Bump v. Stewart, Wimer & Bump, P.C.

• Decision Date: 20 July 1983
• Docket Number: No. 68770,68770
• Citation: 336 N.W.2d 731
• Parties: Wilbur N. BUMP, Appellant, v. STEWART, WIMER & BUMP, P.C., D/B/A Stewart, Wimer, Hudson & Flynn, P.C., and James M. Stewart, William Wimer, Roger J. Hudson, and Thomas L. Flynn, Individually, Appellees.
• Court: Iowa Supreme Court

Page 731

336 N.W.2d 731

Wilbur N. BUMP, Appellant, v. STEWART, WIMER & BUMP, P.C., D/B/A Stewart, Wimer, Hudson & Flynn, P.C., and James M. Stewart, William Wimer, Roger J. Hudson, and Thomas L. Flynn, Individually, Appellees.

No. 68770.

Supreme Court of Iowa.

July 20, 1983.

R. Richard Bittner, Robert D. Lambert and Vicki L. Seeck of Betty, Neuman, McMahon, Hellstrom & Bittner, Davenport, for appellant.

Dwight W. James and William A. Wickett of James & Galligan, P.C., Des Moines, for appellees.

Considered by UHLENHOPP, P.J., and HARRIS, McGIVERIN, LARSON, and SCHULTZ, JJ.

UHLENHOPP, Justice.

This appeal involves problems generated by the separation of a lawyer from a law firm operating as a professional corporation.

James M. Stewart and William Wimer practiced law in Des Moines in 1974 in the firm of Stewart, Wimer, Brennan & Joyce. In late summer of that year the Central National Bank informed Wimer the space the firm occupied in the bank's building would be needed for bank expansion. The firm decided to relocate across the street in the Equitable Building. At about that time, Wilbur N. Bump contacted Wimer; Bump was then practicing law with the firm of Hopkins, Bump & Huebner. Bump was unhappy that his firm had recently elevated several young associates to partners and was interested in possibly joining Wimer's firm. Stewart, whose clients included a number of agricultural cooperatives, was advancing in age and suffering from an illness. Wimer saw Bump's overtures as a possible opportunity to acquire needed assistance for Stewart's clients during Stewart's illness and eventual retirement. After an initial meeting between Wimer and Bump, Wimer and Stewart discussed the possibility of Bump's joining them. The three then met and decided to form a new firm comprised of those three. They also agreed that Roger J. Hudson from the Stewart firm and Thomas L. Flynn from the Hopkins firm would become associates in the new firm.

For tax reasons, Stewart, Wimer, and Bump decided to form a professional corporation instead of a partnership. These three were the sole shareholders, each holding one hundred shares of corporate stock. Both Wimer and Bump informally assured Flynn and Hudson that they would be made shareholders in a year's time.

Stewart and Wimer contributed the physical assets of their old firm to the new professional corporation; Bump was to make a capital contribution of $5000 over a period of time.

In January 1975 the corporation moved into new offices in the Equitable Building with Bump in charge of coordinating the move. A decorating decision by Mrs. Wimer not to move Stewart's old filing cabinets into the new offices greatly upset Marguerite Brown, Stewart's longtime secretary. To placate Brown the cabinets were eventually moved, but Brown evidently held the incident against Bump and friction developed between the two. Brown began complaining that Bump was taking Stewart's clients and not bringing any income to the firm other than through the agricultural cooperatives. She made up monthly production sheets to support those claims and gave copies to all lawyers in the firm except Bump. In particular, she harassed Wimer with her complaints about Bump, but Wimer ignored the comments by "considering the source." A phone call from Mrs. Stewart with similar concerns, however, prompted Wimer to visit with Bump. Bump agreed to talk with Stewart and to make the relationship between the two more comfortable.

Late in the summer of 1975, the five lawyers had a "bury the hatchet meeting" to air grievances and alleviate growing tensions in the office. The atmosphere seemed to improve for a few months but then began to deteriorate again when Hudson and Flynn broached the subject of shareholder status for themselves. Flynn approached Bump about the topic but was told the two associates should wait until the existing shareholders retired. Flynn, unhappy with this suggestion, relayed the conversation to Hudson who in turn discussed the matter with Wimer. Wimer assured him the problem could be resolved.

In February 1976, a shareholders' meeting was held at which shareholder status for Hudson and Flynn was discussed. A dispute exists as to what was actually decided at that time, but apparently Stewart and Wimer favored issuing fifty shares each to Hudson and Flynn while Bump opposed the idea. At any rate, the firm began to hold Hudson and Flynn out as shareholders after that time.

