Landstrom v. Shaver, s. 19490-19492
| Citation | 1997 SD 25,561 N.W.2d 1 |
| Decision Date | 12 March 1997 |
| Docket Number | Nos. 19490-19492,19495-19497,s. 19490-19492 |
| Parties | Jo LANDSTROM, individually and as guardian ad litem for her minor daughter Katheryn E. Drenker, and Kara Dee Drenker, Plaintiffs and Appellees, v. Inez L. SHAVER, Special Administratrix of the Estate of J. Milton P. Shaver; Jack Devereaux; and Constance J. Drew, Defendants and Appellants, and Black Hills Jewelry Manufacturing Co., a South Dakota Corporation, Defendant and Appellee. |
| Court | South Dakota Supreme Court |
Terence R. Quinn & Michael P. Reynolds, Quinn, Eiesland, Day & Barker, Belle Fourche, and Gordon W. Netzorg, J. Nicholas McKeever, Jr., Susan Bernhardt of Netzorg & McKeever, Englewood, CO, for Appellees Landstrom and Drenker.
Michael L. Luce & Timothy M. Gebhart of Davenport, Evans, Hurwitz & Smith, Sioux Falls, and Richard S. Mandelson & Marjorie N. Sloan of Baker & Hostetler, Denver, CO, for Appellant Devereaux.
Mark V. Meierhenry of Danforth, Meierhenry & Meierhenry, Sioux Falls, and Jean M. Massa of Jensen and Massa, Winner, and E.W. Hertz of Ulmer, Hertz & Bertsch, Menno, for Appellant Drew.
John Simko & James E. Moore of Woods, Fuller, Shultz & Smith, Sioux Falls, and John Paul Martin of Peterson, Tews & Squires, Minneapolis, MN, for Appellant Shaver.
James S. Nelson, Mark J. Connot of Gunderson, Palmer, Goodsell & Nelson, and Joseph M. Butler, Patrick Duffy of Bangs, McCullen, Butler, Foye and Simmons, Rapid City, for Appellee BH Jewelry.
¶1 This case involves both legal and equitable claims asserted by Jo Landstrom [hereinafter Landstrom], a minority shareholder, 1 in Black Hills Jewelry Manufacturing Company [hereinafter BHJMC]. Her suit is against the remaining shareholders in BHJMC, Milt Shaver [hereinafter Shaver], 2 Jack Devereaux [hereinafter Devereaux], and Constance Drew [hereinafter Drew]. The case was tried on an equitable claim of shareholder oppression and legal claims of breach of fiduciary duty, tortious interference with prospective economic advantage, negligent misrepresentation and negligence. The equitable and legal claims were tried simultaneously with a jury rendering a verdict for Landstrom on the legal claims and an advisory verdict in favor of Landstrom on the equitable claim. Thereafter the trial court entered findings of fact and conclusions of law in favor of Landstrom on the equitable claim consistent with the advisory verdict of the jury.
¶2 The jury found Shaver, Devereaux and Drew intentionally interfered with Landstrom's business relations and expectancies by failure to either sell the stock of all the shareholders or allow Landstrom to sell her stock. Damages were determined to be $10 million apportioned by the jury to be paid 40% by Shaver and 30% each by Devereaux and Drew. The jury found that Shaver breached his fiduciary duty by failing to disclose a veto provision in a 1987 buy-sell agreement. It awarded damages of $4 million. The jury also found that Shaver, Devereaux and Drew breached their fiduciary duty to Landstrom by refusing to properly direct BHJMC. It awarded $4 million in damages, apportioned 40% against Shaver, 30% against Devereaux, and 30% against Drew. The jury further found Shaver negligently misrepresented to Landstrom the 1987 revisions in the buy-sell agreement and awarded damages at $3 million. However this award was later determined by the trial court to be duplicative with the award of breach of fiduciary duty by Shaver and therefore was remitted. The jury found that Shaver, Devereaux and Drew were negligent by "failing to properly direct the company" but determined that no additional damages had been proved. Thus, after the post-trial proceedings, damages were awarded at $18 million on the legal claims.
¶3 The trial court further entered a judgment that appropriate relief on the equitable claim would be for Devereaux and Drew to purchase Landstrom's minority interest in BHJMC for $8.4 million. We affirm in part and reverse in part.
¶4 Ivan Landstrom founded BHJMC in 1944. Thereafter, he, along with others, owned and operated BHJMC as a partnership. Defendant Shaver was employed by BHJMC as manager but during that period of time did not have an ownership interest.
¶5 On March 17, 1968, Ivan Landstrom, along with his wife and six Rapid City High School cheerleaders, were killed in a plane crash. One of the cheerleaders was the Landstroms' youngest daughter. Landstroms were survived by two daughters, Jo Landstrom and Constance Drew. Jo Landstrom was twenty years old at the time of her parents' deaths. Constance's age at that time was not established by the record.
