State of Minnesota, Appellant, vs. Donald Albert Herbst, Respondent, Douglas Allan Marshall, Respondent.

This opinion will be unpublished and
not be cited except as provided by
Minn. Stat. §480 A. 08, subd. 3 (1998).

STATE OF MINNESOTA
IN COURT OF APPEALS
C3-99-1091

State of Minnesota,
Appellant,

vs.

Donald Albert Herbst,
Respondent,

Douglas Allan Marshall,
Respondent.

 

Filed February 1, 2000
Affirmed in part, reversed in part and remanded
Anderson, Judge

Mille Lacs County District Court
File No. K0-96-627

Mike Hatch, Attorney General, Alison Eckstein Colton, Assistant Attorney General, 525 Park Street, Suite 500, St. Paul, MN 55103 (for appellant)

Douglas A. Marshall, 9795-18th Street, Princeton, MN 55371 (pro se respondent)

Daryl J. Bergmann, Business Legal Services, 5025 West 102nd Street, Bloomington, MN 55437 (for respondent Herbst)

Considered and decided by Schumacher, Presiding Judge, Anderson, Judge, and Mulally, Judge.[*]

 

UN P U B L I S H E D   O P I N I O N

 

ANDERSON

, Judge

Appellant State of Minnesota challenges the district court's dismissal of its complaint for lack of probable cause. Because International Business Development Council (IBDC) could not hold corporate property, we affirm the district court's dismissal of the charges of diversion of corporate assets on the basis of no probable cause. Because IBDC need not be a corporation to hold property, we reverse the district court's dismissal of the charges of theft and remand.

 

FACTS

In early 1992, Todd Lefko and respondents Donald Herbst and Douglas Marshall started a business, the International Business Development Council, Inc. (IBDC). In November 1993, IBDC's bank informed Lefko that respondents had withdrawn all of IBDC's funds and closed the account.

In July 1996, the State charged each respondent with one count of theft by swindle over $35,000, diversion of corporate property over $35,000, and theft over $2,500. In addition, respondent Marshall was also charged with theft of motor vehicles and possession of stolen property. In December 1998, the state moved to amend the complaint by dismissing the counts of theft by swindle over $35,000 and the count of possession of stolen property. Respondents then moved to dismiss the complaint for lack of probable cause.

At the January 7, 1999, omnibus hearing, the state presented a proposed amended complaint (first amended complaint). At the hearing, the judge approved the proposed amended complaint and ordered the state to file a complaint in conformity with the changes discussed at the omnibus hearing. On February 4, 1999, the state presented the amended complaint but also included additional changes not discussed at the January omnibus hearing (second amended complaint). Apparently, the court did not sign the second amended complaint because it did not conform to the original proposed changes. On February 25, 1999, the state filed another motion to amend the complaint, this time requesting to make the changes presented in the second amended complaint.

Respondents filed a motion seeking (1) to dismiss the state's motion to amend the complaint for a second time and (2) attorney fees and costs. The district court denied the state's motion to submit the second amended complaint and required the state to submit an amended complaint that reflected the changes discussed at the January omnibus hearing. The court also reserved respondents' motion for attorney fees. The state then filed an amended complaint in accordance with the changes discussed at the January omnibus hearing.

The district court granted respondents' motions to dismiss in a consolidated order. The court held that respondents could not be charged with diversion of corporate assets or theft because IBDC could not properly hold corporate property due to IBDC's failure to comply with the statutory requirements for doing business as a cooperative.

The state challenges the district court's dismissal of the complaint for lack of probable cause. The state also seeks review of the district court's order denying the state's motion to file a second amended complaint and the district court's decision to reserve the question of fees and costs.

 

D E C I S I O N

The state may bring an appeal from any pretrial order, "including probable cause dismissal orders based on questions of law." Minn. R. Crim. P. 28.04, subd. 1. We review de novo a district court's dismissal for lack of probable cause if based on a legal determination. State v. Marshall, 541 N.W.2d 330, 332 (Minn. App. 1995), review denied (Minn. Feb. 27, 1996).

In reviewing pretrial prosecution appeals, this court will reverse the district court's determination only if the state can clearly and unequivocally demonstrate "that the trial court has erred in its judgment and that, unless reversed, the error will have a critical impact on the outcome of the trial." State v. Webber, 262 N.W.2d 157, 159 (Minn. 1977). Critical impact is a threshold showing that must be made in order for the appellate court to have jurisdiction. State v. Joon Kyu Kim, 398 N.W.2d 544, 550 (Minn. 1987).

