Columbus Mills, Inc. v. Freeland, 89-9039

• Decision Date: 14 December 1990
• Docket Number: No. 89-9039,89-9039
• Citation: 918 F.2d 1575
• Parties: COLUMBUS MILLS, INC., Plaintiff-Appellee, v. Doy L. FREELAND, Defendant-Appellant, Raymond R. Lyon, and Margaret F. Lyon, Defendants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1575

918 F.2d 1575

COLUMBUS MILLS, INC., Plaintiff-Appellee, v. Doy L. FREELAND, Defendant-Appellant Raymond R. Lyon, and Margaret F. Lyon, Defendants.

No. 89-9039.

United States Court of Appeals Eleventh Circuit.

Dec. 14, 1990.

James L. Paul and Russell R. Grosse, Gambrell, Clarke, Anderson & Stolz, Atlanta, Ga., for defendant-appellant.

Nolan C. Leake, J. Frank Castle, King & Spalding, Atlanta, Ga., and Richard Y. Bradley, Columbus, Ga., for plaintiff-appellee.

Appeal from the United States District Court for the Middle District of Georgia.

Before FAY and JOHNSON, Circuit Judges, and ALLGOOD, ^* Senior District Judge.

JOHNSON, Circuit Judge:

This case arises on an appeal following a final judgment and an award of attorneys' fees. The appellant, Dr. Freeland, was the defendant in the action below. He complains of being denied a jury trial on the question of attorneys' fees, of the district court's findings of facts, and of the jury charge.

I. STATEMENT OF THE CASE

A. Factual Background

George W. Swift and his family owned the Carpet Mill Store, Inc. and 60-65% of the outstanding shares of Columbus Mills, Inc. In October of 1986, Mr. Swift decided to merge the two corporations and then take the resulting corporation private. Mr. Swift and his lawyer met sometime in early November of 1986 with representatives of the brokerage firm of Robinson-Humphrey. During this meeting, Mr. Swift decided to offer 42 dollars per share for all the outstanding shares of Columbus Mills. Following this meeting, financing was arranged.

On November 4, 1986, Mr. Swift announced to Columbus Mills' board of directors that he proposed to make a tender offer at 42 dollars per share. The board of directors appointed a "fairness committee" to evaluate the offer. This committee then hired legal counsel and the investment firm of Dean Witter to evaluate the offer.

The committee met with the full board of directors on November 13, 1986. The committee reported to the board that it determined that the price of 42 dollars was fair. At the same meeting, the board of directors voted to accept the opinion of Dean Witter and to approve the tender offer. On November 20, 1986, Swift mailed the 42 dollar tender offer to all shareholders.

One of the institutional investors, First Wisconsin Asset Management, demanded 43 dollars a share for its block of stock. In response to this demand, Mr. Swift amended his tender offer, promising all the shareholders 43 dollars a share.

The tender offer expired on the last business day of 1986. When the offer expired, ninety percent of all shares had been tendered and Mr. Swift was able to force a merger on December 30, 1986. Mr. Swift wrote a letter to the remaining stockholders informing them of his intention to take the new corporation private. He informed the stockholders that they could either tender their remaining shares at 43 dollars per share or they could dissent and demand payment of "fair value" pursuant to former Ga.Code Ann. Sec. 14-2-214(b) (1983).

Only three shareholders elected to dissent. Of these three, one stockholder settled before trial. Another brought suit in state court and lost. Columbus Mills, Inc. v. Kahn, 259 Ga. 80, 377 S.E.2d 153 (1989) (stockholder failed to comply with statutory requirements for dissent). Dr. Freeland is the third dissenting stockholder.

Dr. Freeland is a private investor who has been managing his own investments for twenty years and his own pension plan for fifteen years. Dr. Freeland purchased stock in Columbus Mills in the early 1970s, and he claims to have studied the company's annual report over the fifteen years that he owned the stock. Dr. Freeland, furthermore, claims to spend over an hour a day managing his portfolio of stocks. Dr. Freeland knew that in the twelve months prior to the merger Columbus Mills stock was trading in the mid to low thirty dollar range, and that, with the exception of a brief spike of 49 dollars per share in the summer prior to the tender offer, the stock had never traded above 43 dollars a share.

Despite his knowledge of the trading range, Dr. Freeland felt that the tender offer should have been priced at 85 dollars a share. Dr. Freeland allegedly based this figure on his knowledge of the company and specifically on the new plant and equipment low debt-load, substantial excess cash, and the fact that it was being taken private without the company's soliciting third party offers. Furthermore, Dr. Freeland felt that the market in Columbus Mills stock was too "thinly" traded to be an adequate indicator of the true value of the company.

