Filed: Sep. 24, 2002
Latest Update: Feb. 21, 2020
Summary: IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 01-10842 _ STASAN INC Plaintiff - Appellant/Cross - Appellee v. MICHAEL P LOGAL, DEBORAH V LOGAL, and NETWORK STAFFING SERVICES Defendants - Appellees/Cross - Appellants _ Appeal from the United States District Court for the Northern District of Texas (99-CV-2796) _ September 18, 2002 Before KING, Chief Judge, and PARKER and CLEMENT, Circuit Judges. PER CURIAM:* Before the court are cross appeals from Plaintiff Stasan, Inc. (“Stas
Summary: IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 01-10842 _ STASAN INC Plaintiff - Appellant/Cross - Appellee v. MICHAEL P LOGAL, DEBORAH V LOGAL, and NETWORK STAFFING SERVICES Defendants - Appellees/Cross - Appellants _ Appeal from the United States District Court for the Northern District of Texas (99-CV-2796) _ September 18, 2002 Before KING, Chief Judge, and PARKER and CLEMENT, Circuit Judges. PER CURIAM:* Before the court are cross appeals from Plaintiff Stasan, Inc. (“Stasa..
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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 01-10842
_____________________
STASAN INC
Plaintiff - Appellant/Cross - Appellee
v.
MICHAEL P LOGAL, DEBORAH V LOGAL, and NETWORK STAFFING SERVICES
Defendants - Appellees/Cross - Appellants
________________________________________________________________
Appeal from the United States District Court for the
Northern District of Texas
(99-CV-2796)
_________________________________________________________________
September 18, 2002
Before KING, Chief Judge, and PARKER and CLEMENT, Circuit Judges.
PER CURIAM:*
Before the court are cross appeals from Plaintiff Stasan, Inc.
(“Stasan”) and Defendants Michael P. Logal (“M. Logal”), Deborah V.
Logal (“D. Logal”) (collectively the “Logals”), and Network
Staffing Services, Inc. (“NSSI”), in which Stasan appeals the
district court’s declaration that the Logal-controlled NSSI board
of directors is validly elected and the district court’s denial of
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
1
Stasan’s request for mandamus relief in connection with Stasan’s
contention that it was denied access to corporate records. NSSI
and the Logals appeal the district court’s summary judgment
concluding that the NSSI stock issued to Stasan was validly issued.
Upon review, we affirm the district court’s judgment in all
respects.
FACTUAL PREDICATE
At its core, this case involves a dispute over stock in, and
control of, NSSI, a Dallas-based Texas corporation formed in 1994
to provide temporary, contract, and executive personnel to a wide
range of businesses. From its beginning, NSSI’s corporate
existence has been marked by interested parties dueling for
control. The current litigation was engendered by the formation of
a corporate alliance largely controlled by Stasan, Stasan’s
president Estelle Blumberg (“E. Blumberg”), and Stasan’s business
manager, Richard Blumberg (“R. Blumberg”). The group took control
of the NSSI board, and, shortly thereafter, obtained a temporary
restraining order to bar the Logals from entering the NSSI
premises.1 In response, M. Logal, who had been NSSI’s president
1
Prior to the instant case, the Logals brought suit
against Stasan, the Blumbergs, and others asserting, among other
claims, securities fraud and breaches of fiduciary duties. Like
the Stasan-controlled group, they also sought and obtained a
temporary restraining order enjoining the Stasan-controlled
alliance from terminating the Logals’s employment with NSSI and
from attempting to gain control of NSSI bank accounts. The order
was short-lived and the case was eventually dismissed without
prejudice.
2
and the individual largely responsible for the day-to-day
operations of the company before the Stasan takeover, joined D.
Logal to form a shareholder group largely under their control. The
Logal-controlled group signed a “Written Consent” to remove the
Stasan-controlled board and reconstitute it as a Logal-controlled
board. Litigation ensued.
In December 1999, NSSI and the Logals filed this suit seeking
a declaration that 300 shares of NSSI stock issued to Stasan in
1994 are void for lack of consideration. Twenty days later, Stasan
filed suit in Florida seeking declaratory relief that the stock was
validly issued. The Florida action was abated in favor of this
action. Stasan counter-claimed for a declaration that the Logal-
controlled board was not validly elected and for mandamus relief
from NSSI’s alleged denial of access to its books and records.
