McCauley v. Tom McCauley & Son, Inc., 7861

• Decision Date: 08 July 1986
• Docket Number: No. 7861,7861
• Citation: 1986 NMCA 65,104 N.M. 523,724 P.2d 232
• Parties: LaVerne McCAULEY, Plaintiff-Appellee and Cross-Appellant, v. TOM McCAULEY & SON, INC., et al., Defendants-Appellants and Cross-Appellees.
• Court: Court of Appeals of New Mexico

Page 232

724 P.2d 232

104 N.M. 523

LaVerne McCAULEY, Plaintiff-Appellee and Cross-Appellant, v. TOM McCAULEY & SON, INC., et al., Defendants-Appellants and Cross-Appellees.

No. 7861.

Court of Appeals of New Mexico.

July 8, 1986.

[104 NM 524] Bryan L. Query, Bryan L. Query, P.A., Albuquerque, Daniel A. Dolan, Daniel A. Dolan, P.A., Las Cruces, for plaintiff-appellee and cross-appellant.

John W. Reynolds, Silver City, R. Wilson Martin, Beverly J. Singleman, Martin, Cresswell, Hubert & Hernandez, P.A., Las Cruces, for defendants-appellants and cross-appellees.

OPINION

GARCIA, Judge.

LaVerne and Fred McCauley were married to one another and owned 60% of the stock in Tom McCauley & Son, Inc. (corporation), a closely held family corporation involved in cattle ranching. They separated in 1977 and were subsequently divorced. Thereafter, LaVerne McCauley (plaintiff), brought an action against the corporation and the remaining shareholders which included her former husband, parental in-laws and two sons (defendants). Her lawsuit sought damages for fraud and breach of fiduciary duty; she also sought to compel an involuntary liquidation pursuant to NMSA 1978, Section 53-16-16 (Repl.Pamp.1983), on the basis that the majority stockholders had engaged in oppressive conduct.

After an eight-day nonjury trial, the court found in favor of plaintiff on her allegation of oppressive conduct, but denied all other claims raised in her complaint. The court also found for the corporation on its debt counterclaim. The court granted defendants three options: (1) liquidation of the corporation; (2) partition and reorganization; or (3) purchase by the corporation of plaintiff's outstanding shares. Defendants chose the third option.

Defendants filed a timely appeal and raise three issues: (1) whether there is substantial evidence to support the trial court's finding of oppressive conduct under Section 53-16-16; (2) whether the trial court erred in determining the fair market value of the corporate stock based on an appraisal of corporate assets rather than on the fair market value of a minority interest in the stock of a close family corporation; (3) whether the court erred in awarding plaintiff an interest in oil, gas and mineral rights after directing that plaintiff's stock be purchased by the corporation.

By cross-appeal, two additional issues are presented: (1) whether the court erred in discounting the value of the corporate stock, and (2) whether the corporation was estopped from challenging the value of its share of a water rights sale. A preliminary issue concerning the propriety of plaintiff's cross-appeal is also before this court.

MOTION TO RECONSIDER CROSS-APPEAL

Judgment was entered on May 3, 1984. Defendants filed a timely notice of appeal. Thirty days after entry of the judgment, pursuant to NMSA 1978, Civ.App. Rule 3(a)(1) (Repl.Pamp.1984) would have been Saturday, June 2nd. Inasmuch as the thirtieth day fell on a Saturday, the time for filing an appeal would be extended until the end of the next day which is not a Saturday, Sunday or a legal holiday. NMSA 1978, Civ.App.R. 23(a) (Repl.Pamp.1984). Thus, plaintiff's cross-appeal should have been filed by Monday, June 4, 1984. Plaintiff filed her cross-appeal on June 6, 1984. Defendants filed a motion with this court to dismiss plaintiff's cross-appeal as being untimely, but prior to the time that this court acted on defendants' motion, plaintiff also filed a motion with the district court, pursuant to Civ.App. Rule 3(f). This motion was filed more than thirty days from entry of judgment, but before expiration of sixty days. With minimal notice to defendants, the court heard plaintiff's request for an extension and defendants' arguments in opposition. After hearing the arguments, the court granted plaintiff's extension to June 6th, the date on which the cross-appeal had been filed. On June 25, 1984, the court of appeals, without being advised that a motion to extend the time for filing had either been presented to the district court or acted upon, granted defendants' motion to dismiss plaintiff's cross-appeal. When this court was subsequently apprised that the trial court had extended the time for filing the notice, the appeal was reinstated on this court's docket. Defendants have requested that this court reconsider the decision to reinstate the appeal. In light of the vast discretion accorded the trial court by Civ.App. Rule 3(f), we decline to reconsider our decision in this matter. See White v. Singleton, 88 N.M. 262, 539 P.2d 1024 (Ct.App.1975).

