GI Joe's, Inc. v. Nizam

• Decision Date: 31 July 2002
• Citation: 183 Or. App. 116,50 P.3d 1282
• Parties: G.I. JOE'S, INC., an Oregon corporation, Respondent, v. Jamil NIZAM, Appellant.
• Court: Oregon Court of Appeals

50 P.3d 1282

183 Or. App. 116

G.I. JOE'S, INC., an Oregon corporation, Respondent, v. Jamil NIZAM, Appellant.

CCV 99-03-185; A112653.

Court of Appeals of Oregon.

Argued and Submitted December 4, 2001.

Decided July 31, 2002.

Mark A. Turner, Portland, argued the cause for appellant. With him on the briefs was Ater Wynne LLP.

David J. Sweeney, Portland, argued the cause for respondent. With him on the brief were Paul G. Dodds and Brownstein, Rask, Sweeney, Kerr, Grim, DeSylvia & Hay, LLP.

Before HASELTON, Presiding Judge, and LINDER and WOLLHEIM, Judges.

LINDER, J.

Plaintiff G.I. Joe's, Inc. brought this judicial appraisal action to determine the fair value of defendant's stock after defendant exercised his right to dissent from a proposed merger. See ORS 60.551 to ORS 60.594. The central factual dispute at trial was the existence of certain stock options in favor of Norm Daniels, the president of G.I. Joe's. Plaintiff presented testimony from Daniels and others that, although certain merger documents omitted any reference to the options, that omission was inadvertent and the options did, in fact, exist. Defendant, relying exclusively on those merger documents, argued that the options did not exist and that, even if they did, Daniels was contractually precluded from exercising them. The trial court believed plaintiff's witnesses, concluded that the options did exist at the time of the merger, and valued defendant's shares accordingly. Defendant now appeals, arguing that the trial court erred in that conclusion. We affirm. The undisputed facts reveal that the proposed merger that gave rise to defendant's right to dissent pursuant to ORS 60.554 was one part of a multi-part transaction, the purpose of which was to allow Daniels to acquire majority control of G.I. Joe's by buying out the previous majority shareholder. The transaction took place in three parts. First, the company attempted to redeem all of its outstanding shares, except those held by Daniels, who would then own a majority of the company's shares. Second, Daniels created a holding company called N.D. Holdings, Inc., to temporarily hold all of Daniels's shares as well as $9.5 million in subordinated debenture notes issued by G.I. Joe's to partly finance the stock redemption. Finally, N.D. Holdings and G.I. Joe's merged, giving Daniels majority control of the new G.I. Joe's corporation.

All shareholders were given the opportunity to redeem their shares. Before the redemption, Daniels owned 92,330 shares of G.I. Joe's stock. Daniels kept his shares as part of his plan to gain majority control of the company. Defendant and another shareholder (Lindquist) did not redeem their shares. At the end of the first stage of the transaction, therefore, Daniels, Lindquist, and defendant were the only remaining shareholders, with Daniels owning a majority of the outstanding shares. After acquiring majority ownership, Daniels formed N.D. Holdings, which then held Daniels's stock and the notes, thus completing the second stage of the transaction.

The third stage, when N.D. Holdings and G.I. Joe's merged into one company, required shareholder approval. Daniels and Lindquist voted in favor of the merger; defendant dissented. Thereafter, pursuant to ORS 60.554, plaintiff determined that the fair value of defendant's 18,720 shares plus accrued interest was $153,756.81; plaintiff then tendered that amount. Defendant countered by asserting that the fair value of his shares was $203.95 per share, for a total of $3,818,000.

In light of that dispute, plaintiff instituted this appraisal proceeding pursuant to ORS 60.591. That statute provides that, when a demand for payment pursuant to ORS 60.587 remains unsettled, the corporation "shall commence a proceeding" and petition the court "to determine the fair value of the shares and accrued interest." ORS 60.591(1). The court may then appoint an appraiser to assist in valuing the shares. ORS 60.591(4). Here, the court appointed Corporate Valuation, Inc. Because the parties could not agree about the existence of Daniels's stock options, Corporate Valuation prepared alternative appraisals, one including and the other disregarding Daniels's options.

