Pennfield Oil Co. v. Winstrom
| Decision Date | 18 August 2006 |
| Docket Number | No. S-04-982.,S-04-982. |
| Citation | 272 Neb. 219,720 N.W.2d 886 |
| Parties | PENNFIELD OIL COMPANY, a Nebraska corporation, appellee and cross-appellee, v. W.L. WINSTROM, individually and as Personal Representative of the Estate of R.W. Winstrom, appellee and cross-appellant, and Andrew L. Winstrom, appellant and cross-appellee. |
| Court | Nebraska Supreme Court |
David A. Domina and James F. Cann, of Domina Law, P.C., Omaha, for appellant.
John R. Douglas, Brien W. Welch, and Daniel J. Epstein, of Cassem, Tierney, Adams, Gotch & Douglas, Omaha, for appellee W.L. Winstrom.
Rodney M. Confer and Jeanelle R. Lust, of Knudsen, Berkheimer, Richardson & Endacott, L.L.P., Lincoln, for appellee Pennfield Oil Company.
Pennfield Oil Company (Pennfield) is a closely held Nebraska corporation, formed in 1947 by R.W. Winstrom (R.W.). It has been a subchapter S corporation since 1987. At the time of the corporation's formation, R.W. held 50 shares of stock, as did J.P. Stocker. Another 20 shares were later issued to V.J. Lich, and in 1948, the three shareholders entered into an agreement (the 1948 agreement) generally requiring redemption of the stock at book value upon the death of a shareholder or a shareholder's desire to sell stock. Stocker's shares were redeemed by Pennfield in 1949, and Pennfield's board of directors authorized the sale of Lich's stock to R.W. in 1951. Thus, in 1951, there were 70 outstanding shares of Pennfield stock, all held by R.W.
In 1960, R.W. gifted 20 shares of stock each to his two sons, W.D. Winstrom (Dean) and W.L. Winstrom (Bill). The three shareholders and their wives entered into a new agreement (the 1960 agreement), restricting ownership to the three shareholders and providing that "in the event of the demise" of any of the three shareholders, or if any of the three desired to dispose of stock, Pennfield "shall buy the stock at the book value of the stock, determined by a stockholders' meeting within thirty days of the date of demise or date of desiring to sell."
Dean's stock was redeemed by Pennfield in 1969. At this point, then, there were 50 outstanding shares of stock: 30 held by R.W., and 20 held by Bill.
In 1987, three stock certificates were issued to Bill, consisting of 5.27 shares gifted to Bill by R.W. This gave Bill a majority interest in the company — 25.27 of the 50 outstanding shares. Later that year, R.W. died testate, and his will devised his Pennfield stock, or proceeds of its sale, to Bill. Bill also was the personal representative of R.W.'s estate (the Estate).
The Pennfield stock was a substantial portion of the Estate's assets, and the Estate elected to defer estate tax liability pursuant to I.R.C. §§ 6166 and 303 (1994), which permit deferral of estate tax liability for stock of qualifying closely held corporations. Evidence was presented that Pennfield's board of directors met on or about December 14, 1987, and resolved to invoke the 1960 agreement, but over an extended period of time because of the financial burden of redeeming the stock. Bill denied that any such meeting took place. As previously noted, the 1960 agreement required a meeting of "shareholders"; at this time, all the shares were owned by either Bill, in his personal capacity, or the Estate, of which Bill was the personal representative.
In 1988, Pennfield and all the shareholders (i.e., Bill and the Estate) entered into a new stock repurchase agreement (the 1988 agreement). Bill signed the agreement three times, on behalf of himself, the Estate, and Pennfield. The stated purpose of the 1988 agreement was "to confirm[,] restate, formalize and clarify" the existing 1948 and 1960 agreements. The 1988 agreement expressly applied to all outstanding stock as of the date of the agreement and stated that no transfer of shares would be made or recognized unless the transferee accepted the 1988 agreement and agreed to be bound by it. As with the previous agreements, the 1988 agreement provided for the redemption of stock at book value upon the death of a stockholder, "an offer by a Stockholder to sell stock to a person who is not a Stockholder of Pennfield, or the acceptance of an offer by a Stockholder of an offer to purchase such Stockholder's stock or any part thereof," or separation of a stockholder from employment with Pennfield.
