Ballard v. Roberson

• Decision Date: 31 October 2012
• Docket Number: No. 27161.,27161.
• Citation: 399 S.C. 588,733 S.E.2d 107
• Parties: Andrew P. BALLARD, Respondent, v. Tim ROBERSON, Rick Thoennes, Rick Thoennes, III, and Warpath Development, Inc., Appellants.
• Court: South Carolina Supreme Court

399 S.C. 588

733 S.E.2d 107

Andrew P. BALLARD, Respondent,

v.Tim ROBERSON, Rick Thoennes, Rick Thoennes, III, and Warpath Development, Inc., Appellants.

No. 27161.

Supreme Court of South Carolina.

Heard Feb. 7, 2012.

Decided Aug. 29, 2012.

Rehearing Denied Oct. 31, 2012.

Joshua L. Howard, of Haynsworth Sinkier Boyd, of Greenville, for Appellants.

Wallace K. Lightsey, of Wyche Burgess Freeman & Parham, and Hannah Rogers Metcalfe, of Metcalfe and Atkinson, both of Greenville, for Respondent.

Justice HEARN.

Relationships in business, like any other relationship, can quickly turn sour when they are predicated on unmet expectations, whether justified or not. Andrew Ballard worked for years crafting a plan for a marina through Warpath Development, Inc., the business he had incorporated for this very purpose. He eventually sought the investment and involvement of Tim Roberson, Rick Thoennes, Rick Thoennes, III (collectively, individual Appellants) to help realize this idea. When the marina did not develop the way the individual Appellants had hoped, they began to exclude Ballard from involvement with Warpath, leading Ballard to file suit against the individual Appellants and Warpath (collectively, Appellants). The circuit court found Appellants had acted oppressively to Ballard as a minority shareholder and ordered the purchase of Ballard's stock at fair market value. The court also ordered the individual Appellants to place 60,000 shares of Warpath stock in escrow. On appeal, Appellants argue that the facts do not support the court's holdings. We affirm.

FACTUAL/PROCEDURAL BACKGROUND

Ballard incorporated Warpath for the development of a marina on Lake Keowee in Pickens County, South Carolina. After several years of working with Duke Energy Carolinas, LLC, which owned the lakefront property, Warpath entered into a lease with Duke to use the property as indicated on the Conceptual Plan Ballard had negotiated with Duke.

Subsequently, Ballard began talks with the individual Appellants about their possible involvement with Warpath, and eventually the four men entered into a Stock Purchase Agreement. At that time, the corporation had issued only 40,000 shares of stock, all of which were owned by Ballard, although the Articles of Incorporation authorized the issuance of 100,000 total shares. Under the Agreement, the individual Appellants paid Ballard $1,000,000 “in exchange for 20,000 shares of Ballard's 40,000 and [received] from the corporation [60,000] additional shares so that Ballard [would] hold 20% of the stock and the other 80% [would] be held by Roberson, Thoennes and Thoennes III when all shares are finally issued.¹”

The Agreement also detailed the duties of each of the parties: Ballard was to enter into a separate agreement with Warpath outlining his duties, to include securing certain permits, leases, and services; Thoennes and Thoennes, III were to enter into an agreement defining their duties regarding development work, assistance with proformas and obtaining permanent financing, and executing loan documents; and Roberson was to provide the necessary capital to obtain long term financing. The Agreement also acknowledged Ballard had already obtained a lease from Duke and approvals from Duke and Pickens County, but it stated final permits were still pending.

Incorporated into the lease with Duke was the Plan for the marina. The Plan included general numbers for certain details, including a projected number of 100–200 boat slips. The individual Appellants had reviewed the Plan and the proposed numbers prior to signing the agreement and knew that it guaranteed no more than 100 slips. A few months after the parties entered into the Agreement, they met with Duke and discovered that boat slips were available only on a portion of the anticipated area, which meant the architect could only squeeze in 102 slips, not the maximum of 200.

Upset over this decrease in the projected income due to significantly fewer slips than they had hoped for, the individual Appellants collaborated in drafting an e-mail to convince Ballard to return some or all the money that he had been paid, or to return his 20,000 shares to the corporation and cease involvement with the development. They eventually sent Ballard an e-mail asking that he return the $1,000,000 they had paid him in full or at least return a portion of it if he wanted to move forward. Ballard declined both of those options, and he subsequently was removed as a director at the first shareholders' meeting a few months later. At that same meeting, however, all three of the other shareholders were elected to the board and appointed as officers. Immediately thereafter, the individual Appellants—with the dissent of Ballard—approved the issuance of an additional 900,000 shares “for the purpose of raising capital, paying expenses and offering employee incentives.” This issuance would be in direct conflict with the Articles of Incorporation, which only authorized 100,000 shares and the Agreement, which stated Ballard would ultimately own 20% of the corporation. No motion was made to amend the Articles.

