Swope v. Siegel-Robert, CROSS-APPELLANTS

CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)
Citation243 F.3d 486
Decision Date12 June 2000

Appeals from the United States District Court for the Eastern District of Missouri

[Copyrighted Material Omitted] Before Wollman, Chief Judge, and McMILLIAN and Bye, Circuit Judges.

McMILLIAN, Circuit Judge.

Siegel-Robert, Inc. (hereinafter "the Company"), a closely-held corporation headquartered in St. Louis, Missouri, appeals from a final order entered in the United States District Court 1 for the Eastern District of Missouri following a bench trial, holding that the Company's valuation of its minority shares did not reflect the "fair value" of the shares pursuant to Mo. Rev. Stat. 351.455. Swope v. Siegel-Robert, Inc., 74 F. Supp. 2d 876 (E.D. Mo. June 23, 1999) (memorandum and order). For reversal, the Company argues the district court erred in (1) holding that no marketability discount applied to the "fair value" determination of the Company's shares and (2) failing to provide adequate reasons for its valuation determination. Appellees (minority shareholders) cross-appeal, contending that the district court erred in (1) failing to properly evaluate "fair value" by applying a minority discount rather than the "enterprise value" and (2) failing to apply Missouri's statutory prejudgment interest rate to the award. In a consolidated appeal, the Company claims that the district court abused its discretion by denying the Company's Rule 60(b) motion without conducting a hearing to consider newly discovered evidence. For the reasons discussed below, we affirm the orders of the district court in part, reverse in part and remand the case to the district court for further proceedings consistent with this opinion.


Jurisdiction in the district court was proper based upon 28 U.S.C. 1332. Jurisdiction on appeal is proper based upon 28 U.S.C. 1291. The notice of appeal was timely filed pursuant to Fed. R. App. P. 4(a) .


The following facts are undisputed based on evidence introduced at trial. Bruce Robert formed the Company in 1946 as a part-time chrome-plating business. O.W. Schneider, Jr. worked for the Company for 40 years, helped build the Company through his technical expertise, and eventually acquired an ownership interest in the business, buying shares in the 1970s and 1980s. In the 1980s, the Company began to diversify by acquiring manufacturing companies with non-retail customers, and experienced substantial growth. The Company, now comprised of six units, has continued to grow through an aggressive acquisition policy. The district court determined that the growth of the Company is not likely to continue at its current rate absent the continuation of an aggressive acquisition policy, a factor unable to be reflected in the valuation of the Company. See Swope v. Siegel-Robert, Inc., 74 F. Supp. 2d 876, 900-01 (E.D. Mo. 1999).

Halvor B. Anderson became associated with the Company in August 1981. He gradually rose within the Company until he became its Chief Executive Operating Officer in October 1996. Anderson actively participates in the day-to-day management of each division and the Company as a whole.

On July 19, 1997, Anderson proposed a merger which would change the Company's corporate status to a Subchapter S election in an attempt to reduce corporate taxes. Under that arrangement, the Company could allocate income directly to the shareholders, who would pay the tax as individuals and shield the corporation from paying tax at the corporate level. Two days later, the Board of Directors voted to recommend the merger to the shareholders. That same day, Anderson mailed to the shareholders a notice of vote on the merger proposal. In order for a company to achieve and maintain Subchapter S status, it may not have more than 75 shareholders. At the time of the Board meeting, the Company had 63 shareholders: 40 were Robert family members and 23 were non-family members. Anderson explained that, while it would have been possible to attain Subchapter S status without squeezing out the minority shareholders, the Company might then be at risk of re-opening the tax issue, because 100% of shareholders had to agree to the election. Anderson asserted that the merger action was taken to assure that the Subchapter S election could be made and preserved into the future without being repealed, even though he also admitted that the bylaws could have been amended to provide that no person could transfer their shares in violation of the Subchapter S election.

