Bernabucci v. Huber

• Decision Date: 03 April 2006
• Docket Number: No. 20050275.,20050275.
• Citation: 712 N.W.2d 323,2006 ND 71
• Parties: Geraldine BERNABUCCI, Paul Bernabucci, Mary Bernabucci MacGrath and John R. Bernabucci and Geraldine Bernabucci, as Trustees of the John R. and Geraldine Bernabucci Charitable Remainder Trust, and Corey Nyhus, Plaintiffs and Appellants v. Harvey HUBER and Jan Odin, Defendants and Appellees.
• Court: North Dakota Supreme Court

712 N.W.2d 323

2006 ND 71

Geraldine BERNABUCCI, Paul Bernabucci, Mary Bernabucci MacGrath and John R. Bernabucci and Geraldine Bernabucci, as Trustees of the John R. and Geraldine Bernabucci Charitable Remainder Trust, and Corey Nyhus, Plaintiffs and Appellants v. Harvey HUBER and Jan Odin, Defendants and Appellees.

No. 20050275.

Supreme Court of North Dakota.

April 3, 2006.

COPYRIGHT MATERIAL OMITTED

Stephen W. Plambeck, Nilles, Ilvedson, Stroup, Plambeck & Selbo, Ltd., Fargo, N.D., for plaintiffs and appellants.

Todd Ervin Zimmerman, Dorsey & Whitney, Fargo, N.D., for defendants and appellees.

VANDE WALLE, Chief Justice.

[¶ 1] Geraldine Bernabucci, Paul Bernabucci, Mary Bernabucci MacGrath and John R. Bernabucci and Geraldine Bernabucci, as trustees of the John R. and Geraldine Bernabucci Charitable Remainder Trust ("Bernabucci group"), and Cory Nyhus appealed from a judgment dismissing their action against Harvey Huber and Jan Odin arising from the 2002 sale of a bank holding company and denying their motion to amend the complaint. We conclude the district court properly granted summary judgment against the Bernabucci group based on a mutual release contained in a stock purchase agreement, and against Nyhus based on the terms of an offer he accepted to purchase his shares of stock. We also conclude the court did not abuse its discretion in denying the motion to amend the complaint because the amendment would be futile. We affirm.

I

[¶ 2] North Star Holding Company ("North Star") was incorporated in 1986 and is the sole shareholder of the Stutsman County State Bank ("Bank") in Jamestown. Northern Plains Investment, Inc. ("Northern") is a corporation owned by the Bernabucci group. At the time pertinent to this case, the Bernabucci group and Northern owned more than 40 percent of North Star's shares. John Bernabucci served on the board of directors of both North Star and the Bank. Nyhus was on the board of directors of the Bank and was a North Star shareholder. Huber is the president and a director of the Bank and was a North Star shareholder and director. Odin is senior vice president of the Bank and was also a North Star shareholder and director.

[¶ 3] In June 2000, North Star's board of directors began talking about selling the Bank. At the board's June 2001 meeting, Bernabucci discussed the possibility of Huber assembling a group to make the purchase. On December 28, 2001, Huber submitted an offer to the board to purchase between 51 percent and 100 percent of North Star's shares for $425 per share. Huber made the offer "[o]n behalf of myself, and as agent for the owners of the following North Dakota banks (McIntosh County Bank in Ashley, Garrison State Bank and Trust in Garrison, Union State Bank in Hazen, and Security State Bank in Wishek)." The offer acknowledged that "North Star has recently paid a cash dividend of $10 per share, but no additional dividends will be paid prior to closing." The offer required preparation and execution of a stock purchase agreement and prompt submission of the transaction for regulatory approval. Robert Kauphusman, North Star's board president, transmitted this offer to all shareholders in a letter dated December 31, 2001.

[¶ 4] On January 4, 2002, Bernabucci wrote a letter to North Star's shareholders informing them that North Star was expecting two additional offers from other qualified buyers and encouraging them to withhold any action on Huber's proposal until the additional offers could be reviewed. On March 29, 2002, Bernabucci again wrote to North Star shareholders and informed them that when Huber made the December 28, 2001, offer "he failed to disclose to the shareholders that there was a tax refund and other credits of approximately $450,000 that was going to be paid shortly after the first of [the] year. Obviously the earnings on the Bank's business in 2002 through the date of closing were not considered as part of the purchase price." A majority of North Star's shareholders, including Nyhus, however, had accepted Huber's offer by mid-January 2002 and placed their shares in escrow. No shareholder sought to rescind or revoke their acceptance of the December 28, 2001, offer.

