Hansen v. 75 Ranch Co.

• Decision Date: 09 April 1998
• Docket Number: No. 97-249,97-249
• Citation: 957 P.2d 32,288 Mont. 310
• Parties: Jennifer Tully HANSEN and Frances Tully Eisenman, Plaintiffs and Appellants, v. 75 RANCH COMPANY, a Montana Corporation and Peter R. Tully, Defendants and Respondents.
• Court: Montana Supreme Court

Page 32

957 P.2d 32

1998 MT 77

Jennifer Tully HANSEN and Frances Tully Eisenman, Plaintiffs and Appellants, v. 75 RANCH COMPANY, a Montana Corporation and Peter R. Tully Defendants and Respondents.

No. 97-249.

Supreme Court of Montana.

Submitted Jan. 22, 1998.

Decided April 9, 1998.

Morris J. Braden (argued), Braden Law Firm, Billings, for Plaintiffs and Appellants.

Richard F. Gallagher (argued), Church, Harris, Johnson & Williams, Great Falls, for Defendants and Respondents.

LEAPHART, Justice.

¶1 Jennifer Tully Hansen (Jennifer) and Frances Tully Eisenman (Frances)(collectively Minority Shareholders) appeal from the decision of the Fourteenth Judicial District Court, Musselshell County, determining that the Minority Shareholders were equitably estopped from asserting dissenters' rights pursuant to § 35-1-823, MCA, of the Montana Business Corporation Act, that the 75 Ranch Company (Corporation) properly offered to purchase the shares of the Minority Shareholders at a discounted rate, and that Peter Tully (Peter or Majority Shareholder) did not breach his fiduciary duty or act in an oppressive manner warranting relief to the Minority Shareholders pursuant to §§ 35-9-501 to -504, MCA. We reverse and remand.

Background

¶2 Robert R. Tully (Robert) and Joan B. Tully (Joan), the parents of the parties to this action, established a family ranch near Roundup, Montana around 1961. All five of the Tullys' children worked on the ranch throughout their childhood. In 1980, the Tullys incorporated the 75 Ranch Company as a close corporation hoping to avoid estate and inheritance tax liability. In addition, the Corporation executed a "Stockholders' Agreement" in November 1982 providing a method of transferring the shares of a deceased shareholder and restricting the transfer of shares by shareholders during their lifetime. Robert served as the President of the Corporation. Joan served as Secretary/Treasurer. Robert and Joan together held 25,600 shares, a majority of the stock. Each of the five Tully children held 2,880 shares.

¶3 The record indicates that between 1980 and 1986, the Corporation held informal meetings at family gatherings over the Christmas holidays. Minutes of the meetings were kept and indicate that there was never more than one shareholder absent from a shareholder meeting. After finishing college, Peter became more active in the ranch and served as Vice President on the Board of Directors. In 1986, Joan Tully died and Peter's wife, Rhonda, succeeded her as Secretary/Treasurer of the Corporation. Beginning in 1987, it appears that the Corporation adhered to corporate formalities even less stringently, continuing to hold its meetings when the family gathered for the holidays and keeping family members apprised of corporate business over the telephone.

¶4 Robert passed away on June 10, 1989. Jennifer and Peter were appointed as co-personal representatives of their father's estate. During probate of Robert's estate, the shares were assigned a value of $12.26 per share. Following the estate distribution, Peter owned 51 percent (20,400 of 40,000 shares) of the outstanding shares in the Corporation. Each of Peter's siblings, including Jennifer and Frances, owned 12.25 percent (4,900 shares). Peter took over as President and Rhonda remained the Secretary/Treasurer.

¶5 Peter and Rhonda lived on the ranch and tended to the day-to-day operations of the Corporation. They continued the informal corporate management practice. In approximately December 1989, the shareholders discussed the possibility of selling the ranch due to difficulties arising with coal company developments in the area. The record indicates that at this time, Jennifer and her sister Pat Oertli told Peter that since he was the one who lived on the ranch and dealt with the operations, he and Rhonda should decide whether to sell the ranch. However, Jennifer specified that in the event Peter chose to relocate the ranch, she desired to sell her shares in the Corporation since she had no interest in maintaining ownership in a ranch other than the family homestead. At that time, Peter requested that Jennifer wait about a year after the family ranch was sold or exchanged before requesting a buy out of her shares.