The district court initially dismissed the action by NSSI and
the Logals as barred by the applicable statute of limitations, but
later realigned the parties and allowed the suit to continue. It
thereafter granted summary judgment in favor of NSSI and the
Logals, holding that the Logal-controlled board was validly
elected. The court also granted summary judgment in favor of
Stasan on the stock issue, holding that the stock was validly
issued. It later denied Stasan’s motion to reconsider the summary
judgment that the Logal-controlled board was validly elected.
After a bench trial, the district court denied Stasan’s requested
mandamus relief, and this appeal followed.
3
STANDARD OF REVIEW
The court reviews the district court’s summary judgment
determinations under a de novo standard of review,2 and can affirm
on any ground raised below.3 Summary judgment is proper if there
is no genuine issue as to any material fact.4
The parties dispute the standard to be applied to the district
court’s grant of summary judgment holding that the Logal-controlled
board was validly elected. Stasan’s appellate arguments regarding
whether the Logal-controlled board was validly elected were first
raised in the district court by way of a motion to reconsider the
summary judgment in favor of NSSI and the Logals. Apparently
expecting to receive an extension of time in which to file its
response, an expectation not fulfilled by the district court,
Stasan did not file a response to the motion for summary judgment
filed by NSSI and the Logals. The district court subsequently
rendered summary judgment in favor of NSSI and the Logals,
prompting Stasan to file a motion for reconsideration which raised
previously unasserted arguments.5 In a one-line denial, the
2
See Morris v. Covan Worldwide Moving, Inc., 144 F.3d
377, 380 (5th Cir. 1998).
3
See Holtzclaw v. DSC Communications Corp., 255 F.3d
254, 257-58 (5th Cir. 2001).
4
See FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477
U.S. 317, 322 (1986).
5
Stasan did not raise these arguments in its motions to
dismiss, motion for summary judgment, or motion for extension of
time in which to file a response to NSSI’s and the Logals’s
4
district court disposed of Stasan’s motion, and it is this denial
that Stasan appeals.
A district court’s denial of a motion for reconsideration is
generally reviewed for abuse of discretion,6 under which the ruling
must only be reasonable.7 However, as asserted by Stasan, “[i]f
the [district] [c]ourt considers the [new] materials [included in
the motion to reconsider] but still grants summary judgment, the
appellate court may review all materials de novo.”8 Two points are
worth mentioning on this issue. First, nothing in the record leads
this court to believe that the district court considered the new
arguments raised in the motion for reconsideration.9 A one-line
denial by the district court combined with the district court’s
denial of Stasan’s unopposed motion for an extension of time to
file its response to the motion and Stasan’s failure to have the
motion for summary judgment.
6
See Lake Hill Motors, Inc. v. Jim Bennett Yacht Sales,
Inc., 246 F.3d 752, 757 (5th Cir. 2001); Giles v. General Elec.
Co.,
245 F.3d 474, 494 (5th Cir. 2001); Ford Motor Credit Co. v.
Bright,
34 F.3d 322, 324 (5th Cir. 1994).
7
See Bright, 34 F.3d at 324.
8
Id. “On the other hand, if the district court refuses
to consider the materials, the reviewing court applies the
[general] abuse of discretion standard.”
Id. (quoting Fields v.
City of South Houston, Texas,
922 F.2d 1183, 1188 (5th Cir.
1991)).
9
It is not entirely clear whether the conclusion reached
in Bright is even applicable to the situation before the court.
While Stasan raised new arguments in its motion for
reconsideration, the materials included were nothing novel for
the district court.
5
district court reconsider this discretionary ruling precluding an
extension (which, incidentally, was made forty-seven days before
the district court’s summary disposition on the board of directors
issue) belies Stasan’s conclusory averment that the “district court
in this case considered the materials submitted with STASAN’s
Motion for Reconsideration.” Second, the Xerox Corp. v. Genmoora
Corp. case cited by Stasan is inapposite.10 There, the factual
scenario affirmatively “reflect[ed] the existence of several issues
of material fact” brought to light in the motion to reconsider.
This prompted our court to find that “the trial judge knew
positively at that time [of the filing of the motion to reconsider]
that his earlier grant of summary judgment could no longer be
justified” because the motion supplied the district court with new
evidence so “overwhelming” that the trial judge “could not turn his
back” on the showing.11 In contrast, wholly absent from Stasan’s
motion for reconsideration is the deluge of “overwhelming” fact
issues evidenced in Xerox. In these circumstances, the court will
review the district court’s denial of Stasan’s motion for
reconsideration for abuse of discretion.
