Rolfe State Bank v. Gunderson

• Decision Date: 11 February 2011
• Docket Number: No. 09–0651.,09–0651.
• Parties: ROLFE STATE BANK, Appellant,v.Charles A. GUNDERSON and Gloria K. Gunderson, Margaret Gunderson Moore, Clara Gunderson Hoover and Harold M. Hoover, Helen D. Gunderson, Deane C. Gunderson and Martha G. Carlson, Appellees.
• Court: Iowa Supreme Court

794 N.W.2d 561

ROLFE STATE BANK, Appellant,

v.Charles A. GUNDERSON and Gloria K. Gunderson, Margaret Gunderson Moore, Clara Gunderson Hoover and Harold M. Hoover, Helen D. Gunderson, Deane C. Gunderson and Martha G. Carlson, Appellees.

No. 09–0651.

Supreme Court of Iowa.

Feb. 11, 2011.

Mark McCormick, Robert A. Mullen, Michael R. Reck, and Kelsey J. Knowles of Belin McCormick, P.C., Des Moines, for appellant.Charles A. Gunderson, Rolfe, pro se and for remaining appellees.APPEL, Justice.

In this case, the court is confronted with an issue of first impression regarding minority appraisal rights of the shareholders of a state bank in a reverse stock split. Specifically, we address whether Iowa Code section 524.1406(3)( a) (2009) ¹ applies to state banks in a reverse stock split. The district court concluded that Rolfe State Bank [hereinafter the Bank] erroneously interpreted Iowa law to require the consideration of valuation factors recognized for federal tax purposes, including minority status and lack of marketability discounts, in appraising the value of minority shares in a reverse stock split. On appeal, the Bank argues that the district court ignored both the plain meaning of the statute and its legislative history. For the reasons expressed below, we affirm the decision of the district court and hold that section 524.1406(3)( a) does not apply to state banks in a reverse stock split.

I. Factual and Procedural History.

The Bank is an Iowa chartered state bank with its principal office in Rolfe, Iowa. Prior to the reverse stock split that gave rise to the litigation in this case, the vast majority of shares were held by Dixon Bankshares, Inc. The Gundersons were among thirty other shareholders who held a minority interest in the Bank.

Prior to a meeting of the board of directors to consider approval of a reverse stock split, the Bank's management hired BCC Advisors to provide an independent appraisal of the value of the Bank's common stock held by minority shareholders. The independent appraisal by BCC Advisors concluded that the fair market value of the shares as of June 30, 2008, was $1857 per share. In reaching this figure, BCC Advisors applied certain discounts to the value of the stock, including a minority discount and a discount for lack of marketability. These discounts amounted to a thirty-three percent reduction in the value of the common stock compared to the value of shares owned by Dixon Bankshares, the controlling shareholder.

Based upon the independent appraisal, the board of directors approved a reverse stock split, subject to shareholder approval. The board determined that, if the reverse stock split were approved, each minority shareholder whose ownership interests would be liquidated would be paid $2000 per share of common stock. The board based the $2000 figure on the appraisal made by BCC advisors. ² The shareholders, and subsequently the regulatory authorities, approved the reverse stock split.

As a result of the reverse stock split, the Gundersons were forced to surrender their minority shares to the Bank, and they filed a notice of their exercise of appraisal rights pursuant to Iowa Code section 490.1323. The Gundersons asserted that the fair value of their surrendered common stock was $2700 per share. In response, the Bank paid the Gundersons $2000 per share, plus interest. The Gundersons responded by demanding payment in the amount of $2700, plus interest, less any prior payments by the Bank.

Pursuant to Iowa Code section 490.1330, the Bank filed a petition with the district court to determine the fair value of the shares of common stock formerly owned by the Gundersons. Relying, in part, upon Iowa Code section 524.1406(3)( a), the Bank requested that the district court determine that: (1) the $2000 per share, plus interest, was the fair value of the shares the Gundersons had surrendered; (2) the Gundersons acted arbitrarily, vexatiously, and not in good faith with respect to their appraisal rights; and (3) the court assess all the costs of the proceeding, including the reasonable compensation and expenses of any appraisers appointed by the court, as well as plaintiffs' attorneys' fees, against the Gundersons.

The Gundersons answered and filed motions for partial summary judgment and for summary judgment, which presented three independent bases. First, the Gundersons asserted that Iowa Code section 524.1406(3)( a) does not apply to the appraisal rights of minority shareholders of banks in a reverse stock split. Second, the Gundersons argued that, even if Iowa Code section 524.1406(3)( a ) applied to reverse stock splits of banks, it did not apply to transactions where the shares of stock were acquired prior to July 1995. Third, the Gundersons argued that if Iowa Code section 524.1406(3)( a) did apply, the result would be an unconstitutional taking without compensation in violation of the state and federal constitutions.

