Van Schaack Holdings, Ltd. v. Van Schaack

• Decision Date: 31 January 1994
• Docket Number: No. 93SC92,93SC92
• Citation: 867 P.2d 892
• Parties: VAN SCHAACK HOLDINGS, LTD., a limited Colorado partnership and successor-in-interest to Van Schaack Corporation, a Colorado corporation; Henry C. Van Schaack, III; Anthony J. Combs; David V.S. Knowles; Thomas B. Knowles, Jr.; Allan R. Phipps; C.W. Schoelzel; and Harry B. Combs, Jr., individually, Petitioners, v. Beth Ellen VAN SCHAACK, Respondent.
• Court: Colorado Supreme Court

Page 892

867 P.2d 892

VAN SCHAACK HOLDINGS, LTD., a limited Colorado partnership and successor-in-interest to Van Schaack Corporation, a Colorado corporation; Henry C. Van Schaack, III; Anthony J. Combs; David V.S. Knowles; Thomas B. Knowles, Jr. Allan R. Phipps; C.W. Schoelzel; and Harry B. Combs, Jr. individually, Petitioners, v. Beth Ellen VAN SCHAACK, Respondent.

No. 93SC92.

Supreme Court of Colorado En Banc.

Jan. 31, 1994.

Brenman Raskin & Freidlob, P.C., Richard H. Goldberg, Edmund L. Epstein, Denver, for petitioners.

Hart & Trinen, Donald T. Trinen, John F. McBride, Denver, for respondent.

Chief Justice ROVIRA delivered the Opinion of the Court.

We granted certiorari to review the court of appeals decision in Van Schaack v. Van Schaack Holdings, Ltd., 856 P.2d 15 (Colo.App.1992), which held that the "special facts" doctrine sets forth the applicable fiduciary duty owed by the officers and directors of a closed corporation when purchasing the stock of a minority shareholder, and that such duty requires the disclosure of material information bearing on the value of the stock if it is unknown to the selling shareholder. We affirm.

I

In the late 1930's, H.C. Van Schaack, Sr. became the owner of one-half the stock of a closely held corporation known as Box Elder Farms Co., that owned approximately 29,000 acres of farm land to the north and northeast of the Rocky Mountain Arsenal (the Box Elder land) as its principal asset. In 1951, his interest was transferred to Van Schaack Corporation (VSC), ¹ which had been established to provide for his family, their descendants and spouses, and certain business associates.

In 1956, Beth Ellen Van Schaack (Van Schaack), married Henry C. Van Schaack, Jr., a vice-president of VSC, who eventually became the owner of 750 of VSC's 4,750 outstanding shares. During their marriage, all VSC information, including financial statements, shareholder letters, meeting notices, and the like, was sent to Van Schaack's husband. Following her husband's death in March 1974, the 750 shares of VSC stock became her property.

After her husband's death, Van Schaack was not included on VSC's board although, with a 16% interest, she was the corporation's largest individual shareholder. She was informed of VSC's activities through an annual shareholder letter which included VSC's audited financial statements.

In April 1982, Van Schaack thought about selling her VSC shares. She and her then husband, Donald Dunklee, met with Henry C. Van Schaack III (Henry), who was a director of VSC, to discuss such a sale and to ascertain the value of her shares. Because the Box Elder land was VSC's primary asset, the value of Van Schaack's stock turned almost exclusively on the value of that land. To determine the value of the land, Van Schaack was concerned primarily with the present per-acre value of the Box Elder land and what future events might affect its value--particularly the prospect that Denver's international airport would be relocated on or near it. Van Schaack testified that Henry had indicated that he had no information bearing on the value of VSC's stock or the Box Elder land and that in his opinion, there was "no way" the new airport would be located on Box Elder land.

In spite of these representations, considerable evidence was presented at trial which indicated that VSC in general, and Henry in particular, had information bearing on the value of the Box Elder land, the probability of the airport expansion or relocation, and the effect that this project would have on the land. That evidence included the events detailed below.

During a VSC board of directors meeting in July 1980, defendants discussed how the relocation or expansion of Denver's international airport would affect the future of the Box Elder land, and concluded that any of the expansion or relocation sites under consideration would benefit Box Elder and thus, VSC. In January 1981, Henry informed the other defendants of discussions with a third party regarding the expansion of the airport, and that party's belief that 6,500 acres of Box Elder land would be condemned for the airport project.

In early 1981, defendants asked that VSC's accountant provide them with financial and tax advice regarding "the present structure of Box Elder Farms, Inc. and the probable future expansion of the airport onto Box Elder land or land adjacent to Box Elder Farms land." This request was never made known to Van Schaack.

