Pennfield Oil Co. v. Winstrom

• Decision Date: 18 July 2008
• Docket Number: No. S-06-1268.,S-06-1268.
• Citation: 752 N.W.2d 588,276 Neb. 123
• Parties: PENNFIELD OIL COMPANY, a Nebraska corporation, Appellee, v. W.L. WINSTROM, individually and as personal representative of the Estate of R.W. Winstrom, Appellee, and Andrew L. Winstrom, Appellant.
• Court: Nebraska Supreme Court

752 N.W.2d 588

276 Neb. 123

PENNFIELD OIL COMPANY, a Nebraska corporation, Appellee, v. W.L. WINSTROM, individually and as personal representative of the Estate of R.W. Winstrom, Appellee, and Andrew L. Winstrom, Appellant.

No. S-06-1268.

Supreme Court of Nebraska.

July 18, 2008.

David A. Domina and Claudia L. Stringfield-Johnson, of Domina Law Group, P.C., Omaha, and Robert J. Routh, of Cline, Williams, Wright, Johnson & Oldfather, L.L.P., Lincoln, for appellant.

John R. Douglas, Brien M. Welch, Daniel J. Epstein, and David A. Blagg, of Cassem, Tierney, Adams, Gotch & Douglas, Omaha, for appellee W.L. Winstrom.

HEAVICAN, C.J., CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

CONNOLLY, J.

I. SUMMARY

Over the past several years, W.L. Winstrom (Bill) and his son, Andrew Winstrom, have waged war over 8.49 shares of Pennfield Oil Company (Pennfield), a closely held corporation. Pennfield's board of directors consisted of Bill; Sydney Winstrom, Bill's wife and Andrew's mother, and Andrew. This is the second appeal concerning the disputed shares. The battle centered on redemption agreements. Bill is Pennfield's chief executive officer and controlling shareholder. Andrew was Pennfield's president until October 2006. Control of Pennfield hinged upon the disposition of the remaining 8.49 shares in the estate of R.W. Winstrom, Bill's father. Bill inherited the shares and had controlled them as the estate's personal representative. Together with the shares he owns, Bill controlled the majority of shares in Pennfield. If Pennfield had redeemed the estate's 8.49 shares, Andrew would have been the majority shareholder.

In Pennfield Oil Co. v. Winstrom (Pennfield I),¹ Andrew and Pennfield appealed from the district court's order that the estate's shares were not subject to Pennfield's demand for redemption. We reversed. We determined that the shares were subject to a valid demand for redemption. We held, however, that the record failed to show Andrew and Pennfield were equitably entitled to specific performance ordering redemption of the shares. We concluded that the directors had not yet decided whether to waive Pennfield's right of redemption under the repurchase agreement.

This appeal presents a couple of issues: Did our mandate allow the district court on remand to reconsider issues raised by Andrew that the court had decided against him before the first appeal? Did Andrew and Pennfield waive several issues because they failed to raise them in the district court? We conclude that Pennfield's redemption of the estate's shares was not mandatory under our decision in Pennfield I. We further conclude that Andrew has waived his claims that Pennfield could not waive redemption by failing to raise them on appeal in Pennfield I. Because Andrew waived these issues in his first appeal, the district court correctly determined they were not part of our mandate. We affirm.

II. BACKGROUND

1. DIVISION OF PENNFIELD'S SHARES BETWEEN R.W.'S ESTATE, BILL, AND ANDREW

R.W. was one of Pennfield's founders; by 1951, he held all of its 70 outstanding shares. In 1960, R.W. gifted 20 shares each to his sons, W.D. Winstrom (Dean) and Bill. That same year, the three shareholders and their wives signed an agreement regarding disposition of their stock (the 1960 agreement). The 1960 agreement stated that if a shareholder died or wished to dispose of his stock, Pennfield "shall" buy the stock at the book value, to be determined at a shareholders' meeting within 30 days of death or intent to dispose. Pennfield redeemed Dean's 20 shares in 1969. In 1987, R.W. gifted 5.27 shares to Bill, giving Bill a majority interest, or 25.27 shares out of the 50 outstanding shares. R.W. died later in 1987. In his will, R.W. devised all of his Pennfield shares to Bill. R.W. designated Bill as personal representative. Thus, although Bill, as personal representative, did not transfer the estate's shares to himself individually, he controlled all of Pennfield's shares.

