A. Teixeira & Co., Inc. v. Teixeira

• Decision Date: 12 April 2001
• Docket Number: C.A. 84-0152
• Court: Rhode Island Superior Court
• Parties: A. TEIXEIRA & COMPANY, INC. v. ANTONIO L. TEIXEIRA, ARMENIO TEIXEIRA, and CESAR TEIXEIRA, Alias

A. TEIXEIRA & COMPANY, INC. v. ANTONIO L. TEIXEIRA, ARMENIO TEIXEIRA, and CESAR TEIXEIRA, Alias

C.A. No. 84-0152

Superior Court of Rhode Island

April 12, 2001

DECISION

GIBNEY J.

Before the Court are questions pertaining to the valuation of stock held by defendants and counterclaim plaintiffs Antonio L Teixeira and Armenio Teixeira (the Teixeiras), the calculation of interest on said shares of stock, the entitlement of Armenio Teixeira to the full value of his shares after redemption in 1990, and finally, the entitlement of the Teixeiras to the repayment of principal and interest on alleged outstanding loans. A. Teixeira & Company, Inc. (the corporation), requests offsets to the fair market value of the minority stock based upon dividends paid. Jurisdiction is pursuant to G.L. § 7-1.1-74 and § 7-1.1-90.1.

Travel/Facts

After a jury verdict and counterclaim action heard by this Court and our Supreme Court, thereafter, the Teixeira dispute once again resurfaces. By way of background, the corporation was incorporated in 1981 as a friendly business venture owned by six shareholders: among them, Armenio and Antonio Teixeira Honorato Custodio, Joaqium Duarte, Manuel Moitoso, and Artur Moto.^[1] The defendants in the instant claim Armenio and Antonio Teixeira, are minority shareholders of plaintiff corporation, which operates retail liquor stores in Cumberland, Rhode Island. In 1982, Armenio Teixeira purchased an interest in a second liquor store, and the corporation sued the Teixeiras claiming that this purchase was made in usurpation of corporate opportunity. Thereafter, a jury found the Teixeiras liable for misappropriation of a corporate opportunity and awarded punitive damages together with the transfer of the corporate stock in the second liquor store to the corporation. This verdict, however, was subsequently reversed.

In reversing this jury verdict, the Rhode Island Supreme Court stated that the corporation failed to successfully prove the two required elements for misappropriation of a corporate opportunity: that the Teixeiras were corporate fiduciaries and that they diverted a corporate opportunity. A Teixeira & Co., Inc. v. Antonio L. Teixeira, et. al., 699 A.2d 1383, 1386 (R.I. 1997). Although the Court concluded that the Teixeiras "assumed a fiduciary duty toward one another and their corporation," they "did not breach that duty because plaintiff corporation was financially unable to avail itself of the opportunity of purchasing [the second liquor store]." Id. at 1388.^[2]

The Counterclaim

In their counterclaim action before this Court in 1994, the Teixerias, as minority shareholders, sought relief against the majority shareholders for allegedly engaging in oppressive conduct, thereby breaching the duty of good faith owed to the minority. The Teixeiras requested that this Court liquidate the assets of the corporation, or in the alternative, order the buyout of the Teixeiras' minority stock.

In its 1994 decision, this Court did not find minority oppression that would warrant the drastic remedy of corporate dissolution. However, the Court did order the corporation, or its majority stockholders, to purchase the Teixeiras' stock at a price equal to its fair value in accordance with the values of those shares at the time the original action was filed and pursuant to G.L. 1956 § 7-1.1-90.1.

On appeal, our Supreme Court sustained this Court's order that the majority shareholders purchase the stock of the Teixeiras. A. Teixeira & Co., Inc. v. Teixeira, 674 A.2d 407 (R.I. 1996). However, the Court determined that the fair market value should be set "as of the date that the [Teixeiras] amended their complaint to request the purchase of the stock by the majority stockholders. . . May 23, 1990." Id. Furthermore, the Court ordered that the cost of assessing the fair market value of the stock would be shared among the parties. Id. Finally, the Court ordered that interest would be awarded to the Teixeiras on the amount of the fair market value of the stock from May 23, 1990.

