Albert Trostel & Sons Company v. EDWARD NOTZ and SANDRA K. NOTZ

In the
United States Court of Appeals
For the Seventh Circuit
No. 10-3509
ALBERT TROSTEL & SONS COMPANY,
Plaintiff-Appellee,
v.
EDWARD NOTZ and SANDRA K. NOTZ,
Defendants-Appellants.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 07-C-0763—C.N. Clevert, Jr., Chief Judge.
ARGUED SEPTEMBER 21, 2011—DECIDED MAY 10, 2012
Before EASTERBROOK, Chief Judge, and TINDER and
HAMILTON, Circuit Judges.
EASTERBROOK, Chief Judge. Albert Trostel & Sons
Company (Trostel) was founded in 1858. By 2007 the
founder’s relations still owned about 11% of its stock.
Everett Smith Group, Ltd. (Smith), which owned the
other 89%, decided to acquire the remaining shares via
a freezeout merger. Voting was a formality; Smith’s
shares assured the merger’s approval. Trostel became

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2 No. 10-3509
Smith’s wholly owned subsidiary. Edward Notz, one of
Albert Trostel’s great grandchildren, who owned 5.5%
of the stock (some directly, some through a trust), rejected
the proffered compensation of $11,900 per share—which
came to about $7.7 million for his 5.5% interest. Notz
contended that the shares were worth more than twice
that much. The rest of the outside investors accepted
the offer, however.
When investors dissent and reject the compensa-
tion offered in a merger or other major restructuring,
a Wisconsin corporation must commence a judicial
proceeding to have the stock appraised. Wis. Stat.
§180.1330(1). Trostel filed in the United States District
Court for the Eastern District of Wisconsin under the
diversity jurisdiction, 28 U.S.C. §1332(a): Trostel is in-
corporated in Wisconsin and has its principal place
of business there, both Edward Notz and the trustee
(Sandra Notz) are citizens of Illinois, and the amount
in controversy substantially exceeds $75,000. Notz none-
theless contended that the court lacks subject-matter
jurisdiction. He insisted that appraisal proceedings
must be conducted in state court. The district judge
disagreed and denied Notz’s motion to dismiss. 536
F. Supp. 2d 969 (E.D. Wis. 2008). After a trial, the judge
concluded that the fair value of Trostel’s stock on the
merger date was $11,900 per share. 2010 U.S. Dist. LEXIS
108778 (E.D. Wis. Sept. 28, 2010). Notz’s appeal contests
both the jurisdictional ruling and the calculation of
the stock’s value.
Notz’s jurisdictional argument rests on Wis. Stat.
§180.1330(2), which provides that “[t]he corporation

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No. 10-3509 3
shall bring [the appraisal action] in the circuit court for
the county where its principal office . . . is located.” Sub-
section (4) adds that “[t]he jurisdiction of the court
in which the special proceeding is brought under
sub. (2) is plenary and exclusive.”
Wisconsin draws its corporate code from the Model
Business Corporation Act, so this language or some-
thing similar appears in the statute books of 30 states.
Several other states, including Delaware, have func-
tionally identical provisions. Truck Components Inc. v.
Beatrice Co., 143 F.3d 1057, 1061–62 (7th Cir. 1998), holds
that Delaware’s version concerns venue rather than
jurisdiction. See also TBK Partners, Ltd. v. Western Union
Corp., 675 F.2d 456, 460 n.3 (2d Cir. 1982) (dictum under-
standing New York law the same way). Treating the
statute as a claim by a state to oust the jurisdiction of
the federal courts would simply render it unconstitu-
tional, for no state may contract jurisdiction created by an
Act of Congress. See, e.g., M’Kim v. Voorhies, 11 U.S.
(7 Cranch) 279 (1812); Railway Co. v. Whitton’s Administra-
tor, 80 U.S. (13 Wall.) 270 (1872). Cf. Chicago v. International
College of Surgeons, 522 U.S. 156 (1997) (proceeding
for review of a state agency’s decision is removable
notwithstanding the state’s desire that its courts retain
control). Under the Supremacy Clause, federal law
prevails over conflicting state law. We said in Truck
Components that it is best to read language such as Dela-
ware’s (and Wisconsin’s) as allocating authority within
its own judiciary. Why treat a state as claiming more
power than it has? The commentary to the Model
Business Corporation Act shows that the drafters set

