Hartman v. Biginch Fabricators & Constr. Holding Co.
| Decision Date | 05 May 2020 |
| Docket Number | Court of Appeals Case No. 19A-PL-2263 |
| Citation | 148 N.E.3d 1017 |
| Parties | Blake B. HARTMAN, Appellant-Plaintiff, v. BIGINCH FABRICATORS & CONSTRUCTION HOLDING COMPANY, INC., Appellee-Defendant. |
| Court | Indiana Appellate Court |
STATEMENT OF THE CASE
[1] Appellant-Plaintiff, Blake B. Hartman (Hartman), appeals the trial court's summary judgment in favor of Appellee-Defendant, BigInch Fabricators & Construction Holding Company (Company), concluding that, pursuant to the Shareholder Agreement, the value of the shares held by a minority shareholder can be discounted by lack of control and lack of marketability.
[2] We reverse.
ISSUE
[3] Hartman presents one issue on appeal, which we restate as: Whether, as a matter of law, the value of shares under a buyback provision in a Shareholder Agreement can be discounted for lack of marketability and control when the Company is required to purchase the shares.
FACTS AND PROCEDURAL HISTORY
[4] The Company is a closely-held Indiana corporation, located in Montezuma, Indiana, and is in the business of fabricating and installing natural gas and pipeline compressor/pumping stations and related apparatus. Hartman was one of the founders and former president of the Company, serving as president from 1998 to 2014. At all times relevant to these proceedings, there were ten shareholders in the corporation, with no single shareholder holding a majority position.
[5] On March 1, 2006, the shareholders of the corporate predecessor to the Company entered into a Shareholder Agreement that included the obligations of the shareholders to each other and to the Company. The Company's shareholders and directors executed a Consent to Corporate Action that bound the Company to the terms of the Shareholder Agreement. The Shareholder Agreement required the Company to purchase the shares of any shareholder who is involuntarily terminated as an officer or director of the Company. Pursuant to the provisions of the Shareholder Agreement, this purchase must be made at "appraised market value on the last day of the year preceding the valuation, determined in accordance with generally accepted accounting principles by a third-party valuation company." (Appellant's App. Vol. II, pp. 57-58).
[6] In March 2018, Hartman was involuntarily terminated from his position as a director and officer at the Company, triggering the required purchase provisions in the Shareholder Agreement. To comply with the terms of the Shareholder Agreement, the Company retained Wonch Valuation Advisors (Wonch) to appraise the value of Hartman's shares. Wonch's report valued Hartman's 8,884—or 17.77%--shares at $3,526,060. The report discounted this amount due to Hartman's lack of controlling interest in the Company and lack of marketability as he did not have a market in which to sell his shares. As such, the report determined the fair market value of the shares to be $2,398,000. The Shareholder Agreement afforded Hartman the right to dispute Wonch's valuation by obtaining a second professional appraisal. Hartman declined to avail himself of that option.
[7] On September 10, 2018, Hartman filed a petition for declaratory judgment, seeking a declaration as to the value of the shares and alleging that the Company improperly applied discounts for lack of control and marketability to the mandatory sale of the shares. On December 26, 2018, the Company filed an Answer and Counterclaim for declaratory judgment. On March 12, 2019, Hartman moved for summary judgment, and on May 13, 2019, the Company filed a cross-motion for summary judgment. On August 22, 2019, the trial court conducted argument on the parties' respective motion for summary judgment. One month later, on September 19, 2019, the trial court issued summary judgment, concluding that the Company could discount the value of the shares for lack of control and marketability.
[8] Hartman now appeals. Additional facts will be provided as necessary.
DISCUSSION AND DECISION
[9] In reviewing a trial court's ruling on summary judgment, this court stands in the shoes of the trial court, applying the same standards in deciding whether to affirm or reverse summary judgment. First Farmers Bank & Trust Co. v. Whorley , 891 N.E.2d 604, 607 (Ind. Ct. App. 2008), trans. denied . Thus, on appeal, we must determine whether there is a genuine issue of material fact and whether the trial court has correctly applied the law. Id. at 607-08. In doing so, we consider all of the designated evidence in the light most favorable to the non-moving party. Id. at 608. A fact is ‘material’ for summary judgment purposes if it helps to prove or disprove an essential element of the plaintiff's cause of action; a factual issue is ‘genuine’ if the trier of fact is required to resolve an opposing party's different version of the underlying facts. Ind. Farmers Mut. Ins. Group v. Blaskie , 727 N.E.2d 13, 15 (Ind. Ct. App. 2000). The party appealing the grant of summary judgment has the burden of persuading this court that the trial court's ruling was improper. First Farmers Bank & Trust Co. , 891 N.E.2d at 607.