Anderson, a minority non-family shareholder, calculated a $20 share price to reflect the value of the shares held by minority shareholders as of the merger date. Prior to this decision, he did not consult the Board of Directors, an appraiser, an evaluation professional, an accountant, a member of senior management, or any family or non-family members, nor did he consider appointing a committee to determine a fair value or to explore whether there was a duty to protect the interests of minority shareholders. Anderson based his valuation of the stock on the following factors: no market existed for the stock, the shares had traditionally been sold at 65% of book value level, income from the shares projected to be lower in the following year, and the share price fell within the range of historical dividend figures. At the shareholders meeting, 15 of the 23 non-family members voted against the merger, five abstained or were not present, and three voted in favor of the merger, including Anderson and two other Company employees. The dissenting minority shareholders asked Anderson to reconsider the $20 share price and suggested that he hire an appraiser, which he declined to do.

The merger was approved on July 31, 1997, and Siegel-Robert, Inc., a Missouri corporation, merged with Siegel-Robert, Inc., a Nevada corporation (the surviving corporation). Eleven of the minority shareholders accepted the $20 per share as fair value for their stock. The others, including appellees, made a written demand on the Company for the "fair value" of their stock. When negotiations failed, appellees filed a "Complaint for Stock Appraisal" in the district court pursuant to Mo. Rev. Stat. 351.455, requesting a determination of the "fair value" of their Siegel-Robert shares as of July 30, 1997, the day before the merger. The case proceeded to a bench trial in federal court, based upon diversity jurisdiction.

The district court, sitting without a jury, heard testimony for seven days, including many expert witnesses from both sides. All the experts agreed that there are three potential levels of valuation for stock in closely-held corporations: (1) "enterprise interest," which attempts to replicate the price that would be paid for the entire corporation by a third party; (2) "marketable minority interest," which accounts for the fact that the shares do not represent control of the company but assumes they are readily marketable; and (3) "non-marketable minority interest," which discounts for lack of control and also for lack of liquidity. The expert witnesses valued the Company according to these premises, and their valuations of the stock ranged from $98.40 per share to $30.00 per share. In addition, the Company submitted evidence that when O.W. Schneider, Jr. died in 1997, his estate valued his shares of Company stock at $18.50 per share for estate and inheritance tax purposes.

On June 23, 1999, the district court issued a Memorandum and Order which held that a minority discount was appropriate but that a lack of marketability discount was inappropriate, and valued the shares at $63.36 per share. The district court concluded that appellees were entitled to prejudgment interest and awarded simple interest at the rate of 5.115% per year, to reflect the 52-week T-Bill rate set forth in 28 U.S.C. 1961 as the basic interest rate for money judgments on civil cases before district courts. The Company appealed, and the minority shareholders cross-appealed to dispute the application of the minority discount and the prejudgment interest rate selected by the district court. On April 17, 2000, the Company filed a Fed.R.Civ.P. 60(b) motion to consider a newly-received IRS report which independently valued the Company's majority stock for estate tax purposes at $45.69 per share. On May 12, 2000, the district court denied the Rule 60(b) motion. The Company moved to consolidate the appeal of the Rule 60(b) denial and the original appeal. We agreed to consolidate the appeals and requested expedited briefing on the Rule 60(b) issue.


This case arises from appellees' proper exercise of their appraisal rights as dissenting shareholders under Mo. Rev. Stat. 351.455, 2 seeking a determination of the fair value of their minority shares in the Company. Although the statute itself does not define fair value, Missouri law requires a district court to consider "every relevant fact and circumstance which enters into the value of the corporate property and which reflects itself in the worth of corporate stock." Dreiseszun v. FLM Indus., Inc., 577 S.W.2d 902, 907 (Mo. Ct. App. 1979) (Dreiseszun). The Missouri Supreme Court articulated its approach to determining fair value as "purposely if not wisely establish[ing] a flexible general standard for fixing value between parties who are either unable or unwilling to voluntarily agree . . . [T]here is no simple mathematical formula and each case presents its...

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