The standard of review for a bench trial is well established.
Findings of fact are reviewed for clear error and legal conclusions
10
888 F.2d 345, 356 (5th Cir. 1989).
11
Id.
6
are reviewed de novo.12
ANALYSIS
Stasan appeals from two rulings: (1) the district court’s
declaration that the Logal-controlled board was validly elected,
and (2) the district court’s refusal to grant Stasan mandamus
relief. NSSI and the Logals appeal from the district court’s grant
of summary judgment that the 300 shares of NSSI stock issued to
Stasan were validly issued. Each point is addressed in turn.
A. Board of Directors
In early 1999, NSSI’s board consisted of R. Blumberg, Ed
Astin, Piotr Zapendowski (“Zapendowski”), and D. Logal. In July
1999, R. Blumberg called a shareholders’s meeting. Over the
objection of D. Logal at this meeting, the existing NSSI board
proceeded to elect a new Stasan-controlled board consisting of R.
Blumberg, E. Blumberg, Zapendowski, and Ilene Phillips. Apparently
unhappy with NSSI’s financial response to this new board,13
Zapendowski approached M. Logal for assistance and, on August 11,
1999, gave him (through a written “Consent Form”) a proxy to vote
Zapendowski’s 200 shares of NSSI stock on all NSSI stockholder
12
Gebreyesus v. F.C. Schaffer & Assocs., Inc., 204 F.3d
639, 642 (5th Cir. 2000).
13
On July 29 1999, several “[c]oncerned [e]mployees of
NSSI” submitted a letter to NSSI shareholders urging them to
“[e]lect a Board of Directors that truly cares about this
company’s future and the employees that have built it,” and one
which “will achieve the goals envisioned by Michael and Debby
Logal.”
7
matters, “including election of directors.” However, on that same
date, Zapendowski, D. Logal, Laura Smith, Emily Carlson, and Ed
Astin — owners of sixty-four percent of the outstanding NSSI stock
— signed a “Written Consent,” which removed the Stasan-controlled
board and named D. Logal, M. Logal, Bill Emery, and Kathleen Logal
as directors.
The district court summarily dismissed Stasan’s claim for a
declaration that the Logal-controlled board was not validly
elected, concluding that “the Stasan board was properly removed and
replaced by the Written Consent.”
Relying on arguments raised for the first time in its motion
for reconsideration, Stasan avers that Zapendowski forfeited his
legal authority to enter into the Written Consent that removed the
Stasan-controlled board because his proxy belonged to M. Logal. As
M. Logal only voted his shares, not Zapendowski’s 200 shares,
Stasan contends that a majority of shareholders did not place their
imprimatur on the corporate action and it was thus without effect
to remove the Stasan-controlled board.14
Significant for the purpose of this controversy is
Zapendowski’s ability to revoke the proxy at issue. Even Steinberg
14
Stasan alternatively contends that a question of fact
exists as to whether the Stasan-controlled board was properly
removed for cause. Because the court affirms on the ground that
the Logal-controlled board acted within its rights under the NSSI
bylaws, it is unnecessary to address the alternative contention
regarding the implied common law right of the Logal-controlled
board to remove the Stasan-controlled board for cause.
8
v. American Bantam Car Co.,15 the case principally relied on by
Stasan in support of its argument that Zapendowski no longer had
the authority to vote his shares, left open the possibility that
the appointment could be revoked by the shareholder who gave the
authority in the first instance.16 M. Logal, the holder of the
proxy, signed the Written Consent along with Zapendowski and
understood that the proxy was not controlling as to this majority
vote. M. Logal could have voted Zapendowski’s shares when he voted
his own had the two not mutually agreed to vote their own shares as
to the Written Consent.17 When freed from the view that Zapendowski
was irrevocably disenfranchised by the proxy he gave, it is clear
that the district court did not abuse its discretion when it held
that the Written Consent was effective to change the board of
directors by a majority of shareholders under section 3.10 of the
NSSI bylaws.18 We also note that, in 1996, when NSSI merged with
15
76 F. Supp. 426, 439 (W.D. Pa. 1948), appeal dismissed,
173 F.2d 179 (3d Cir. 1949).
16
Id. (“Until this appointment was revoked by the
shareholder who gave the authority, said individuals, jointly and
severally, were the only persons who had authority to act for or
vote the shares of stock owned by the respective shareholders.”).
