Rigel Corp. v. Cutchall

• Decision Date: 04 February 1994
• Docket Number: No. S-92-336,S-92-336
• Citation: 511 N.W.2d 519,245 Neb. 118
• Parties: RIGEL CORPORATION, a Nebraska Corporation, Appellee, v. Gregory S. CUTCHALL, Appellant.
• Court: Nebraska Supreme Court

Page 519

511 N.W.2d 519

245 Neb. 118

RIGEL CORPORATION, a Nebraska Corporation, Appellee, v. Gregory S. CUTCHALL, Appellant.

No. S-92-336.

Supreme Court of Nebraska.

Feb. 4, 1994.

Syllabus by the Court

1. Equity: Stock: Valuation. A proceeding under the provisions of Neb.Rev.Stat. § 21-2080 (Reissue 1991) to determine the fair value of a dissenter's shares of stock is equitable in nature.

2. Equity: Appeal and Error. An appellate court reviews an equitable action de novo on the record and reaches a conclusion independent of the factual findings of the trial court; however, where credible evidence is in conflict on a material issue of fact, the appellate court considers and may give weight to the circumstance that the trial court heard and observed the witnesses and accepted one version of the facts rather than another.

3. Contracts: Appeal and Error. The construction of a contract is a matter of law, in connection with which an appellate court has an obligation to reach an independent, correct conclusion irrespective of the determination made by the court below.

4. Statutes: Appeal and Error. Statutory interpretation is a matter of law, in connection with which an appellate court has an obligation to reach an independent, correct conclusion irrespective of the determination made by the court below.

5. Contracts. The terms of a contract are accorded their plain and ordinary meaning as ordinary, average, or reasonable persons would understand them.

6. Stock: Valuation. In the event of a merger, neither a minority discount nor a deduction for lack of marketability is to be given in determining the fair value of a dissenter's shares of stock under the provisions of Neb.Rev.Stat. § 21-2080 (Reissue 1991).

Timothy J. Pugh, of McGrath, North, Mullin & Kratz, P.C., Omaha, for appellant.

Frank F. Pospishil and Eric H. Lindquist, of Abrahams, Kaslow & Cassman, Omaha, for appellee.

HASTINGS, C.J., BOSLAUGH, WHITE, CAPORALE, FAHRNBRUCH, and LANPHIER, JJ., and GRANT, J., Retired.

CAPORALE, Justice.

I. STATEMENT OF CASE

Pursuant to the provisions of Neb.Rev.Stat. § 21-2080 (Reissue 1991), the plaintiff-appellee, Rigel Corporation, instituted this action seeking a determination of the fair value, including interest, of the shares of common stock held by the defendant-appellant, Gregory S. Cutchall, in Rigel/Chix, Inc., a corporation which was merged into Rigel. The trial court determined the fair value of such shares to be $24,640 plus interest and gave Rigel credit for the $20,000 and $132.33 in interest it had previously paid Cutchall. Cutchall appealed to the Nebraska Court of Appeals and assigned as error, in summary, the trial court's determination (1) of the fair value of the said shares of stock and (2) that Rigel was entitled to credit for the interest it had paid. We removed the appeal to this court under the power granted us by Neb.Rev.Stat § 24-1106(3) (Cum.Supp.1992) to regulate our caseload and that of the Court of Appeals; we now affirm the judgment of the trial court as modified herein.

II. STATUTORY PROVISIONS

Neb.Rev.Stat. § 21-2079 (Reissue 1991) provides, among other things, that if shareholders of a corporation have taken certain specified steps, they have the right, in the event of a merger, with an exception not relevant here, to dissent "and obtain payment for their shares."

Section 21-2080(8)(a) provides that if such a dissenter's demand for payment is not settled, "the corporation shall file in an appropriate court a petition requesting that the fair value of the shares and interest thereon be determined by the court."

Fair value is defined in § 21-2080(1)(c) to mean the value of the shares "immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of such corporate action unless such exclusion would be inequitable."

Interest is defined in § 21-2080(1)(d) to mean "interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans, or, if none, at such rate as is fair and equitable under all the circumstances."

III. SCOPES OF REVIEW

While we have not previously addressed the scope of an appellate review of a trial court's determination of the fair value to be paid to a dissenting shareholder, the instant case was tried as an equitable matter.

Although a plethora of opinions in similar actions from other jurisdictions analyze the factors to be considered in arriving at the fair value to be paid dissenting shareholders, very few opinions analyze whether such a determination presents an action at law or one in equity. Furthermore, there is a split among those few jurisdictions which have passed upon the question.