 

I.

The district court granted respondents' motions to dismiss the complaint for lack of probable cause. The district court held that respondents could not be charged with diversion of corporate assets under Minn. Stat. § 609.52, subd. 2(15) because IBDC was not entitled to do business as a cooperative and was therefore unable to hold corporate property. Both parties agree that the district court's dismissal of the complaint had a critical impact on the outcome of the trial, and the only question for this court is whether the district court erred as matter of law.

A cooperative is a special form of corporation organized for one of the enumerated purposes in Minn. Stat. § 308 A. 101 (1990). In order to become a cooperative, an incorporator must file the articles of incorporation in accordance with Minn. Stat. § 308 A. 131 (1990). On February 10, 1992, IBDC's articles of incorporation were properly filed with the Secretary of State.

Although IBDC was properly registered as a cooperative, IBDC could not legally operate as a cooperative because it failed to meet the statutory requirements of Minn. Stat. § 308 A. 161 (1990). A cooperative may only commence business after ten percent of the authorized stock has been subscribed and paid in. Minn. Stat. § 308 A. 161. IBDC clearly failed to meet this requirement. IBDC's articles of incorporation provide for $2,000,000 of authorized capital, consisting of one million shares of common stock and one million shares of preferred stock, each with a par value of $1. According to the ten-percent requirement, IBDC needed to have 200,000 shares of stock subscribed and paid for prior to commencing business. The record shows that, at most, only 3,000-3,500 shares of stock were sold.

The statutory stock requirement for cooperatives is a material provision and must be met before an entity can acquire corporate life as a cooperative. Zander v. Holm, 159 Minn. 51, 53, 197 N.W. 967, 968 (Minn. 1924) (citing 1921 Minn. Laws ch. 23, § 3, the precursor to Minn. Stat. § 308A. 161). A cooperative that does not fulfill the stock capitalization requirement cannot hold corporate property. See id. Because IBDC was not able to transact business as a cooperative and was not able to acquire or possess corporate property, respondents cannot properly be charged with diversion of corporate assets under Minn. Stat. § 609.52, subd. 2(15) (1992).[1]

The district court did not err as a matter of law in determining that IBDC was not able to hold corporate property and therefore the state cannot charge respondents with diversion of corporate assets.

 

II.

The district court also dismissed the state's complaint for lack of probable cause on the charges of theft. Minnesota law states that whoever does any of the following commits theft:

intentionally and without claim of right takes, uses, transfers, conceals or retains possession of moveable property of another without the other's consent and with intent to deprive the owner permanently of possession of the property.

Minn. Stat. § 609.52, subd. 2(1) (1992). The district court determined that respondents could not be charged with theft under Minn. Stat. § 609.52, subd. 2(1), because the state alleged in its complaint that respondents stole money from IBDC. The court reasoned that because IBDC could not properly acquire corporate property, respondents could not be charged with theft as was claimed in the complaint. The court's reasoning is based on a finding that IBDC property was not corporate property. But Minnesota theft law does not require a finding of corporate property; property of another includes:

property in which the actor is co-owner or has a lien, pledge, bailment, or lease or other subordinate interest, and property of a partnership of which the actor is a member.

Minn. Stat. § 609.52, subd. 1 (8) (1992). Thus, IBDC property can be property of another without a finding that IBDC is a corporation. The charge of theft here is based on a claim that respondents acted in a way that was inconsistent with the rights and interests of another who was entitled to the property. The record shows that Lefko and respondents created IBDC together to pursue a common business interest. Respondents provided the financial capital and Lefko contributed human capital by way of business relationships, travel experience, and management skills. Both Lefko and respondents contributed to the creation of IBDC, therefore IBDC property could not have belonged solely to respondents.

Respondents claim that they were entitled to the IBDC assets as payment for services provided and in satisfaction of their personal loans to the company. Lefko admits that respondents were agents of IBDC and were authorized to act on behalf of the company, but asserts that respondents were not authorized to drain IBDC accounts in order to satisfy the repayment of their loans and capital contributions. Respondents' claim of entitlement to IBDC funds is a question of fact for trial. Whether the state can provide evidence that proves that respondents are guilty beyond a reasonable doubt is a question for the jury to determine. State v. Maletich, 384 N.W.2d 586, 588 (Minn. App. 1986). The state has provided evidence that tends to show that respondents intended to permanently deprive another of property sufficient to bring a charge of theft under Minn. Stat. § 609.52 subd. 2 (1).

