Seven Springs Farm, Inc. v. Croker

• Decision Date: 13 March 2000
• Citation: 748 A.2d 740
• Parties: SEVEN SPRINGS FARM, INC., a Pennsylvania Corporation, Appellee, v. Lynda Dupre CROKER, Appellant. Lynda M. Dupre on behalf of the Phillip Dupre Family, Appellants, v. Seven Springs Farm, Inc., along with Certain of its Directors, James M. Crowley, Denise M. Dupre, James M. McClure, Joyce S. Monigal, Richard G. Patton, Charles N. Santry, Frank S. Sujansky, and James V. Sujansky, Appellees.
• Court: Pennsylvania Superior Court

748 A.2d 740

SEVEN SPRINGS FARM, INC., a Pennsylvania Corporation, Appellee, v. Lynda Dupre CROKER, Appellant.

Lynda M. Dupre on behalf of the Phillip Dupre Family, Appellants, v. Seven Springs Farm, Inc., along with Certain of its Directors, James M. Crowley, Denise M. Dupre, James M. McClure, Joyce S. Monigal, Richard G. Patton, Charles N. Santry, Frank S. Sujansky, and James V. Sujansky, Appellees.

Superior Court of Pennsylvania.

Argued December 1, 1999.

Filed March 13, 2000.

Richard W. Gladstone, III, Pittsburgh, for Lynda Dupre Croker.

David L. McClenahan, Pittsburgh, for Seven Springs Farm, Inc.

Before CAVANAUGH, DEL SOLE,¹ POPOVICH, JOHNSON, HUDOCK, FORD ELLIOTT, EAKIN, MUSMANNO and LALLY-GREEN,¹ JJ.

EAKIN, J.:

¶ 1 Seven Springs Resort, founded by Adolph and Helen Dupre in 1932, was incorporated in Pennsylvania as Seven Springs Farm, Inc., in 1959. Adolph and Helen Dupre had three children, Phillip Dupre, Herman Dupre and Luitgarde Dupre (Sujansky), among whom they distributed all the stock of Seven Springs in equal shares. Each child's descendants still control one-third of the stock, although there are now 45 different shareholders. Appellant Lynda M. Dupre Croker, one of Phillip Dupre's daughters, represents the interests of that family in this litigation.

¶ 2 On July 1, 1959, soon after incorporation, the shareholders entered into a restrictive stock transfer agreement. In 1969, the shareholders signed an "Agreement Affecting the Transfer of the Common and Preferred Stock of Seven Springs Farm, Inc." replacing the 1959 agreement. This "Buy/Sell Agreement" provided in relevant part:

2. Option to Corporation. Except as provided in paragraph 1, no Stockholder, estate of a Stockholder or transferee who has received any stock in accordance with the provisions of paragraph 1, or any other transferee shall transfer, assign, sell, pledge, hypothecate, mortgage, alienate or in any other way encumber or dispose of all or any part of his stock in the Corporation, or certificates of ownership interest representing the same, now owned or hereafter acquired by him, without first giving to all other Stockholders and to the Corporation at least 30 days written notice by registered mail or personal delivery with receipt acknowledged in writing of his intention to make a disposition of his stock.

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... all the stock of the Stockholders or transferee desiring to make any such disposition shall be offered for sale and shall be subject to an option to purchase or to retire on the part of the Corporation,

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The filing of a voluntary or involuntary petition in bankruptcy by any Stockholder and the occurence [sic] of any insolvency of any Stockholder, the making of an assignment for the benefit of creditors or the entrance into any composition agreement with creditors shall be construed as an offer to sell all of the shares of such Stockholder to the Corporation under the provisions of this agreement.

3. Option to Stockholders. If all of the stock of the Stockholder or transferee desiring to make a disposition thereof is not purchased by the Corporation in accordance with the provisions of paragraph 2, then the stock not so purchased or retired shall be offered for sale and shall be subject to an option on the part of each Stockholder to purchase a proportionate share...

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5. Waiver of Restrictions. The transfer, assignment, sale, pledge, hypothecation, mortgage, alienation or other encumbrance or disposition of any shares of stock of the Corporation made under and by virtue of a written consent to such disposition signed by all of the holders of the common capital stock subject to this agreement at the time of such proposed action and filed with the secretary of this Corporation is expressly excepted from the restrictions herein imposed; provided, however, that any such disposition shall be made only upon the terms and conditions and to the person or persons named in such written consent filed with the Corporation.

¶ 3 On December 6, 1997, the Buy/Sell Agreement was amended by unanimous vote of all shareholders, to add the following paragraph:

Further, any sale of any shares of the capital stock of the Corporation which occurs prior to January 1, 1999 in a transaction which imputes to the Corporation a total capitalization of Seventy Million Dollars ($70,000,000) or more and which is approved by the holders of seventy-five percent (75%) of the common capital stock of the Corporation, which approval is expressed in writing and filed with the secretary of this Corporation, is expressly excepted from the restrictions and obligations herein imposed.