The case then went to trial, where the central dispute was the existence of Daniels's options. Plaintiff presented testimony that the options existed at the time of the merger but that, through inadvertence, plaintiff's counsel failed to reference the options in any of the merger documents. Specifically, plaintiff's chief outside counsel testified that the options existed up to the point of the merger, although Daniels had agreed to surrender them at the time of the merger as part of his consideration for acquiring majority control of the company. The merger was a "rush job." While he was preparing for the merger, plaintiff's corporate counsel focused on how G.I. Joe's capital structure would look as of the effective date of the merger, not the date relevant to the fair value of defendant's shares, which was immediately before the merger.¹ The merger documents therefore made no reference to Daniels's options, which were to disappear simultaneously with the completion of the merger. Plaintiff elicited similar testimony from G.I. Joe's chief financial officer, its accountant, and Daniels. The main thrust, then, of plaintiff's evidence was that the options existed as of the date relevant to determining the fair value of defendant's shares despite the fact that the merger documents did not reflect their existence.

Defendant did not present any witnesses to refute plaintiff's evidence. Rather, defendant's evidence consisted of a number of exhibits, most of which were the merger documents that failed to disclose Daniels's options. Based on what defendant calls that "unambiguous" documentary evidence, he urged the trial court to disregard the testimony offered by plaintiff's witnesses as self serving and to conclude, based on the documentary evidence, that the options did not exist. Additionally, defendant argued that, even if the options did exist, Daniels was precluded by the merger agreement from exercising them, so they should not be considered in determining the fair value of defendant's shares.

The trial court found that Daniels "held written stock options entitling him to purchase an additional 291,500 shares of G.I. Joe's stock"; that certain of the merger documents "failed to include the Daniels options"; that "this was an error committed by the company's principal outside attorney"; and that "Daniels was not contractually precluded from exercising the options." The court separately concluded that "the evidence overwhelmingly supports the finding of the existence of the options." Consistently with its factual findings, the trial court took those options into account when it calculated the value of defendant's shares, ultimately concluding that defendant's shares were worth a total of $160,618. Consequently, the trial court entered a money judgment in favor of defendant in the amount of $6,861 plus interest. On appeal, defendant assigns error to the trial court's determination of the fair value of his shares. Specifically, defendant renews his arguments that the options did not exist and that, if they did, they nevertheless should not be included in valuing defendant's stock, because Daniels was precluded by the merger agreement from exercising them.

Defendant's argument regarding the existence of Daniels's options is principally factual—he asserts that the trial court erred in disregarding the merger documents, which failed to disclose the options, in favor of the testimony of plaintiff's witnesses. Before we reach the merits of that argument, we must first determine our standard of review for factual issues in judicial appraisal proceedings. Defendant, relying on Hayes v. Olmsted Associates, Inc., 173 Or.App. 259, 21 P.3d 178, rev. den. 333 Or. 73, 36 P.3d 974 (2001), argues that this matter is equitable in nature and that our review is de novo. Plaintiff responds that this special statutory action is legal in nature and that we may not disturb the trial court's factual findings if there is any evidence in the record to support them. See generally Chrome Data Systems, Inc. v. Stringer, 109 Or.App. 513, 517, 820 P.2d 831 (1991).²

Generally, our review of facts determined in the trial court is governed by ORS 19.415, which states, in part:

"(1) Upon an appeal from a judgment in an action at law, the scope of review shall be as provided in section 3, Article VII (Amended) of the Oregon Constitution.[³]

"* * * * *

"(3) Upon an appeal from a decree in a suit in equity, the Court of Appeals shall try the cause anew upon the record."

The initial question, then, is whether a judicial appraisal proceeding is in the nature of an action at law or a suit in equity.

When the legislature does not expressly provide a standard of review in a statutory action, we determine the standard by examining "`the essential nature of the case, including the nature of the relief sought.'" Hanzo v. deParrie, 152 Or.App. 525, 536, 953 P.2d 1130 (1998), rev. den. 328 Or. 418, 987 P.2d 512 (1999) (quoting State Farm Fire v. Sevier, 272 Or. 278, 299, 537 P.2d 88 (1975)). ORS 60.591 provides that, if a dissenting shareholder's demand for payment "remains unsettled," the corporation "shall commence a proceeding * * * and petition the court * * * to determine the fair value of the shares and accrued interest." The statute further provides that each dissenter is entitled to judgment for "[t]he amount, if any, by which the court finds the fair value of the dissenter's shares, plus interest, exceeds the amount paid by the corporation." ORS 60.591(5)(a). In other words, the court's powers under ORS 60.591 are limited to determining the fair value of the stock and awarding a money judgment in the amount of the difference between what the corporation paid the dissenting shareholder and the amount to which...