wenz,
                      Johnson & Hopkins, Great Falls, Montana

              For Respondents:

                      Floyd Corder; Corder & Allen, Great Falls, Montana
                      (for Elton Campbell Ranches, Inc.)

                      L. D. Nybo; Conklin, Nybo, LeVeque & Murphy, Great
                      Falls, Montana (for Elton Campbell, Marjorie Campbell,
                      and Gary D. Campbell)


                                                      Submitted on Bricfs: Novcrnber 14 1996
                                                                 ~ ~ ~ i August :l d , 1 9 9 7
                                                                             d ~ d
Filed:
Justice Karla M. Gray delivered the Opinion of the Court.

       Pursuant to Section I, Paragraph 3(c), Montana Supreme Court 1995 Internal

Operating Rules, the following decision shall not be cited as precedent and shall be published

by its filing as a public document with the Clerk of the Supreme Court and by a report of its

result to State Reporter Publishing Company and West Publishing Company.

       Kenneth G. Campbell (Ken) appeals from the judgment entered by the Eighth Judicial

District Court, Cascade County, on its findings of fact, conclusions of law and order in his

individual and derivative action against the family-owned corporation and his parents and

one of his brothers in their capacities as directors, officers and shareholders. We affirm.

       We restate the dispositive issues on appeal as follows:

       1. Did the District Court err in concluding that Ken had not met a statutory

prerequisite to maintaining a derivative claim?

       2. Did the District Court err with regard to Ken's "control group-squeeze out" claims?

       Ken is the son of Elton and Marjorie Campbell. Defendants and respondents are Elton

and Marjorie, their son--and Ken's older brother--Gary D. Campbell, and Elton Campbell

Ranches, Inc. (the Corporation), a Montana corporation. Ronald Campbell, the oldest

Campbell son, is not a party to this action.

       Elton and Marjorie formed the Corporation in 1972, after acquiring various farms in

Cascade County, Montana. They began gifting shares of the Corporation to their sons

immediately after incorporating the farms. Ken was upset when he received the initial gift

of shares, believing that he was entitled to a larger gift because he worked on the farm

property.
       Until at least 1983, Elton and Marjorie held a majority of the Corporation's shares.

At the time of trial, Elton, Marjorie, Gary, Ronald and Ken each owned in excess of 15% of

the shares. Elton and Marjorie have been members of the Corporation's board of directors

at all times. Ronald and Gary also have been directors of the Corporation at various times;

Ken has not. Similarly, Elton, Marjorie, Ronald, Gary and Gary's wife, Sandra, have been

officers of the Corporation at various times; Ken has not. The value of the Corporation at

the time of trial--not including amounts at issue in this case--was approximately $1.8 million.

       In 1980, the Corporation leased a small amount of corporate land to City Transfer and

Disposal (City Transfer), a partnership, for the establishment and maintenance of a landfill;

the rent was $10 per month. Ken knew about the landfill in the early 1980s.

       Gary operated and maintained the landfill for City Transfer under written agreements

which compensated him for his services. Over time, it became clear that City Transfer

lacked adequate capital to run the landfill operation.

       By March of 1983, Bayside Waste Hauling and Transfer, Inc. (Bayside), a

Washington corporation, was in the process of purchasing City Transfer. Bayside was

interested in leasing thc landfill site and entering into an agreement with Gary to operate it.

The Corporation determined that it wanted no further responsibility with regard to leasing

the property on which the landfill was located. As a result, the Corporation and Gary

entered into a lease of the landfill property (the Lease) on March 17, 1983. The Lease was

for a 15-yearperiod, at the same $10 per month rent contained in the earlier lease with City

Transfer, and contained a renewal provision for an additional 15-year period. Ken knew of
the Lease between the Corporation and Gary at or around the time it was entered into in

1983.

        Gary subleased the landfill site to Bayside for a 15-year term at a rent of $5,000 per

year. He simultaneously entered into an operating agreement with Bayside under which he

was responsible for operating and maintaining the landfill operation in accordance with

applicable laws and regulations, providing the necessary equipment and obtaining

appropriate insurance for the operation.