BACKGROUND

In 1947, Tom McCauley and his wife Marie, together with their two sons, Fred and Tom, formed a partnership and maintained a cow-calf ranching operation in Grant County. In 1950, Fred McCauley married LaVerne and they both devoted their efforts and talents to the operation of the ranch.

To take advantage of favorable tax treatment and to provide for protection of assets, the partners established a family corporation in 1969. The business was incorporated as Tom McCauley and Son, Inc. As a result of the original stock issue and subsequent acquisitions and transfers, Tom and Marie McCauley owned a combined total of 33% of the outstanding shares. Fred McCauley and LaVerne McCauley each owned 30.21% of the corporation's outstanding stock and the remaining stock was owned by Fred and LaVerne's sons. Fred and LaVerne, together with the other shareholders, continued to devote all their work energy to the corporation. Plaintiff was a director and officer of the corporation, kept the corporate books and managed the corporate accounts. Additionally, plaintiff performed all household chores for her family and also provided some cooking and cleaning for various ranch hands. Fred McCauley managed the ranch and took care of the day-to-day operations.

Because a corporate resolution required the around-the-clock presence of corporate employees at the ranch, the corporation was authorized to provide its shareholders with food, housing, utilities, vehicles and gasoline, medical insurance and other benefits.

In 1977, Fred and LaVerne began to experience severe marital difficulties. Their domestic strife had a significant adverse impact on their ability to get along with one another, and plaintiff left the ranch home in 1978. She ultimately petitioned for a dissolution of marriage. The divorce proceedings were bitter and acrimonious, and the protracted litigation generated much ill-will and resentment between Fred, LaVerne, her in-laws and children.

Following her departure from the ranch, plaintiff was not re-elected to her position as an officer and director of the corporation and no longer received the corporate benefits enjoyed by the remaining shareholders. During discovery proceedings in the domestic litigation, Fred learned that over the years, plaintiff had withdrawn large amounts of partnership and corporate funds and had utilized them for her own benefit. This information was conveyed by Fred to the remaining shareholders prior to the re-election of officers, and this information, together with the bitterness existing amongst the shareholders, resulted in plaintiff not being re-elected to the board.

Because of her difficult financial situation following the separation, plaintiff made numerous demands on the corporation for a declaration of dividends. The majority shareholders, however, determined that the corporation's debt should be substantially reduced before dividends would be declared, and accordingly, no dividend was paid to plaintiff. There was no dispute that funds were available and could have been used to pay dividends. Similarly, plaintiff sought to return to the ranch and reside in one of the available houses. Her request was denied. The problems between the parties continued and ultimately culminated in plaintiff bringing this action against the corporation and the majority shareholders asserting that the majority engaged in fraudulent, oppressive and illegal activities, including corporate mismanagement.

Plaintiff contended that she had been ousted from her position on the board and had been effectively denied a voice in the management and decision-making processes of the corporation. She contended that corporate assets had been wrongfully converted to the personal use of Fred McCauley and that she was being denied corporate benefits of lodging, food, transportation and other economic advantages. Plaintiff asserted, among other things, that the corporation's refusal to declare a dividend, when coupled with the corporate restrictions on stock transfers, resulted in oppressive conduct. The corporation counterclaimed for the money withdrawn by plaintiff.

The court determined that the directors and majority stockholders had acted with the intent to "freeze out" plaintiff from the corporation, and that defendants' conduct was oppressive. The court also found for the corporation on its counterclaim. The court proposed three alternative remedies, and defendants opted to purchase plaintiff's shares. Both parties have appealed.

WHETHER THERE IS SUBSTANTIAL EVIDENCE ON OPPRESSIVE CONDUCT

Section 53-16-16 was derived from Section 97 of the ABA Model Business Corporation Act. It provides a procedure whereby the district court may order the involuntary dissolution of a corporation. In relevant part, Section 53-16-16(A)(1)(b) provides:

A. The district courts may liquidate the assets and business of a corporation:

(1) in an action by a shareholder when it is established that:

* * * *

(b) the acts of the directors or those in control of the corporation are illegal, oppressive or fraudulent....

We initially approve the trial court's recognition of remedies not specifically stated in the oppressive conduct statute. See Baker v. Commercial Body Builders, Inc., 264 Or. 614, 507 P.2d 387 (1973); see generally Prager v. Prager, 80 N.M. 773, 461 P.2d 906 (1969). An order of corporate dissolution is a drastic...