Northern Air Servs. Inc. v. Link, Appeal No. 2008AP2897

Decision Date18 January 2012
Docket NumberAppeal No. 2008AP2897,Cir. Ct. No. 2005CV127
CourtCourt of Appeals of Wisconsin


This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports.

A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See WIS. STAT. § 808.10 and RULE 809.62.

APPEAL and CROSS-APPEAL from a judgment of the circuit court for Washburn County: EUGENE D. HARRINGTON, Judge. Affirmed.

Before Hoover, P.J., Peterson, J., and Thomas Cane, Reserve Judge.

¶1 CANE, J. This case is before us on remand from the Wisconsin Supreme Court. A jury determined that Jack and Troy Link breached their fiduciary duties to Jay Link, a minority shareholder. The sole issue presented is "whether the circuit court erred by limiting the evidence Jay could present to the jury regarding his theory of damages relating to his breach of fiduciary duty claims ...."1 Northern Air Servs., Inc. v. Link, 2011 WI 75, ¶11, 336 Wis. 2d l, 804 N.W.2d 458.

¶2 We conclude the circuit court erred by determining that a minority shareholder alleging that majority shareholders breached their fiduciary duties in a "squeeze out" cannot recover the difference between fair value and fair market value for his or her shares where a buyout agreement specifies the latter value. However, we conclude the error was harmless. Jay held his shares throughout the circuit court proceedings, and the sale of his shares at fair market value was not reasonably certain to occur. Accordingly, we affirm.


¶3 This case involves an intrafamilial dispute between Jay Link, his brother, Troy Link, and his father, Jack Link. The three family members owned Link Snacks, Inc., which produces and distributes meat and cheese products.3

¶4 In 1995, the three Links agreed to enter into a Buy-Sell Agreement.

Among other things, the Buy-Sell Agreement granted the company "the option to redeem all or a portion" of Jack, Troy, or Jay's shares if their employment with Link Snacks was terminated, with or without cause. As set forth in the Buy-Sell Agreement, the purchase price for such shares would be the "fair market value" determined by an appraiser mutually agreed upon by the parties.

Link, 336 Wis. 2d 1, ¶13 (footnote omitted). After a series of disagreements between Jay on the one side, and his father and brother on the other, the parties "agreed that Jay would be terminated as an employee and officer of Link Snacks and Link affiliates and the parties would attempt to negotiate an amicable buy-out of all Jay's interests in the various Link-related companies." Id., ¶14. The parties were unable to successfully close the purchase of Jay's shares. Id., ¶15.

¶5 In 2005, Link Snacks, Jack, and Troy filed suit seeking specific performance of the Buy-Sell Agreement and monetary damages for breach of fiduciary duty. Id., ¶17. Jay counterclaimed for breach of fiduciary duty, seeking monetary damages for Jack and Troy's alleged efforts to remove him as an officer and shareholder. Jay also claimed oppression under WIS. STAT. § 180.1430(2)(b),and sought either dissolution of the Link Snacks companies or recovery of the fair value of his shares. Id., ¶17.

In order to recover the fair value of his shares, Jay sought to recover the difference between the fair value of his shares and the discounted fair market value price at which Link Snacks was permitted to redeem his shares under the Buy-Sell Agreement. He claimed that the difference between the two prices represented ill-gotten gain associated with Jack's and Troy's wrongful actions.

Id., ¶18.

¶6 The circuit court barred Jay from presenting any evidence regarding the fair value of his shares. Citing the RESTATEMENT (SECOND) OF TORTS § 903 (1979), the court determined that Jay's recovery was limited to compensatory damages that would return him to a pre-breach state. In the court's view, the applicable value calculation for Jay's shares was fair market value under the Buy-Sell Agreement. It further determined that an award of fair market value was a remedy for oppression, but not breach of fiduciary duty. The court limited Jay's recovery for breach of fiduciary duty to a "benefits-of-ownership" measure; that is, benefits or perks received by other shareholders, but not Jay.