The same is true with respect to the state's charge of theft of motor vehicles under Minn. Stat. § 609.52, subd. 3(3)(d)(v) (1992). The determination of whether IBDC was a corporation was not necessary to determine if there was probable cause to charge respondent Marshall with the crime of theft of motor vehicles. The state claims that Marshall used IBDC funds to purchase motor vehicles for his own use without proper authorization. The state has provided sufficient evidence to charge respondent Marshall with theft under Minn. Stat. § 609.52 subd. 3(3)(d)(v).

The district court erred as a matter of law in granting respondents' motion to dismiss the complaint for lack of probable cause on all charges of theft.

 

III.

The state also requests that this court review the district court's denial of the state's motion to file a second amended complaint. The state does not contend that the district court's denial of the motion to amend the complaint has critical impact. Instead the state argues that the critical impact test only applies to orders excluding evidence.

Generally, the state must show that the district court's error has critical impact on the outcome of the trial. Webber, 262 N.W.2d at 159. But this court has declined to apply the critical-impact test to certain non-suppression orders. See, e.g. State v. Cain, 427 N.W.2d 5, 9-10 (Minn. App. 1988) (critical-impact test did not apply to discovery order); and State v. Lopez, 390 N.W.2d 306, 308 n.2 (Minn. App. 1986) (critical-impact test did not apply to nonevidentiary ruling on the number of jurors). This court has forgone the critical-impact test only when the test does not assist in evaluating the effect of a particular order on a trial. See City of Bemidji v. Harr, 368 N.W.2d 359, 360 (Minn. App. 1985) (discussing Webber, but stating that Webber did not apply because the court could not evaluate the impact of a deposition order on a trial). The state does not provide any reason why this court should also exclude a denial of a motion to amend a complaint from the critical-impact test.

The state would like this court to extend the boundaries of existing case law limiting the applicability of the critical-impact test, arguing that the critical-impact test never applies to non-suppression orders. The state does not reconcile the inequities that would result from adopting such a broad approach to the critical-impact test. The state's approach would involve the imposition of two disparate standards: (1) a demanding critical-impact standard for orders that affect the admissibility of evidence at trial, and (2) no standard for all other orders. We decline to extend the law limiting the use of the critical-impact test.

The state has failed to show that the denial of the motion to amend the complaint had a critical impact on the prosecution or that the critical-impact test should not apply. We therefore decline to review the district court's denial of the state's motion to amend the complaint.

 

IV.

The state also asks this court to review the district court's reservation of respondents' motion for attorney fees and costs in connection with the state's motion to file a second amended complaint. The state argues that the issue of attorney fees is linked to the motion to amend the complaint and therefore should be reviewed.

This court declines to review this issue for two reasons. First, it does not appear that the state was aggrieved by the district court's reservation of the motion for attorney fees and costs. The district court did not require the state to pay attorney fees or costs, but merely reserved the issue. Second, the state did not present an argument as to why the district court's reservation met the critical-impact test or why the critical-impact test should not apply.

 

Affirmed in part, reversed in part, and remanded.

[*] Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.

[1] We recognize that Minn. Stat. § 308 A. 155 (1990) states that a cooperative attains "corporate existence" when the articles of incorporation are filed with the secretary of state. But the statute is unclear about what is meant by the term "corporate existence." According to the general corporate law statute, Minn. Stat. § 302 A. 111 (1990), an entity must file articles of incorporation that include the four statutory requirements in order to become a corporation. This simplified four-requirement system was adopted in 1981 and (1) eliminated the doctrine of de facto corporation in Minnesota, and (2) created an irrebuttable presumption that a corporation was created. See Minn. Stat. § 302 A. 153, .155 (1990) reporter's notes. IBDC's articles of incorporation do not satisfy the requirements of Minn. Stat. § 302 A. 111, therefore IBDC is not protected under the general corporate laws. To allow Minn. Stat. § 308 A. 155 to protect IBDC as a corporation would circumvent the protective requirements of the cooperative laws.