Soon afterward, a confrontation between Bump and Hudson developed over an expensive daybook Hudson ordered. On another occasion Bump discussed with Hudson the latter's disorganized work habits after Hudson's secretary had complained to Bump. Hudson resented Bump's interference and the two almost reached the stage of fisticuffs. Friction also developed regarding Bump's attempts to act, at the corporation's direction, as office manager--duties formerly performed by secretarial staff.

A short time later Wimer, Hudson, and Flynn attended an informal gathering with some of their wives at the home of William C. Knapp II, a law clerk at the firm. In the course of the evening, Hudson and Flynn expressed their desire to cease the practice of law with Bump; the two feared for their position with the firm should anything happen to Stewart and Wimer and intimated they were looking for other office space. Wimer was surprised by these statements and, after visiting with his wife about it, brought the problem to Stewart's attention. Stewart and Wimer decided the best solution for all concerned would be for Bump to leave the firm. Wimer so informed Bump by handwritten message on September 8, 1976. Stewart also wrote Bump a letter on October 1, 1976, telling him his position with the firm was terminated as of September 30, 1976.

The remaining members of the firm were willing to compensate Bump for his shares in the corporation and made the corporate books and records available to him for valuation purposes. Bump's accountant presented a figure to the corporation that included a substantial sum for goodwill beyond the amount the others felt appropriate. The others did not hire an accountant themselves, thinking that course would be futile in light of Bump's demand for $272,053. At the annual shareholders' meeting on November 5, 1976, Bump was not reelected to the board of directors. He remained in the firm's offices until May 1977 however, and has not yet been paid for his shares.

Bump commenced this suit in equity in January 1980. He alleged that Hudson and Flynn never actually became shareholders and that he was therefore entitled to one-third rather than one-fourth of the corporation's value. He also maintained that the value of the corporation included goodwill. In addition, he sought damages for breach of an alleged employment contract with the corporation, for tortious interference with his contract, and for conspiracy by Stewart, Wimer, Hudson, and Flynn to terminate his relationship with the corporation. The corporation counterclaimed for office expenses attributable to Bump for the period after he was asked to leave and before he did so.

The trial court found Hudson and Flynn were in fact shareholders so that Bump was entitled to one-fourth of the corporation's value, refused to include an amount for goodwill, and denied Bump's damage claims. The court also allowed the corporation to offset Bump's expenses from the total owed him, and found the amount due Bump to be $13,609.31 plus interest.

Bump appealed, claiming error in the finding he is entitled to only one-fourth of the corporation's value, in the refusal to include goodwill in the corporation's valuation, and in the denial of his damage claims.

Our review is de novo. Iowa R.App.P. 4. We give weight to the findings of the trial court but are not bound by them. Iowa R.App.P. 14(f)(7); Citizens Savings Bank v. Sac City State Bank, 315 N.W.2d 20, 24 (Iowa 1982).

I. Shareholder status of Hudson and Flynn. Bump claims neither Hudson nor Flynn were shareholders as of the date he was separated from the corporation. If correct, Bump would be entitled to compensation for one-third of the corporation's value as of that date because he held one hundred shares out of a total three hundred. If, however, Hudson and Flynn were shareholders on that date, Bump would be entitled to only one-fourth the corporation's value, one hundred shares out of four hundred.

Bump argues the corporation's shareholders never unanimously agreed to issue shares to Hudson and Flynn nor did they collectively decide on a consideration for any shares issued. He points to section 496C.10 of the Iowa Code, which provides in part:

Unless otherwise provided in the articles of incorporation or bylaws, the affirmative vote or consent in writing of all of the outstanding shareholders entitled to vote, or such lesser proportion as may be provided in the articles or bylaws, is necessary in order to authorize the issuance of any shares ... and to fix the consideration for shares....

....

Though no corporate minutes exist on the subject, the testimony shows Wimer moved at a February 1976 shareholders' meeting that Hudson and Flynn each be issued fifty shares of corporate stock at seventy dollars a share. Stewart and Wimer voted in favor of this motion while Bump, although present, did not vote.

Bump contends this lack of unanimity is fatal. But under section 496C.10, corporate bylaws may dispense with the unanimity requirement in favor of a lesser standard. Article IV, section 1 of the corporation's bylaws states: "New shareholders may purchase stock only upon the majority vote of all the then shareholders." In addition, Article I, section 5 states in part that "all matters coming before any meeting of the shareholders shall be decided by the vote of a majority of the shareholders entitled to vote...." (Emphasis added.) We hold that the corporation, through the vote of two hundred out of three hundred issued shares,...