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4 No. 10-3509
out to create a “provision[] . . . relating to venue”. ABA,
Model Business Corporation Act Annotated §13.30 at 13–100
to 13–101 (4th ed. 2008 & 2011 rev.). There’s no reason
not to take the authors at their word.
Notz concedes all of this but maintains that it is irrele-
vant. He tells us that the suit belongs in state court not
as a matter of statute, but as a matter of contract. Con-
tractual forum-selection clauses are enforced even
though they point to state courts, arbitral panels, or the
courts of other nations. See, e.g., Carnival Cruise Lines,
Inc. v. Shute, 499 U.S. 585 (1991); Mitsubishi Motors Corp.
v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985); The
Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). Section
180.1330(2) is not part of a private contract between
Trostel’s founders and its investors—and Notz concedes
that neither Trostel’s charter nor its bylaws contains
any language specifying where appraisal proceedings
must be conducted—but Notz submits that all of Wis-
consin’s corporate law is part of all articles of incorpora-
tion and thus becomes contractual, even though no
private person has assented.
Plenty of Wisconsin decisions contain statements along
the lines of “[t]hese statutes are as effectively a part of
the plaintiffs’ certificates of stock and of the corporate
charter as though printed therein.” Johnson v. Bradley
Knitting Co., 228 Wis. 566, 574 (1938). See also Hull v.
Pfister & Vogel Leather Co., 235 Wis. 653, 666 (1940); Mil-
waukee Sanitarium v. Swift, 238 Wis. 628, 636 (1941);
Franzen v. Fred Rueping Leather Co., 255 Wis. 265, 272
(1949). But unless Wisconsin believes that corporate

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No. 10-3509 5
statutes are contracts—and thus can’t be amended after
a corporation adopts its articles, for states may not
“pass any . . . Law impairing the Obligation of Con-
tracts” (Art. I §10 cl. 1)—these statements are just meta-
phors expressing the conclusion that state corporate
law binds investors and managers alike.
The proposition that corporate law in force when a
firm receives its charter becomes binding as a contract
led to one of the most famous decisions in the Supreme
Court’s history: Dartmouth College v. Woodward, 17 U.S.
(4 Wheat.) 518 (1819). The Court held that New Hamp-
shire violated Dartmouth College’s rights under the
Constitution’s Contract Clause when a statute enacted
in 1816 changed provisions in the College’s charter,
which had been issued in 1769 by George III while
New Hampshire was a crown colony. Justice Story’s
concurring opinion suggested that states could avoid
similar outcomes for newly chartered corporations by
reserving the right to change either general corporate
law or a particular charter. States quickly took advan-
tage of that opportunity, and the corporate-charter-as-
contract doctrine faded into history.
Wisconsin included such a reservation in its first consti-
tution, which was in force when it entered the Union.
Wisconsin Constitution of 1848, Art. XII §1. The current
Wisconsin Constitution has a similar provision in Art. XI
§1: “Corporations without banking powers or privileges
may be formed under general laws, but shall not be
created by special act, except for municipal purposes. All
general laws or special acts enacted under the provi-

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6 No. 10-3509
sions of this section may be altered or repealed by the
legislature at any time after their passage.” The Supreme
Court of Wisconsin has held that this clause ensures
that the state can change the terms on which corpora-
tions operate. See, e.g., Attorney General v. Chicago &
Northwestern Ry., 35 Wis. 425, 574 (1874); West Wisconsin
Ry. v. Trempealeau County, 35 Wis. 257, 270 (1874). The
provisions of Wisconsin’s corporate law therefore are
legislative; they are not “contracts” as private law under-
stands them, for they do not depend on any private
party’s consent and are outside the scope of the Contract
Clause.
When the Supreme Court of the United States held
in Mitsubishi Motors and similar cases that contractual
forum-selection clauses must be enforced, it used “con-
tractual” in the private-law sense—the word denotes
obligations established by the unanimous and voluntary
consent of the affected parties. That’s not at all what
the Supreme Court of Wisconsin means when using
the metaphor that corporate law is read into a corpora-
tion’s articles. There is nothing voluntary about Wis.
Stat. 180.1330(2) and (4). These are rules established by
the legislature, not decisions by private actors. We there-
fore conclude that Wisconsin, like Delaware (see Truck
Components) has established a rule of venue applicable
within its own judicial system and has not attempted
to block corporations from using the diversity juris-
diction of §1332(a).
Notz does not contend that the district court’s finding
of fact that Trostel’s shares were worth $11,900 apiece