         Thereafter, Gary and his family expended labor and money, in the amount of

approximately $200,000, for capital improvements, repairs and maintenance in developing

and operating the landfill. By 1986, Gary could not afford to meet the increasing

governmental requirements for operating landfills; he could obtain neither a loan to finance

the operation nor insurance against liability or pollution claims. As a result, in early 1986,

Gary sold the landfill operating equipment he had purchased, terminated his operating

agreement with Bayside and entered into a new, 12-year sublease of the landfill site with

Bayside and other entities. Gary no longer operated the landfill thereafter but, pursuant to

the sublease, he received rent on a "per ton" basis for refuse deposited at the landfill. A

subsequent sublease also contained a "per ton" rental payment to Gary. Gary's rental income

from 1986 through the early 1990s ranged from $50,000 to $60,000 per year. Ken knew of

Gary's "passive" income from the landfill subleases by 1986 or 1987.

        In 1992, the City of Great Falls and Cascade County began using the landfill. Gary's

1992 rental income from the landfill sublease was $103,481. Also in 1992, Elton and

Marjorie hired an attorney to prepare an estate plan for them. The proposed estate plan
included a tax-free split-off of corporate assets to Ken. Ken objected on the basis that the

split-off did not include any value for the landfill or landfill revenues.

       Ken initiated the present action in 1992 by filing a complaint against the Corporation,

Elton, Marjorie and Gary. The essence of the complaint was a "control group-squeeze out"

claim against Elton, Marjorie and Gary, requesting that the Lease be set aside and Ken be

allowed to recoup the landfill revenues received by Gary through the allegedly fraudulent

conspiracy of Elton, Marjorie and Gary to waste and divert corporate assets to Gary's sole

benefit. The allegations centered primarily on the Lease and the passive revenues Gary

obtained thereafter from subleasing the landfill site.

       The parties filed--and the District Court ruled on--a variety of motions. Among other

things, the court directed Ken to file an amended complaint setting forth his landfill- and

Lease-related claims as derivative claims brought for the benefit of the Corporation and

provided for the appointment of apanel pursuant to 3 35-1-545, MCA, to determine whether

maintenance of the derivative proceeding was in the Corporation's best interests.

       Ken subsequently filed a 5-count amended complaint. The derivative claims brought

for the Corporation's benefit alleged that the Lease with Gary and the passive rents Gary

received from the subleases constituted wrongful diversion and waste of corporate assets;

they sought rescission of the Lease and return to the Corporation of the landfill and the rents

received by Gary. The "control group-squeeze out" counts brought by Ken, individually,

alleged breaches of various duties by the "control groupu--namely,Elton, Marjorie and Gary-

-resulting in damage to Ken as a minority shareholder. Via these claims, Ken soughtjudicial

dissolution of the Corporation or, alternatively, a buy-out of his shares at full value.
        Thereafter, the panel authorized by the District Court filed its report. It found that

unresolved questions of law and fact relating to the derivative claims should be further

considered by the District Court and, therefore, that continuing Ken's derivative claims

regarding the landfill and the revenues therefrom "is in the best interest of             [the

Corporation]."

       A pretrial order was filed in June of 1995. Ken contended that the landfill was an

asset of the Corporation, that the individual defendants had violated their duties to the

Corporation by permitting Gary to improperly seize and profit from a corporate opportunity

and that the value of the Lease, as well as the revenues received by Gary as a result thereof,

should be returned to the Corporation for purposes of valuing Ken's shares in a buy-out of

those shares by the Corporation. The defendants contended, among other things, that Ken

had not made the statutorily-required demand on the Corporation prior to commencing his

derivative action; that Ken's landfill- and Lease-related claims were barred by the statute of

limitations; and, in any event, that the Lease was entirely proper and in full effect.

       Following a bench trial, the District Court entered its findings of fact, conclusions of

law and order. Its findings and conclusions rclatcd primarily to Kcn's derivative claims

regarding the landfill and Lease, since the parties had agreed--and the court found--that the

Corporation would purchase Ken's shares for fair value. The court determined that no

demand had been made, that the claims were further barred by statutes of limitations and, in

any event, that Ken had established no fraud or breach of duty regarding the landfill and

Lease. Judgment was entered thereon and Ken appeals.
       1. Did the District Court err in concluding that Ken had not met a statutory

prerequisite for maintaining his derivative claims related to the landfill and Lease?

       A derivative proceeding is a "civil suit in the right of a domestic corporation. . . ."

Section 35-1-541(1), MCA. It may not be commenced until "a written demand has been

made upon the corporation to take suitable action. . . ." Section 35-1-543(1), MCA. The

demand requirement adopted by the 1991 legislature is a universal rule intended to eliminate

problems created by previously recognized exceptions to the general rule requiring a

demand. Steven C. Bahls, Montana's New Business Corporation Act: Duties, Dissension,

Derivative Actions and Dissolution, 53 MONT. REV. 36 (1992).
                                           L.

