First Western Bank Wall v. Olsen

Decision Date31 January 2001
Docket NumberNo. 21441.,21441.
Citation621 N.W.2d 611,2001 SD 16
PartiesFIRST WESTERN BANK WALL, Petitioner and Appellant, v. Kenneth OLSEN; Kermit Olsen; Ray S. Olsen; Roberta Olsen; Roberta Olsen, as Executrix of the Estate of Ruth E. Olsen; Walborg M. Robbins, and Karen Kunstle, Appellees.
CourtSouth Dakota Supreme Court

Gregory A. Eiesland, Kristi K. Wammen of Johnson Eiesland Huffman & Clayborne, Rapid City, SD, Attorneys for petitioner and appellant.

Haven L. Stuck, Donald R. Shultz of Lynn, Jackson, Shultz & Lebrun, Rapid City, SD, Attorney for appellees.

GILBERTSON, Justice.

[¶ 1.] Pursuant to SDCL 47-6-48, First Western Bank of Wall (Bank) petitioned the circuit court for a determination of "fair value" of certain fractional shares belonging to dissenting shareholders. The circuit court determined the "fair value" of the fractional shares did not include a minority discount or a non-marketability discount. Therefore, the circuit court determined the "fair value" of the shares to be $1,414,640, rather than $601,263 as proposed by Bank. Bank appeals this determination. We affirm.

FACTS AND PROCEDURE

[¶ 2.] Bank has its principal place of business in Wall, South Dakota, with branches in Hot Springs, New Underwood and Edgemont. It is controlled by a holding company called First Western Bancorp (Bancorp). Bancorp owned 13,680 of the Bank's 15,000 outstanding shares as of December 23, 1996. Bancorp is in turn controlled by Paul Christen (Christen) and his family who hold 86% of the voting shares of Bancorp. Christen is the President, chief executive officer and director of Bancorp. Prior to December 23, 1996, the Olsens1 collectively owned 1,100 of the remaining shares in Bank.

[¶ 3.] On December 23, 1996, Bancorp, as the majority shareholder in Bank, voted its shares to amend Bank's Articles of Incorporation to provide for a reverse stock split of 1 to 1,250 shares. This action reduced the Olsens' interest to .88 shares. On July 2, 1997, a special shareholders' meeting was held. At that meeting, Bank shareholders2 voted to repurchase all fractional shares.3 The Olsens were notified of this action before it was ratified at the subsequent shareholders' meeting and they properly noted their intent to dissent. At a second meeting on July 2, Bank established the "fair value" of the fractional shares as $601,263.4 The Olsens were notified that they had the right to payment of the fair value of their shares as well as the right to demand supplemental payment for their shares if they disagreed with Bank's estimation of fair value.

[¶ 4.] The Olsens submitted their fractional shares and collectively received $601,263 from Bank, which in turn cancelled the Olsens' shares. On August 25, 1997, the Olsens tendered their written demand for payment of a deficiency pursuant to SDCL 47-6-47. Because the parties were unable to reach a settlement, Bank petitioned the circuit court for a determination of "fair value" of the Olsens' shares on October 8, 1997. Bank claimed that "fair value" of the shares was equivalent to "fair market value." According to Bank, the value of the fractional shares should have been reduced by a minority discount due to the lack of control over corporate affairs. Under Bank's analysis, a non-marketability discount should also have been applied because the shares were not publicly traded and would be difficult to sell. The Olsens disagreed with this valuation and submitted their own proposal that fair value was equal to $1,414,640.

[¶ 5.] The circuit court determined that fair market value was not an appropriate method of valuation under South Dakota's dissenters' rights statutes. The circuit court further determined that the application of any minority or non-marketability discounts would be unjust and inequitable. Based on these findings, the trial court determined that the fair value of the Olsens' shares was $1,414,640. Judgment was entered in favor of the Olsens for the difference between that amount and the amount previously paid by Bank, or $813,377. The Olsens were also granted $207,021 in prejudgment interest. Bank presents the following two issues on appeal:

1. Whether the trial court erred in admitting the testimony of Thorstenson, the Olsens' expert appraiser.

2. Whether the trial court erred in its interpretation of "fair value" as used in SDCL 47-6-40(3).

ANALYSIS AND DECISION

[¶ 6.] 1. Whether the trial court erred in admitting the testimony of Thorstenson, the Olsens' expert appraiser.

[¶ 7.] When reviewing the admissibility of expert testimony, we have often stated that:

[w]e review questions of admissibility of an expert witness' testimony under an abuse of discretion standard. We have long acknowledged that the trial court has broad discretion concerning the admission of expert testimony. The trial court's decision on such matters will not be reversed absent a clear showing of an abuse of discretion.

