Bogosian v. Woloohojian, Civ. A. No. 88-0373B.

• Decision Date: 05 October 1990
• Docket Number: Civ. A. No. 88-0373B.
• Citation: 749 F. Supp. 396
• Parties: Elizabeth V. BOGOSIAN v. James H. WOLOOHOJIAN, Harry J. Woloohojian, Woloohojian Realty Corporation.
• Court: U.S. District Court — District of Rhode Island

749 F. Supp. 396

Elizabeth V. BOGOSIAN v. James H. WOLOOHOJIAN, Harry J. Woloohojian, Woloohojian Realty Corporation.

Civ. A. No. 88-0373B.

United States District Court, D. Rhode Island.

October 5, 1990.

Matthew F. Medeiros, Providence, R.I., for plaintiff.

William Grimm, Hinckley, Allen, Snyder & Comen, Providence, R.I., for defendants.

OPINION

FRANCIS J. BOYLE, Chief Judge.

The plaintiff Elizabeth V. Bogosian, as owner of one third of the capital stock of Woloohojian Realty Corporation, filed a petition on January 19, 1989 in part to liquidate the defendant corporation under the provisions of Rhode Island incorporation law. Plaintiff's brothers, James and Harry Woloohojian, also named as defendants, each owned one third of the corporation's capital stock when the plaintiff filed her complaint. As authorized by the provisions of R.I.Gen.Laws § 7-1.1-90.1 (1985), the corporation filed an election to purchase the plaintiff's stock on February 16, 1989 in lieu of dissolution. Defendants now contend that the corporation has an absolute right to revoke its election.

Woloohojian Realty Corporation appears to have been a very successful business venture, participating in the ownership and management of substantial real estate interests within Rhode Island — valued in the millions of dollars. The company had employed all three of the stockholders and some of their children. The amended complaint asserts that some of the family members have been compelled to give up their corporate owned Mercedes Benz' and other corporate perks. The amended complaint and answer are also conspicuous evidence of the acrimony among the parties who while jousting over millions of dollars find cause to complain for damages allegedly sustained in the loss of a vanity auto registration plate. Upon the falling out of the stockholders, plaintiff and her son and daughter were discharged as employees of the company.

Harry Woloohojian died on September 8, 1989 and thereafter James Woloohojian, then the sole remaining officer of the company suffered a serious stroke which incapacitated him for a period of time. A large commercial bank and the widow of Harry Woloohojian qualified as the executors of his will.

On April 18, 1990, before her brother's stroke, plaintiff filed a motion to require the corporation to provide security in support of its election to purchase her stock, and also sought an order of the court granting her an advance on account of the value of her stock because of her then strained financial circumstances. The motion was heard after her brother's stroke on July 11, 1990, and was granted. The Court ordered the corporation to provide a bond in the amount of $10,000,000 (an amount equal to the bond ordered posted by a local probate court for Harry Woloohojian's estate) or to provide real estate surety, and to make a payment of $100,000 to plaintiff by July 15, 1990, and also to pay to plaintiff $10,000 monthly on account of the purchase price of her stock until the appraisal proceedings are concluded. The Court also entered an order on July 31, 1990 appointing an appraiser for the fair value of the stock and establishing the procedural details for the appraisal. Counsel were also directed to meet with the appraiser concerning the appraisal procedure.

At the first meeting with the appraiser after the corporation had been ordered to post a bond and make payments to plaintiff, counsel for the defendants announced that defendant, Woloohojian Realty Corporation, intended to revoke its election to purchase plaintiff's shares. Defendants have filed motions the upshot of which is to ask this Court either to permit the revocation of the election to purchase plaintiff's shares, or to affirm the revocation of the election. Plaintiff objects to either result.

Between February 16, 1989, the date of the corporate election and the present, not only has one of the individual defendants died and the other individual defendant suffered a serious illness, but other significant events have occurred. The parties have engaged in very substantial and expensive discovery and sought the assistance of the Court on many occasions, in particular, for a study of the corporate books and records by the plaintiff's experts to ascertain the value of the corporate assets. Also, during this period of time the value of real estate in general has declined in Rhode Island, as well as in the northeast part of the country.

The plaintiff contends that the corporation's election to purchase her stock at fair value may not now be unilaterally withdrawn.

The election was made in accord with the provisions of R.I.Gen.Laws § 7-1.1-90.1 (1985). This section is entitled "Avoidance of dissolution by stock buyout." It provides in part that:

whenever a petition for dissolution of a corporation is filed by one or more shareholders (hereinafter in this section referred to as the "petitioner") ... the corporation or one or more of its shareholders may avoid such dissolution by filing with the court prior to the commencement of the hearing, ... an election to purchase the shares owned by the petitioner at a price equal to their fair value.... If the parties are unable to reach an agreement as to the fair value of such shares, the court shall, upon the giving of a bond or other security sufficient to assure to the petitioner payment of the value of such shares, stay the proceeding and determine the value of such 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.... The petitioner shall be entitled to interest on the purchase price of such shares from the date of the filing of the election to purchase such shares, and all other rights of the petitioner as owner of the shares shall terminate at such date....

There is no Rhode Island case construing this statute.

Statutes are to be construed according to the ordinary meaning of the terms used by the legislature, State v. Zorillo, 565 A.2d 1259, 1261 (R.I.1989), and to realize the legislature's intent. Ronci Co., Inc. v. Narragansett Bay Water Quality Management District Commission, 561 A.2d 874, 880 (R.I.1989). Here the legislative purpose is quite obvious. In those circumstances involving an acrimonious relationship among the stockholders in which one or more stockholders seek dissolution, the statute provides the corporation and the other stockholders an escape hatch by requiring the dissidents to sell their shares to either the corporation or the other stockholders. Thus, the continued corporate existence is assured if one or more shareholders wish to do so. The statute seeks to preserve the ongoing value of the corporation from the perils of a liquidation sale.

The process is also quite clear. The election may be made either by the corporation or by any other stockholder. If the parties are not thereafter able to agree on the fair value of the stock the court shall stay the liquidation proceeding upon the giving of a bond or other sufficient surety to assure the payment for the shareholder's stock. The statute then provides for an appraisal "in accordance with the procedure set forth in § 7-1.1-74...." That section provides for the appointment of an appraiser for the stock of shareholders exercising their rights to dissent from mergers, consolidations, sale or exchange of substantially all of the corporation's assets or any acquisition requiring shareholder approval. This statute, it should be noted, also specifically provides that a shareholder may not later withdraw a demand for payment without the consent of the corporation.

Under the election and buyout provisions of R.I.Gen.Laws § 7-1.1-90.1 (1985), a shareholder's stock is valued as of the close of business on the day the dissolution petition is filed. In this instance, that date is January 18, 1989. Interest is then due the shareholder on the fair value of the stock from the date of the filing of the election, in this case February 16, 1990. As required by the statute, all rights of plaintiff as owner of one third of the corporation's capital stock terminated on February 16, 1990.

At the outset, defendants argue that the corporation's election to purchase the plaintiff's shares is freely and unilaterally revocable. They rely on Rey v. Pan American Cash & Carry Corp., 152 A.D.2d 246, 548 N.Y.S.2d 524 (1989) and Brodsky v. Seaboard Realty Co., 206 Cal.App.2d 504, 24 Cal.Rptr. 61 (1962) in support of this argument.

In Rey, supra, the court allowed a stockholder to revoke his election to purchase shares in lieu of corporate dissolution under the New York statute which was silent on the issue of revocation at the time of election. The court considered an amendment to the...