Opinion
Civil No. 04-995 ADM/AJB.
October 13, 2004
David E. Wandling, Esq., Wandling Law Group, LLC, Minneapolis, MN, appeared for and on behalf of Plaintiff.
Robert E. Cattanach, Esq., Dorsey Whitney, LLP, Minneapolis, MN, appeared for and on behalf of Defendant.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
This case is before the undersigned United States District Judge on Defendant Qwest Corporation's ("Qwest") Motion to Dismiss Amended Complaint for Lack of Capacity to Bring Suit, [Docket No. 15] arguing Plaintiff Firstcom, Inc. ("Firstcom") cannot maintain this action because it failed to demonstrate that the now defunct corporation transferred, by formal assignment or operation of law, any cognizable claims to its former shareholders. On October 7, 2004, oral argument on this matter was heard before the undersigned Judge. For the reasons set forth herein, Qwest's Motion is denied.
II. BACKGROUND
Firstcom was a telecommunications corporation organized under Minnesota law. In the 1990s, acting as a Competitive Local Exchange Carrier ("CLEC"), it began to resell Qwest telephonic services to its customers. Pursuant to §§ 251 and 252 of the Telecommunications Act of 1996 (the "Act"), in the fall of 2000 Firstcom sought to purchase Unbundled Network Element ("UNE-P") services from Qwest by selecting from the terms of the interconnection agreements between Qwest and other CLECs. Firstcom avers that Qwest wrongfully withheld certain services from Firstcom while providing more favorable treatment to its competitors in violation of Qwest's obligation under the act to make all contract terms universally available. Compl. ¶¶ 18-20, 25 [Docket No. 1]. According to the Complaint, accepted as true for purposes of this Motion, Qwest repeatedly refused to offer voicemail service to Firstcom. When Firstcom inquired whether other CLECs were receiving voicemail under their UNE-P contracts, Qwest denied this fact and represented that Firstcom was receiving the same terms as all other CLECs. Firstcom alleges that by concealing agreements with various CLECs and offering more advantageous terms to certain carriers, Qwest breached its duties under §§ 251 and 252 of the Act and the Minnesota Telecommunications Act. See Minn. Stat. § 237.01 et seq. Due to preferential treatment of its competitors, Firstcom argues, Qwest placed Firstcom at a competitive disadvantage which forced it into voluntary dissolution. Firstcom ceased normal business operations in 2001 and filed its Articles of Dissolution on January 18, 2002.
Firstcom submits that former officers and shareholders first became aware of the alleged discrimination and undisclosed UNE-P agreements in the fall of 2002, through information contained in documents filed with the Minnesota Public Utilities Commission ("MPUC"). In response to a complaint against Qwest brought by the Minnesota Department of Commerce, an administrative law judge issued a Findings of Fact, Conclusions, Recommendation and Memorandum on September 20, 2002 ("MPUC Report"), addressing Qwest's alleged violations of federal and state telecommunications law. The Report, adopted in full by MPUC, found that Qwest concealed "discount agreements and ke[pt] them unavailable to other CLECs," which constituted willful violations of the non-discrimination requirements of the Act. MPUC Report ¶¶ 4, 10, 12, 372, 373 (Wandling Aff. Ex. A).
III. DISCUSSION
Rule 12 of the Federal Rules of Civil Procedure provides that a party may move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). In considering a motion to dismiss, the pleadings are construed in the light most favorable to the nonmoving party, and the facts alleged in the complaint must be taken as true. Hamm v. Groose, 15 F.3d 110, 112 (8th Cir. 1994); Ossman v. Diana Corp., 825 F. Supp. 870, 879-80 (D. Minn. 1993). Any ambiguities concerning the sufficiency of the claims must be resolved in favor of the nonmoving party. Ossman, 825 F. Supp. at 880. "A motion to dismiss should be granted as a practical matter . . . only in the unusual case in which the plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief." Frey v. City of Herculaneum, 44 F.3d 667, 671 (8th Cir. 1995).
The law of this case by prior ruling is that the plain language of Minn. Stat. § 302A.783 permitted former shareholders to assert any claim in the name of the corporation [Docket No. 13]. However, because it was not apparent which formal shareholders were prosecuting the suit, Firstcom was granted leave to amend its initial complaint. Qwest now argues the action should be dismissed because Firstcom failed to indicate in its amended complaint any mechanism by which the defunct corporation transferred and allocated, by formal assignment or operation of law, any cognizable claims to the 12 former shareholders who have been named in the amended complaint. Qwest acknowledges that the issue is one of first impression in Minnesota. However, Qwest points to statutes in other states that limit the rights of a dissolved corporation and its shareholders to sue to a finite time period (so-called "survival statutes") for the proposition that inchoate claims, like the plaintiffs, are barred in the absence of such a mechanism.
Under Minnesota common law, a corporation's ability to sue or be sued terminates immediately upon dissolution. See, e.g., Mattson v. Underwriters at Lloyds of London, 385 N.W.2d 854, 857 (Minn.Ct.App. 1986) (internal quotation omitted). In order to soften the effects of the common law rule, states have enacted statutes that allow corporations or their shareholders to assert or defend legal actions following dissolution. The Minnesota Business Corporations Act provides that: "After a corporation has been dissolved, any of its former officers, directors, or shareholders may assert or defend, in the name of the corporation, any claim by or against the corporation." Minn. Stat. § 302A.783. Qwest argues that, even assuming Minn. Stat. § 302A.783 does allow shareholders to assert this claim in the corporation's name, it is well-established that the shareholders must indicate some legally valid mechanism by which the claim devolved from the dissolved corporation. For this proposition, Qwest points to a number of opinions interpreting the "survival statutes" of other states.