17
See, e.g., Coleman v. Mayes, 347 S.W.2d 827, 829 (Tex.
Civ. App.– Houston 1961, writ ref’d, n.r.e.) (contract revoked by
mutual agreement).
18
Section 3.10 of the NSSI bylaws provides, in relevant
part, that:
Any action required or permitted by the [Texas Business
Corporation] Act to be taken at any annual or special
meeting of shareholders of the corporation may be taken
9
another company, a “Memorandum of Action” was drafted at the demand
of R. Blumberg, who ordered that all NSSI shareholders sign the
Memorandum before or at the same time as the other merger
documents. This Memorandum, which was expressly incorporated as a
part of the bylaws and the articles of incorporation for NSSI,
provides further support for the proposition that a majority of
shareholders can add new directors or replace existing or resigned
directors.19
B. Access to Books and Records
The right of shareholders to inspect a corporation’s books and
without a meeting, without prior notice and without a
vote, if the action is taken by the holders of
outstanding stock of each voting group entitled to vote
thereon having not less than the minimum number of votes
with respect to each voting group that would be necessary
to authorize or take such action at a meeting at which
all voting groups and shares entitled to vote thereon
where [sic] present and voted. In order to be effective,
the action must be evidenced by one or more written
consents describing the action taken, dated and signed by
approving shareholders having the requisite number of
votes of each voting group entitled to vote thereon, and
delivered to the corporation by delivery to its principal
office in this state, its principal place of business,
the corporate secretary, or another office or agent of
the corporation having custody of the book in which
proceedings of meetings of shareholders are recorded.
19
See Memorandum at 1 (“a majority of the shareholders
can add new Directors (up to the specified limit) or replace
existing or resigned Directors.”). The Memorandum further
provides that the board intends the Memorandum to be made a part
of the articles of incorporation and bylaws, and that to the
extent there is a conflict between the Memorandum and the
articles of incorporation and bylaws, “the Articles of
Incorporation and By-Laws will be immediately changed to reflect”
the Memorandum.
10
records is a right statutorily granted in Texas.20 However, the
method of enforcement of the right of inspection is by mandamus, a
matter of judicial discretion.21 Stasan sought a writ of mandamus
permitting it to inspect and copy the books and records of NSSI.
After a bench trial, the district court concluded that NSSI had not
“refused” access to its books and records and thus denied Stasan’s
request for mandamus relief.22 Stasan appeals this denial,
contending that the district court applied the incorrect standard
and must be reversed.
Article 2.44 of the Texas Business Corporation Act provides
that:
C. Any person who shall have been a shareholder for at
least six (6) months immediately preceding his demand .
. . shall have the right to examine . . . its relevant
books and records of account, minutes, and share transfer
records, and to make extracts therefrom.
D. Any corporation which shall refuse to allow any such
shareholder or his agent, accountant or attorney, so to
20
See TEX. BUS. CORP. ACT, art. 2.44 (Vernon Supp. 2001).
21
See Moore v. Rock Creek Oil Corp., 59 S.W.2d 815, 817
(Tex. Comm’n App. 1933, judgm’t adopted).
22
As stated by the district court:
Because the court finds that NSSI did not refuse to allow
Stasan to inspect or copy the business records it
requested, NSSI is entitled to judgment on Stasan’s claim
pursuant to BCA Article 2.44(C)-(D). For the same
reason, the Court concludes that Stasan is not entitled
to recover costs or expenses, including attorneys’ fees,
incurred in enforcing its rights under BCA Article
2.44(C)-(D).
Memorandum Order at 11.
11
examine and make extracts from its books and records of
account, minutes, and share transfer records, for any
proper purpose, shall be liable to such shareholder for
all costs and expenses, including attorneys' fees,
incurred in enforcing his rights under this Article in
addition to any other damages or remedy afforded him by
law . . . .23
We agree that in holding that Stasan has the burden of showing that
NSSI “refuse[d]” to allow Stasan or its agent to examine and copy
the requested documents, the district court may have overstated
Stasan’s burden under article 2.44.24 While the language of the Act
clearly states that the corporation shall not “refuse” access to
corporate records or books, the limited number of Texas cases that
address article 2.44 do impose a judicial overlay of reasonableness
to the standard.25 Under this “reasonableness” standard, Stasan
contends that the district court should have granted its mandamus
request.26
23
TEX. BUS. CORP. ACT art. 2.44 (Vernon Supp. 2001).
