Metromont Materials Corp. v. Pennell

• Decision Date: 15 December 1977
• Docket Number: No. 20570,20570
• Citation: 239 S.E.2d 753,270 S.C. 9
• Parties: METROMONT MATERIALS CORP., Appellant-Respondent, v. Sarah Edith PENNELL, Frances Louise Pennell, Rebecca Pennell Parris, J. Roy Pennell, III, J. Roy Pennell, Jr., Custodian for Sarah Edith Pennell, Frances Louise Pennell, Rebecca Pennell Parris and J. Roy Pennell, III, Marjorie W. Pennell and Anderson Community Foundation, Inc., Respondents-Appellants.
• Court: South Carolina Supreme Court

Page 753

239 S.E.2d 753

270 S.C. 9

METROMONT MATERIALS CORP., Appellant-Respondent, v. Sarah Edith PENNELL, Frances Louise Pennell, Rebecca Pennell Parris, J. Roy Pennell, III, J. Roy Pennell, Jr., Custodian for Sarah Edith Pennell, Frances Louise Pennell, Rebecca Pennell Parris and J. Roy Pennell, III, Marjorie W. Pennell and Anderson Community Foundation, Inc., Respondents-Appellants.

No. 20570.

Supreme Court of South Carolina.

Dec. 15, 1977.

Butler, Means, Evins & Browne, Spartanburg, for appellant-respondent.

Jones, McIntosh, Threlkeld, Newman & Cox, Anderson, for respondents-appellants.

RHODES, Justice:

This is an action under South Carolina's dissenting stock appraisal statute, S.C. Code § 33-11-270 (1976), for the valuation of 126 shares of common stock in Pennell Land Company (Incorporated). Pennell Land Company was merged into Metromont Materials Corporation on May 6, 1975 and it is from this merger that the holders of the 126 shares in question have dissented. The lower court awarded $900 per share as the "fair value" of the dissented shares. Both the surviving corporation, Metromont, and the dissenting shareholders except to this award and both appeal. The dissenting shareholders also question the amount of fees and interest awarded them. Although we substantially affirm the lower court's award of fees and interest, we find it has erred in the amount awarded for the dissented shares. For the reasons that follow, we find the "fair value" of each share to be $745.76.

Although both Metromont and the dissenting shareholders are appellants on this appeal, for ease of reference we will hereafter refer to Metromont as the appellant and the dissenting shareholders as the respondents. The facts which follow are taken not only from the inadequate record made in the lower court but, in some instances, are also taken from an Order filed August 4, 1977, by the Honorable Robert W. Hemphill, U. S. District Judge for the District of South Carolina. ¹

The three corporations which figure so prominently in this litigation Spartanburg Concrete Company (predecessor of Metromont), Greenville Concrete Company and Pennell Land Company were organized in the lifetime of J. Roy Pennell, Sr. As founder of the family concrete business, he was, until his death on December 30, 1971, the major stockholder and controlling voice in the operations of all three corporations. During his lifetime, Pennell caused stock in each of the three corporations to be issued from time to time to his wife and three sons Richard H. Pennell, Thomas P. Pennell, and J. Roy Pennell, Jr. The latter son is the moving force behind the dissension of stock in the present action.

In order to give a better understanding of the events leading to the present action, it is necessary to go back some 24 years prior to the merger in question.

In 1951, the Spartanburg Concrete Company built its plant and set up operations on land which was then owned personally by J. Roy Pennell, Sr. This land comprises the Hayne tract and its value at the time of the 1975 merger is the focal point of this litigation.

In 1956, J. Roy Pennell, Sr., formed the Pennell Land Company as a real estate holding company and ownership of the Hayne tract was transferred to this corporation. A lease was subsequently executed in 1959 between Spartanburg Concrete and the Land Company granting Spartanburg Concrete a leasehold interest in the Hayne tract for a 20 year term running from January 1, 1960 to December 31, 1979. The lease agreement also included an option to renew for an additional 20 years. Under the lease, Spartanburg Concrete was obligated to pay taxes on the property and a rental of $10,000 per year. These same terms applied to the option period. Due to the 1959 lease being misplaced, another lease was executed in 1967 with a term which was to run from January 1, 1967 to December 31, 1986. The 1967 lease contained the same rental and option terms as the 1959 lease and its effect was to extend the stated lease and option period an additional seven years. At some point in time after execution of the 1967 lease the 1959 lease was found.

In 1972, after the death of J. Roy Pennell, Sr., the name of Spartanburg Concrete was changed to Metromont Materials Corporation and a merger was effected with Greenville Concrete. At the time of the 1972 merger J. Roy Pennell, Jr., and his children dissented their stock in Metromont (Spartanburg Concrete) and received value therefor in a State court appraisal action.

