Dibble v. Sumter Ice and Fuel Co.

• Decision Date: 02 October 1984
• Docket Number: No. 0290,0290
• Citation: 283 S.C. 278,322 S.E.2d 674
• Court: South Carolina Court of Appeals
• Parties: Charles L. DIBBLE, Respondent, v. SUMTER ICE AND FUEL COMPANY, Appellant.

Page 674

322 S.E.2d 674

283 S.C. 278

Charles L. DIBBLE, Respondent, v. SUMTER ICE AND FUEL COMPANY, Appellant.

No. 0290.

Court of Appeals of South Carolina.

Oct. 2, 1984.

John D. Lee, Jr., and M.M. Weinberg, Jr., of Lee, Wilson, Erter & Booth, Sumter, for appellant.

Edward V. Atkinson, of Atkinson, Newman & Davis, Sumter, and Cooper, Bowen, Beard & Smoot, Columbia, for respondent.

CURETON, Judge:

Respondent, Charles L. Dibble, brought this action against appellant, Sumter Ice and Fuel Company (Corporation), alleging he was frozen out of the Corporation without adequate compensation and in breach of the majority shareholder's fiduciary duty to him. After certain preliminary determinations, the matter was referred to a special referee. The special referee found Dibble entitled to $5,552.83 more than he had received in the purported dissolution. Upon appeal to the circuit court, the award was increased to $16,640. Additionally, punitive damages of $100,000.00, attorney's fees and expert witness' fees were awarded. The Corporation now appeals. We affirm in part and reverse in part.

For several years prior to 1969, the Corporation had attempted to buy back and retire the ten shares of its stock owned by Dibble. On March 13, 1969, the Corporation's board of directors voted to go into liquidation. A meeting of the stockholders was called for April 18, 1969. The notice of the stockholders' meeting, on the Corporation's letterhead, indicated the date and time of the meeting but not the place. As a result, Dibble claimed not to have known the place of the meeting and did not attend. At the meeting, holders of six hundred and twenty-eight of the six hundred and forty-eight outstanding shares of the Corporation, owned primarily by E.H. Moses, Jr. and his brother, D.H. Moses, voted to dissolve. The shareholders also voted that an appraisal would be made of the Corporation's assets; that the Moses brothers would receive the physical plant (operating assets) of the Corporation, and that the other shareholders would receive the appraised value of their shares in Georgia-Pacific stock then owned by the Corporation.

After the dissolution, the Moses brothers received the operating assets of the Corporation and continued the business of the Corporation under the partnership name SIFCO. In his complaint, Dibble complained that the majority stockholders failed to comply with corporate dissolution statutes and accused them of having a preconceived plan to nullify the value of his stock while retaining the assets of the Corporation. He asked that the dissolution be set aside, an accounting be made and that he be awarded actual and punitive damages.

Judge Ness (then on the trial bench) in a 1972 order found that Dibble had indeed been "frozen-out" of the Corporation and referred the matter to a special referee for:

the taking of testimony regarding the value of the good will and physical assets of the Corporation. The [special referee] will consider the transfer of the assets to [SIFCO] as a sale of the business and will consider the value accordingly, and provide relief including such other matters as may be equitable and just.

The special referee determined that the net asset value of the Corporation was $3,066,891 and valued the Corporation's goodwill at $360,000 for a total liquidation value of $3,426,891. He then determined that Dibble's 1.543% interest in the Corporation should be valued at $52,881.40 or $5,552.83 more than Dibble had received from the liquidation.

In arriving at this value, the special referee found that there were two possible approaches to valuing the Corporation: net asset value approach and the capitalization of earnings approach. He concluded that in isolation neither approach accurately valued the Corporation; the net asset method did not account for goodwill and the capitalization of earnings method over-valued goodwill. He then utilized a composite of the two approaches, assessing a weight of sixty-six and two-thirds percent to the value obtained by the net asset method and thirty-three and one-third percent to the value obtained by the capitalization of earnings method. He also found that the circumstances of the case did not establish fraud and there was no basis to award punitive damages. Finally, he awarded interest on his award from the date of liquidation plus court costs. Both parties excepted to the referee's decision.

The circuit court disagreed with the referee's valuation formula and found that the capitalization of earnings method best measured the value of the Corporation. The circuit judge adopted Dibble's expert witness' valuation of the Corporation and concluded Dibble was entitled to recover $16,640.30 more than he had received. He also found that the majority stockholders had converted Dibble's interest in the Corporation to their benefit in violation of a fiduciary duty and awarded $100,000 punitive damages, interest, attorney's fees and costs.