During a July 1981 VSC board meeting, in response to a letter written by one of the individual defendants, VSC again discussed the possible expansion or relocation of the airport. The letter asserted that the possible expansion or relocation "will have a significant effect on Box Elder Farms, requiring critical decisions and action by the Van Schaack Corporation and/or its stockholders at an increasing frequency. The time to prepare for these decisions is now ... not when the crisis is upon us." As a result of this letter, a special committee of VSC directors was formed to monitor the situation concerning the airport and Box Elder land. The letter and the formation of this committee were never disclosed to Van Schaack.

In addition to VSC's knowledge regarding the expansion or relocation of Denver's international airport and the tangible actions taken by VSC as a result, VSC had specific information bearing on the value of the Box Elder land.

The VSC board of directors held a special meeting in February 1982 at which they were informed of ongoing negotiations to sell 155 acres of Box Elder land and discussed the value of the land and the precedent that the sale would establish for future land sales. In addition, the executive committee of the VSC board of directors met on April 30, 1982, to discuss the details of the sale, which had closed on April 15, 1982, resulting in net proceeds of $1,112,768.37 (representing a sale price of approximately $8,000 per acre).

Van Schaack was informed of this sale in a shareholders letter dated May 3, 1982, which she received after May 7, which stated:

In early 1982, we [VSC] received an in-land dividend of land rather than cash from Box Elder. This land has subsequently been sold and will produce a large capital gain for Van Schaack Corporation.

In another apparent attempt to value Van Schaack's stock, Dunklee attended the annual VSC shareholders meeting with his wife's proxy on May 7, 1982. At that meeting, Dunklee inquired as to whether "there was any current valuation of the Box Elder property or if [VSC] had any indication as to what the current value of the shares in Box Elder Farms Company might be." Henry responded to this inquiry, in the presence of the other individual defendants, by stating:

[T]his corporation presently has no indication of the value of the shares in Box Elder Farms Company in that such valuation would be very complex and would have to be determined by valuing the land owned by Box Elder. There are many variables which would have to be considered in attempting such a valuation including the fact that the land is not all contiguous, that parts of it are sprinklered, while the majority is dry-land farm ground, that there are some producing oil and gas wells, and that there is a great deal of discussion of the possible expansion or relocation of Stapleton International Airport.

Immediately after the conclusion of the shareholder meeting and Dunklee's departure, the individual defendants called a board of directors meeting. The VSC directors then had the following discussion concerning the 155 acre sale:

Mr. Van Schaack reported that as of February 25, 1982, Van Schaack Corporation had received a one-half interest in 155.283 acres of land at Box Elder. The property was subsequently placed under contract for sale which closed April 15, 1982. The gross selling price was $1,242,264.00 with sales commission, prorations and other costs amounting to $129,495.63, leaving net sale proceeds in the amount of $1,112,768.37, of which Van Schaack Corporation received half or $556,384.19. The estimated after-tax capital gain on this transaction will be approximately $370,000. $550,000 of the proceeds is currently invested in a 60-day C.D. at 14.5%, which matures June 15, 1982.

In October 1982, Dunklee, seeking to gain further information about the assets of VSC, met with Henry who opined that the Box Elder land was worth $600 per acre. Van Schaack's subsequent offer to sell 250 shares of her stock to VSC at $3,000 per share was rejected by VSC.

In February 1983, Box Elder purchased 40 acres of land contiguous to its other property for $2,750 per acre. No evidence was presented at trial to indicate that Van Schaack was informed of this purchase, although the annual shareholders letter, dated April 29, 1983, did make an additional brief reference to the 155-acre sale that occurred in April 1982.

In April 1983, Van Schaack received an offer from a third party to purchase 250 shares of her VSC stock for $500,000 (i.e., $2,000 per share). Upon being informed of the third-party offer, defendants responded that Van Schaack's shares were subject to a restrictive endorsement contained on the stock certificates and that any transfer was required to be approved by the corporation. ² They also inquired as to Van Schaack's intentions regarding the offer.

Van Schaack did not pursue the third-party offer but rather, offered to sell 250 of her shares to VSC on the same terms as the third-party offer. In July, defendants offered to purchase all of her stock for one million dollars (i.e., $1,333 per share), payable over four years. On August 1, 1983, Van Schaack sold all of her shares to VSC for 1.5 million dollars (i.e., $2,000 per share).

In January 1985, the Denver Regional Council of Governments publicly announced the relocation of Stapleton International Airport onto a portion of Box Elder land, thereby requiring the condemnation of the land and its sale to Denver. In...