Bohac v. Benes Serv. Co.

• Decision Date: 14 January 2022
• Docket Number: No. S-21-133.,S-21-133.
• Citation: 969 N.W.2d 103,310 Neb. 722
• Parties: Karen BOHAC, Personal Representative of the Estate of Marlene A. Benes, deceased, appellant and cross-appellee, v. BENES SERVICE CO., a Nebraska corporation, appellee and cross-appellant.
• Court: Nebraska Supreme Court

310 Neb. 722

969 N.W.2d 103

Karen BOHAC, Personal Representative of the Estate of Marlene A. Benes, deceased, appellant and cross-appellee,

v.BENES SERVICE CO., a Nebraska corporation, appellee and cross-appellant.

No. S-21-133.

Supreme Court of Nebraska.

Filed January 14, 2022

Jovan W. Lausterer, of Bromm, Lindahl, Freeman-Caddy & Lausterer, for appellant.

Sheila A. Bentzen, Lincoln, and Adam J. Kost, of Rembolt Ludtke, L.L.P., for appellee.

Miller-Lerman, Cassel, Funke, Papik, and Freudenberg, JJ.

Freudenberg, J.

I. INTRODUCTION

Leonard and Marlene A. Benes formed the Benes Service Co. (BSC) in 1966. Their children assisted in the day-to-day operations and eventually joined as stockholders of varying degrees. After Leonard passed away, four of the couple's sons took over active management. After Marlene's death, her ownership interest transferred to the couple's daughters through her estate (the Estate). Karen Bohac, the personal representative of the Estate and one of the couple's daughters, began investigating BSC and its corporate practices, later filing a petition for dissolution. BSC responded with an election to purchase in lieu of dissolution.

Trial was held on the matter to determine fair value of the Estate's 14.84 percent interest in BSC. The trial court found that the fair value of 14.84 percent of BSC was worth $2,886,790. The district court declined to award Bohac expenses, attorney fees, and prejudgment interest, and it provided for payment of the judgment in annual installments over 5 years. Bohac appealed, and BSC cross-appealed, at which time we moved this appeal to our docket.

We affirm in part, vacate in part, and in part reverse and remand with directions to the district court to recalculate the fair value of BSC and the Estate's 14.84 percent interest in accordance with this opinion and to set new payment terms according to such recalculated value.

II. BACKGROUND

BSC is a family-owned business consisting of both a farm implement division and a farming operation, organized as a C corporation in the State of Nebraska and formed in 1966 by Leonard and Marlene. Leonard passed away in 2011, at which time four of Leonard and Marlene's five sons took over the active management of the company. Marlene passed away in August 2017. At the time of her death, four of the sons each owned approximately 20 to 21 percent of BSC, while Marlene owned a 14.84 percent interest in BSC. Each of the couple's six daughters are devisees under Marlene's will and would receive equal benefit from the Estate's 14.84 percent interest. One of the daughters was employed by BSC for many years; she and her husband each hold a separate .61 percent interest in BSC.

Bohac was Marlene's power of attorney and became personal representative of the Estate upon Marlene's death. Bohac first began investigating BSC in order to file a tax return for the Estate. Upon investigation of BSC's business practices, Bohac filed a petition for judicial dissolution on September 20, 2018. Bohac alleged that four of the sons "acted in an illegal, oppressive and/or fraudulent manner" in multiple circumstances: They were not holding required meetings, they were not obtaining director and stockholder approval for major transactions, they were not properly reporting income, and they were engaging in self-dealing activities, among other allegations.

BSC filed an answer denying these allegations and then timely filed an election to purchase the Estate's 14.84 percent of common stock in lieu of judicial dissolution of the company. Based on this filing, Bohac was obligated to sell the Estate's interest in lieu of dissolution pending a determination of fair value of such interest. The parties could not come to an agreement as to the fair value of the 14.84 percent interest, and so a trial was held wherein the district court was tasked with making such determination.

After an evidentiary hearing, the district court found that the fair value of the Estate's 14.84 percent share of BSC was $2,886,790 as of September 19, 2018, the day before the petition for dissolution was filed. The district court declined to award Bohac expenses, attorney fees, and prejudgment interest, and it provided for payment of the judgment in annual installments over 5 years.

Bohac appealed, and BSC cross-appealed. We thereafter moved this appeal to our docket.