Nickles v. Schild, 2000 SD 131, ¶ 7, 617 N.W.2d 659, 661 (citing Maroney v. Aman, 1997 SD 73, ¶ 33, 565 N.W.2d 70, 78) (additional citations omitted). Thus, for a reversal, the Bank must establish that no "judicial mind, in view of the law and the circumstances, could have reasonably reached the same conclusion." Id. (citing State v. Barber, 1996 SD 96, ¶ 14, 552 N.W.2d 817, 820).

[¶ 8.] The admission of expert testimony is governed by SDCL 19-15-2, which provides:

If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.

This statute sets forth the test announced in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469, and adopted by this Court in State v. Hofer, 512 N.W.2d 482 (S.D.1994). Under this test, the trial judge must simply determine "`that an expert's testimony both rests on a reliable foundation and is relevant to the task at hand.'" Estate of Dokken, 2000 SD 9, ¶ 40, 604 N.W.2d 487, 498 (quoting State v. Moeller, 1996 SD 60, ¶ 52, 548 N.W.2d 465, 479). These principles are satisfied if the expert testimony is relevant and has "a reliable basis in the knowledge and experience of his discipline." Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 148, 119 S.Ct. 1167, 1174, 143 L.Ed.2d 238, 250 (1999). Bank argues that Thorstenson's testimony is irrelevant and unreliable because it "is speculative, not based on reliable foundations, and contradictory within its own definitions, and thus would be of no aid to the finder of fact in determining just compensation in this case." We do not agree.

[¶ 9.] Bank challenges both Thorstenson's qualifications as an expert as well as his expert opinion. A witness may be qualified as an expert through "knowledge, skill, experience, training, or education...." SDCL 19-15-2. Bank challenges Thorstenson's qualification because he had no experience in valuing banks prior to the present valuation.5 Assuming Bank's claim to be true, we do not examine an expert's qualifications under such a restricted focus. See Nickles, 2000 SD 131,

617 N.W.2d 659. Thorstenson has been involved in valuing closely held businesses since 1983. He is certified by the National Association of Certified Valuation Analysts, and has prepared or supervised more than seventy-five business valuation reports. In addition, through his work for clients in the area, he is familiar with the economic climate of the communities where Bank's branches are located. Thorstenson's credentials qualify him as an expert under SDCL 19-15-2.

[¶ 10.] After reviewing his expert testimony, it is clear that Thorstenson's opinions as to valuation were relevant and based on generally accepted valuation principles. Use of these generally accepted principles is sufficient to establish admissibility under Kumho and Daubert. Thorstenson examined the historical growth of the Bank's income, the financial ability of Bank to pay dividends and its general financial health, the local economic climate of Bank and its branches, as well as the number of mergers in small banks and the resulting increase in small bank stock values. He used the same methods of valuation that Bank's expert used. The difference in their valuations resulted, in part, from emphasizing one method over the other. The difference in valuation also resulted from disparate opinions as to Bank's growth rate and cash flow. These differences do not cause the valuation to become unreliable or irrelevant. Rather, determining appropriate projections and deciding which method to apply in a certain situation is the specialized knowledge that is sought from a valuation expert. Bank's objections essentially relate to the basis of Thorstenson's opinions. We have often stated that "[t]he basis of an expert's opinion is generally a matter going to the weight of the testimony rather than the admissibility." Dokken, 2000 SD 9, ¶ 41, 604 N.W.2d at 499 (citing State v. Spiry, 1996 SD 14, ¶ 16, 543 N.W.2d 260, 264 (additional citations omitted)). Bank's real dispute here is that the circuit court accepted Thorstenson's opinion over that of Bank's expert. Bank has failed to show that the circuit court abused its discretion in so doing.

[¶ 11.] 2. Whether the trial court erred in its interpretation of "fair value" under SDCL 47-6-40(3).

[¶ 12.] Although the circuit court entered findings of fact and conclusions of law, we are essentially presented with a question of statutory interpretation which is a question of law, reviewed under the de novo standard. Steinberg v. State Dept. of Military Affairs, 2000 SD 36, ¶ 6, 607 N.W.2d 596, 599.

[¶ 13.] At common law, fundamental corporate changes could only occur with the consent of all shareholders. Rigel Corp. v. Cutchall, 245 Neb. 118, 511 N.W.2d 519, 523 (1994) (citing Voeller v. Neilston Co.,...

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