Valuation of Common Stock of McLoon Oil Co., In re

• Decision Date: 03 November 1989
• Citation: 565 A.2d 997
• Parties: In re VALUATION OF COMMON STOCK OF McLOON OIL CO., et al.
• Court: Maine Supreme Court

Page 997

565 A.2d 997

In re VALUATION OF COMMON STOCK OF McLOON OIL CO., et al.

Supreme Judicial Court of Maine.

Argued Sept. 20, 1989.

Decided Nov. 3, 1989.

Peter M. Garcia (orally), Jane Z. Schau, Skelton, Taintor & Abbott, Auburn, Joel Seligman, University of Michigan School of Law, Ann Arbor, Mich., for Lido Co. of N.E.

Howard H. Dana, Jr. (orally), Verrill & Dana, Portland, for dissenting shareholders.

Before McKUSICK, C.J., and ROBERTS, WATHEN, GLASSMAN and HORNBY, JJ.

McKUSICK, Chief Justice.

Ten years ago we examined for the first time the principles to be applied in finding the "fair value" of a dissenting shareholder's stock under the recently enacted Maine Business Corporations Act. ¹ See In re Valuation of Common Stock of Libby, McNeill & Libby, 406 A.2d 54 (Me.1979). Libby involved a public corporation with common stock listed on the New York Stock Exchange. In the present appeal we revisit the fair value question in an appraisal proceeding involving three Maine corporations with untraded stock owned entirely by the members of a single family.

On December 6, 1976, McLoon Oil Co., Morse Bros. Oil Co., and T-M Oil Co., along with several Massachusetts companies, merged into the Lido Company of New England, Inc. (hereinafter "Lido"), a New Hampshire corporation. Two dissenting shareholders of the Maine companies sued for appraisal rights under 13-A M.R.S.A. § 909 (1981). Adopting the report of the court-appointed referee, the Superior Court (Androscoggin County, Alexander, J.) determined that the aggregate fair value of each dissenting shareholder's common stock in the three companies as of December 5, 1976, was $334,925 and awarded 8% simple interest thereon until the date of payment.

On its appeal Lido's principal contention is that the court erred in refusing to apply minority and nonmarketability discounts in determining the fair value of the dissenting shareholders' stock. Lido also contends that the dissenting shareholders failed to comply with the procedural requirements of the appraisal statute and brought the suit in the wrong county so far as the McLoon Oil Co. shares are concerned. Lido finally asserts error at trial in the admission of the testimony of one of the dissenting shareholders' expert witnesses and in the referee's balancing of equities in setting the 8% interest rate on the award. We reject those contentions.

The dissenting shareholders cross-appeal, challenging the court's denial of attorney fees and its determination of interest. We find no error in the denial of attorney fees, but we do modify the judgment to award compound rather than simple interest.

Facts and Procedural History

McLoon, Morse Bros., and T-M Oil Companies were closely held companies entirely owned by the members of the Pescosolido family under the leadership of Carl Pescosolido, Sr. Two of his sons, Carl Jr. and Richard, each held 475 shares in McLoon, 800 shares in Morse Bros., and 350 shares in T-M. The combined holdings of Carl Jr. and Richard constituted 50% of the McLoon common stock, 50% of the Morse Bros. common stock, and 14.3% of the T-M common stock. ²

In December 1975 Carl Sr. proposed to merge all family-held companies into Lido, over which he would exercise sole voting control. ³ Carl Jr. and Richard (hereinafter "Dissenters") objected in writing to the proposed merger. On December 6, 1976, the parties executed a merger agreement in which the Dissenters expressly preserved their appraisal rights under 13-A M.R.S.A. § 909. On December 15, 1976, the Dissenters individually wrote to each of the three Maine companies and requested payment for their shares. On January 8, 1977, Lido responded by offering each Dissenter $128,685.55 for his combined interests in all three companies. Within a week, both Dissenters formally rejected that offer.

Pursuant to 13-A M.R.S.A. § 909(9)(B), the Dissenters on April 1, 1977, filed a Superior Court suit nominally in Lido's name for valuation of their stock in all three companies. ⁴ They brought that consolidated appraisal proceeding in Androscoggin County.

