Fausak's Tire Center, Inc. v. Blanchard

• Decision Date: 08 December 2006
• Docket Number: 2050633.
• Citation: 959 So.2d 1132
• Parties: FAUSAK'S TIRE CENTER, INC., and FTC Properties, L.L.C. v. Patricia BLANCHARD, as administratrix of the estate of Bruce Allen Fausak, deceased.
• Court: Alabama Court of Civil Appeals

959 So.2d 1132

FAUSAK'S TIRE CENTER, INC., and FTC Properties, L.L.C. v. Patricia BLANCHARD, as administratrix of the estate of Bruce Allen Fausak, deceased.

2050633.

Court of Civil Appeals of Alabama.

December 8, 2006.

Robert E. Gibney, Mobile, for appellants.

Wesley H. Blacksher of Blacksher & Herrington, L.L.C., Mobile, for appellee.

CRAWLEY, Presiding Judge.

Bruce Allen Fausak ("the decedent") died intestate on November 25, 2003. During his lifetime, the decedent was one of five individuals who were shareholders of Fausak's Tire Center, Inc., a Subchapter S corporation ("the corporation"), and members of FTC Properties, L.L.C., an Alabama limited liability company ("the LLC"). On July 28, 2004, the probate court appointed Patricia Blanchard as the administratrix of the decedent's estate.

On September 9, 2005, the corporation and the LLC filed in the probate court a "Petition for Declaratory Relief,"¹ seeking the enforcement of a buy-sell agreement for the transfer of the decedent's stock in the corporation and the decedent's membership interest in the LLC. In response, the administratrix filed a "Motion to Turn Over Assets," alleging that, at the time of the decedent's death, there was no valid buy-sell agreement in effect and requesting that the corporation "release" the decedent's stock and that the LLC "release" the decedent's membership interest to the estate.

Following a bench trial on January 4, 2006, the probate court entered a judgment stating, in pertinent part:

"1. There was no legally binding buy-sell agreement between [the corporation and the LLC] and ... the shareholders [of the corporation] ... or members [of the LLC]. Ala.Code § 8-9-2 (1975).

"2. The 125 shares of corporate stock ... [that] the decedent owned at the time of his death constitute an asset of the decedent's estate.

"3. The twenty (20%) percent member ownership interest in [the LLC] the decedent owned at the time of his death constitutes an asset of the decedent's estate.

"4. The remaining relief requested in the Petition for Declaratory Judgment and Related Relief is DENIED.

"5. The personal representative's Motion To Turn Over Assets is GRANTED."

The corporation and the LLC timely appealed to the Alabama Supreme Court pursuant to § 12-22-20, Ala.Code 1975. See Russell v. Russell, 758 So.2d 533 (Ala. 1999). The supreme court transferred the appeal to this court pursuant to § 12-2-7(6), Ala.Code 1975.

Standard of Review

Section 12-22-20, Ala.Code 1975, provides that, on appeal from any final judgment of the probate court, "the appellate court shall render such decree, order or judgment as the probate court ought to have rendered." Our supreme court has stated that the ore tenus standard governs appellate review of a probate court judgment. See Shewmake v. Estate of Shewmake, 940 So.2d 260, 264 (Ala.2006) (quoting Hensley v. Poole, 910 So.2d 96, 100 (Ala.2005)).

The Facts

All of the relevant facts are undisputed. In January 2000, the decedent and two of his brothers, Christian Fausak and Harold W. Fausak, Jr., along with two longtime business associates, brothers Dennis Lowery and Donald Lowery, purchased their stock in the corporation from a fourth Fausak brother, Randall E. Fausak, for $1.1 million. The purchase price of the stock was $2,100 per share. The decedent purchased 125 shares of stock.

At the time they acquired their stock in the corporation, the five shareholders discussed the fact that they needed to have a buy-sell agreement that would require a shareholder to sell, and the corporation to buy, his stock upon the occurrence of certain events. All five shareholders agreed that, in the event of a shareholder's death, they did not want the wives or children of shareholders to become part owners of the corporation. They discussed purchasing life insurance on all the shareholders to fund the buy-sell agreement; before the decedent's death, the corporation obtained and paid the premiums on policies insuring the lives of all five shareholders.

The LLC was formed in January 2003. The sole asset of the LLC is a parcel of real property in Bay Minette on which a tire store is located. That property is encumbered by a mortgage to Regions Bank and is leased to the corporation. The decedent owned a 20% membership interest in the LLC. The members of the LLC orally agreed that their interests in the LLC would also be included in a buy-sell agreement.

