Calais Co. v. Ivy

• Decision Date: 16 September 2013
• Docket Number: No. S–13884.,S–13884.
• Citation: 303 P.3d 410
• Parties: CALAIS COMPANY, INC., Appellant, v. Deborah Kyzer IVY, individually and as a Derivative Plaintiff on behalf of the interests of Calais Company, Inc. and its Shareholders, Appellee.
• Court: Alaska Supreme Court

303 P.3d 410

CALAIS COMPANY, INC., Appellant,

v.Deborah Kyzer IVY, individually and as a Derivative Plaintiff on behalf of the interests of Calais Company, Inc. and its Shareholders, Appellee.

No. S–13884.

Supreme Court of Alaska.

May 31, 2013.

Rehearing Denied Sept. 16, 2013.

Jeffrey M. Feldman and Susan Orlansky, Feldman Orlansky & Sanders, Anchorage, for Appellant.

Phillip Paul Weidner, Weidner & Associates, Anchorage, and Charles E. Cole, Law Offices of Charles E. Cole, Fairbanks, for Appellee.

Before: FABE, WINFREE, and STOWERS, Justices.

OPINION

STOWERS, Justice.

I. INTRODUCTION

In 2007, Deborah Kyzer Ivy, a shareholder of Calais Company, Inc. (Calais), filed a complaint against Calais seeking involuntary corporate dissolution. In May 2009, Ivy and Calais reached a settlement agreement (Agreement) in which Calais agreed to purchase Ivy's shares at “fair value” as determined by a three-member panel of appraisers. The appraisers disagreed over the fair value of Calais. Two of the appraisers agreed the fair value of Calais was $92.5 million; one appraiser dissented, valuing Calais at $43 million.

Calais sought to enforce the Agreement in superior court, arguing the two majority appraisers had failed to comply with the appraisal procedure mandated by the Agreement and the Agreement's definition of “fair value.” The superior court ultimately declined to rule on the issue, concluding that interpreting the term “fair value” was beyond its scope of authority under the terms of the Agreement. Consequently, the court ordered Calais to purchase Ivy's shares based on the majority appraisers' valuation.

Calais appeals. We reverse the superior court's final order and remand for the court to remand to the appraisers with explicit instructions to calculate the “fair value” of Calais as defined by AS 10.06.630(a), as required by the Agreement.

II. FACTS & PROCEEDINGS

Calais does business in real estate acquisition, development, rental, and leasing, and owns “significant tracts of land” in Anchorage. In 2007, Ivy—one of 30 individual stockholders and owner of 6.25% of Calais stock—filed a complaint against Calais; her complaint seeking involuntary dissolution under AS 10.06.628 included both personal and derivative claims.¹ In May 2009 the parties reached a settlement agreement.

A. Settlement Agreement

Under the Agreement, Ivy agreed to dismiss her claims and Calais agreed to purchase all of Ivy's shares of Calais stock. Paragraph 5 of the Agreement described the procedure for valuing Ivy's shares. Calais and Ivy were to each nominate one appraiser, and these two appraisers were to select a third. The appraisers were to “determine the fair value of Calais in accordance with [the] Settlement Agreement and AS 10.06.630(a),² as of the date of [the] Settlement” using “their expertise and judgment” and “giving due consideration to all Calais liabilities and to the fair market value of all Calais assets.” In arriving at the “appraised fair value of Calais,” the appraisers were not to apply any discount due to the number of shareholders or distribution of shares, nor consider the “impact or value of any speculative future development of Calais property or assets, or any speculative projected or assumed profits or revenues that might be derived from any future development of Calais property or assets.” The appraisers could, however, “consider future opportunities to develop the property, subject to all existing leases and commitments, to the extent and only to the extent that those future opportunities impact the fair value of the property as of the appraisal date.”

The appraisers were to prepare “a final report stating the appraised value of the fair value of Calais under the[se] criteria.” The value of Ivy's shares were then to be determined by calculating 6.25% of the appraised fair value of Calais. Paragraph 5(d) of the Agreement states: “An agreement on the value of Calais need only be reached by two of the three appraisers, and that valuation shall be binding on the parties and shall not be subject to any further review, dispute, or appeal.” But Paragraph 23 of the Agreement states:

Superior Court Judge William Morse shall retain jurisdiction over this matter for the purpose of enforcing all terms and conditions of this Settlement Agreement.... Should a dispute arise concerning any aspect of this Agreement, and should any party seek judicial assistance to secure enforcement of the Agreement, the Court, in its discretion, may award full reasonable and appropriate costs and attorney's fees to the prevailing party in the dispute, in connection with resolution of the dispute.