After engaging in failed attempts to reach an acceptable financial arrangement, the Teixeiras request that this Court determine the valuation of their shares, the interest to be added thereto, Armenio Teixeira's appropriate status as a shareholder of the corporation who was bought out by the corporation in 1990, and loan repayments from the corporation that the Teixeiras assert are due to them.

Standard of Review

This Court previously ordered, pursuant to G.L. §.7-1.1-90.1, the stock buyout of the minority shareholders by the majority to avoid corporate dissolution, and was subsequently affirmed on appeal. Section 7-1.1-90.1 provides, in part:

"If the parties are unable to reach an agreement as to the fair value of the shares, the court shall, upon the giving of a bond or other security sufficient to assure to the petitioner payment of the value of the shares, stay the proceeding and determine the value of the shares, in accordance with the procedure set forth in § 7-1.1-74, as of the close of business on the day on which the petition for dissolution was filed. Upon determining the fair value of the stock, the court shall state in its order directing that the stock be purchased, the purchase price and the time within which the payment is to be made, and may decree any other terms and conditions of sale that it determines to be appropriate, including payment of the purchase price in installments extending over a period of time, and, if the shares are to be purchased by shareholders, the allocation of shares among shareholders electing to purchase them, which, so far as practicable, are to be proportional to the number of shares previously owned. The petitioner is entitled to interest, at the rate on judgments in civil actions, on the purchase price of the shares from the date of the filing of the election to purchase the shares, and all other rights of the petitioner as owner of the shares terminate on that date. The costs of the proceeding, which include reasonable compensation and expenses of appraisers but not fees and expenses of counsel or of experts retained by a party, shall be allocated between or among the parties as the court determines. Upon full payment of the purchase price, under the terms and conditions specified by the court, or at any other time that is ordered by the court, the petitioner shall transfer the shares to the purchaser."

In determining the fair value of corporate stock, G.L. § 7-1.1-74 (e) (f) (g) provides, in part:

"(e) The court may, if it so elects, appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers have the power and authority that is specified in the order of their appointment or an amendment of the order. The judgment is payable only upon and concurrently with the surrender to the corporation of the certificate or certificates representing the shares. Upon payment of the judgment, the dissenting shareholder ceases to have any interest in the shares."

(f) The judgment shall include an allowance for interest at the rate of interest on judgments in civil actions from the date on which the vote was taken on the proposed corporate action to the date of payment.

(g) The costs and expenses of any proceeding shall be determined by the court and assessed against the corporation, but all or any part of the costs and expenses may be apportioned and assessed as the court deems equitable against any or all of the dissenting shareholders who are parties to the proceeding to whom the corporation has made an offer to pay for the shares if the court finds that the action of the shareholders in failing to accept the offer was arbitrary or vexatious or not in good faith. The expenses include reasonable compensation for and reasonable expenses of the appraisers, but exclude the fees and expenses of counsel for and experts employed by any party; but if the fair value of the shares as determined materially exceeds the amount which the corporation offered to pay for the shares, or if no offer was made, the court in its discretion may award to any shareholder who is a party to the proceeding a sum that the court determines to be reasonable compensation to any expert or experts employed by the shareholder in the proceeding."

The Minority Discount

The Teixeiras maintain that a minority discount should not be applied to the valuation of their stock. In asserting said contention, the Teixeiras rely upon the holding set forth in Charland v. County View Golf Club, Inc., 588 A.2d 609 (R.I. 1991), wherein our Supreme Court refused to apply either a minority discount or a lack of marketability discount to minority shares in determining the fair value of minority shares. Id. at 613. The Charland Court "adopt[ed] the rule that in circumstances in which a corporation elects to buy out a shareholder's stock pursuant to [G.L.] § 7-1.1-90.1, [the Court] shall not discount the shares solely because of their minority status." Id. at 612

Alternatively the corporation argues that a minority discount is appropriate and that the rule in Charland does not apply to the instant scenario. In support of this contention the corporation asserts that there are two lines of authority with respect to minority shareholder discounts: the Charland rule and the holding promulgated in Jeffrey v. American Screw Co., 98 R.I. 286, 201 A.2d 146 (1964). Our Supreme Court in American Screw determined that when the shareholder elects to be bought out, the appraiser "has a wide discretion to consider and weigh evidence of any value factor that in the circumstance of the case is relevant and material." Id. at 150. Subsequently, the corporation maintains that the distinction between...