The district court sustained the Gundersons' motion for partial summary judgment. The district court determined that, while the language in Iowa Code section 524.1406(3)( a ) could be literally applied to all transactions involving appraisal rights, it also could reasonably be interpreted to apply only in the context of mergers, consolidations, and conversions because of the statutory context in which the provision was found. The Bank filed an application for interlocutory appeal, which we granted.

II. Standard of Review.

This court reviews issues of statutory interpretation for correction of errors at law. State v. Sluyter, 763 N.W.2d 575, 579 (Iowa 2009). To the extent constitutional issues are raised, review is de novo. State v. Groves, 742 N.W.2d 90, 92 (Iowa 2007).

III. Discussion.

A. The Question of Ambiguity. The question posed by this interlocutory appeal is whether Iowa Code section 524.1406(3)( a) authorizes a bank to consider valuation factors recognized for federal tax purposes, including minority and marketability discounts, in determining the fair value of extinguished shares in a reverse stock split. Before engaging in statutory construction, we examine whether the language of the statute is ambiguous. State v. Tesch, 704 N.W.2d 440, 451 (Iowa 2005). If the statute is unambiguous, we look no further than the statute's express language. Id.; IBP, Inc. v. Harker, 633 N.W.2d 322, 325 (Iowa 2001). If, however, the statute is ambiguous, we inquire further to determine the legislature's intent in promulgating the statute. Harker, 633 N.W.2d at 325; United Fire & Cas. Co. v. Acker, 541 N.W.2d 517, 519 (Iowa 1995); see Iowa Code § 4.6.

A statute is ambiguous “if reasonable minds could differ or be uncertain as to the meaning of a statute.” Holiday Inns Franchising, Inc. v. Branstad, 537 N.W.2d 724, 728 (Iowa 1995). Ambiguity not only arises from the meaning of particular words, but also “from the general scope and meaning of a statute when all its provisions are examined.” Id.; accord State v. Wiederien, 709 N.W.2d 538, 541 (Iowa 2006). Words are often chameleons, drawing their color from the context in which they are found. See Carolan v. Hill, 553 N.W.2d 882, 887 (Iowa 1996). The overall structure of a statute can have strong influence on the meaning of particular words and phrases. See AOL LLC v. Iowa Dep't of Revenue, 771 N.W.2d 404, 409 (Iowa 2009). As a result, courts should be circumspect regarding narrow claims of plain meaning and must strive to make sense of our law as a whole. Karl N. Llewellyn, Remarks on the Theory of Appellate Decision and the Rules or Canons About How Statutes Are to Be Construed, 3 Vand. L.Rev. 395, 399 (1950) (discussing the need to interpret words in context); 2A Norman J. Singer & J.D. Shambie Singer, Statutes and Statutory Construction, § 46.1, at 151–53 (Thompson/West 7th ed.2007) (describing difficulties in applying the plain meaning rule); see NLRB v. Federbush Co., 121 F.2d 954, 957 (2d Cir.1941) (Judge Learned Hand explaining, “Words are not pebbles in alien juxtaposition; they have only a communal existence; and not only does the meaning of each interpenetrate the other, but all in their aggregate take their purport from the setting in which they are used....”).

We now turn to consideration of whether the language of the applicable Code provision, Iowa Code section 524.1406(3)( a), is ambiguous. This section provides:

3. a. Notwithstanding any contrary provision in chapter 490, division XIII, in determining the fair value of the shareholder's shares of a bank organized under this chapter or a bank holding company as defined in section 524.1801 in a transaction or event in which the shareholder is entitled to appraisal rights, due consideration shall be given to valuation factors recognized for federal tax purposes, including discounts for minority interests and discounts for lack of marketability.

Iowa Code § 524.1406(3)( a ) (emphasis added).

The Bank contends that the plain language of Iowa Code section 524.1406(3)( a ) is unambiguous. The Bank argues that the phrase “a transaction or event” is an open-ended provision that applies not only to bank mergers, but to any kind of transaction that triggers appraisal rights under Iowa Code chapter 490, including reverse stock splits. Under the Bank's approach, the use of the broad phrase “a transaction or event” requires this court to approve of the application of minority and lack of marketability discounts in this reverse-stock-split case.

The Bank's approach, however, is not the only reasonable interpretation of section 524.1406(3)( a ). Although “a transaction or event,” viewed alone, appears to have broad application, the Gundersons argue that the phrase “transaction or event” is found in the context of a merger section of the Code and therefore applies only to transactions or events that are mergers. Further, the Gundersons suggest that the clause in which the phrase “transaction or event” appears does not modify the term “bank,” but only...