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No. 10-3509 7
is clearly erroneous. He does contend, however, that
the judge made a legal error by excluding from the cal-
culation a claim against Smith that Notz believes Trostel
possessed. In 2004 Trostel had an opportunity to
acquire the assets of Dickten & Masch Manufacturing
Co., which made plastics. Trostel passed on that oppor-
tunity, but Smith (whose nominees controlled Trostel’s
board) did not; what’s more, Smith then purchased
Trostel’s plastics subsidiary, Trostel SEG. Notz con-
tends that these transactions misappropriated one of
Trostel’s corporate opportunities and diverted assets
from Trostel to Smith.
Notz tried to litigate these claims in his own name,
but both Trostel and Smith contended that the only way
to pursue them is derivative litigation. Trostel appointed
a special litigation committee of independent di-
rectors, which gave its blessing to the transactions and
squelched any derivative suit. Then the Supreme Court
of Wisconsin held that Notz’s principal theory is
indeed derivative in nature. Notz v. Everett Smith Group,
Inc., 316 Wis. 2d 640, 652–56 (2009). The court also held,
however, that Notz could pursue two theories in his
own name: first, that by causing Trostel to investigate
the Dickten & Masch assets, Smith created the func-
tional equivalent of a dividend to itself (the value of
the information), a dividend that was withheld from
the minority investors, id. at 656–60; second, that Trostel
was being run in a way that oppressed minority share-
holders and should be dissolved, id. at 660–67. Because
the minority investors had been cashed out in 2007,
the demand for dissolution was equivalent to a demand

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8 No. 10-3509
for payment in excess of $11,900 (for on dissolution, as
in a merger, all investors receive the value of their
shares) and therefore duplicated the appraisal pro-
ceeding then pending in federal court. Id. at 675–78
(Roggensack, J., concurring). On remand, the Circuit
Court of Milwaukee County concluded that the dissolu-
tion claim had no value to Notz and that the evidence
did not establish the constructive-dividend claim.
The Circuit Court entered judgment for all defendants.
Notz v. Everett Smith Group, Ltd., No. 06CV3068 (Sept. 7,
2011). Notz did not appeal.
His argument that the federal district court should
have included elements of value growing out of the way
the Dickten & Masch assets ended up in Smith’s hands
(without any dividend to the minority shareholders)
amounts to an effort to relitigate these adverse deci-
sions. Wisconsin entitles shareholders to the fair value
of their shares on the date of the transaction that creates
the right to dissent and appraisal. Wis. Stat. 180.1328.
As of that date, Trostel’s shares did not include any
element of value attributable to the Dickten & Masch
transaction—except for the payment Trostel received
for Trostel SEG, and Notz received full credit for that.
By the time the merger closed, the special litigation com-
mittee had decided not to pursue a claim on Trostel’s
behalf. Derivative litigation was a dead issue.
The special litigation committee concluded that a suit
would not be in Trostel’s interest—in other words, that
the discounted value of any recovery was less than the
litigation costs. Thus even though the law of preclusion

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No. 10-3509 9
may not block Notz’s effort to resuscitate a corporate-
opportunities claim, the rationale behind the com-
mittee’s decision implies that litigation would make
Trostel worse off. Notz relies on a decision holding
that “fair value” in an appraisal proceeding includes
rights of recovery by a firm against its managers for
wrongs they inflicted on the firm. See HMO-W Inc. v. SSM
Health Care System, 234 Wis. 2d 707 (2000). This does not
help, for the upshot of the derivative claim is that
pursuing the members of Trostel’s board would have had
negative present value. And Wisconsin’s courts have
determined that there is nothing to Notz’s independent
claims. The district court thus toted up all of the ele-
ments of value that Trostel possessed when the merger
closed.
AFFIRMED
5-10-12

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