N.M. Banquest Investors v. Peters Corp.

• Decision Date: 06 March 2007
• Docket Number: No. 25,276.,25,276.
• Citation: 2007 NMCA 065,159 P.3d 1117
• Parties: NEW MEXICO BANQUEST INVESTORS CORPORATION, Petitioner/Counterdefendant-Appellee/Cross-Appellant, v. The PETERS CORP., Milo L. McGonagle, Jr., and E.W. Sargent, Respondents/Counterclaimants/Third-Party Plaintiffs-Appellants/Cross-Appellees, v. Edward B. Bennett, Third-Party Defendant-Appellee.
• Court: Court of Appeals of New Mexico

159 P.3d 1117

2007 NMCA 065

NEW MEXICO BANQUEST INVESTORS CORPORATION, Petitioner/Counterdefendant-Appellee/Cross-Appellant, v. The PETERS CORP., Milo L. McGonagle, Jr., and E.W. Sargent, Respondents/Counterclaimants/Third-Party Plaintiffs-Appellants/Cross-Appellees, v. Edward B. Bennett, Third-Party Defendant-Appellee.

No. 25,276.

Court of Appeals of New Mexico.

March 6, 2007.

Certiorari Granted, No. 30,292, May 24, 2007.

Tucker Law Firm, P.C., Steven L. Tucker, Santa Fe, NM, Comeau, Maldegen, Templeman & Indall, LLP, Michael B. Comeau, Santa Fe, NM, for Petitioner/Counterdefendant-Appellee/Cross-Appellant.

Freedman, Boyd, Daniels, Hollander & Goldberg, P.A., Joseph Goldberg, John W. Boyd, Dana K. Grubesic, Albuquerque, NM, C. Mott Wooley, Santa Fe, NM, for Respondents/Counterclaimants/Third-Party Plaintiffs-Appellants/Cross-Appellees.

Brennan & Sullivan, P.A., Michael W. Brennan, Santa Fe, NM, for Third-Party Defendant-Appellee.

OPINION

ALARID, Judge.

{1} This case requires us to examine dissenting shareholders' rights to obtain the fair value of their shares under NMSA 1978, Section 53-15-4 (1983), and under a particular shareholder agreement among the parties. Specifically, we decide whether, under the circumstances of this case: (1) a control premium is payable on the dissenting shareholders' shares; (2) punitive damages should be awarded; (3) the district court erred in determining the shareholders' agreement to be clear and unambiguous; and (4) the judgment amount representing the fair value of the dissenting shareholders' shares may bear interest compounded annually. We affirm the district court's order on all issues relating to the appeal and the cross-appeal.

FACTUAL AND PROCEDURAL BACKGROUND

{2} First National Bank of Santa Fe (the Bank) is a federally chartered bank with its principal place of business in Santa Fe, New Mexico. In 1979, Edward Bennett, Third-Party Defendant in this case (Bennett), purchased a 46% interest in New Mexico Bancorporation, the bank holding company that holds 100% of the shares of the Bank. In 1980, New Mexico Bancorporation changed its name to New Mexico Banquest Corporation (Banquest). In 1982, a small number of investors, including Respondents/Third-Party Plaintiffs, The Peters Corporation, Milo L. McGonagle, Jr., and E.W. Sargent (collectively the Peters Group), purchased a minority interest in Banquest. In 1982 and early 1983, a large Spanish bank, Banco Bilbao de Vizcaya (BBV), as successor to Banco de Vizcaya, agreed to invest $10 million in the Bank enterprise. To facilitate the BBV investment, a second tier holding company was formed, Petitioners New Mexico Banquest Investors Corporation (NMBIC). In addition to facilitating the BBV investment, NMBIC was formed to assume the personal debts incurred by the Banquest shareholders when they purchased Banquest shares. NMBIC assumed and paid $327,832 of stock acquisition debt of the Peters Corporation; $86,180 incurred by McGonagle; and $69,500 incurred by Sargent.

{3} NMBIC is a close corporation. As of June 30, 1996, there were 502,589 NMBIC shares outstanding with a total of 68 shareholders in twelve states and two foreign countries. Regarding the stock interests of the NMBIC shareholders relevant to this dispute, BBV owned 198,913 shares or a 39.6% interest; the Peters Corporation owned 19,526 shares or a 3.88% interest; Milo McGonagle owned 2,506 shares or a 0.5% interest; E.W. Sargent owned 2,000 shares or a 0.4% interest; Bennett owned 88,897 shares or a 17.7% interest; and Bennett's family members owned 22,026 shares or a 4.4% interest in NMBIC at the time. Bennett was president of NMBIC, chairman of the board of directors, and controlling shareholder in NMBIC. He was also president of the Bank and chairman of the board of directors of the Bank. The Peters Group were minority shareholders in NMBIC, and at the time they exercised their dissenters' rights in August 1996, they had been NMBIC shareholders for about thirteen years.