Realizing this increase in shares would dilute his holdings to 2%, Ballard initiated this lawsuit, alleging a violation of the Agreement and seeking an injunction preventing the issuance of the additional stock. In response, Appellants counterclaimed for fraud, breach of contract, breach of contract accompanied by a fraudulent act, and promissory estoppel. After discovery, Ballard amended his complaint to include shareholder derivative claims that the individual Appellants had breached the Agreement with respect to duties owed to Warpath and allegations of oppression of the minority shareholder. Appellants then amended their answer and counterclaimed for fraud, breach of contract, breach of contract accompanied by a fraudulent act, negligent misrepresentation, and violation of South Carolina Code Section 35–1–501 (Supp.2011) in connection with the sale of securities.²

A jury trial commenced, but the jury was discharged when Appellants dismissed their counterclaims with prejudice. Thus, only Ballard's equitable claims remained. The circuit court ³ found sufficient evidence of oppression and ordered Appellants to purchase Ballard's stock at fair market value. Additionally, the court ordered that the individual Appellants place 60,000 of their shares in escrow pursuant to Section 33–6–210(e) of the South Carolina Code (2006). This appeal followed.

STANDARD OF REVIEW

“A shareholders derivative action, as well as an action for stockholder oppression, is one in equity.” Straight v. Goss, 383 S.C. 180, 191, 678 S.E.2d 443, 449 (Ct.App.2009). Therefore, we may find facts according to our own view of the preponderance of the evidence. S.C. Dept. of Transp, v. Horry Cnty., 391 S.C. 76, 81, 705 S.E.2d 21, 24 (2011). However, this broad scope does not relieve the appellant of his burden to show that the trial court erred in its findings. Pinckney v. Warren, 344 S.C. 382, 387–88, 544 S.E.2d 620, 623 (2001). Furthermore, we are not required to disregard the findings of the trial judge, who was in a better position to determine the credibility of the witnesses. Id. at 387, 544 S.E.2d at 622.

ISSUES PRESENTED

I. Did the circuit court err in finding that Appellants had acted oppressively and with unfair prejudice to Ballard?

II. Did the circuit court err in requiring the individual Appellants to place 60,000 shares of Warpath stock into escrow?

LAW/ANALYSIS

I. EVIDENCE OF OPPRESSION

Appellants first contend there is insufficient evidence to support the circuit court's finding that they acted oppressively and orderingthe purchase of Ballard's stock at fair market value. We disagree.

Section 33–14–300(2)(ii) of the South Carolina Code (2006) allows the circuit court to dissolve a corporation if a shareholder has established that “the directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, fraudulent, oppressive, or unfairly prejudicial either to the corporation or to any shareholder (whether in his capacity as a shareholder, director, or officer of the corporation).” In an action to dissolve a corporation on the grounds stated in section 33–14–300, a court may instead order the corporation or other shareholders to purchase the shares of any shareholder at fair market value. S.C.Code. Ann. § 33–14–310(d)(4) (2006).

In Kiriakides v. Atlas Food Systems & Services, Inc., 343 S.C. 587, 541 S.E.2d 257 (2001), we established how a court should determine whether majority shareholders have acted oppressively within the meaning of section 33–14–300. Kiriakides involved Atlas Food Systems and Services, Inc., a family owned close corporation, where the oldest brother, Alex, was the majority shareholder owning 57.68% of the shares. Id. at 591, 541 S.E.2d at 260. His siblings John and Louise, the plaintiffs in the case, owned 37.7% and 37.7% and 3% of the corporation, respectively. Id. John and Louise brought a lawsuit against Alex and the corporation seeking, among other things, judicial dissolution for oppression. Id. at 593, 541 S.E.2d at 261. In establishing the proper considerations for finding oppression, we observed that “the terms ‘oppressive’ and ‘unfairly prejudicial’ are elastic terms whose meaning varies with the circumstances presented in a particular case.” Id. at 602, 541 S.E.2d at 266. We also noted this was a fact-sensitive review and should therefore be determined through a “case-by-case analysis, supplemented by various factors which may be indicative of oppressive behavior.” Id. at 603, 541 S.E.2d at 266. Although we declined to set out specific factors in Kiriakides, we observed several commonly considered ones including: “eliminating minority shareholders from directorate and excluding them from employment[,] ... failure to enforce contracts for the benefit of the corporation[, and] withholding information from minority...