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FILED: March 2, 2011

IN THE COURT OF APPEALS OF THE STATE OF OREGON

WILLIAM YEOMAN,
Personal Representative of the
Estate of Anita Yeoman, Deceased,

Plaintiff-Appellant,

v.

PUBLIC SAFETY CENTER, INC.,
an Oregon corporation,

Defendant-Respondent.

Lane County Circuit Court
160718230
A140041

Karsten H. Rasmussen, Judge.

Argued and submitted on May 20, 2010.

C. Robert Steringer argued the cause for appellant. With him on the briefs were William F. Gary and Harrang Long Gary Rudnick P.C.

Dan Webb Howard argued the cause for respondent. With him on the brief was Gleaves Swearingen LLP.

Before Schuman, Presiding Judge, and Wollheim, Judge, and Rosenblum, Judge.

WOLLHEIM, J.

Reversed and remanded with respect to plaintiff's first claim for relief; otherwise affirmed.

WOLLHEIM, J.

Plaintiff, the personal representative of his wife's estate, brought this action seeking a declaration that he is a shareholder of defendant Public Safety Center, Inc., and, for that reason, is entitled to inspect the corporation's records. Plaintiff alleged that his wife, prior to her death, had been promised a share of ownership in defendant in exchange for her service to the company and that she had, in fact, received dividends from the company in the years after her employment ended. Defendant, in response, moved for summary judgment on the ground that no such dividend had been paid and that plaintiff could present no evidence that his wife actually became a shareholder. According to defendant, plaintiff's wife is not listed on the corporation's records, filings, or tax forms, and no stock certificates were ever issued to her. The trial court granted defendant's motion, and plaintiff now appeals. We reverse in part and remand.

We state the facts--sparse though they are--in the light most favorable to plaintiff, the nonmoving party. Oregon Steel Mills, Inc. v. Coopers & Lybrand, LLP, 336 Or 329, 332, 83 P3d 322 (2004). Defendant is a closely held corporation. Its president, Tardie, and his wife, the company's secretary, are its only registered shareholders and its only directors. Prior to her employment with defendant, Anita Yeoman, along with her husband, William Yeoman, visited the Tardies' home. The purpose of the meeting was to discuss the terms of Anita's potential employment with defendant. During that meeting, Tardie told Anita and William that he "was going to make [Anita] a 10% shareholder in exchange for going to work." Just before they left, Tardie told her that "she would start at 2% per year, so that it would take five years for her to earn the full 10%."

Shortly thereafter--sometime in late June 2001, it appears(1)--Anita went to work for defendant. She worked for defendant until early June 2002, just prior to her one-year anniversary. At that point, defendant terminated her employment. An "Employee Exit Interview Form" indicates that she was discharged for "unexcused absence" and because she was "unproductive." Anita's base-year wages at the time of her termination were approximately $45,000.

In the years following her termination, Anita received checks from defendant. The first check, in the amount of $1,871.54, was dated August 2004. Around the time that Anita received the check, Tardie telephoned the Yeoman house and spoke with William. Tardie was "calling about the 2%" either to say that "the check had been mailed" or to be certain that the Yeomans had received it. Defendant sent another check to Anita the following June, this time in the amount of $7,175.00. The company sent her a third check in June 2006, in the amount of $13,117.54.

In December 2006, Anita's attorney sought access to defendant's corporate records in order to "determine the potential value of [Anita's] stock, and to determine whether she has been paid the appropriate amount for her dividends." Anita died in a car accident on June 13, 2007, before the question of access to the company's records had been resolved. Plaintiff, in his capacity as the personal representative of her estate, then filed this action in August 2007, seeking, in his first claim for relief, a declaration that he is a "4% shareholder of Defendant, and for such other and further supplemental relief as may be appropriate, including an order requiring the payment of delinquent dividends." In a second claim for relief, plaintiff sought an order requiring defendant to permit plaintiff to inspect and copy corporate records.

Defendant, in response, moved for summary judgment on both claims for relief. In support of its motion, defendant argued that plaintiff's claim that Anita was a shareholder "is entirely unsupported by any documentation or evidence that reflects ownership of any shares or interest in [defendant]." Her name, defendant argued, "is found nowhere in the pertinent corporate records, filings, or tax forms as a shareholder and no [Public Safety Center, Inc.] stock certificates were ever issued to her." Thus, defendant contended, "[p]laintiff's evidence supports the existence of a profit-sharing agreement between Anita Yeoman and [defendant], but does not rise to the level of creating a genuine dispute that Anita Yeoman was a shareholder in [defendant]." Plaintiff, in opposition, pointed specifically to the "very odd amounts of money" paid to Anita on an annual basis after she left the company. Plaintiff attached a copy of a letter sent by defendant's counsel during a discovery dispute in this case; in that letter, defendant's counsel stated, "I believe that any monetary distribution to Anita Yeoman, other than wages, was a gift calculated on the basis of 2% of some aspect of Public Safety Center's financial performance."

The trial court granted defendant's motion and entered judgment dismissing plaintiff's claims. Plaintiff now appeals, arguing that, viewing the evidence in the light most favorable to him, a reasonable factfinder could conclude that Anita became a shareholder and was paid dividends, even if the corporation never formally recorded her status as a shareholder. In plaintiff's view, defendant's failure to account for Anita's shares is not conclusive as to her ownership; rather, he argues, it is evidence that a trier of fact can consider in determining whether she became a shareholder. Defendant, meanwhile, reprises its argument that shareholder status requires corporate formalities that did not occur in this case.