B. Appraisal And Dissent

Ivy named Steve MacSwain and Calais named Timothy Lowe as their respective appraisers; MacSwain and Lowe selected Kenneth Gain as the third appraiser. In November 2009 MacSwain and Gain reported that they both agreed on the appraised “fair market value” of Calais “when valued in accordance with the Settlement Agreement.” They appraised the value at $92.5 million; Lowe disagreed, appraising Calais's value at $43 million.

Lowe explained in a dissent that he believed MacSwain and Gain's agreed-upon fair market value did not comply with the instructions of the Agreement or AS 10.06.630(a) because they omitted: (1) the capital gains tax liability for Calais's appreciated real property; (2) the actual costs that would be incurred in the liquidation of the company; and (3) the time value of money during the disposition or liquidation period. Lowe also explained that both MacSwain and Gain were unwilling to consider or acknowledge their omission of these costs after Lowe encouraged them to do so, explaining that both were “valuing the equity of [Calais] as a direct real property interest and not as equity in a corporation [and] only in the context of market value and not in the mandated context of liquidation value.” Lowe clarified his belief that the appraisal panel's assignment under the Agreement was to determine the fair value of Calais on a liquidation basis, as defined by AS 10.06.630(a), not the fair market value of Calais's assets. Lowe concluded that the value agreed upon by MacSwain and Gain should be set aside or be subject to further review because it did not provide a reliable estimate of the fair value of Calais.

C. First Motion To Enforce

In December 2009 Calais filed a motion in the superior court to enforce the Agreement. Calais asked the court to find that the appraisers had not followed the procedures set forth in the Agreement and to remand the appraisal to the appraisers with directions to comply with the Agreement's instructions to determine Calais's fair value by taking into account liquidation costs, including capital gains tax liabilities. Ivy opposed Calais's motion, contending the Agreement did not authorize review by the court.

Superior Court Judge William F. Morse granted Calais's motion in part, setting forth his findings and conclusions on February 2, 2010. The court distinguished between reviewing the appraisers' valuation, which it believed it was prohibited from doing under the terms of the Agreement, and reviewing the appraisers' process in making the valuation to determine whether the appraisers had complied with the procedures and standards outlined in the Agreement. The court concluded that the parties' explicit grant of authority to enforce the Agreement authorized the court to review the appraisers' procedures for compliance with the Agreement. The superior court reviewed the Agreement and determined that the parties intended the appraisers to determine the “fair value of Calais” as defined by AS 10.06.630(a), not the “fair market value” of Calais's assets. The court then issued a limited order directing the parties to “advise the panel that it should again evaluate the fair value of Calais” and to convey to the panel instructions that the court had drafted, ³ which included paragraphs from the Agreement and AS 10.06.630(a).

Following the court's February 2010 order, Lowe made repeated attempts to communicate with MacSwain and Gain. MacSwain and Gain each sent brief e-mails to Lowe regarding their continued involvement as appraisers, but those e-mails did not respond to any of Lowe's substantive questions or concerns regarding the appraisal process and the superiorcourt's order. Lowe also asked the parties' counsel and the court to assist him in getting the appraisal panel to work together, but the appraisal panel never met following the February 2010 order.

On April 6, 2010, MacSwain and Gain sent a response to the court in which they concluded that “fair value,” “fair market value,” and “market value” are synonymous. They also asserted that deductions for tax consequences and transaction costs were not appropriate when determining the fair value of Calais because they had not been explicitly asked to make such deductions. They made no reference to the definition of “fair value” in AS 10.06.630(a).

Lowe prepared a separate response to the court's February 2010 order and a report that described MacSwain and Gain's erroneous procedures and analysis, their refusal to work as a panel, and their general disregard of the Agreement's prescribed procedures and directions.

D. Second Motion To Enforce

On April 8, 2010, Calais filed a second motion to enforce, asserting that the majority appraisers still had not complied with the Agreement's procedures for valuing Calais or with the court's February 2010 order. Specifically, Calais claimed that the majority: (1) had not complied with the requirement to use the definition of “fair value” in AS 10.06.630(a); and (2) had violated the court's “express directive that the matter be decided by ‘the panel’—not by the majority members acting on their own.” Calais asked the court to reject the majority appraisers' report and to enforce the Agreement by ensuring that fair value was determined in accordance with the terms and procedures of the Agreement....