24
We say “may” because language exists in the district
court’s opinion from which one could gather that the court used a
constructive refusal test, essentially questioning whether NSSI,
through its unreasonable actions, constructively refused access
to the documents. While not a carbon-copy of the reasonableness
overlay described in Johnson Ranch Royalty Co. v. Hickey, 31
S.W.2d 150, 152-53 (Tex. Civ. App.– Amarillo 1930, writ ref’d),
this standard does resist strict adherence to “refusal” that is
worrisome to Stasan.
25
See, e.g., Johnson Ranch, 31 S.W.2d at 152-53 (bond
condition and residency requirement were unnecessarily onerous
and unreasonable restrictions).
26
While several Texas cases discuss a corporation’s
ability to contest whether a shareholder has a “proper purpose”
12
At first glance, the record does not engender confidence that
NSSI was overly cooperative in meeting the requirements of article
2.44 regarding its largest shareholder’s request for access to
corporate records and books. However, a review of the district
court’s factual findings under the clear error standard, as this
court must do, renders suspect Stasan’s assertion that NSSI imposed
unreasonable conditions on Stasan as a matter of law. The record
demonstrates that D. Logal first responded to Stasan’s invocation
of article 2.44 (sent to NSSI by letter dated October 7, 1999)
within two weeks. At that time, she denied access to the corporate
books, arguing that, because Stasan was not a proper shareholder of
NSSI, it was not entitled to inspect NSSI records. Two letters
(dated October 29 and November 5, 1999) were then sent by Stasan in
which Stasan expressed its “shock” at the allegations regarding
Stasan’s stock validity. While not conceding the point, Logal
ultimately consented to make the NSSI records and books available
to Stasan for inspection. As the district court found, inspection
arrangements beyond this point fell through in scheduling — “[t]hat
in requesting the right of inspection, see e.g., Uvalde Rock
Asphalt, Co. v. Loughridge, 425 S.W.2d 818, 819 (Tex. 1968);
Accounting Search Consultants, Inc. v. Christensen,
678 S.W.2d
593, 595 (Tex. App.—Houston [14th Dist.] 1984, no writ); Chavco
Inv. Co. v. Pybus,
613 S.W.2d 806, (Tex. Civ. App.—Houston [14th
Dist.] 1961, writ ref’d n.r.e.), no case found discusses proper
corporate behavior in the face of a request for inspection from
an entity whose stock ownership is questionable to the
corporation. The court thus falls back on the notion oft
repeated in Texas case law that judicial discretion controls the
issuance of a mandate. See, e.g.,
Moore, 59 S.W.2d at 817.
13
the parties actively corresponded between October 7 and December 9,
1999 regarding the scheduling of R. Blumberg’s trip to Dallas to
inspect the records persuades the court that, rather than
obstructing Stasan’s efforts to obtain access to and/or copy the
NSSI records, NSSI substantially cooperated in these efforts.”
(emphasis added). Indeed, the district court remarked at one point
that because Stasan indicated the quote for production was “too
much,” “it appears that Stasan, upon leaning how costly its
document copying request would be, may simply have opted not to
pursue this request.” The district court further found that R.
Blumberg simply “never thereafter [after learning of the cost of
copying and subsequent to D. Logal suggesting December 14 or 15 for
the inspection rather than the December 8 or 9 date suggested by R.
Blumberg] attempted to reschedule his trip to Dallas to inspect the
records.” In these circumstances, where the district court has
clearly set out a factual record effectively demonstrating the
reasonableness of NSSI toward Stasan regarding inspection of the
NSSI records and books, little doubt remains that viewing the
district court’s findings of fact through the prism of the
reasonableness standard urged by Stasan renders the district
court’s ultimate holding unassailable.
At some point beyond the December 10, 1999 filing date of the
current lawsuit, NSSI’s obligations under article 2.44 merged into
its pre-trial discovery obligations under FED. R. CIV. P. 34(b),
especially where, as here, both parties were working to schedule a
14
time for investigation of the records, and the corporation, not the
shareholder seeking records, initially brought suit. To the extent
Stasan seeks to utilize its motion to compel and evidence of what
it describes as abusive discovery,27 to further its claim for
liability under article 2.44, we agree with the district court that
this expands article 2.44 beyond its purpose.