The 1988 agreement further provided that
redemption of shares pursuant to this Agreement shall be closed at such time and place as shall be mutually agreed, not earlier than thirty (30) days, nor later than fifteen (15) months from the effective date, provided, that in the case of redemption of the stock of a deceased Stockholder, closing with respect to so much of the deceased Stockholder's shares as are required to be retained to enable Stockholder's estate to qualify for federal estate tax deferral pursuant to I.R.C. Sec. 6166 () shall be deferred, if requested by the Personal Representative, until the balance of such deferred federal estate tax is paid.
The 1988 agreement also provided:
Pennfield may waive its right to redeem and Stockholder or Personal Representative may waive the right to sell the stock to Pennfield as follows;
a) in the case of redemption by reason of death, if such stock will pass, pursuant to the will or other testamentary disposition of such Stockholder or the applicable laws of descent and distribution, or
b) in the case of redemption by reason of proposed transfer, if such stock will be transferred, to a person who is an employee of Pennfield and who had endorsed this Agreement with respect to the stock to be transferred.
Bill's son, Andrew Winstrom (Andrew), became president of Pennfield later in 1988. Andrew agreed to be bound by the 1988 agreement in 1990. At that time, all the outstanding stock was still owned by either Bill or the Estate. In 1990, Pennfield repurchased a total of 16.24 shares of stock from the Estate. This action was approved by Pennfield's shareholders (Bill and the Estate) and board of directors (Bill, Andrew, and another board member). At the same time, the board adopted a resolution to sell Andrew 15.89 shares. Andrew's obligation to pay for the stock was assigned to the Estate in partial satisfaction of the redemption price of the 16.24 shares Pennfield had repurchased, with Pennfield paying the difference directly to the Estate. When these transactions were completed, Bill held 25.27 shares, Andrew held 15.89 shares, and the Estate held 8.49 shares.
The Estate's tender of 8.09 shares of the stock redeemed by Pennfield was accomplished in a new stock redemption agreement (the 1990 agreement). The 1990 agreement was signed by Bill on behalf of the Estate, Andrew on behalf of Pennfield, and accepted by Bill in his individual capacity. The 1990 agreement specified that the 8.09 shares of stock were tendered pursuant to the 1948, 1960, and 1988 agreements and that all the parties "confirm[ed] and ratif[ied]" the 1960 agreement "as restated" in the 1988 agreement. The 1990 agreement also stated:
It is further agreed the rights and obligations of the [1988] Repurchase Agreement are continuing and either Estate or [Pennfield] shall have the right to enforce same at any time. Estate and [Pennfield] each stipulate and agree that any statute of limitations or rule of law of Nebraska or any other state which limits the time for filing any action pursuant to the agreement, whether in law or equity, is extended and tolled from the date hereof until either party hereto shall notify the other that such statute shall again commence to run.
In 1992, Andrew was gifted an additional 8.43 shares from Bill, bringing Andrew's interest in Pennfield to 24.32 shares. Bill still held 16.84 shares, and the Estate held 8.49 shares, for a total of 25.33 shares under Bill's control and not in Andrew's possession. Thus, Andrew was effectively a minority shareholder and would remain so if the Estate's stock was transferred to Bill, but Andrew would become the majority shareholder if the Estate's stock was redeemed by Pennfield.
In 1997, Bill sought to transfer the final 8.49 shares of stock in the Estate to himself, pursuant to R.W.'s will. Andrew, as president of Pennfield, refused to sign the stock certificate, and the attempt to transfer the stock was tabled. In 2000, the Estate made its final tax payment and Bill sought to close the Estate, and again to transfer the final 8.49 shares from the Estate to himself. Andrew again refused to sign the stock certificate. Andrew also refused to call a director's meeting to transfer the stock. On December 28, 2000, Bill, as Pennfield secretary, directed Pennfield's corporate counsel to note, on the corporation's stock register, that the 8.49 shares held by the Estate had been transferred to Bill. On January 23, 2001, Bill notified Andrew that he was calling a special meeting to amend the company bylaws and conduct other business; on the same date, Andrew filed a notice of redemption by Pennfield of the 8.49 shares.
On February 7, 2001, Andrew directed the filing of a petition in the district court on behalf of Pennfield, against Bill in his individual capacity and as personal representative of the Estate, seeking declaratory and injunctive relief and an order requiring redemption of the shares. Pennfield later filed an amended petition naming Andrew as an additional defendant. The district court temporarily enjoined all the parties from taking any action to vote or transfer the disputed shares. Andrew filed an answer and cross-claims, generally alleging breaches of contract and fiduciary duties by Bill. Bill filed an answer in which he alleged that the action on behalf of Pennfield was not authorized by Pennfield's board of...
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