III. ASSIGNMENTS OF ERROR

Bohac assigns that the district court erred in (1) failing to apply the definition of "fair value" as set forth in Neb. Rev. Stat. § 21-2,171(3) (Cum. Supp. 2020); (2) applying lack of marketability and minority discounts to an asset approach as a going concern; (3) failing to find that Bohac had probable grounds for relief entitling the Estate to an award of expenses pursuant to Neb. Rev. Stat. § 21-2,201(e) (Cum. Supp. 2020); (4) failing to award Bohac interest starting on September 19, 2018, pursuant to § 21-2,201(e); and (5) granting BSC 5 years to make annual, interest-free payments.

On cross-appeal, BSC assigns that the district court erred in applying the asset-based approach over the income-based approach in its determination of the fair value of BSC.

IV. STANDARD OF REVIEW

A proceeding under the provisions of § 21-2,201 to determine the fair value of a petitioning shareholder's shares of stock is equitable in nature.¹ An appellate court reviews an equitable action de novo on the record and reaches a conclusion independent of the factual findings of the trial court; however, where credible evidence is in conflict on a material issue of fact, the appellate court considers and may give weight to the circumstance that the trial court heard and observed the witnesses and accepted one version of the facts rather than another.²

Statutory interpretation is a matter of law, in connection with which an appellate court has an obligation to reach an independent, correct conclusion irrespective of the determination made by the court below.³

In ordering the terms of payment under § 21-2,201(e), an appellate court will review for abuse of discretion.⁴

V. ANALYSIS

1. WHAT IS " FAIR VALUE " OF THE ESTATE'S 14.84 PERCENT INTEREST IN BSC?

The issue of determining fair value of the Estate's 14.84 percent interest in BSC is a multistep analysis. This court must first consider the definition of "fair value" as applied to an election to purchase shares in lieu of judicial dissolution. Second, we must consider whether this definition of fair value includes, excludes, or has no effect on the applicability of discounts for lack of marketability and control.

Third, we must determine the premise of value that will apply; here, the options include either "as a going concern" or "as if in liquidation." Fourth, we must decide whether the principle of highest and best use mandates the application of a certain methodology to value BSC and then apply the selected methodology to the determined value of the company's assets, income, or market value to come to a final conclusion as to the fair value of both BSC and the Estate's 14.84 percent interest in BSC. Each component of this analysis is included within our fair value determination and is therefore reviewed de novo with weight given to the trial court for determinations of credibility.⁵

(a) "Fair Value" Definition

In her first assignment of error, Bohac assigns that the district court erred in failing to apply the definition of "fair value" as set forth in § 21-2,171(3) to its calculation of the Estate's 14.84 percent interest in BSC. In its order, the trial court referred to definitions previously applied under Neb. Rev. Stat. § 21-20,166 (Reissue 2012) ; however, this statutory section was repealed prior to commencement of this suit and does not control this issue.⁶ Because this definition will impact many other steps in the valuation analysis, it is essential that we define "fair value" before analyzing the value of the Estate's 14.84 percent interest in BSC.

Bohac, on behalf of the Estate, initially brought this action as a petition for dissolution pursuant to Neb. Rev. Stat. § 21-2,197 (Cum. Supp. 2020). In response, BSC filed an election to purchase in lieu of dissolution, as permitted by § 21-2,201. These two statutes are each within Neb. Rev. Stat. §§ 21-2,184 through 21-2,202 (Cum. Supp. 2020) (Part 14) of the Nebraska Model Business Corporation Act (NMBCA).

As provided by the NMBCA, if the parties engaged in an election to purchase in lieu of dissolution cannot reach an agreement within 60 days, the court shall stay dissolution proceedings and "determine the fair value of the petitioner's shares" as of the day before the petition for dissolution was filed or as of such other date as the court deems appropriate.⁷ But the term "fair value," as used within § 21-2,201, is not defined either in this section or elsewhere within Part 14 of the NMBCA.

While not defined within Part 14, fair value is defined within Neb. Rev. Stat. §§ 21-2,171 through 21-2,183 (Cum. Supp. 2020) (Part 13) regarding appraisal rights at § 21-2,171(3). For purposes of appraisal rights,

[f]air value means the value of the corporation's shares determined:

(i) Immediately before the effectuation of the corporate action to which the shareholder objects;

(ii) Using customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal; and

(iii) Without discounting for lack of marketability or minority status except, if appropriate, for amendments to the articles pursuant to subdivision (a)(5) of section 21-2,172.⁸

Bohac urges us to adopt this definition in whole, to be used identically in Part 14. BSC urges us to instead abide by the limitation set forth by § 21-2,171, that definitions provided therein apply only to Part 13. BSC also points to official commentary, provided within a prior version of the standardized Model Business Corporation Act, from which the NMBCA is derived. That commentary stated, in part, "[a]s the introductory...