Segall v. Shore, 20457

Decision Date27 June 1977
Docket NumberNo. 20457,20457
Citation236 S.E.2d 316,269 S.C. 31
CourtSouth Carolina Supreme Court
PartiesJean SEGALL et al., Appellants, v. Reuben SHORE et al., Respondents.

David L. Freeman and James C. Parham, Jr., both of Wyche, Burgess, Freeman & Parham, Greenville and Thomas H. Pope, of Pope & Schumpert, Newberry, for appellants.

J. D. Todd, Jr., and Carl Ferguson, both of Leatherwood, Walker, Todd & Mann, Greenville, for respondents.

LITTLEJOHN, Justice.

This case has previously been before this Court and is reported in 264 S.C. 442, 215 S.E.2d 895 (1975). This opinion is supplementary thereto, and a reading of our prior opinion will make it unnecessary to repeat herein the background information which gives rise to the present appeal.

In the other appeal this Court adopted the order of the Honorable Clarence Singletary, Circuit Judge. In a well-reasoned order, Judge Singletary discussed the issues at length and confirmed the master's first report. His order, and the opinion of this Court affirming it, referred the matter again to the master for additional hearings for purposes set forth in the order, which was printed as our directive.

The master held additional hearings and filed his second report with the circuit court, along with his recommendations. The defendants excepted to the report and the matter came to be heard before Circuit Judge Frank Eppes, resulting in his order of July 27, 1976, rejecting in substantial degree the recommendations of the master.

The master, in his second report, properly set forth the issues for determination, as follows:

1. The final determination of amounts to be paid into MacShore Classics and The Shore Company by the defendants pursuant to the opinion of the Supreme Court;

2. The determination whether the interests of the plaintiffs in the shares of stock in the two corporations should be redeemed at their fair value pursuant to Section 12-22.15(a)(4) of the Code; and

3. The determination of attorneys' fees, costs and expenses involved in the recovery ordered for the benefit of the two corporations.

This is an equity matter in which the master and the circuit judge are in disagreement. In such a case, this Court has jurisdiction to review the entire record and make findings in keeping with our view of the preponderance of the evidence. Townes Associates, Ltd. v. City of Greenville,266 S.C. 81, 221 S.E.2d 773 (1976).

I.

In our prior opinion we said:

" . . . (I)n the hearings to be held (before the master) the defendants are required to account to Carolina Blouse and Classics for the monies and properties taken from each of these entities and the profits realized from this business since January 1, 1972."

In determining the profits, we held that,

" . . . (O)nly the reasonable expenses of manufacturing may be deducted, including reasonable salaries, and that restoration of any amount beyond this must be compelled."

In keeping with this directive the master found that the defendants and Carolina Blouse should account to Classics for all profits. The lower court overruled this finding and ordered that profits made by Carolina Blouse should be divided between the plaintiffs and defendants. The plaintiffs submit that the judge misinterpreted our prior opinion. We agree. It was the directive of this Court that all profits be accounted for to Classics. The recommendations of the master that Sidney and Reuben Shore account for $1,067,752.00 plus interest beginning on September 30, 1975, should have been adopted. This amount is in addition to $175,000.00 improperly withdrawn by them subsequent to September 30, 1975, plus interest thereon from December 5, 1975.

II.

The master held that the plaintiffs were entitled to have their stock in The Shore Company redeemed by reason of § 12-22.15, Code of Laws of South Carolina (1962) as amended (Supp.1975). It reads in part:

" § 12-22.15. Dissolution pursuant to court order. The courts of this State shall have full power to decree the dissolution of and to liquidate the assets and business of, a corporation:

"(a) In an action filed by a shareholder, when it is established that:

"(4) The acts of the directors or those in control of the corporation (A) are illegal or fraudulent or dishonest, or (B) are oppressive or unfairly prejudicial either to the corporation or to any shareholder whether in his capacity as a shareholder, director, or officer of the corporation.

"(5) The corporation assets are being misapplied or wasted.

The circuit court rejected the master's recommendations and held that The Shore Company need not redeem plaintiffs' stock and, further, held that the price for redemption, in any event, was incorrect. In that regard, the master found:

"The conduct of the defendants in this case leaves no question but that the basis for the exercise of this relief exists. Before finally being enjoined from further withdrawals on November 15, 1975, Sidney Shore and Reuben Shore, with the willing compliance of Morris Root, had appropriated more than $1,000,000 of the proceeds from the Lady Arrow business to their own uses. Although they were in court under a duty to account, they sought to shield their operations from view by securing a court order denying any ownership on the part of the plaintiffs. They continued their withdrawals even after the Supreme Court had issued its opinion establishing the duty to restore profits and to account. Perhaps most significantly they have now in what appears to be a clear and direct act of contempt taken an additional $175,000 by checks written on December 4 or December 5, 1975, for the payment of income taxes on behalf of Sidney Shore and Reuben Shore. The defendants cannot be heard to contend that they were unaware of their responsibilities in the handlings of the affairs with which they have been entrusted. They have consistently abused their positions of trust and I find and conclude that they have misapplied and wasted the assets of The Shore Company and MacShore Classics, Inc.; that they have acted oppressively and unfairly to the interests of the plaintiffs and to their prejudice; and that the business and affairs of these corporations can no longer be conducted to the advantage of the shareholders generally. . . . "

The plaintiffs except to the lower court's reversal of the master's finding.

The findings and conclusions of the master are abundantly supported by the record and we hold that the stock of plaintiffs in The Shore Company as well as in MacSHORE CLASSICS must be redeemed.

III.

While holding that it was unnecessary to consider a proper sum in payment for the redeemed stock, the judge went on to hold that the amount recommended by the master was in error. In essence, he held that a liquidation appraisal, instead of a going-concern appraisal, should be used. He rationalized that if the corporation were liquidated, there would be a tax item in the amount of $466,479.00 and this figure was deducted from the $1,644,831.00 value placed on all outstanding stock in The Shore Company as of September 30, 1975. In Santee Oil Co., Inc. v. Cox, 265 S.C. 270, 217 S.E.2d 789 (1975), we discussed the appraisal of stock at length. Concededly, stock in a closely held, going concern is often difficult to appraise, and the appraisal must be made in the light of all the facts. There is no reason to presuppose the liquidation of The Shore Company. When and if it is ever liquidated, Sidney and Reuben Shore may or may not be stockholders. The assets may be great or small. Upon plaintiffs' receiving cash for their stock, they must, of course, pay capital gains tax. The effect of the judge's ruling is to subject their interest first to a corporate tax, which may never be paid, and secondly to a capital gains tax which obviously must be paid. The valuation placed upon all shares of stock in the amount of $1,644,831.00 is supported by the record, and we agree that this figure should be used.

IV.

As stated hereinabove, we held in our previous opinion that Carolina Blouse must account to Classics and that ". . . reasonable expenses of manufacturing may be deducted including reasonable salaries, . . ." In this regard, the master found that Reuben Shore is entitled to no compensation, and held that Sidney Shore "is entitled to...

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