C. Validity of Stasan’s Shares
NSSI and the Logals aver that because Stasan failed to pay any
consideration for the 300 shares of NSSI stock issued to it by NSSI
in 1994, the shares are void as a matter of law. The district
court did not concur, holding instead that the “assertion that
Stasan failed to pay consideration for its shares is frivolous.”
In doing so, the court principally relied on a series of
representations by NSSI and the Logals. As recounted below, these
representations affirmatively demonstrate NSSI’s and the Logals’s
belief (at least until late 1999) that the stock issued to Stasan
was validly issued.
On July 1, 1994, the NSSI board of directors resolved that
27
Stasan complains that NSSI imposed unreasonable
conditions on it by requiring representatives to travel to Texas
to review documents in the summer in an un-airconditioned
warehouse, and by forcing Stasan to locate the documents in over
200 banker boxes containing various business documents. The
imposition of these conditions, which appear to fall within the
context of discovery controlled by the federal rules in any
event, are not so unreasonable as to trigger the issuance of a
writ of mandamus as a matter of law. A writ under article 2.44
is not issued as a matter of right, but is instead the product of
judicial discretion. See Moore, 59 S.W.2d at 817.
15
Stasan’s 300 shares of stock were to be issued in exchange for
Stasan’s “contribution of cash, property and/or labor.” The stock
certificate, also issued by NSSI on July 1, 1994, further states
that Stasan’s shares were “fully paid and non-assessable.” In May
1996, when Articles of Merger and a Plan of Merger were executed by
NSSI, all of the NSSI shareholders executed a Shareholder
Agreement, in which Stasan is listed as the largest of the seven
NSSI shareholders (owning 300 of the 890 shares then outstanding).
The Shareholder Agreement was signed by all the shareholders.
Minutes of the NSSI board of directors meeting of February 9, 1998,
in which both D. Logal and M. Logal attended, further reflect that
the directors of NSSI confirmed that the shareholders of the
corporation included E. Blumberg on behalf of Stasan. Finally, in
the district court, NSSI, D. Logal and M. Logal alleged in their
initial Complaint that Stasan had obtained thirty percent of the
stock in NSSI in return for receivables financing provided by
Stasan’s owner R. Blumberg. As found by the district court, the
record is filled with evidence demonstrating knowledge of the
issuance of Stasan’s stock by NSSI and the Logals, participation in
the issuance of this stock by NSSI and the Logals, and, up until
late 1999, an understanding by NSSI and the Logals that this stock
was validly issued.
In the face of the overwhelming record, the district court
declined to adopt the view urged by NSSI and the Logals that none
of their actions prior to the pronouncement of their current
16
position matters to the question of due consideration. We likewise
reject the notion that these corporate documents are meaningless to
our determination whether the 1994 stock issuance to Stasan should
be deemed without effect. The corporate documents regarding the
value of the consideration received for the stock are key to the
validity of the stock issuance here. In their briefing to this
court and at oral argument, NSSI and the Logals consistently resist
efforts to frame this issue under article 2.16 of the Texas
Business Corporation Act, which provides that “[i]n the absence of
fraud in the transaction, the judgment of the board of directors or
the shareholders . . ., as the case may be, as to the value and
sufficiency of consideration received for shares shall be
conclusive.”28 Instead, they aver that this issue does not turn on
the board of director’s determination of the value of
consideration, but instead on whether any consideration at all was
paid for the stock. In doing so, NSSI and the Logals constrict the
holding of the district court. The court found that “Stasan
provided adequate consideration for the shares.” If support exists
for this finding, then the board’s determination of the value of
this consideration is conclusive.
Whether Stasan gave any consideration for the stock would be
28
TEX. BUS. CORP. ACT art. 2.16(B) (Vernon Supp. 2001).
The court notes that section 5.02 of the NSSI bylaws in effect in
1994 when Stasan’s stock was issued tracks article 2.16 and
states that “in the absence of fraud in the transaction, the
judgment of the Board as to the value of consideration received
shall be conclusive.”
17
an easier inquiry had the parties set forth in a written agreement
the specific consideration given for the 300 shares of stock.