B. Procedural History

The plaintiff/appellee Columbus Mills filed this statutory stock valuation suit in Georgia state court on March 25, 1987. The case was then removed to federal district court on the grounds of diversity of citizenship. The defendant, Dr. Freeland, made a demand for a jury trial. Columbus Mills opposed this motion. The district court granted the request for a jury trial. However, during a later unrecorded pretrial conference, the district court modified its earlier order and decided that the question of attorneys' fees should be tried solely by the court.

The jury trial on the stock valuation question was held on September 26th through 29th of 1988. Following the instructions to the jury, Columbus Mills requested a supplemental charge that the jury could discount the value of the shares because they were a minority interest and investors would not pay a premium on a minority interest. The district court gave this instruction over Dr. Freeland's objection. The district court denied Dr. Freeland's request that it instruct the jury about corporate obligations of good faith and fiduciary duties towards minority shareholders.

The jury concluded that the stock should have been valued at 43 dollars a share and therefore it deemed Mr. Swift's tender offer fair.

On October 21, 1988, Columbus Mills filed a motion for an award of fees and expenses pursuant to former Ga.Code Ann. Sec. 14-2-251(g) (1983). On November 7, 1988, Dr. Freeland filed a brief in opposition and requested an evidentiary hearing.

Following the hearing on January 23, 1989, the district court found that Dr. Freeland's refusal to accept the tender offer was "arbitrary, vexatious, or otherwise not in good faith." The court held that Dr. Freeland was not entitled to interest on his non-tendered shares. Moreover, the court concluded that Columbus Mills was entitled to reasonable costs and expenses for bringing this action. After another round of affidavits and motions, the district court awarded Columbus Mills all of its attorneys' fees and expenses (with the exception of the fees for one expert who did not testify at trial). The total award was $179,624.84.

II. ANALYSIS

A. Did the District Court Err in Bifurcating the Case and Trying the Issue of Attorneys' Fees Without a Jury?

Dr. Freeland complains that the district court violated his Seventh Amendment right to have a jury decide whether he acted arbitrarily and whether Columbus Mills was entitled to attorneys' fees.

At the outset, we make some basic observations. It is beyond dispute that in this diversity action, the substantive law to be applied is the corporate law of Georgia, while federal law governs the procedure. See Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Thus, Georgia law controls both the questions of the availability of attorneys' fees and the standards to determine when the attorneys' fees should be awarded. ¹ The Supreme Court, however, has held that federal law governs the right to a jury trial in federal courts in diversity actions. Simler v. Conner, 372 U.S. 221, 83 S.Ct. 609, 9 L.Ed.2d 691 (1963) (per curiam). The court in Simler extolled the virtues of the federal courts' applying one uniform law which governs whether there is a right to a jury trial. Id. at 222, 83 S.Ct. at 610. The court implicitly rejected the idea of applying state law as a rule of decision.

We therefore now turn to federal law to determine if the district court unconstitutionally deprived Dr. Freeland of his right to a jury trial. This Court has held that there is no constitutional right to have a jury decide whether or not to award attorneys' fees. ² See Empire State Insurance Co. v. Chafetz, 302 F.2d 828 (5th Cir.1962); see also Spach v. Monarch Insurance Co., 309 F.2d 949 (5th Cir.1962). The Chafetz court correctly compared the fee-shifting statute at issue with the common-law causes of action available when the Seventh Amendment was adopted. Chafetz, 302 F.2d at 1102. The court then compared the statute with pre-merger equity and common-law causes of action and it decided the statute did not resemble a common-law cause of action. Id. Since Chafetz was decided on federal law grounds, it foreshadowed the later holding of Simler v. Conner. Chafetz also foreshadowed the Seventh Amendment analysis later adopted by Pernell v. Southall Realty, 416 U.S. 363, 94 S.Ct. 1723, 40 L.Ed.2d 198 (1974), and Federal Dep. Ins. Corp. v. New London Enterp., Ltd., 619 F.2d 1099 (5th Cir.1980). Chafetz is thus binding on this Court. ³

We are unpersuaded by Dr. Freeland's argument that even if the attorneys' fees question was properly a question for the judge, the preliminary question of whether he acted "arbitrarily, vexatiously, or otherwise in bad faith" should have been submitted to the jury in the form of a special verdict.

We note that courts in a variety of contexts have held that the threshold question which triggers attorneys' fees is not a question for the jury. For example, the Ninth Circuit held that the Seventh Amendment was not implicated by 28 U.S.C.A. Sec. 1927 (West Supp.1990) which allows the shifting of attorneys' fees for unreasonably and vexatiously multiplying the proceedings in any federal court. In re Itel Securities Litigation, 791 F.2d 672 (9th Cir.1986). This Court has held that a bench hearing is not...