The Corporation argues three questions on appeal (1) whether Judge Ness's unappealed 1972 order precluded consideration by the referee and subsequent trial judge of all issues, except the valuation of the physical assets and goodwill of the Corporation, (2) whether the trial judge erred in several findings of fact and conclusions of law in support of his award of actual and punitive damages, and (3) whether the trial judge erred as a matter of law in awarding interest, attorney's fees and an expert witness' fee.

I.

We first address the question of what matters Judge Ness's order concluded. Dibble concedes that any matters disposed of in Judge Ness's order are now the law of the case, Matheson v. McCormac, 187 S.C. 260, 196 S.E. 883 (1938), and one circuit judge cannot reverse the ruling of another circuit judge. Cook v. Taylor, 272 S.C. 536, 252 S.E.2d 923 (1979). A review of Judge Ness's order reveals he found that the majority shareholders had a fiduciary duty "to exercise their managerial prerogatives with respect for the interest of minority shareholders." Judge Ness then found that Dibble had not been adequately compensated for his stock. The question posed is whether Judge Ness intended to conclude Dibble's right to punitive damages, interest, attorney's fees and costs. We think not. An order should be construed within the context of the proceeding in which it is rendered. Ferracuti v. Ferracuti, 27 Ill.App.3d 495, 326 N.E.2d 556 (1975); 56 Am.Jur.2d Motions, Rules and Orders Section 29 (1971). Judge Ness's order referred the matter to the referee for appropriate relief "including such other matters as may be equitable and just." We think this language, when viewed in the context of the case, did not preclude the referee and subsequent circuit judge from considering Dibble's claims for punitive damages, interest, attorney's fees and costs.

II.

The Corporation next argues error on the part of the trial judge in several of his findings of fact and conclusions of law, but in essence its basic contention is that the valuation of Dibble's shares of stock by the circuit judge was manifestly against the greater weight of the evidence. In an equity matter where the circuit judge and special referee are in disagreement as to the facts, this court may find the facts in accordance with its view of the evidence. Price v. Derrick, 262 S.C. 341, 204 S.E.2d 389 (1974).

Relative to the issue of actual damages, our review of the cases from this and other jurisdictions convinces us that the special referee's valuation was correct. The expert witnesses for both parties agree that the net asset value found by the referee is correct. ¹ Dibble's expert contends, however, that this value does not reflect the actual value of the Corporation because it does not show the value of a franchise, nor does it include the Corporation's goodwill. He would add to the net asset value the sum of $69,698.12 (the sales price of the Royal Crown franchise sold on June 1, 1971) and $1,008,982.50 for the Corporation's goodwill. ²

On the other hand, the Corporation argues that it had no goodwill and that the net asset value best represented the actual value of the Corporation. The referee disposed of this contention as follows:

The testimony of the defendant that there was no good will in the corporation flies in the face of the advertisements used by the successors to the business informing the public that SIFCO was the same business with a new name. They must have thought there was some economic value in the continuing business.

We agree. The principal question therefore becomes: what was the value of the Corporation's goodwill on date of liquidation and what method or combination of methods best accounts for that goodwill?

In determining the fair value of the Corporation on date of liquidation we are instructed in Metromont Materials Corp. v. Pennell, 270 S.C. 9, 239 S.E.2d 753 (1977) and Santee Oil Co. v. Cox, 265 S.C. 270, 217 S.E.2d 789 (1975) to consider the Corporation's (1) net asset value, (2) its market value, and (3) its earning or investment value. After these factors have been considered and determined, they should then be weighed as to their relative bearing upon the ultimate question of the fair value of Dibble's stock. Id. at p. 274, 217 S.E.2d 789.

Stock of closely held corporations, such as Sumter Ice and Fuel, cannot reasonably be valued by application of any inflexible formula; one tailored to the particular case must be found. That can be done only after a discriminating consideration of all relevant facts and circumstances bearing upon the stock's value. Snyder's Estate v. United States, 285 F.2d 857 (4th Cir.1961); Phelps v. Watson Stillman Co., 365 Mo. 1124, 293 S.W.2d 429 (1956), cited in Santee Oil.

The Georgia-Pacific stock constituted $2,548,059.40 or eighty-three per cent of the Corporation's net asset value. Presumably, the majority of the Corporation's income was also derived from dividends from this stock....