{4} In 1983, Bennett and certain other shareholders, including the Peters Group, executed a shareholders' agreement (the Shareholder Agreement). This agreement contained the following provisions, among others: (1) management and control of NMBIC and Banquest was placed in Bennett and a board selected by Bennett, subject to overrule by a supermajority of shareholders; and (2) requirement that, if any signatory shareholder chose to sell his or her shares, the other shareholders would each have the right to buy his or her pro-rata share of the selling shareholder's stock. In 1983, when BBV acquired its stock in NMBIC, it also entered into a shareholders' agreement with certain NMBIC shareholders including Bennett and the Peters Group (the BBV Agreement). The BBV Agreement expired after ten years and was reissued in 1993, with the same language in the provisions relevant to this dispute. The rights of the NMBIC shareholders, in the event that BBV should desire to sell its shares in NMBIC, is the basis of the Peters Group's counterclaims against NMBIC and its third-party complaint against Bennett.

{5} In 1995, BBV determined that it must sell its interest in NMBIC, initially, because of banking regulations regarding limits on foreign bank holdings in the United States. Although the banking regulations changed, BBV decided to sell all of its NMBIC shares and contacted Bennett. Under the BBV Agreement, Bennett was appointed by the other shareholders to receive notice from BBV of BBV's intent to sell its shares. Bennett consulted legal counsel and based on counsel's advice, Bennett determined that he and his family would not purchase the BBV shares and also would not assign their options to purchase. The district court found that Bennett's motivation in structuring the redemption of the BBV shares was: (1) the establishment of an employee stock option plan; (2) the tax benefits of a redemption over purchase by individuals; (3) the financial efficiency of a redemption; (4) the elimination of the possibility that the shares would fall into the hands of an unfriendly third party; (5) the broadening of the shareholder base; and (6) to provide stability and continuity of management.

{6} The district court found that the BBV Agreement clearly and unambiguously provided that any NMBIC shareholder, by declining to exercise the shareholder's option to purchase a pro rata portion of the BBV shares and by declining to assign the shareholder's option to purchase the pro rata portion to another shareholder, could prevent any other shareholder from purchasing any BBV shares and allow BBV to sell its shares to a third party. NMBIC was granted summary judgment against the Peters Corporation on this issue and in issuing its findings and conclusions, the district court specifically agreed that these provisions of the BBV Agreement reflected the intent of the parties. Several other NMBIC Board members also determined that they would not individually purchase or assign their rights to purchase their pro rata portion of the BBV shares, leaving the door open for an NMBIC redemption of the shares as a third party.

{7} On May 9, 1996, BBV and NMBIC entered into a letter of intent whereby NMBIC would redeem all of the BBV shares in NMBIC. Although Bennett had discussed the sale with counsel, the Board of Directors, and some NMBIC shareholders, Bennett initially did not disclose anything to the Peters Group. The Peters Group was first notified in proxy materials noticing a special shareholders' meeting sent to the NMBIC shareholders on July 10, 1996. The NMBIC shareholders' meeting was held on July 23, 1996. All NMBIC shareholders, except the Peters Group and one other shareholder holding a 1.2% interest in NMBIC, declined to exercise their individual rights of first refusal or to assign such rights, preferring to ratify NMBIC's redemption of the BBV shares. The Peters Group dissented from the redemption, decided not to remain NMBIC shareholders, and immediately sought to obtain fair value of their NMBIC shares under Section 53-15-4.

{8} After the shareholders' meeting ratifying the redemption, NMBIC purchased BBV's interest in NMBIC for twice book value as of December 31, 1995, or $82.13 per share, for a total of $16,336,000. NMBIC financed the purchase by reissuing the BBV stock at $56.00 per share, issuing preferred stock, and borrowing money. NMBIC also established an employee stock ownership plan (ESOP) that would purchase 80,000 shares of the new offering at a total price of $4,480,000 and would borrow funds for the purchase. NMBIC then guaranteed the ESOP's debt.

{9} When NMBIC and the Peters Group could not agree on the fair value for the Peters Group's shares, NMBIC petitioned the district court, under Section 53-15-4, to determine their fair value. The Peters Group answered the Petition and filed counterclaims against NMBIC, along with a third-party complaint against Bennett, asserting fraud, breach of fiduciary duty, breach of contract, and asking for rescission and punitive damages. In 2002, the district court granted NMBIC's motion for summary judgment in part, determining that the applicable section of the BBV Agreement was not ambiguous, thus dismissing the Peters Group's claim for breach of contract. The parties proceeded to trial on the other counterclaims and third-party claims.

{10} After trial, the parties entered proposed findings and conclusions. The district court entered findings and conclusions, awarding the Peters Group its statutory appraisal remedy at $99.52 per share, without minority discount or control premium, and including interest at 10% compounded annually, plus witnesses and attorney fees. The district court found that Bennett had breached his fiduciary duty to the Peters Group by failing to notify them that BBV intended to sell its shares prior to sending out proxy materials on July 10, 1996, while he did inform some other NMBIC shareholders and the NMBIC Board...