       Here, the District Court found that no demand had been made and, therefore,

concluded that the statutory prerequisite for maintaining the landfill- and Lease-related

derivative claims had not been met. Ken does not challenge the District Court's finding that

no demand was made. Rather, he contends that the District Court erred as a matter of law.

We review a trial court's conclusion of law to determine whether the interpretation of the law

is correct. Carbon County v. Union Reserve Coal Co., Inc. (1995), 271 Mont. 459,469, 898

P.2d 680, 686 (citation omitted).

       Ken's first contention is that the statutory demand requirement had somehow been

"waived" during pretrial proceedings. Specifically, he claims that a motion for summary

judgment or, in the alternative, motion concerning derivative claim filed by the Corporation

amounted to a waiver of any right to further object to the lack of the statutorily-required

demand. The record belies this contention.
       In its order on the Corporation's motion, which authorized the panel and directed the

filing of an amended complaint, the District Court expressly stated its intention "to preserve

all of the rights, remedies and defenses of the parties for future determination. . . ." Given

the existence of the statutory demand requirement, it is clear that the District Court intended

to preserve the Corporation's right to assert the absence of the required written demand and

Ken's resulting inability to maintain the derivative claims. In addition, Ken's amended

complaint--which alleged that demand had been made--was filed after the District Court

ruled on the Corporation's motion; thus, Ken's own pleading put the demand question at

issue. Finally, in thc prctrial ordcr cntcrcd thcreafter, thc Corporation specifically contended

that Ken had not made the statutorily-required demand. The pretrial order was not modified

thereafter and, as a result, it controlled the subsequent course of the action. See Rule 16(e),

M.R.Civ.P. The demand question clearly remained at issue to and through the time of trial.

       Ken's limited argument on this issue focuses on what he perceives as the

inconceivability that derivative claims on which all involved invested substantial resources

could be decided on such a narrow basis so late in the proceedings. While it is clear that

different actions and decisions by the parties and the District Court at various timcs in the

proceedings might have moved Ken's landfill- and Lease-related claims to resolution much

earlier, there was plenty of confusion to go around. Indeed, Ken's own pleadings fell far

short of providing a clear framework for the action. In any event, it is undisputed that Ken

did not make a written demand on the Corporation, as required by 3 35-1-543(1), MCA, prior

to commencing his derivative proceeding.
        We h o t that Ken has established no error in the District Court's conclusion that he

failed to satisfy a statutory prerequisite to the maintenance of his derivative claims brought

for thk benefit of the Corporation. Absent the demand, the derivative claims were not

properly before the District Court and, as a result, we need not address Ken's other arguments

relating thereto.

        2. Did the District Court err with regard to Ken's "control group-squeeze out" claims?

        Ken advances a hodgepodge of contentions relating to asserted error in the District

Court's resolution of his "control group-squeeze out" claims. Like his complaint and

amended complaint, the contentions intermix theories applicable to derivative claims and

"control group" claims. They also attempt to reintroduce the Lease-related derivative claims

resolved above into the "control group" claims for purposes of asserting some unspecified

type of relief to which Ken as a minority shareholder is allegedly entitled. We decline to

revisit the landfill- or Lease-related claims disposed of by our conclusion on issue one above.

        Moreover, Ken's "contyol group-squeeze out" claims based on alleged fraud and

oppression by the "control.group" sought judicial dissolution of the Corporation, a buy-out

of Ken's shares at full value, a partial split-off of certain Corporation land andor damages.

While   3 35-1-938(2)(b), MCA, authorizes judicial dissolution when those in control of a
corporation have acted fraudulently or oppressively,        3   35-1-939, MCA, vests broad

discretion in the trial court to grant such relief other than dissolution--including a purchase

at fair value of a shareholder's shares--as it considers appropriate.

        Here, in advance of any findings by the trial court regarding fraud or oppression, the

parties agreed that the Corporation would purchase Ken's shares at fair value. The District
Court made a corresponding finding and, as a result, did not address oppression further with

regard to the "control group" claims; it ultimately entered judgment requiring the Corporation

to purchase Ken's shares for fair value in the amount of $320,360.74, representing Ken's

17.45% ownership of shares in the Corporation valued at $1.8 million. Thus, Ken obtained

one of the types of relief prayed for in his "control group" claims, and his agreement to the

buy-out obviates the necessity of addressing his "control group" claims further.

       Affirmed.




We concur:
