In Re Shelburne Supermarket Inc. (harry Clayton

• Citation: 996 A.2d 230,2010 VT 30
• Decision Date: 09 April 2010
• Docket Number: No. 09-181.,09-181.
• Parties: In re SHELBURNE SUPERMARKET, INC. (Harry Clayton and Lucille Clayton, Appellants).
• Court: Vermont Supreme Court

996 A.2d 230

2010 VT 30

In re SHELBURNE SUPERMARKET, INC. (Harry Clayton and Lucille Clayton, Appellants).

No. 09-181.

Supreme Court of Vermont.

April 9, 2010.

Carole C. Obuchowski of Joseph F. Obuchowski & Associates, Burlington, for Appellants.

Thomas F. Heilmann of Heilmann, Ekman & Associates, Inc., Burlington, for Appellee.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

¶ 1. REIBER, C.J.

Parents Harry Clayton and Lucille Clayton appeal from the trial court's order in this long-running family dispute over stock shares. An arbitrator concluded in 2002 that son Steven Clayton, rather than parents, owned certain disputed shares. The trial court confirmed this decision on appeal. Following additional proceedings, the trial court also concluded that son was entitled to $514,964.26 in past dividends paid on these shares. Parents argue that the court erred in awarding son this sum. We affirm.

¶ 2. This case has a long and convoluted procedural history, which we must recount in some detail given the nature of the arguments raised on appeal. The record indicates the following. Shelburne Supermarket is a closely-held family corporation in which parents, son, son's siblings, and one other individual hold stock. In the spring of 1979, parents proposed that Steven take over the majority ownership of the store and run the business so that they could retire. Steven agreed and he was provided a bill of sale in which parents purported to sell him 25.5 of their shares for a certain sum, apparently to be paid over time. Steven took over operations, and the business thrived under his management.

¶ 3. In 1987, Steven filed for divorce. In an effort to avoid any claim by Steven's wife to a share of the corporation, father “cancelled” the 1979 sales agreement with Steven, and he had Steven sign a bill of sale selling twelve shares of stock to parents. Father told Steven that he would return the shares to him. The family court deemed this a fraudulent conveyance in Steven's divorce proceedings, and we upheld the court's decision on appeal. See Clayton v. Clayton, 153 Vt. 138, 142, 569 A.2d 1077, 1079 (1989) (holding that family court properly disregarded an agreement that would have conveyed marital assets in contemplation of divorce in return for little or no consideration).

¶ 4. In 1989, Steven asked father to return his shares, but father refused. The parties' dispute over the ownership of these shares led to difficulties in corporate governance and management. Counsel for the corporation encouraged the parties to engage in arbitration, and in 2002 the parties contacted an arbitrator and agreed in writing to arbitrate their dispute. The trial court later found that, although the arbitration agreement did not specifically articulate the “dispute” to be arbitrated, it was clear that the parties had agreed to arbitrate son's claim that parents should reconvey the disputed shares of stock.

¶ 5. The arbitrator issued his decision in August 2002. He concluded that father's “cancellation” of the parties' 1979 agreement and Steven's subsequent return of certain shares was a nullity and wholly without legal effect. Thus, he found that Steven was the rightful owner of his original 2.4 shares as well as the 25.5 shares he purchased from parents, which represented a 55.8% ownership of the corporation. In reaching his conclusion, the arbitrator rejected parents' attempt to raise a statute-of-limitations defense. He found that all parties had agreed in connection with arbitration that the statute of limitations would not be a bar to the resolution of their dispute.

¶ 6. Parents appealed this decision to the trial court. They asked the court to modify the arbitrator's decision (1) to eliminate the reference to their statute-of-limitations defense, other than to state that the statute of limitations defense was reserved and was not part of the arbitration; and (2) to clarify that, if parents' statute-of-limitations defense was ultimately determined to be without merit, then Steven must fully comply with the terms of the first agreement and pay parents the $55,770.28 still due for their shares of stock. Steven objected to parents' request. He argued, in relevant part, that the question of any payment owed to parents was not raised by either party at the time of the arbitration, and that, if it had been, he would have responded with affirmative defenses and a counterclaim for amounts and benefits received by parents equal to or greater than parents' claim.

¶ 7. In September 2003, the court confirmed the arbitrator's award. It rejected parents' statute-of-limitations argument, finding that parents' counsel had withdrawn the issue from consideration during arbitration. Following the court's decision, both parties requested amended findings setting forth the financial obligations of the parties relative to the stock ownership. The court denied the request in October 2003, finding that the arbitrator had not addressed this issue and it must infer that no significant evidence regarding this issue had been presented during arbitration. The court rejected parents' assertion that, because Steven suggested in a filing with the arbitrator that he would be willing to “complete the purchase,” he was by implication not counterclaiming for the amount paid out as dividends, and that he was therefore barred from doing so now under the doctrine of res judicata.

¶ 8. As the court explained, the preclusive effect of an arbitration award depended on the arbitration contract. The agreement here provided no basis for broadly defining the parties' dispute to include, and thereby preclude, the dividend claim. Moreover, the court continued, the alleged basis for preclusion-Steven's attorney's mention of willingness to complete the transaction-was anything but an explicit waiver of the dividend matter. Finally, the court noted that the arbitration was set in motion, not by parents and son, but by an attorney on behalf of the corporation. That attorney saw that the corporation could not engage in effective governance when the dispute over share ownership prevented any meaningful meetings or votes. It was this question of share ownership that drove the parties to arbitration, it is what they thought they were arbitrating, and it was the issue on which they presented evidence and argument. The court thus did not consider it fair to decide the financial issues on the present record.

¶ 9. Subsequent to this order, in December 2003, the court granted son's request for final judgment under V.R.C.P. 54(b), confirming the arbitrator's award.¹ The court reiterated that the remaining issues in the case, as referenced and determined in the court's October 2003 ruling, were separate and distinct from the issues resolved by the court's September 2003 ruling regarding the arbitration award and that they would be resolved, if necessary, in subsequent proceedings before the court.

¶ 10. In April 2004, son provided a statement of claim, explaining his position concerning the remaining issues in the case. Son sought an accounting pursuant to 12 V.S.A. § 4251; he also alleged breach of the 1979 agreement, conversion, unjust enrichment, and other claims. Son sought judgment against parents in the amount equal to all dividend distributions received by parents between 1987 and 2002, and he asserted that any amounts that he owed parents should be offset against the sums parents owed to him.

¶ 11. Parents then moved to dismiss son's claim under Vermont Rule of Civil Procedure 12(b)(6) on res judicata grounds. Parents asserted that, under the doctrine of res judicata, son's present claims for dividends were improper because they would split his indivisible cause of action, namely his assertion of ownership. They argued that son should have presented his claim for past dividends at the arbitration and that, by failing to do so, he was now barred from raising this claim. Alternatively, parents asserted that son's claims were barred by the statute of limitations, or at the least, son's claim for dividends should be limited to the six-year period between 1998 and 2004. In a June 2004 order, the court rejected parents' res judicata argument. The court agreed with parents, however, that due to the statute of limitations, Steven could seek only those dividends paid out in the six years prior to the present litigation.

¶ 12. Parents later filed an answer to son's claim, raising numerous affirmative defenses. Parents also raised a counterclaim, alleging that Steven breached the 1979 agreement. They maintained that, due to Steven's breach, they were entitled to rescission of the agreement and a declaration that they were the rightful owners of the disputed stock shares. Alternatively, parents sought an award of damages.

¶ 13. The parties subsequently filed cross-motions for summary judgment, which the court addressed in January 2007. Based on the arbitrator's finding that son owned the disputed shares, the court reasoned that in 1987 son effectively became pledgor of the stock and parents became pledgees. As relevant to this case, that meant that parents did not have the right to dividends, without using such payments to reduce son's debt for the purchase of the shares. Once the purchase price debt was paid, the pledge purpose was satisfied and no reason existed for its continuation. The amount of dividends paid to parents for the six years prior to the filing of son's present claim appeared undisputed, although the amount of the original purchase price owed to parents was disputed. The court thus left open the question of the amount owed to parents, though it attempted to show how the 1987 debt would translate into a current obligation based upon the apparently undisputed dividend payments.

¶ 14. In October 2007, son filed a supplemental motion for summary judgment regarding his entitlement to stock dividends and damages. Parents then sought to amend their pleadings to add...