Chrome Data Systems, Inc. v. Stringer

• Decision Date: 13 November 1991
• Citation: 820 P.2d 831,109 Or.App. 513
• Parties: CHROME DATA SYSTEMS, INC., fka Car Data Systems, Inc., an Oregon corporation, Appellant--Cross-Respondent, v. Paul H. STRINGER, Timothy D. Schubert, and James B. Kargman, Respondents--Cross-Appellants, and Elizabeth A. Perry, Defendant. A8908-04809; CA A65206.
• Court: Oregon Court of Appeals

Page 831

820 P.2d 831

109 Or.App. 513

CHROME DATA SYSTEMS, INC., fka Car Data Systems, Inc., an Oregon corporation, Appellant--Cross-Respondent, v. Paul H. STRINGER, Timothy D. Schubert, and James B. Kargman,

Respondents--Cross-Appellants,

and

Elizabeth A. Perry, Defendant.

A8908-04809; CA A65206.

Court of Appeals of Oregon.

Argued and Submitted July 17, 1991.

Decided Nov. 13, 1991.

Mark A. Turner, Portland, argued the cause for appellant--cross-respondent. With him on the briefs was Ater Wynne Hewitt Dodson & Skerritt, Portland.

Robert J. McGaughey, Portland, argued the cause for respondents--cross-appellants Paul H. Stringer and Timothy D. Schubert. Gail P. Vore, Portland, argued the cause for respondent--cross-appellant James B. Kargman. With them on the opening brief was The Law Offices of J. Milford Ford, Lake Oswego. With them on the reply brief was Parks, Allen, Livingston & Greif, Portland.

Before RICHARDSON, P.J., and DEITS and DE MUNIZ, JJ.

RICHARDSON, Presiding Judge.

The corporation appeals and the dissenting shareholders cross-appeal from the trial court's judgment in this share appraisal proceeding under ORS 60.591. ¹ The trial court concluded that each of the corporation's approximately 10,000,000 shares had a value of 7 cents. The corporation contends in its appeal that the shares have a value of 2 cents, although, at trial, its appraiser placed the value at only 2/10th of a cent. It also assigns error to the award of attorney fees against it pursuant to ORS 60.594(2). The dissenting shareholders argue in their cross-appeal that the evidence showed that the value of the shares is 10 cents each.

The principal evidence offered by each side was the testimony and report of its expert appraiser, together with other testimony that was aimed at supporting or challenging one another's appraisers' assumptions and factual understandings. The corporation's appraiser placed a total value of $25,000 on the corporation. The trial court concluded that that valuation was based on faulty premises that led the appraiser to disregard relevant data. The dissenters' appraiser, Gilbert, used three valuation methods. The first was to evaluate a preliminary offer by Kelley Blue Book (Kelley), a competitor of the corporation, to buy many of its assets. Although Kelley did not couch the offer in terms of a purchase of the business, that would have been its practical effect. Kelley would not have purchased all of the corporation's assets, but the corporation would no longer be an operating business. The first approach resulted in a valuation of 2.9 cents per share. However, because of various factors, including the fact that the offer was preliminary and contingent, Gilbert regarded that figure as only a "floor."

His second approach was to attempt to determine the market value of the shares. That determination was based in the main on sales of stock to principals of the small corporation, their relatives and others having affiliations with the corporation. The value that emerged from that approach was 9.9 cents per share. The third method was a "projected future cash flow approach." It produced a value of 18.3 cents a share, which Gilbert himself gave little weight, because he considered the approach speculative. He reconciled the three approaches by adopting the second. Essentially, his reason for doing so was that the first value was too low and the third was too high, although he did offer other reasons why he regarded the value produced by the second method as the actual fair value.

The trial court found the valuation of the Kelley offer the most persuasive of the approaches. However, the court explained that, because the value under that approach was only a floor, it found the total enterprise value to be approximately $750,000, resulting in an appraisal of 7 cents a share.

The corporation argues that the Kelley offer should not have been considered, because certain of Gilbert's assumptions are unsupported in the record and because the offer was preliminary and contingent and was in fact unanimously rejected by the corporation's shareholders. We do not agree that the assumptions were unsupported. We also do not agree that the fact that the offer was preliminary made it unprobative of value. The chief executive officer of Kelley testified that he would have been receptive to a counteroffer. Although the corporation was under no obligation to allow itself to be bought out, the facts that it did not negotiate further with Kelley and that the Kelley offer was preliminary in nature show, consistently with Gilbert's testimony, that the offer tended to prove the lowest possible value of the shares, not that it was irrelevant to value.

The dissenting shareholders agree with that conclusion but argue in connection with both the appeal and their cross-appeal that Gilbert's second approach, based on the stock sales, is a better barometer of value. The corporation responds that sales to friendly buyers are not a reliable indicator of market value. The dissenters rely, inter alia, on Delaney v. Georgia-Pacific, 42 Or.App. 439, 601 P.2d 475 (1979), rev. den. 288 Or. 519 (1980), for the proposition...