The flaw in Qwest's argument is that, unlike Minn. Stat. § 302A.783, all of the survival statutes in other states explicitly contain a finite limitation on the time period (usually two years) following the corporation's dissolution in which the corporation or its shareholders may bring a legal claim. See, e.g. Canadian Ace Brewing Co. v. Joseph Schlitz Brewing Co., 629 F.2d 1183, 1185 (7th Cir. 1980) (interpreting Ill.Rev.Stat. 1975, ch. 32 Sec. 157.94); Davis v. St. Paul Fire Marine Ins. Co., 727 F. Supp. 549, 551 (D.S.D. 1989) (interpreting S.D.C.L. 47-7-50); Nix v. W.R. Grace Co., 830 F. Supp. 601, 602 (S.D. Ala. 1993) (interpreting Ala. Code § 10-2A-203); Courts interpreting these statutes have held that claims brought by the corporation, shareholders, directors or officers more than two years after the date of dissolution are barred unless they are either (1) actions brought in an individual capacity for a personal wrong or (2) ascertainable or previously asserted claims, which are considered tangible property assets, and which have devolved to the shareholders by operation of law or assignment. See Nix, 830 F. Supp. at 604;Davis, 727 F. Supp. at 551. As Plaintiff's claim does not fit within the former exception, Qwest argues that Plaintiff's claims are barred either because they are inchoate or because they did not appropriately devolve to Firstcom's former shareholders.
The Alabama survival statute, Ala. Code § 10-2A-203, at issue in Hutson v. Fulgham Industries, Inc., 869 F.2d 1457, 1461 (11th Cir. 1989), is modeled after § 82-105 of the Model Business Corporation Act (1979) and is typical of the survival statutes interpreted in the opinions submitted by Qwest. The statute, in pertinent part, provides that:
The dissolution of a corporation either (1) by the issuance of a certificate of dissolution by a probate judge; or (2) by a decree of a court when the court has not liquidated the assets and business of the corporation as provided in this chapter, or (3) by expiration of its period of duration, shall not take away or impair any remedy available to or against such corporation, its directors, officers or shareholders, for any right or claim existing, or any liability incurred, prior to such dissolution if action or other proceeding thereon is commenced within two years after the date of dissolution. . . . The shareholders, directors and officers shall have power to take such corporate or other action as shall be appropriate to protect such remedy, right or claim. [Emphasis added].
The interpretations of other states' survival statutes are unpersuasive in the instant case because the plain language of Minn. Stat. § 302A.783 does not include a finite limitation on the time period following the corporation's dissolution in which the corporation or its shareholders may bring a legal claim. The legislative history of Minnesota's survival statutes suggests that this difference was not accidental. Section 302A.783 replaced Minn. Stat. § 300.59, which limited the time period when a corporation could prosecute and defend actions to "three years after the termination date." The Minnesota legislature chose not to include this time limitation in the new survival statute.
Minn. Stat. § 300.59, in pertinent part, provides that:
. . . [A] corporation whose existence terminates by limitation, forfeiture, or otherwise continues for three years after the termination date for the sole purpose of prosecuting and defending actions, closing its affairs, disposing of its property, and dividing its capital. [emphasis added].
Firstcom's claim against Qwest is derivative in nature as it alleges an injury against the now defunct corporation that affected all shareholders equally. See Davis, 727 F. Supp. at 552. It is well established that shareholders may assert a derivative claim on behalf of a dissolved corporation limited only by the time period provided for under the applicable survival statute. See, e.g. Hutson, 869 F.2d at 1463;Canadian Ace Brewing Co., 629 F.2d at 1188; Davis, 727 F. Supp. at 553. As noted, Minn. Stat. § 302A.783 contains no such time limitation and, therefore, does not preclude the former shareholders of Firstcom from bringing their derivative claims at this time. Finally, it is unnecessary for a corporation to transfer, by formal assignment or operation of law, an inchoate claim to its shareholders in order for them to bring a derivative action. See Minn. Dist. Ct. Gen. Rule 23.06.
Although Qwest's motion is denied for the aforementioned reasons, this Court believes several issues concerning the nature of Firstcom's action remain unresolved. For instance, is Firstcom's claim solely a derivative action since § 302A.783 also allows former officers and directors to bring suit in the defunct corporation's name? If this is a derivative claim, must Firstcom satisfy the pleading requirements for shareholder derivative actions found in Minn. Dist. Ct. Gen. Rule 23.06? Finally, how would a successful claim affect the rights of other former shareholders or the rights of debtors whose liabilities were apparently extinguished? As neither party has briefed these issues, these concerns will not be addressed at this time.
IV. CONCLUSION
For the reasons set forth above and based on the files, records, and proceedings herein, IT IS HEREBY ORDERED that Defendant's Motion to Dismiss [Docket No. 15] is DENIED.