¶6 Following the cancellation of certain grazing leases in 1992, Peter and Rhonda started exploring options for disposition of the ranch. Peter retained legal counsel to assist in an exchange of the Montana ranch for a New Mexico ranch. In August 1992, Peter signed and executed an agreement to exchange the properties. The agreement required that the transaction be structured as a like-kind exchange under § 1031 of the Internal Revenue Code to avoid tax consequences. The record reveals that the attorney retained by Peter was not aware that other shareholders would be affected by the exchange and thus did not advise Peter of the need to comply with the procedural notice requirements of the Montana Business Corporation Act.

¶7 On December 31, 1992, Peter, in his capacity as President of the Corporation, executed a Contract and Exchange Agreement for the disposition of substantially all of the Montana property. The exchange was closed and completed on January 29, 1993. The selling price of the Montana property was $875,000. The purchase price of the New Mexico property was$850,000. Peter did not provide the Minority Shareholders with notice of the proposed exchange, and did not submit copies of the exchange documents or other relevant information for shareholder approval. Peter, however, asserted that he spoke with several of the Minority Shareholders during the process of exchanging the properties and that during those conversations none of the Minority Shareholders voiced opposition to the proposed exchange.

¶8 In April 1993, Peter received a letter from Jennifer reiterating her desire to sell her shares in the Corporation. In response, Peter contacted the corporate accountant to determine the value of the shares in compliance with the Stockholders' Agreement. In May 1993, Jennifer requested that Peter negotiate the purchase with her attorney. On June 1, 1993, Peter made an initial offer of $14.63 per share. This offer was based on a balance sheet dated November 30, 1992; however, a copy of the balance sheet was not provided with the initial offer.

¶9 On October 15, 1993, Jennifer rejected Peter's initial offer and requested a copy of the balance sheet. Upon receiving the balance sheet and reviewing it for the first time, Jennifer realized that the share valuation applied a 30 percent minority discount. Therefore, by letter dated December 8, 1993, Jennifer sent a counteroffer of $20.90, representing the value of a share without the discount. In addition, Jennifer's December 8th letter informed Peter that Frances desired a buy out of her shares at the $20.90 valuation. Peter testified that the December 8th letter was his first notice of dissenters' rights. Not understanding the legal ramifications of dissenters' rights, Peter consulted an attorney and then responded with a compromise offer of $15.00 per share. The Minority Shareholders rejected Peter's compromise offer and reasserted their offer of $20.90 per share. Unable to negotiate a resolution, the Minority Shareholders filed suit on March 31, 1995.

¶10 At the District Court, the Minority Shareholders asserted the following causes of action: violation of dissenting shareholders' rights, breach of contract, breach of fiduciary duty, and right to an accounting and appraisal. Peter answered by asserting that the Minority Shareholders consented to and ratified the exchange, and thus were estopped from asserting dissenters' rights. Following a bench trial, the District Court entered its Findings of Fact and Conclusions of Law determining that the Minority Shareholders were equitably estopped from asserting dissenters' rights, that the Corporation properly offered to purchase the minority shares at a discounted rate and that Peter did not breach fiduciary duties or act in an oppressive manner warranting relief pursuant to §§ 35-9-501 to -504, MCA. The following issues are presented on appeal:

¶11 1) Were the Minority Shareholders entitled to statutory notice of dissenters' rights pursuant to § 35-1-831, MCA?

¶12 2) Did the District Court err in concluding that the Minority Shareholders were barred from asserting dissenters' rights pursuant to the doctrines of waiver and equitable estoppel?

¶13 3) Did the District Court err in valuing the shares at "fair market value" in accordance with the Stockholders' Agreement?

¶14 4) Did the District Court err in concluding that a minority discount should be applied to the value of the shares?

¶15 5) Did the District Court err in adopting the valuation of the Majority Shareholder's expert which included a tax discount?

¶16 6) Did the District Court err in concluding that Peter did not breach fiduciary duties or act oppressively in his negotiations with the Minority Shareholders?

¶17 7) Is either party entitled to recovery of attorney fees and costs?

We address issues 1 and 2, combine issues 3 and 4, address issue 5 and do not reach issues 6 and 7.

Discussion

¶18 As a preliminary matter, Peter asserts that the Minority Shareholders' § 27-2-211(1), MCA. The Minority Shareholders argue that the three-year period in § 27-2-211(3), MCA, applies to this action. Peter argues that the Minority Shareholders instigated this action seeking to assert rights, not recover a penalty or forfeiture or enforce a liability as § 27-2-211(3), MCA, contemplates. However, we determine that the provision Peter seeks to invoke, § 27-2-211(1)(c), MCA, also contemplates an action upon a liability created by statute. The distinction between the two provisions is that subsection (3) specifically applies to actions against directors or stockholders of a corporation and allows a three-year period rather than the two-year period Peter seeks to invoke.

¶19 The...