The South Carolina Supreme Court held that such a matter is essentially an equitable proceeding. Metromont Materials Corp. v. Pennell, 270 S.C. 9, 239 S.E.2d 753 (1977). The Maine Supreme Judicial Court stated that "[t]he appraisal remedy has deep roots in equity." In re McLoon Oil Co., 565 A.2d 997, 1004 (Me.1989). In doing so, it cited 12B William M. Fletcher, Cyclopedia of the Law of Private Corporations § 5906.1 (rev. perm. ed. 1980).

However, the present edition of that treatise states: "In-court appraisal proceedings have been characterized as legal, as opposed to equitable actions, because of their historical limitation of the dissenting shareholder to the legal remedy of damages, in the amount of the value of that shareholder's stock." 12B Fletcher, supra, § 5906.10 at 378 (rev. perm. ed. 1993). The treatise cites only one opinion for that proposition, a decision of the Georgia Supreme Court holding that it lacked jurisdiction for a direct appeal in a dissenting shareholder appraisal proceeding, as it was a legal action and not a case in equity. Atlantic States Construction, Inc. v. Beavers, 250 Ga. 828, 301 S.E.2d 635 (1983).

We have held that although rescission was originally an equitable concept, the remedy is now available in an action at law as well as in equity, and that an action seeking rescission under the Uniform Commercial Code is an action at law rather than one in equity. Koperski v. Husker Dodge, Inc., 208 Neb. 29, 38, 302 N.W.2d 655, 660 (1981), declares:

More important, however, it appears to be the general rule that where a statute provides an adequate remedy at law, equity will not entertain jurisdiction, and the statutory remedy must be exhausted before equity may be resorted to. So, when jurisdiction has become concurrent through statutory enlargement of the legal remedy, a court of equity, although recognizing the existence of its jurisdiction, will generally decline to exercise it where the remedy at law is complete and adequate, and no special circumstances exist demanding the interference of equity.

Nonetheless, we have continued to recognize some actions as equitable, although now provided for by statute. These include foreclosure Metropolitan Life Ins. Co. v. Kissinger Farms, 244 Neb. 620, 508 N.W.2d 568 (1993), and McCook Nat. Bank v. Myers, 243 Neb. 853, 503 N.W.2d 200 (1993), and injunctions, which are provided for by Neb.Rev.Stat. § 25-1062 et seq. (Reissue 1989), but are invariably reviewed as equitable actions. Richdale Dev. Co. v. McNeil Co., 244 Neb. 694, 508 N.W.2d 853 (1993), modified on other grounds 244 Neb. 936, 510 N.W.2d 312 (1994); K N Energy, Inc. v. Cities of Broken Bow et al., 244 Neb. 113, 505 N.W.2d 102 (1993); Village of Brady v. Melcher, 243 Neb. 728, 502 N.W.2d 458 (1993).

As noted in part II above, § 21-2080 provides that in determining fair value, appreciation or depreciation occurring in anticipation of a merger is to be ignored unless it would be "inequitable" to do so, and interest shall be at such rate as is "fair and equitable."

We thus conclude that the Legislature intended a proceeding to determine fair value under § 21-2080 to be equitable in nature and to be reviewed as such; we thus so treat the matter. This determination brings into play the rule that an appellate court reviews an equitable action de novo on the record and reaches a conclusion independent of the factual findings of the trial court; however, where credible evidence is in conflict on a material issue of fact, the appellate court considers and may give weight to the circumstance that the trial court heard and observed the witnesses and accepted one version of the facts rather than another. Village of Brady v. Melcher, supra.

At one juncture, however, we are obligated to construe a stock restriction agreement. (See part V1(a) below.) In that regard, we are bound by the rule that the construction of a contract is a matter of law, in connection with which we, as an appellate court, have an obligation to reach an independent, correct conclusion irrespective of the determination made by the court below. Baker's Supermarkets v. Feldman, 243 Neb. 684, 502 N.W.2d 428 (1993).

And of course, statutory interpretation is also a matter of law, in connection with which an appellate court has an obligation to reach an independent, correct conclusion irrespective of the determination made by the court below. AMISUB v. Board of Cty. Comrs. of Douglas Cty., 244 Neb. 657, 508 N.W.2d 827 (1993); Metropolitan Life Ins. Co. v. Kissinger Farms, supra.

IV. FACTS

Rigel operated a number of restaurants as a franchisee. Another of the three corporations involved in this matter, Chix, Inc., was the franchisee-operator of a number of restaurants for a different franchisor. Chix's owners decided to sell, and Rigel/Chix, Inc., was formed for the purpose of acquiring all of the issued and outstanding shares of Chix's common stock.

Cutchall, who served as Chix's executive vice president, became Rigel/Chix's initial president; John Chisholm, who owned 47.1 percent of Rigel's shares, became Rigel/Chix's initial vice president; Vincent Morrissey, who also owned...