All other provisions of the Agreement were ratified when this amendment was made.

¶ 4 On June 1, 1998, the Board called a shareholders meeting when Booth Creek Ski Holdings, Inc., expressed interest in acquiring Seven Springs. The Herman Dupre and the Luitgarde Dupre Sujansky families voted to pursue the offer, while the Phillip Dupre family voted against it. Because two-thirds of the shareholders wished to go forward, Seven Springs entered into a letter of intent to merge with a subsidiary of Booth Creek, Booth Creek Ski Acquisitions, Inc. In compliance with the Pennsylvania Business Corporation Law (BCL), a Merger Agreement and a Plan of Merger were drafted, approved by the Board on August 18, 1998, and prepared for a ratification vote by the shareholders at a meeting scheduled for October 3, 1998. Termed a "cash out merger," the plan called for the shareholders of Seven Springs to receive cash for their shares, rather than stock in the surviving corporation.

¶ 5 On August 21, 1998, Seven Springs and certain of its directors filed a declaratory judgment complaint, seeking a determination the Buy/Sell Agreement was not applicable to the proposed deal; three days later appellant filed a complaint seeking a declaratory judgment to the contrary. The trial court consolidated the cases, expedited discovery, and the case quickly proceeded to trial. The trial court ultimately determined the proposed merger was not within the scope of the Agreement. Post-trial motions were denied, and on December 2, 1998, the decree nisi was entered as a final decree. This appeal followed, in which appellant frames the following issues:

1. Does a shareholder's vote to approve a cash-out merger (which would convert his or her stock into cash) constitute an attempt to "dispose" of that stock so as to trigger a right of first refusal in a Buy/Sell Agreement covering any proposed disposition of stock?

2. Should a court in equity allow some shareholders to avoid a right of first refusal, applicable to any direct sale or other disposition of stock, by their selling their stock to a third party through a cash-out merger requiring shareholder approval?

3. May a shareholder's right of first refusal be circumvented by a sale of substantially all of the corporation's assets and should this issue be resolved in the absence of any proposed asset sale?²

¶ 6 Simply put, if the terms of the Buy/Sell Agreement encompass this merger, 75% shareholder approval is needed to proceed; if the Agreement is not applicable, the vote would be governed by general corporation law and only majority shareholder approval of the Board's action is needed. 15 Pa.C.S. § 1924(a). In practical terms, if the Agreement applies, it allows appellant's family an opportunity to defeat the merger—if it does not, the merger may proceed despite their opposition.

¶ 7 "The interpretation of a contract is a question of law. In deciding an issue of law, an appellate court need not defer to the conclusions of the trial court." Banks Engineering Co., Inc., v. Polons, 697 A.2d 1020, 1022 (Pa.Super.1997) (citations omitted), appeal granted, 550 Pa. 715, 706 A.2d 1210 (1998). When the language of a contract is unambiguous, we must interpret its meaning solely from the contents within its four corners, Id., at 1023, consistent with its plainly expressed intent. Hahalyak v. A. Frost, Inc., 444 Pa.Super. 494, 664 A.2d 545, 549 (1995). We may not consider extrinsic evidence unless the terms are ambiguous. Metzger v. Clifford Realty Corp., 327 Pa.Super. 377, 476 A.2d 1, 5 (1984). A contract is not ambiguous merely because the parties do not agree on its construction. Id.

¶ 8 Neither the original nor amended versions of the Agreement include the term "merger." That the Agreement does not speak to a merger does not in itself result in an ambiguity; when a contract fails to provide for a specific contingency, it is silent, not ambiguous. Banks, at 1023. In such circumstances, we will not read into the contract a term, "merger," which clearly it does not contain. "It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves, without regard to its wisdom or folly." Steuart v. McChesney, 498 Pa. 45, 444 A.2d 659, 662 (1982) (citations omitted). The most we can say is the parties either intended to exclude mergers, or did not anticipate or consider such an event.

¶ 9 The trial court determined the primary purpose of the Agreement was to restrict the transfer of shares by individual shareholders. Appellant claims a more specific intent, to provide an opportunity for Seven Springs to remain in the Dupre family,³ and maintains the catch-all phrase "... or in any other way ... dispose of..." therefore should be interpreted to encompass all events inconsistent with that purpose, including merger; she contends that in voting for a merger, a stockholder is voting to "dispose of" his or her shares within the meaning of the Agreement.

¶ 10 The trial court found the Agreement to be clear and unambiguous. As such, it disregarded certain extrinsic evidence⁴ regarding the intent of the parties and concluded the Agreement was not intended to apply to mergers or other fundamental corporate changes. The...