Ten years later, on May 22, 1987, acting pursuant to M.R.Civ.P. 53 and with the agreement of the parties, the Superior Court (Delahanty, J.) appointed Professor David P. Cluchey of the University of Maine School of Law to serve as referee to determine all issues in the case. The referee held eight days of hearings in December 1987 and issued a draft report on August 15, 1988. Both parties offered comments in early September. On October 28, 1988, the referee filed his report. On Lido's motion the referee later filed a clarifying amendment on November 15. When the entire record was filed with the court on December 15, 1988, Lido objected to the report and the Dissenters moved for its acceptance with modifications. The Superior Court (Alexander, J.) accepted the referee's report in full and on March 3, 1989, ordered judgment entered in accordance therewith. Thus the court ordered Lido to pay each Dissenter in exchange for his stock the sum of $334,925 (i.e., 2.6 times as much as had been offered by Lido) with 8% simple interest from December 6, 1976, to the date of payment and awarded the Dissenters expert witness compensation and costs in the amount of $42,781.45.

Standard of Review

The appraisal rights statute allows the Superior Court to appoint an appraiser "to receive evidence and recommend a decision on the question of fair value." See 13-A M.R.S.A. § 909(9)(E). In the case at bar, however, the court appointed a referee for the full trial of the action pursuant to M.R.Civ.P. 53 because the referee's broader powers were necessary for the determination of factual and legal issues beyond that of fair value. With the parties' agreement, the referee by the order of reference ruled on all factual and legal issues that the Superior Court justice would have decided if the case had been tried without reference. Since the justice in entering judgment adopted the referee's report in full, we will review that judgment as if we were directly reviewing the decisions of the referee. His findings of fact will be reviewed for clear error, see Severance v. Choate, 533 A.2d 1288, 1290 (Me.1987); M.R.Civ.P. 53(e)(2), and his exercise of discretion for abuse, see Adams v. Alley, 340 A.2d 201, 205-06 (Me.1975).

I. Venue

Section 909(9)(A) provides that if, as here, the surviving corporation is a foreign corporation, the appraisal suit "shall be brought in the county where the registered office of the [merged Maine corporation] was last located." The Dissenters commenced this consolidated appraisal proceeding in Androscoggin County, the location of the former registered offices of Morse Bros. and T-M Oil Companies. That county is the wrong venue for McLoon Oil Co., which had its registered office in Knox County. We reject, however, as did the referee, Lido's argument that the wrong venue is jurisdictionally fatal to the Dissenters' claim to their appraisal remedy as to McLoon's stock. There is no discernable legislative purpose to be served by treating the statutory appraisal proceeding as anything other than a transitory action leading to a conditional money judgment in favor of dissenting shareholders. "The matter of wrong venue in transitory actions ... is a matter of procedure." Burtchell v. Willey, 147 Me. 339, 342, 87 A.2d 658, 660 (1952).

For practical purposes the Dissenters are the plaintiffs in this action and Lido, the defendant. An objection to venue in Lido's initial pleading or motion would have been the appropriate means to object to the wrong venue. See M.R.Civ.P. 12(b)(3), 12(h)(1). Lido made no such objection for at least ten years. At this late date, Lido will not be heard to object to the consolidation of all three appraisal cases in the county of proper venue for the other two companies. See Martel v. Town of Old Orchard Beach, 404 A.2d 994, 998 n. 10 (Me.1979). See also 1 Field, McKusick & Wroth, Maine Civil Practice § 12.9, at 118 (2nd ed. Supp.1981).

II. Compliance with Procedural Requirements of the Appraisal Statute

Section 909(9)(E) provides in pertinent part that "[t]he court shall determine whether each shareholder ... has satisfied the requirements of this section and is entitled to receive paryment for his shares." Lido argues that section 909(9)(E) preconditions recovery on strict compliance with the statute's detailed reporting and notice requirements and that the Dissenters did not strictly comply with these requirements. The referee found that the parties had effected notice, fulfilling the purpose behind the reporting and notice requirements, and so had "substantially complied" with those requirements.

The statutory language providing that the court (and here the referee) shall determine compliance imparts a measure of flexibility to the determination whether the shareholder has complied with the prerequisite steps and is entitled to payment. One of the purposes behind the enactment of the Maine Business Corporations Act was to afford a corporation "the greatest possible flexibility with its structures and procedures." Maine Proposed Business Corporation Act vii (1971). Under a similar provision in its appraisal statute, Delaware courts enjoy substantial discretionary power "to tailor the appraisal process to suit the facts of the case." See Tabbi v. Pollution Controls Indus., Inc., 508 A.2d 867, 869 (Del.Ch.1986) ("the statutory requirements are to be liberally construed for the protection of the dissenting stockholders within the limits of orderly corporate procedure and consistent with the purpose of the requirements"). See also Sarrouf v. New England Patriots Football Club, 397 Mass. 542, 549, 492 N.E.2d 1122, 1129 (1986) ("The statute is designed to provide an equitable, simple, and expeditious remedy to dissenting stockholders. It should not be construed strictly against them"); Folk on the Delaware General Corporation Laws § 262.2, at 151 (2nd ed. 1988).

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