[10] We observe that, in the present case, the trial court entered findings of fact and conclusions of law thereon in support of its judgment. Generally, special findings are not required in summary judgment proceedings and are not binding on appeal. AutoXchange.com. Inc. v. Dreyer and Reinbold, Inc. , 816 N.E.2d 40, 48 (Ind. Ct. App. 2004). However, such findings offer a court valuable insight into the trial court's rationale and facilitate appellate review. Id.
[11] Hartman contends that the trial court inappropriately allowed the Company to reduce the value of his shares with a lack of marketability and control discount even though these discounts are not applicable to a compulsory sale. He maintains that the language of the Shareholder Agreement, determining the valuation method of the Company's shares, should not be equated with fair market value as the sale of the shares cannot be completed in the open market place and the purchaser already controls the Company.
[12] Construction of the terms of a written contract is a pure question of law for the court, and we conduct a de novo review of the trial court's conclusions in that regard. Grandview Lot Owners Ass'n, Inc. v. Harmon , 754 N.E.2d 554, 557 (Ind. Ct. App. 2001). If a contract is ambiguous because of the language used in the contract, rather than because of extrinsic facts, its construction is a pure question of law to be determined by the court. Id. A contract is not ambiguous merely because a controversy exists where each party favors a different interpretation; rather, a contract is ambiguous where it is susceptible to more than one interpretation and reasonably intelligent persons would honestly differ as to its meaning. Ind. Dep't of Transp. v. Shelly & Sands, Inc. , 756 N.E.2d 1063, 1069-70 (Ind. Ct. App. 2001), trans. denied . Absent ambiguity, this court will give the terms of a contract their plain and ordinary meaning. Id. at 1070.
[13] Indiana courts have long recognized that shareholders in closely-held corporations may enter into agreements to buy or sell shares which include a valuation method to determine the value of those shares. See Shriner v. Sheehan , 773 N.E.2d 833, 843 (Ind. Ct. App. 2002) (). Close corporations generally find no market for their shares and the only people interested in the business are the "incorporated partners" who are intimately involved with the entity. Krukemeier v. Krukemeier Mach. & Tool Co. , 551 N.E.2d 885, 890 (Ind. Ct. App. 1990). Because there is often no market, it is difficult and speculative to value a close corporation's shares; therefore, repurchase agreements frequently include specific valuation methods. See Shriner , 773 N.E.2d at 842.
[14] Article V of the Shareholder Agreement provides for the "Valuation and Payment for the Shares" in Section 5.1 as follows:
The price per Share for the Shares of the Corporation to be sold pursuant to Article III or Article IV of this Agreement shall be the appraised market value on the last day of the year preceding the valuation, determined in accordance with generally accepted accounting principles by a third party valuation company within the twenty-four months preceding the transfer of shares, with adjustments for changes in the number of outstanding Shares since such year end, and in the case of sales under Article IV, if the value is less than the price paid to acquire the Shares paid by the Involuntary Transferee.
(Appellant's App. Vol. II, pp. 57-58) (emphasis added). In determining the appraised value of Hartman's shares, the Wonch report applied the fair market value, which included a discount for the marketability of the stocks and the lack of control represented by Hartman's minority interest.
To continue reading
Request your trial
-
Hartman v. Biginch Fabricators & Constr. Holding Co.
...Appeals reversed, concluding that the discounts could not apply to any closed-market sale. Hartman v. BigInch Fabricators & Constr. Holding Co., Inc. , 148 N.E.3d 1017, 1024 (Ind. Ct. App. 2020).BigInch petitioned for transfer, which we granted, vacating the Court of Appeals opinion. Ind. A......