In re McBurney Law Services, Inc.

• Court: Rhode Island Supreme Court
• Writing for the Court: GOLDBERG, Justice.
• Citation: In re McBurney Law Services, Inc., 798 A.2d 877 (R.I. 2002)
• Decision Date: 21 May 2002
• Docket Number: No. 2001-159-M.P., 2000-11-M.P.,2001-159-M.P., 2000-11-M.P.
• Parties: In re McBURNEY LAW SERVICES, INC.

798 A.2d 877

In re McBURNEY LAW SERVICES, INC.

No. 2001-159-M.P., 2000-11-M.P.

Supreme Court of Rhode Island.

May 21, 2002.

Present WILLIAMS, C.J., LEDERBERG, BOURCIER, FLANDERS, and GOLDBERG, JJ.

William Alan Jacobson, William Mark Kolb, Providence, for plaintiff.

John G. Rallis, Providence, for defendant.

OPINION

GOLDBERG, Justice.

This case came before the Supreme Court on March 6, 2002, on petition for certiorari by the petitioner, McBurney Law Services, Inc. (McBurney or petitioner), to review a decision of the valuation panel appointed by this Court, pursuant to Article II, Rule 10(g) of the Supreme Court Rules, to determine the fair market value of shares of the petitioner corporation issued to Kevin McBurney (Kevin or respondent).

Facts and Travel

The petitioner is a professional service corporation engaged in the practice of law; it was founded by John F. McBurney, Jr. in 1980 for, according to the record, the benefit of his children who are members of the bar. The respondent, who became a shareholder in McBurney in 1982, voluntarily terminated his employment and association with the corporation as of July 29, 1993. The termination of this relationship was less than amicable, and several disagreements arose among the shareholders, including a dispute over the percentage of respondent's ownership in the corporation and the number of shares lawfully issued in accordance with the articles of incorporation. The record discloses that respondent is the holder of twenty-five shares of common stock that McBurney maintains consists of an ownership interest of 25 percent of the corporation. The other shareholders, according to the testimony of John F. McBurney, Jr. and his wife, Ann McBurney, the office manager of McBurney, are John F. McBurney III, Christine McBurney and Mark McBurney. However, the articles of incorporation authorized the issuance of 100 shares of common stock to John F. McBurney, Jr. As of July 29, 1993 (the valuation date agreed to by the parties), when Kevin terminated his employment with the petitioner, there was a dispute about whether an additional 100 shares had been issued in excess of the number permitted by the articles of incorporation. Further, although the respondent is a professional service corporation engaged in the practice of law, and is governed by Rule 10(g),¹ neither respondent nor McBurney complied with Rule 10(g) or the provisions of G.L. 1956 chapter 5.1 of title 7, that govern professional service corporations, to which Rule 10(g) specifically refers. The record discloses that respondent did not transfer his shares to an eligible shareholder nor did he offer them to the corporation for redemption, as required by § 7-5.1-5. Similarly, McBurney did not comply with the obligations imposed by Rule 10(g) that require the professional service corporation, upon the ineligibility of a shareholder, to redeem the shareholder's shares or cause them to be purchased by an eligible person. Rule 10(g)(4) accords the corporation and the ineligible shareholder three months to agree on the fair market value of the shares or, failing an agreement on value, the corporation must apply to this Court for appointment of a valuation panel, "as provided by G.L. 1956 * * * § 7-5.1-5, to determine the fair market value" of the shares. The record discloses that respondent, upon his voluntary departure from McBurney, never tendered his shares back to petitioner, nor did he indicate a willingness to have his shares redeemed.² On January 13, 2000, McBurney filed a petition for appointment of a valuation panel, to which the respondent objected. In an order entered on March 21, 2000, this Court granted the petition and appointed the valuation panel (panel).

On June 5, 2000, preparing for the evidentiary hearing scheduled by the panel, counsel for both parties entered into a written stipulation providing that respondent "shall be deemed to have owned 25% of the issued and outstanding shares of stock as of the [v]aluation [d]ate," thus relieving either party from the burden of proving, as Kevin maintained, that he owned a larger percentage of McBurney, or, as the petitioner maintained, that the shares issued to Kevin were over-issued shares and as such were void. The respondent subsequently moved to modify this stipulation. The respondent acknowledged that the stipulation was not the result of any fraud or mistake, but rather, that it was based on information acquired later from respondent's 1988 tax returns that reflected the practice and custom of the parties as one-third shareholders for purposes of income, salary and benefits. Further, respondent admitted that his stock certificate reflected a 25 percent ownership in the corporation. The panel, in the absence of any reasoning, and over the objection of McBurney, granted the motion to modify the stipulation.