In December 1987, Pennfield's board of directors elected to redeem the estate's shares. But the board elected to extend the time for redemption; the financial burden of redeeming them all at once created a financial hardship, and the estate also wished to defer estate tax liability. In June 1988, acting for the estate, himself, and Pennfield, Bill created a new "Restated Stock Repurchase Agreement" (the 1988 agreement). The 1988 agreement, like the 1960 agreement, provided that Pennfield "shall" redeem all the stock of a shareholder upon the shareholder's death or if the shareholder wanted to dispose of his or her shares. But unlike the 1960 agreement, the 1988 agreement did not require the shareholders to determine the shares' book value within 30 days. Instead, it required the parties to agree on a closing date for redeeming the shares within 15 months. When a shareholder died, it required Pennfield to defer redemption until the shareholder's estate had paid all deferred federal estate tax if the shareholder's personal representative requested deferral. In addition — and crucial to this appeal — the 1988 agreement allowed Pennfield to waive redemption of a shareholder's stock in specified circumstances. One circumstance was a shareholder's death when his or her shares had passed to a person who had signed onto the 1988 agreement and was employed by Pennfield. This provision clearly applied to the shares R.W. devised to Bill.

In 1988, Andrew was elected president. In January 1990, he signed on to the 1988 agreement. Later that month, the board redeemed 16.24 shares of the estate's shares and voted to sell 15.89 shares to Andrew, conditioned upon his acceptance of the 1988 agreement. Andrew also signed a separate "Stock Redemption Agreement" (the 1990 agreement). In the 1990 agreement, the parties confirmed and ratified all previous agreements as restated in the 1988 agreement, At this time, Bill held 25.27 shares, the estate held 8.49 shares, and Andrew held 15.89 shares. In 1992, Bill gifted 8.43 shares to Andrew, giving Andrew a total of 24.32 shares and Bill 16.84 shares. But because Bill controlled the estate's 8.49 shares as personal representative of R.W.'s estate, he still controlled the majority of Pennfield's shares.

2. BILL'S ATTEMPTS TO TRANSFER THE SHARES TO HIMSELF

In 1997, Bill attempted to transfer the estate's remaining 8.49 shares to himself. But after Andrew refused to sign the stock certificate, the board tabled the transfer. In December 2000, after the estate made its final estate tax payment, Bill again attempted to transfer the estate's shares to himself. But Andrew again refused to sign the stock certificate. In January 2001, Bill demanded a special meeting of the directors to vote on transferring the shares from the estate to Bill. Afterward, Andrew gave notice that Pennfield was redeeming the estate's remaining shares, effective May 2000. Andrew also directed the filing of this action against Bill before the scheduled special meeting. A week later, Pennfield filed an amended petition, adding Andrew as a defendant. In February, the district court issued a temporary injunction, enjoining Andrew and Bill from transferring the estate's shares.

3. DISTRICT COURT'S 2004 ORDER

Following a bench trial in 2004, the district court ruled that the estate's shares were not subject to redemption. It reasoned that the 1960 agreement controlled at the time of R.W.'s death. Because the board did not hold a shareholders' meeting within the 30-day time limit for valuing the estate's shares, the court concluded that Pennfield had waived its right of redemption. It further found that even if Pennfield had not waived this right, allowing it to redeem the estate's shares would be contrary to the parties' intent to give Bill majority ownership of Pennfield's shares. The court found this intent from the parties' 1960 agreement, R.W.'s gifts of shares to Bill over the years, and R.W.'s will, devising his remaining shares to Bill. It also found that Bill's agreements with Andrew showed that Bill did not intend for Andrew to be the majority shareholder. The court therefore concluded it would be inequitable to require Bill to surrender the estate's shares. In the light of these findings, the court denied "each and every other claim in W.L. and Andrew's counterclaim and cross-claims not specifically addressed herein."

4. THIS COURT'S DECISION IN PENNFIELD I

In Pennfield I, we reversed the district court's ruling that the estate's shares were not subject to redemption. We concluded that even if the board waived redemption under the 1960 agreement, the 1988 agreement controlled. We concluded that the 1988 agreement restated and clarified the earlier agreements and that the parties "were all bound by the 1988 agreement."² We further determined that (1) the 1988 agreement anticipated persons other than Bill owning Pennfield stock; (2) the 1988 agreement permitted the redemption of stock held by the estate; and (3) the 1988 agreement was enforceable despite R.W.'s will because R.W. and Bill had signed agreements specifically providing for the redemption of stock if a shareholder died. We also rejected the assignment of errors in Bill's cross-appeal.

But, more important, we also determined that the record failed to show "Pennfield and Andrew [were] equitably entitled to a decree ordering the Estate to surrender the stock for redemption."³ We stated that the 1988 agreement did not change the requirement in the 1960 agreement that the shareholders meet to determine the shares' book value before redeeming them. We further stated that the board of directors had not yet had the opportunity to consider whether the board should waive redemption under the waiver provision in the 1988 agreement. We concluded:

Pennfield and Andrew are entitled to declaratory relief, establishing that Bill and the Estate are subject to a valid demand for redemption of the stock pursuant to the stock...