STATE OF MINNESOTA
IN COURT OF APPEALS
Thomas Stocke, et al.,
Allen Berryman, et al.,
Minneapolis Police Relief Association,
Gordon W. Shumaker, Judge
Hennepin County District Court
File No. 992435
Karl L. Cambronne, Becky L. Erickson, Chestnut & Cambronne, P.A., 3700 Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, MN 55402;
David Lonergan, 2545 Overlook Avenue North, Stillwater, MN 55082; and
Joseph B. Marshall, Marshall & Associates, P.A., 9501 Lexington Avenue North, Circle Pines, MN 55014 (for appellants)
Judy A. Rogosheske, Best & Flanagan, LLP, 4000 U.S. Bank Place, 601 Second Avenue South, Minneapolis, MN 55402 (for respondents Berryman, et al.)
Patrick J. McLaughlin, Dorsey & Whitney, LLP, Pillsbury Center South, 220 South Sixth Street, Minneapolis, MN 55402 (for respondent Minneapolis Police Relief Association)
Considered and decided by Amundson, Presiding Judge, Lansing, Judge, and Shumaker, Judge.
Members of a public pension plan, administered and maintained by a nonprofit corporation, must make a demand on the board of directors or demonstrate the futility of demand before they may bring suit under Minn. Stat. ch. 356A (2000), the Public Pension Fiduciary Responsibility Act.
GORDON W. SHUMAKER, Judge
Appellants challenge the district court’s dismissal of their derivative action and request for injunctive relief, arguing that Minn. Stat. ch. 356A (2000) contains no demand requirement and that the Minneapolis police relief association’s bylaws contain an inadequate remedy for removal of directors. Because appellants failed to comply with Minn. R. Civ. P. 23.06 and an adequate remedy exists under the bylaws, we affirm.
Appellants are active Minneapolis police officers and are members of the Minneapolis Police Relief Association (MPRA). The MPRA is a nonprofit corporation, organized under Minn. Stat. ch. 423B (2000), that administers a defined-benefit pension plan for Minneapolis police officers hired before June 15, 1980. The MPRA is governed by a board of nine members.
During 1996 and 1997, the MPRA invested $14.93 million in Technimar Industries, Inc., a start-up company engaged in the manufacture and sale of agglomerated stone blocks. Technimar’s prospectus warned of the risk inherent in purchasing its stock, stating:
The securities offered hereby are speculative and involve a high degree of risk and should be purchased only by persons who can afford the loss of their entire investment.
By 1998, the MPRA had lost its entire investment in Technimar, and Technimar was adjudged bankrupt in July of that year.
During the Technimar investment years, respondent Richard Nelson and respondent Allen Berryman were MPRA board members. Nelson was the MPRA’s chief executive officer and Berryman was its secretary. Berryman and respondent Gerald Bridgeman also served on the board of Technimar. Although not a MPRA board member, Bridgeman was the MPRA’s executive director and, in that capacity, he participated in investment transactions with Technimar on behalf of the MPRA.
In February 1999, the appellants sued the respondents “on behalf of nominal defendant” MPRA, alleging breaches of fiduciary duties and seeking damages and injunctive relief. The ad damnum clause in the complaint prayed for “judgment against [respondents] and on behalf of nominal defendant MPRA * * *.”
While this lawsuit was pending, the appellants filed charges with the MPRA against Berryman, Nelson, and all other board members. The MPRA bylaws provided that members would be entitled to vote on charges filed against directors. The members’ vote did not sustain the charges, and Berryman and Nelson remained on the board.
The respondents then made two dismissal motions in the lawsuit. The first was to dismiss or strike the appellants’ demand for injunctive relief on the ground that the exclusive remedies for directors' breaches of fiduciary duty are provided by Minn. Stat. ch. 423B and the MPRA bylaws. The district court agreed that the appellants had an adequate remedy under the MPRA bylaws and granted the motion.
The second motion sought the dismissal of the entire action on the grounds that the appellants had failed to satisfy a condition precedent in Minn. R. Civ. P. 23.06 requiring an allegation with particularity of the efforts made to obtain relief from the MPRA board. The complaint contained only a general allegation in that regard. The district court granted this motion as well, ruling that the lawsuit was a derivative action and was subject to the requirements of rule 23.06.
Arguing that the district court has the power to grant injunctive relief in this action and that a prior demand for board action was not necessary, appellants challenge both dismissals.
1. The MPRA bylaws permit members to file charges against and seek the removal of directors. After the membership voted not to sustain charges against the directors, the district court ruled that injunctive relief for removal of the directors was not available because the internal corporate remedy was adequate. Was this ruling error?
2. When speculative investments of pension funds resulted in losses to the public corporation administering the pension, certain members sued responsible directors on behalf of the corporation to obtain reimbursement for the losses. The district court ruled that the lawsuit was a members’ derivative action and that the conditions precedent in Minn. R. Civ. P. 23.06 applied. The court ruled that the members had failed to satisfy those conditions and it dismissed the lawsuit. Were these rulings erroneous?
Generally, a shareholder or member of a corporation may not individually assert a direct cause of action that belongs to the corporation. Northwest Racquet Swim & Health Clubs, Inc. v. Deloitte & Touche, 535 N.W.2d 612, 617 (Minn. 1995). In deciding whether a claim is direct or derivative, the focus is on the alleged injury. Wessin v. Archives Corp., 592 N.W.2d 460, 464 (Minn. 1999). “Where the injury is to the corporation, and only indirectly harms the shareholder, the claim must be pursued as a derivative claim.” Id. To be entitled to bring a direct action, a shareholder or member must be able to allege some injury or harm that is separate and distinct from the injury or harm to the corporation and that is not dependent on the harm to the corporation. National City Bank v. Coopers & Lybrand, 409 N.W.2d 862, 868 (Minn. App. 1987), review denied (Minn. Oct. 21, 1987).
The appellants were aware of the derivative nature of the action when they initiated it. They brought the lawsuit “on behalf of” the MPRA and they requested remedies “on behalf of” the MPRA. Furthermore, their losses are not direct and are not separate, distinct, and independent from the MPRA’s losses. Their financial tide under their pension rises and falls solely with the financial tide of the MPRA. The appellants suffer no loss unless the MPRA first suffers a loss. Their claim is derivative and is subject to rule 23.06. The district court did not err in so holding.
The appellants concede that they did not make the demand required under rule 23.06. We agree with the district court that the alternative course of showing why the demand would be futile was likewise not satisfied. Their general statement of futility does not satisfy the “particularity” requirement of the rule.