Nonetheless, we agree with the district court that no question
remains as to whether some consideration was provided to NSSI by
Stasan for the stock. As evidenced by the affidavit of R. Blumberg
and the supporting correspondence between him and M. Logal (dated
before the July 1, 1994 issuance), the overwhelming evidence
demonstrates that, before its issuance, Stasan, through R.
Blumberg, performed services related to providing receivable
financing, allowed credit to be made available for NSSI, provided
NSSI with rights to Meridien Specialty Personnel Services, a
predecessor of NSSI, and counseled M. Logal on marketing and
business issues related to NSSI.29 Plainly, the record provides
ample support for the district court’s finding that consideration
was received. As held by the district court, the determination by
the board regarding the sufficiency of the value of this
consideration is “conclusive.”
This is not to say that we disagree with NSSI’s contention
that stock issued without consideration is not validly issued.
Indeed, we concur with the suggestion that an issuance of stock
29
It appears that the district court may have also relied
on a loan of $49,950 from Stasan to NSSI as the basis for its
finding of consideration. While R. Blumberg provided a service
in setting up the loan, establishing bank accounts for NSSI, and
helping to provide receivable financing for NSSI, under article
2.16 and the NSSI by-laws which track this article, the loan
itself does not fulfill the requirement of consideration.
18
without valid consideration is void under Texas law.30 We further
agree with the assertion that a corporation cannot, through its
conduct, ratify the issuance of stock where no consideration was
given for the shares.31 NSSI and the Logals were not barred from
introducing evidence to dispute whether Stasan furnished any
consideration for its NSSI stock.32 In this case, however, they
have failed to persuade the district court. Clear evidence of
consideration exists.
To the extent the district court relied on McAlister v.
Eclipse Oil Co.,33 for the proposition that some form of corporate
estoppel prevents a corporation from contesting stock validity (in
this case, five years after its issuance) even if no consideration
for stock is given, we cannot concur. McAlister is not so elastic
as to extend to situations where no consideration is provided, and
we decline to rule that the mere passage of time will transform a
30
See Vermilion Parish Peat Co. v. Green Belt Peat Moss
Co., 465 S.W.2d 950, 954 (Tex. Civ. App.—Dallas 1971, writ ref’d
n.r.e.).
31
See Gulf States Abrasive Mfg., Inc. v. Oertel, 489
S.W.2d 184, 188 (Tex. Civ. App.—Houston [1st Dist.] 1972, writ
ref’d n.r.e.); Vermilion Parish Peat
Co., 465 S.W.2d at 954;
United States Steel Indus., Inc. v. Manhart,
405 S.W.2d 231, 233
(Tex. Civ. App.—Waco 1966, writ ref’d n.r.e.).
32
Miller v. Kendall, 804 S.W.2d 933, 941 (Tex. App.–
Houston [1st Dist.] 1995, no writ) (“We do not read Article 2.16,
which refers to the directors’ act in valuating consideration for
stock, as a parol evidence rule that bars the admission of
evidence that the corporation’s record of that act is
mistaken.”).
33
98 S.W.2d 171, 175-76 (Tex. 1936).
19
void issuance into a valid one.34 A thread of equity runs through
the language in McAlister, but, at bottom, the stockholder whose
stock the corporation in McAlister was seeking to have declared
void had clearly provided consideration for the stock through
services and property.35 As in McAlister, the record before this
court supports a finding that Stasan provided some consideration
for the stock issued to it by NSSI. NSSI’s efforts to now contest
the value of this consideration five years after the corporation
issued a “fully paid and non-assessable” stock certificate, a
determination that is virtually incontestable in the presence of
board approval, are imperiled by article 2.16(B).36
CONCLUSION
All issues raised by the appellant and cross-appellants are
controlled by the Texas Business Corporation Act. We AFFIRM the
district court’s judgment in all respects.
34
See, e.g., United Steel Ind. v. Manhart, 405 S.W.2d
231, 233 (Tex. Civ. App.—Waco 1966, writ ref’d n.r.e.) (“The
judgment of the board of directors ‘as to the value of
consideration received for shares’ is conclusive, but such does
not authorize the board to issue shares contrary to the
Constitution for services to be performed in the future . . . or
property not received . . . .”) (citation omitted).
35
Id. at 172, 175.
36
As the issue is not necessary to the court’s conclusion
in this case, the court restrains from embarking on an analysis
of the niceties of federal and state judicial estoppel.
20