[¶ 5] Over the course of the next several months, Bernabucci attempted to negotiate a higher sales price with the buyers for the Bernabucci group's North Star shares. In February and March 2002, Bernabucci, through his attorney, proposed a purchase price of $475 per share based on the same terms set forth in Huber's December 28, 2001, offer which contemplated that no further dividend would be paid before closing. In April 2002, Bernabucci's attorney proposed a purchase price of $450 per share, again based on the same conditions set forth in the December 2001 offer. The attorney wrote to the buyers and objected to the $425 per share price because of the Bank's expected accumulation of cash and operating income through the closing date and the possibility that the Bank would receive tax refunds and tax credits, resulting in a "windfall" to the buyers of "approximately $25.68/ share." The buyers responded on April 26, 2002, and offered to increase the purchase price to $430 per share which, with interest, would total more than $440 per share assuming a September 30, 2002, closing date. On May 2, 2002, the attorney advised the buyers that the Bernabucci group would accept a purchase price of $440 per share with no interest. The buyers accepted the offer.

[¶ 6] The buyers and the Bernabucci group entered into a stock purchase agreement on June 10, 2002. Unlike the December 28, 2001, offer accepted by Nyhus and other shareholders, the stock purchase agreement did not expressly preclude the payment of future dividends before the closing date. The agreement provided that "[t]he business of [Northern], North Star and the Bank shall be carried on in a normal manner without commitments of any special or unusual type or any type unrelated to normal and customary business of [Northern], North Star and the Bank." The agreement further provided "Sellers agree that after the date of this Agreement they will not take any action which would impede Buyers' ability to obtain regulatory approvals for the transactions contemplated hereunder." The agreement also included the following "Mutual Release":

Except for the obligations specifically set forth in this Agreement, Buyers, North Star and Bank, hereby fully release Sellers, and Sellers hereby fully release Buyers, North Star and Bank (and all of their affiliated entities, directors, shareholders, officers, agents, attorneys, and employees, whether in their individual or official capacity) from any and all claims, demands, actions, liabilities, damages or demands of any kind whatsoever (whether such claims are known or unknown) arising out of or in any way connected with the acquisition of North Star by Buyers. This release is specifically intended to include (but not be limited to) the full release by Sellers of any claims they may have against Mr. Harvey Huber, Mr. Robert Kauphusman and Mr. Maynard Helgaas for any actions they took (or failed to take) in connection with the solicitation of offers and the negotiation of the sale of North Star to Buyers. This release is not intended to include any claim against the above individuals that Sellers may have that is unrelated in any way to the solicitation of offers for, or the negotiation and sale of, North Star, provided, however, that Sellers hereby represent and warrant that, to the best of their knowledge, they are not currently aware of facts or circumstances upon which such a claim could be made.

Nyhus, who had accepted the buyers' December 28, 2001, offer, was not a party to the stock purchase agreement.

[¶ 7] After execution of the stock purchase agreement, the buyers had agreed to acquire all of the outstanding shares of North Star. The buyers decided to use cash held by the Bank to pay for part of the $16 million purchase price by having the Bank pay North Star a dividend after the closing and having North Star pay the dividend to the buyers as the new owners. The buyers informed the Federal Reserve Board of their plan to use $2 million controlled by North Star and the Bank for this purpose and that no dividend would be issued before the closing date. The Bernabucci group and Nyhus claim Huber did not inform the boards of North Star or the Bank of the buyers' intentions.

[¶ 8] At the Bank's board meeting on August 13, 2002, Bernabucci made a motion that the Bank declare a $35 per share dividend to North Star, to be paid out by North Star to its shareholders of record on September 10, 2002. Bernabucci indicated the dividend was justified by the amount of Bank earnings from April 1, 2002, through September 30, 2002, the projected closing date, and by the expected tax refund. No one seconded Bernabucci's motion. Nyhus and Bernabucci eventually moved to declare a dividend of $18 per share. The motion carried, but Huber and Maynard Helgaas, another board member, voted against it. At the North Star board meeting held the same day, Bernabucci moved that North Star pay an $18 per share dividend to all shareholders of record on September 10, 2002. The motion carried, but Huber and Odin voted against it.

[¶ 9] On August 29, 2002, the attorney for the buyers wrote to the Bernabucci group's attorney and informed him that Bernabucci's efforts to have North Star pay a dividend before the closing date were "inconsistent with his contractual obligations under the Stock Purchase Agreement," and that if the dividend were paid, the buyers would bring a legal action against the Bernabucci group. The letter pointed out the stock purchase agreement required that the Bank and North Star's business be conducted in "a normal manner without commitments of any special or unusual type," and that "[i]n its entire history, North Star has never paid a dividend to its shareholders except for the $10.00 per share...