Before delving into the parties' respective arguments as to whether plaintiff should be declared a "shareholder" of defendant, we must first determine what plaintiff means by that term. The term "shareholder" is defined for purposes of the Oregon Business Corporation Act, ORS chapter 60, as "the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation." ORS 60.001(29).(2)

Plaintiff does not argue that Anita was, in fact, a "shareholder" within the definition set out in the Oregon Business Corporation Act. Nor is there any evidence in the record that any shares were registered in Anita's name or that she was a beneficial owner under a nominee certificate on file with defendant.(3) Rather, plaintiff contends that his complaint seeks, more generally, a declaration that Anita was a shareholder "in the general sense of that term--a person who owns stock in a corporation." If that relief were granted, plaintiff submits, he "could then request supplemental relief that would include an order that the shares be registered in the records of the defendant corporation to validate his rights as a shareholder for purposes of ORS chapter 60."

We agree that plaintiff's complaint can be construed as seeking a declaration that Anita (and, now, plaintiff as the personal representative of her estate) is the owner of shares in the corporation. Accordingly, we limit our analysis to that question: Did plaintiff demonstrate a genuine issue of material fact as to whether Anita became the owner of shares of defendant?

Plaintiff contends that, in order for a person to acquire shares of a corporation, two things must occur: One, the company must enter into an agreement with the prospective purchaser for the sale of the shares; and, two, the purchaser must actually pay for those shares pursuant to that agreement. At that point, in plaintiff's view, ownership of the shares has passed to the purchaser, even if the company has not registered that transaction in its corporate records.

Defendant, meanwhile, characterizes plaintiff's theory as one of "spontaneous transfer"--a theory that, according to defendant, this court rejected in Olson v. F & D Publishing Co., Inc., 160 Or App 582, 982 P2d 556 (1999). Defendant takes the position that, in the context of a services arrangement like the one Anita and defendant purportedly entered into, more is required than an agreement to make someone a shareholder. Rather, defendant argues, a corporation must actually issue the shares, through a process that involves certain corporate formalities--for example, the board of directors approving the consideration received for the shares. ORS 60.147(3) ("Before the corporation issues shares, the board of directors must determine that the consideration received or to be received for shares to be issued is adequate. * * * A record of action by the board of directors authorizing the issuance of shares for a specified consideration may be relied upon in concluding that shares are validly issued, fully paid and nonassessable."). According to defendant, there is no evidence whatsoever that any of those formalities occurred here. For the reasons that follow, we agree that defendant must have actually issued shares to Anita in order to make her a shareholder; however, we conclude that, on this record, there exists a genuine issue of material fact as to whether that happened.

The primary question on appeal reduces to how a corporation transfers ownership of "shares"--"the units into which the proprietary interest in a corporation are divided." ORS 60.001(28).(4) Under ORS 60.144, the initial purchase of shares of a corporation is accomplished through a "subscription" for shares, either before or after incorporation. "A subscription agreement entered into after incorporation is a contract between the subscriber and the corporation subject to ORS 60.147." ORS 60.144(5) (emphasis added).

ORS 60.147, in turn, provides:

"(1) The powers granted in this section to the board of directors may be reserved to the shareholders by the articles of incorporation.

"(2) The board of directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed or other securities of the corporation.

"(3) Before the corporation issues shares, the board of directors must determine that the consideration received or to be received for shares to be issued is adequate. That determination by the board of directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid and nonassessable. A record of action by the board of directors authorizing the issuance of shares for a specified consideration may be relied upon in concluding that shares are validly issued, fully paid and nonassessable.

"(4) When the corporation receives the consideration for which the board of directors authorized the issuance of shares, the shares issued therefor are fully paid and nonassessable.

"(5) The corporation may place in escrow shares issued for a contract for future services or benefits or a promissory note or make other arrangements to restrict the transfer of shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the note is paid or the benefits received. If the services are not performed, the note is not paid or the benefits are not received, the shares placed in escrow or restricted and the distributions credited may be canceled in whole or in part."

(Emphasis added.)

Importantly, shares "[m]ay be but are not required to be represented by certificates," and unless otherwise provided by statute, "the rights and obligations of shareholders are identical whether or not their shares are represented by certificates." ORS 60.161(1); see also ORS 60.161(2) - (5) (setting forth form and content requirements for share certificates); ORS 60.164(1) ("Unless the articles of incorporation or by-laws provide otherwise, the board of directors of a corporation may authorize the issue of some or all of the shares of any or all of its classes or series without certificates.").

From the foregoing provisions of the Oregon Business Corporation Act, we glean the following: (1) a subscription agreement is a contract between the subscriber and the corporation, ORS 60.144(5); (2) consideration for that contract may consist of "services performed" or "contracts for services to be performed," ORS 60.147(2); (3) before the corporation issues shares, the board of directors must determine that the consideration received or to be received for shares to be issued is adequate, ORS 60.147(3); (4) once the corporation receives the consideration for which the board of directors authorized the issuance of shares, the "shares issued therefor are fully paid and nonassessable," ORS 60.147(4); and (5) share certificates are evidence of, but not prerequisites to, shareholder rights, ORS 60.161(1); Babbitt v. Pacco Investors, 246 Or 261, 271, 425 P2d 489 (1967) ("Neither is it necessary, in order for one to become a shareholder, that a certificate of stock, which is only evidence of ownership of an interest in the assets of the corporation, shall have been issued.").

Read together, those statutory requirements provide that, in the context of a subscription agreement based on services, ownership of shares passes once the corporation has received full consideration for authorized shares pursuant to the terms of the subscription agreement. In other words, the shares are deemed to have "issued" and to "be fully paid and nonassessable" once the corporation accepts payment in exchange for consideration for the authorized shares. Cf. Babbitt, 246 Or at 270 (citing case law for the proposition that "payment is essential where the subscription is for shares of an existing corporation"); see also Mark S. Rhodes, Transfer of Stock