¶7 Jack and Troy moved for summary judgment on their claim for specific enforcement of the Buy-Sell Agreement. The circuit court granted their summary judgment motion, but declined to order Jay to immediately sell his shares. As the supreme court recognized, the circuit court's grant of summary judgment was limited to its conclusion that the agreement was a "valid, enforceable, and unambiguous agreement." Link, 336 Wis. 2d 1, ¶19. The circuit court left for a bench trial Jay's defense and counterclaim that enforcement of the Buy-Sell Agreement would be oppressive. Id. ¶8 The court conducted a six-week jury trial to resolve the parties' legal claims. As relevant to this appeal, the jury concluded that Jack and Troy breached their fiduciary duties to Jay. Jay was awarded compensatory and punitive damages from Jack totaling $5,736,000, but nothing from Troy. Jay owned his shares, and thus held an interest in the corporation as a going concern, throughout the jury trial.

¶9 After the jury trial, the court proceeded to consider the parties' equitable claims for specific performance and judicial dissolution using the facts as found by the jury. The court declined to order dissolution, finding that, as a matter of law, Jay was not oppressed under WIS. STAT. § 180.1430(2)(b). The court granted Link Snacks' motion to compel specific performance of the Buy-Sell Agreement and ordered Jay to surrender his shares in Link Snacks for $19,400,000—the appraised fair market value of his shares in accordance with the Buy-Sell Agreement. Id., ¶27.

¶10 Jay appealed, arguing among other things that the circuit court erred by barring him from introducing to the jury evidence of the fair value of his shares. By order, we concluded that Jay voluntarily waived his right to appeal that issue under the benefit-estoppel doctrine by complying with the circuit court's order that he surrender his shares in Link Snacks. Id., ¶31. The supreme court concluded otherwise and remanded the case for us to decide the evidentiary matter raised in Jay's appeal. Id., ¶11.


¶11 We review a circuit court's decision to admit or exclude evidence for an erroneous exercise of discretion. Martindale v. Ripp, 2001 WI 113, ¶28, 246 Wis. 2d 67, 629 N.W.2d 698. Under this standard, we will uphold a decision toadmit or exclude evidence "if the circuit court examined the relevant facts, applied a proper legal standard, and, using a demonstrated rational process, reached a reasonable conclusion." Id. While our review is highly deferential, see id., if a court "bases the exercise of [its] discretion upon an error of law, [its] conduct is beyond the limits of discretion," State v. Hutnik, 39 Wis. 2d 754, 763, 159 N.W.2d 733 (1968).

¶12 We must provide some context for the circuit court's evidentiary decision. The measure of damages Jay proposed on his breach of fiduciary duty claims was the difference between his shares' "fair value" and "fair market value." "Fair value" refers to the value of stock not as a commodity, but as a proportionate share of the enterprise as a whole. HMO-W Inc. v. SSM Health Care Sys., 2000 WI 46, ¶31, 234 Wis. 2d 707, 611 N.W.2d 250. "Fair market value" is the amount for which the stock would sell in the open market, and, in the case of closely held corporations, usually includes a minority discount for noncontrolling shares. Id., ¶24 n.5. The Buy-Sell Agreement obligated Jay, upon termination of his employment, to sell his shares at fair market value. Jay argued the difference between fair value and fair market value represented the amount of Jack and Troy's ill-gotten gains.

¶13 The basis for the circuit court's evidentiary decision was its conclusion that fair value is not a proper measure of damages for breach of fiduciary duty. Relying on comment a. to the RESTATEMENT (SECOND) OF TORTS § 903, the court concluded that Jay was entitled only to those damages that would "place him in a position substantially equivalent in a pecuniary way to that whichhe would have occupied had no tort been committed."4 In the circuit court's view, if Jack and Troy had not breached their fiduciary duties, Jay would have been entitled only to fair market value for his shares under the Buy-Sell Agreement.

¶14 The circuit court's decision overlooks Jay's theory for his breach of fiduciary duty claim. In essence, Jay theorized that Jack and Troy violated their fiduciary duties to him as a minority shareholder by secretly plotting his termination in an attempt to purchase his shares at a depressed value. This is a classic "squeeze out" scenario. See Sugarman v. Sugarman, 797 F.2d 3, 7 (1st Cir. 1986) (describing devices used by majority shareholders to ensure that minority shareholders do not receive financial benefits from the corporation, including depriving minority shareholders of "corporate offices and of employment by the company"); see also Jorgensen v. Water Works, Inc., 218 Wis. 2d 761, 779, 582 N.W.2d 98 (Ct. App. 1998) (citing Sugarman with approval). When a minority stockholder agrees to sell out at less than fair value, the majority has won. Sugarman, 797 F.2d at 7 (citing Donahue v. Rodd Electrotype Co. of...

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