## Facts

- Phelps County Bank was a Missouri banking corporation; Phelps County Bancshares, Inc. owned about 95.4% of the Bank’s shares, and minority shareholders owned about 4.6%.
- By majority vote, shareholders approved an amendment to the Bank’s articles of agreement under Mo. Rev. Stat. § 362.325.
- The amendment authorized a one-for-1,000 reverse stock split, increased capital, and prohibited issuance of fractional shares.
- Shareholders whose holdings would become less than one share were cashed out at $560 per pre-split share, terminating their shareholder status.
- The Missouri Director of Finance approved the amended articles and the reverse split as required by § 362.325.
- Minority shareholders sued seeking injunctive relief, rescission, and damages, alleging the cash-out violated Mo. Const. art. I, § 28 and Missouri banking statutes, and was inequitable.
- The trial court granted summary judgment for the Bank and Bancshares; the Missouri Supreme Court reviewed and affirmed.

## Issues

1. Whether the reverse stock split and mandatory cash-out constituted an unconstitutional taking of private property for private use without the owners’ consent under Mo. Const. art. I, § 28.
2. Whether Mo. Rev. Stat. § 362.325 or other Missouri banking statutes authorized the reverse stock split and elimination of fractional-share interests for cash.
3. Whether the cash payment to eliminated shareholders violated Mo. Rev. Stat. § 362.170’s restriction on a bank purchasing its own stock.
4. Whether the transaction warranted equitable relief based on unfair dealing or inadequate shareholder protection despite statutory compliance.

## Decision

- The Missouri Supreme Court affirmed summary judgment for the Bank and Bancshares.
- The court held there was no taking without consent because shareholders, by purchasing stock, accepted the statutory regime allowing majority-approved amendments under § 362.325 with regulatory approval.
- The court held § 362.325 provided sufficient authority for the amendment and reverse stock split as implemented and approved by the Director of Finance.
- The court rejected the § 362.170 claim, treating the cash-out as part of a statutorily authorized restructuring rather than a prohibited discretionary repurchase of the Bank’s shares.
- The court found no showing of fraud, oppression, or unfair dealing that would justify equitable relief.

## Legal Principles

- Shareholders’ rights in bank stock are subject to statutory and charter mechanisms permitting majority-approved amendments, and purchase of shares implies assent to those mechanisms.
- A state constitutional “taking” claim fails where the challenged deprivation of shareholder status occurs through a process to which the shareholder consented through the governing statutory framework.
- For banks, an amendment approved under Mo. Rev. Stat. § 362.325—after majority vote and Director of Finance approval—can authorize capital restructuring measures, including reverse splits and cash in lieu of fractional interests.
- A mandatory cash payment required by an approved restructuring is not necessarily treated as a bank’s prohibited “purchase” of its own shares under Mo. Rev. Stat. § 362.170.
- Absent evidence of fraud, oppression, or comparable misconduct, courts will not set aside a statutorily authorized and regulator-approved transaction on generalized equitable objections.

## Conclusion

The court upheld the reverse stock split and cash-out of minority shareholders as a regulator-approved amendment authorized by Missouri banking law, concluding it was not an unconstitutional taking without consent, did not violate the bank’s statutory limits on repurchasing stock, and was not shown to be inequitable.


Gaddy v. Phelps Cnty. Bank, 20 S.W.3d 511 (Mo. 2000)