¶6 Upon the death of Ivan Landstrom and his wife, their interest in BHJMC passed to a trust with Jo Landstrom and Drew as beneficiaries. The value of this stock was $160,000 at the date of Ivan Landstrom's death. The day after Ivan's death, Shaver met with the trust representative indicating that if Shaver were to continue employment with BHJMC, Shaver wanted an ownership interest in the company. After the trustee informed Landstrom and Drew of Shaver's position, Shaver's demand was met by the trustee.
¶7 Following the death of the Ivan Landstroms, Shaver and his wife become close friends of Jo Landstrom and Drew. Jo Landstrom would later describe them as her surrogate parents. However this relationship was not to last.
¶8 After incorporation of BHJMC in 1977, the stock interests were allocated. Shaver held a 17.356% ownership in BHJMC. In 1977 the trust was dissolved with Landstrom and Drew each acquiring a 33.058% interest in BHJMC. The remaining interest of 16.529% was held by Defendant Devereaux which he received from his father who had been one of the original owners.
¶9 In 1977 the shareholders of BHJMC entered into a buy-sell agreement. This agreement provided that Shaver would not be permitted to sell his stock to outside third parties during his lifetime and that BHJMC would purchase Shaver's stock upon his death at a price set by a formula contained in that agreement. The agreement also required that any shareholder, other than Shaver, who desired to sell his or her stock, first offer that stock to BHJMC and then to the other shareholders at a price to be determined by the same formula. As per the agreement, only after BHJMC and other shareholders refused to purchase the stock, could it be sold to outside third parties.
¶10 This agreement was amended in 1987. The amendment allowed Shaver the right to veto a sale of stock by any other shareholder. According to attorney notes this was for the purpose of allowing Shaver to protect his interests by requiring "Milt's (Shaver's) approval or pay Milt off." The trial court found as fact that although Landstrom signed the 1987 agreement, she did not know that the Shaver veto provision had been placed in the final draft and that she was misled by Shaver on this point.
¶11 Beginning in 1978 after the dissolution of the Landstrom Trust, the Board of Directors consisted of Shaver, Landstrom, Devereaux and Drew. Shaver, who had been BHJMC President since its incorporation in 1977, continued in that capacity until 1984 when he retired from that position. However, the trial court found Shaver continued to exercise significant day-to-day influence over management of BHJMC until Shaver's death in 1992. Shaver was also Chairman of the Board of Directors until 1984. Landstrom held the post of Chairperson from 1984 until she voluntarily resigned in 1989.
¶12 By 1984 there had developed a strong difference in the business philosophies among the Directors. Landstrom felt BHJMC was drifting with lack of leadership from the Directors and lack of planning and fiscal accountability. She provided a series of reports to the other Directors in support of her arguments. Landstrom was troubled that BHJMC did not prepare a proposed budget for the upcoming year and was not attempting to determine and anticipate future demand for its various jewelry creations.
¶13 Shaver, Devereaux and Drew opposed Landstrom's suggestions for changes in company direction. They operated under the philosophy, described by Devereaux, that "if it ain't broke, don't fix it." They felt that BHJMC had prospered by a Board review of prior years' profit-and-loss statements. They termed this "historical budgeting." They viewed Landstrom's various proposals for future planning and budgeting as "creative fantasy trips."
¶14 During this period BHJMC initially experienced phenomenal growth and profits which Shaver, Devereaux and Drew pointed to as supporting their traditionalist business philosophies. At the time of Ivan Landstrom's death in 1968, BHJMC employed 50 people. By 1990, the number of employees at the company had increased to approximately 400 people. Its annual sales increased from $24,000 to $37,000,000 by 1990, which constituted over a 50% share of the Black Hills gold jewelry market. Its stock was valued at $71 million. Its profits since 1989 have been:
FYE 6/30 1989 3 $ 6,983,392
FYE 6/30 1990 10,776,118
FYE 6/30 1991 7,618,949
FYE 6/30 1992 6,889,400
FYE 6/30 1993 14,773,948
FYE 6/30 1994 (1,691,870)
FYE 6/30 1995 (650,045)
¶15 From 1984 to 1993 the shareholders received an average annual return on their investment of 39%. 4 However, as is indicated by the 1994 and 1995 figures, BHJMC's fortunes declined rapidly at that point. The 50% market share fell to 27%. The value of the company stock fell from $71 million to $21 million.
¶16 By the late 1980's, the once harmonious Directors' meetings now were sharply split by differences. Although Landstrom attended meetings and presided as Chairperson, often with her personal attorney in attendance, the other three Directors would refuse...
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