At a shareholders' meeting on April 15, 2002, the five shareholders executed a document modifying the purchase price of the stock and agreeing that the value of each share was $2,500. The corporation's accountant testified that $2,500 per share was a fair price for the stock. Randall E. Fausak, the former owner of the corporation, stated that at one time he thought the stock price was too high, but after the LLC acquired the Bay Minette tire store and leased it to the corporation he believed that the $2,500-per-share valuation was accurate.

The record contains the agenda for and the minutes of several shareholders' meetings at which the issue of a buy-sell agreement was discussed. The record also contains four different drafts of proposed buy-sell agreements, none of which was executed before the decedent died in November 2003.

The decedent's spouse testified that the decedent, before his death, had discussed with her the fact that the shareholders had agreed to have a buy-sell agreement, that they were "working out the details," and that she would "be taken care of by the company buying his stock with life insurance." The decedent's spouse stated that the buy-sell agreement had not been finalized at the time of the decedent's death because, she said, the corporation was still growing, buying property, and adding new assets. At trial, the corporation's attorney put the following question to the decedent's spouse: "If the five [shareholders] agreed [to a buy-sell agreement]; and the company says we've got the money; what are we doing here today?" The spouse answered, "I guess [we are] going over the value of what is owed the estate."

On November 17, 2004, almost a year after the decedent's death, the four remaining shareholders of the corporation and members of the LLC formally signed and executed a buy-sell agreement. That agreement includes a stock-valuation price of $2,500 per share. According to the four surviving shareholders and the corporation's accountant, a buy-sell agreement was never formally executed before the decedent died because "there were still variables open for discussion." Those variables related to the disability of a shareholder as an event triggering the buy-sell agreement as well as the interest that would be due and the time limitations that would be imposed upon installment payments for a shareholder's stock or a member's interest in the LLC.

On September 21, 2004, the probate court entered an order awarding the decedent's spouse statutory allowances and exemptions in the amount of $15,500. The estate subsequently requested that the corporation make an advance payment of that amount for the benefit of the spouse. On November 18, 2004, the corporation sent the administratrix a check payable to the estate in the amount of $15,500 and bearing the notation, "For Advancement Buy/Sell Stock Agreement." The administratrix testified that she negotiated the check and disbursed the proceeds to the decedent's spouse, pursuant to the probate court's September 21, 2004, order.

The decedent's 20% membership interest in the LLC was valued at $16,947.46. The decedent's 125 shares of stock were valued at $312,500. In November 2004, the corporation and the LLC advised the estate that they were prepared to pay the estate the sum of the values of those interests ($329,447.46) less the advancement to the spouse ($15,500), in a lump-sum payment of $313,947.46, in exchange for the decedent's interests in the corporation and the LLC.

Analysis

The Alabama Statute of Frauds, § 8-9-2, Ala.Code 1975, provides, in pertinent part:

"In the following cases, every agreement is void unless such agreement or some note or memorandum thereof expressing the consideration is in writing and subscribed by the party to be charged therewith or some other person by him thereunto lawfully authorized in writing:

"....

"(8) Notwithstanding Section 7-8-113, [Ala.Code 1975,] every agreement for the sale or purchase of securities other than through the facilities of a national stock exchange or of the over-the-counter securities market."

Section 7-8-113, Ala.Code 1975, a part of Alabama's version of the Uniform Commercial Code ("UCC"), was enacted in 1996, to replace former § 7-8-319, Ala. Code 1975. See Act No. 742, Ala. Acts 1996 (effective January 1, 1997), and § 7-8-113 (Official Comment). Section 7-8-319 had been the UCC Statute of Frauds provision applying to contracts for the sale of securities. When Revised Article 8 of the UCC as proposed by the American Law Institute "eliminat[ed] the requirement of a signed writing for the enforcement of agreements to buy or sell securities" through the organized securities markets, the Alabama Legislature

"[r]ecogniz[ed] ... that the statute of frauds has an important role to play in informal transactions other than on the organized securities markets, and [it] ... amended [the Alabama general Statute of Frauds, § 8-9-2, Ala.Code 1975,] to make its requirements applicable to agreements for the sale or purchase of securities other than through a stock exchange or the over-the-counter market.... Thus an agreement by a shareholder of a closely held corporation to sell all or part of his shares continues to be subject to the statute of frauds, notwithstanding the elimination of a statute of frauds requirement as to transactions in the organized securities markets."

§ 7-8-113, Ala.Code 1975 (Alabama Comment).

On appeal, the corporation and the LLC make two arguments, namely: (1) that the writing requirement of the Statute of...