A decision regarding the value of the assets and liabilities of the petitioner as of the valuation date, including interest accruing from the date of Kevin's departure from McBurney, was issued by the panel. We note that the panel's determination of the value of the shares has not been challenged by either party. Indeed, such a challenge is unavailable in light of the provision in § 7-5.1-5 that the determination of the fair market value of the shares of the corporation by the panel "is final and binding upon the parties."

The petitioner has raised several issues before this Court, including whether the stipulation that was executed by counsel for both parties was subject to modification by the panel in the absence of agreement by both parties. Second, if the stipulation was appropriately set aside, an issue exists as to whether Kevin's shares and the shares of the other shareholders were issued in excess of the number of shares authorized by the articles of incorporation and thus, were void. The petitioner has argued that there is no evidence in the record to support the panel's findings that the original 100 shares that were issued to John F. McBurney, Jr. were canceled and 75 shares were reissued to respondent, John F. McBurney III and Christine McBurney. The petitioner next challenges the award of prejudgment interest to an ineligible shareholder on the ground that interest is not provided by Rule 10(g), or § 7-5.1-5.³ Further, if interest is allowable, an issue exists as to the appropriate commencement date. Finally, petitioner has argued that a valuation panel, appointed pursuant to Rule 10(g), has no authority to decide questions of law and may not issue a finding relative to the application of collateral estoppel or res judicata to cases pending in the Superior Court.

Standard of Review

"Our review on a writ of certiorari is restricted to an examination of the record to determine whether any competent evidence supports the decision and whether the decision maker made any errors of law in that ruling." Asadoorian v. Warwick School Committee, 691 A.2d 573, 577 (R.I.1997). Furthermore, we must determine whether the decision was patently "`arbitrary, discriminatory, or unfair.'" D'Ambra v. North Providence School Committee, 601 A.2d 1370, 1375 (R.I.1992).

The Stipulation

Before hearings began in this case, counsel for the petitioner and the respondent stipulated, in writing, that the "[r]espondent shall be deemed to have owned 25% of the issued and outstanding shares of stock as of the [v]aluation [d]ate;" an agreement that reflected a compromise between the parties' conflicting positions. There has been no suggestion by either party that this stipulation was the product of fraud, mutual mistake or lack of consent. "We have stated previously that `stipulated agreements [must] be placed on the record or * * * be reduced to an agreed-upon writing [to ensure] that the agreement itself does not become a source of further controversy and litigation.'" DiLuglio v. Providence Auto Body, Inc., 755 A.2d 757, 776 (R.I.2000) (quoting E.W.H. & Associates v. Swift, 618 A.2d 1287, 1288-89 (R.I.1993)).⁴ The stipulation before us meets these conditions and should have been honored. A stipulation entered into with the assent of counsel and their clients, relative to an evidentiary fact or an element of a claim, is conclusive upon the parties and removes the issue from the controversy. It is no longer a question for consideration by the tribunal. Therefore, absent an agreement of the parties to do so, a stipulation has the attributes of a consent order or consent judgment and cannot be set aside simply because a litigant no longer wants to be bound by its terms. DeFusco v. Giorgio, 440 A.2d 727, 729 (R.I.1982); see also Hasman v. Hasman, 655 A.2d 256, 257 (R.I.1995) (mem.). "Although a consent judgment receives a court's imprimatur, the judgment is in essence a contract between the parties to the litigation" and is to be construed as a contract. Trahan v. Trahan, 455 A.2d 1307, 1310 (R.I.1983). The record discloses that both parties to this dispute compromised their original positions, relative to respondent's percentage ownership in McBurney, thus removing this issue from the controversy and precluding the parties from challenging the stipulation at a later point. An order consented to by the parties can not be "opened, changed or set aside without the assent of the parties in the absence of fraud, mutual mistake or actual absence of consent[.]" Douglas Construction and Supply Corp. v. Whole sale Center of North Main Street, Inc., 119 R.I. 449, 452, 379 A.2d 917, 918 (1977). None of those factors are present here. Further, respondent's counsel acknowledged that this stipulation was intended to resolve certain issues in the case and was not the result of any mistake but, instead, resulted from his lack of knowledge of his client's circumstances. Counsel acknowledged that when he discussed the stipulation with his client, he "prevailed upon him to agree to the 25 percent and stipulate to it because [he] didn't have any other evidence to...