At the time the 1959 lease was executed the financial return from it, based on the current value of the land, was unquestionably favorable to the Land Company. However, this advantage changed over time as the value of the land appreciated and, by the time of the Metromont-Greenville Concrete merger in 1972, the 1967 lease was considered advantageous to Metromont. In the appraisal proceedings arising out of this 1972 merger, J. Roy Pennell, Jr., asserted that the 1967 lease increased the value of the Metromont (Spartanburg Concrete) stock dissented in that merger. The issue having been raised and litigated, it can logically be assumed that the value received for the stock dissented by J. Roy Pennell, Jr., and his children in the 1972 merger included any "increased" value attributable to Metromont's (Spartanburg's) favorable lease.

In 1975, merger between Metromont and the Land Company was voted upon and approved with the merger effective May 6, 1975. J. Roy Pennell, Jr., and members of his immediate family voted against the merger. Immediately after this merger, of the 272 shares held by J. Roy Pennell, Jr., in the Land Company, 12 shares were transferred by him to Anderson Community Foundation and 15 shares each were given to his four children. The 200 shares retained by J. Roy Pennell, Jr., were exchanged for shares in Metromont as provided for in the plan of merger. The 72 shares which he had given to his children and the Anderson Community Foundation, along with 20 shares owned by his divorced wife and 34 additional shares in his name as custodian for his children, were dissented. These 126 shares, out of the 1562 shares of Land Company stock outstanding at the time of the merger, are the shares dissented in this action.

On June 2, 1975, Metromont, being the surviving corporation, offered the dissidents $475.57 per share. The dissenting shareholders being unwilling to accept this amount and the parties being unable to reach agreement, an appraisal action was instituted by Metromont under S.C. Code § 33-11-270(i)(1) (1976). By agreement dated October 23, 1975, the parties concurred in the appointment of Robert L. Waldrop, Jr., as court-appointed appraiser and agreed to be bound by his valuation. The lower court ordered that Waldrop determine the fair market value of the Land Company's property (1) without regard to the lease on the Hayne tract, and (2) by discounting the value of the Hayne tract for the encumbrance posed by the 1967 lease. The two valuations were to be based on the values of the properties as of May 5, 1975 the day prior to the merger vote. ² Accordingly Waldrop submitted the following valuations:

³

It is to be noted that under Waldrop's appraisal, there is a difference in value of the Hayne tract of $385,500 depending on whether the 1967 lease, with option exercised, is given effect. In its order, the lower court held that the 1967 lease was merely a restatement of the 1959 lease and that only the 1959 lease should be given effect. Further, in considering the 1959 lease, the lower court only gave effect to the original 20 year term although the court did assert it was logical that the option would be exercised by the lessee in view of the advantageous terms. The lower court then adjusted between the valuations with and without the 1967 lease and, by giving approximately 90% weight to net asset value and 10% weight to market value and earnings value, arrived at a figure of $900 per share. The lower court allowed interest on the award at the rate of five (5%) per cent per annum. The court stated this rate would have been higher had it not been for the delay occasioned by the respondents' attempted removal of the action to Federal Court. ⁴ On the question of fees and expenses to be awarded the dissenting shareholders under § 33-11-270(i)(7), the lower court awarded $7,500 for attorneys' fees, $5,000 for expert and appraisal fees, ⁵ and $1,084.64 for miscellaneous expenses.

As already pointed out, both Metromont and the dissenting shareholders have appealed from the lower court's order. Metromont excepts to the amount awarded per share of stock. It contends that the lower court erred in giving only partial effect to the 1959 lease and in disregarding the 1967 lease. According to appellant's calculations, respondents should have been awarded only $717.27 per share. ⁶ Metromont does not except to the fees and expenses awarded.

The respondents, likewise, except to the amount awarded for their shares and contend that several adjustments should have been made. They contend that both leases should have been disregarded. Although admitting that they agreed to be bound by the Waldrop appraisal, they assert that there was "patent error" in his valuation of one of the Land Company's other properties (the so-called Cannon Campground property) and that such error should have been noted and adjusted by a court sitting in equity. Respondents also contend that an adjustment should have been made for the "underpayment of rents" in the lease agreements. With these adjustments and giving 100% weight to net asset value, respondents assert that the "fair value" of each dissented share is $1430.89. In addition, they challenge the lower court's award of fees and interest as inadequate.

We agree with the premise of the parties that this is essentially an equitable proceeding. See Santee Oil Company, Inc. v. Cox, 265 S.C. 270, 217 S.E.2d 789 (1975). Accordingly,...