Wyo-Ben, Inc. v. Bixby

• Decision Date: 23 December 2014
• Docket Number: No. DA 13–0831.,DA 13–0831.
• Citation: 339 P.3d 1255,377 Mont. 318,2014 MT 334
• Court: Montana Supreme Court
• Parties: WYO–BEN, INC., Plaintiff and Appellee, v. Harlan BIXBY, M.D., as Trustee of the 995 Separate Property Trust; Ryan K. Bixby, Parker Bixby, Hayden Bixby, Defendants and Appellants.

377 Mont. 318

339 P.3d 1255

2014 MT 334

WYO–BEN, INC., Plaintiff and Appellee

v.Harlan BIXBY, M.D., as Trustee of the 995 Separate Property Trust; Ryan K. Bixby, Parker Bixby, Hayden Bixby, Defendants and Appellants.

No. DA 13–0831.

Supreme Court of Montana.

Submitted on Briefs Sept. 24, 2014.

Decided Dec. 23, 2014.

For Appellants: Stephen Dolan Bell, Dorsey & Whitney LLP, Missoula, Montana, Ben D. Kappelman ; Thomas P. Swigert, Dorsey & Whitney LLP, Minneapolis, Minnesota.

For Appellee: Mark D. Parker ; Brian M. Murphy, Parker, Heitz & Cosgrove, PLLC, Billings, Montana.

Opinion

Justice BETH BAKER delivered the Opinion of the Court.

¶ 1 Several minority shareholders of Wyo–Ben, Inc., appeal the judgment of the Thirteenth Judicial District Court in Wyo–Ben's favor. The court dismissed Appellants' oppression claim, and later ruled that Appellants were not entitled to be paid for their class B shares under Montana's dissenters' rights statute. Appellants also appeal the court's decision regarding the value of their class A shares. We address the following issues on appeal:

1. Whether Appellants' claims are moot because the Bixby family did not all appeal together.

2. Whether the District Court erred by granting Wyo–Ben's motion to dismiss the oppression claim.

3. Whether Appellants are entitled to be paid for all of their shares, or only for the shares that were materially and adversely affected.

4. Whether the court clearly erred in valuing the class A shares.

¶ 2 We affirm in part, reverse in part, and remand for a new award consistent with this opinion.

PROCEDURAL AND FACTUAL BACKGROUND

¶ 3 Wyo–Ben is a closely-held family corporation that was created in the 1950s by Rockwood Brown Sr. to locate, mine, process, and distribute sodium bentonite products. Today, Wyo–Ben has annual sales of about fifty million dollars and produces over three dozen products, primarily for use in the oil and gas industry.

¶ 4 Wyo–Ben incorporated in 1963, and the corporation's shares initially were split equally by Rockwood Brown Sr.'s four children. One of the four redeemed his stock and relinquished his ownership stake. By 1977, the three remaining children—Barbara Bixby, Keith Brown, and Rockwood Brown Jr.—owned Wyo–Ben, each with an equal one-third interest. They agreed to restrict the transfer of shares to members of their respective families, a restriction that remains in place today.

¶ 5 In 1983, Wyo–Ben amended its Articles of Incorporation to separate its shares of capital stock into two classes, designated class A and class B shares. The shares existing prior to the amendment were converted to class A shares, and the new class B shares were distributed to existing shareholders at a ratio of ten class B shares for each class A share. Each class of share held equal equity in the company, but only class A shares held voting rights.

¶ 6 Over the years, several disputes developed between the Bixby family and the two Brown families. First, Harlan Bixby discovered that the Brown families had formed a company called Wind River. Wind River was formed for the same purpose as several other companies formed between all three families: to locate and stake mining claims to sell back to Wyo–Ben. Wind River used information obtained from Wyo–Ben to locate the claims. The Browns received significant income from Wind River, but excluded the Bixby family. When the Bixby family discovered Wind River and protested that they were being excluded unfairly, the Browns refused to include them. The Bixby family ultimately decided not to bring a claim against Wyo–Ben or the two Brown families, hoping to avoid further conflict.

¶ 7 A second dispute involved executive compensation. Harlan Bixby alleged in an affidavit that the Browns leveraged their status as majority shareholders to pay themselves a “secret bonus payment” in the amount of $579,924. David Brown, Wyo–Ben's chief executive officer, refuted Harlan's accusations in an affidavit and concluded that the Board “did not cap bonus payments as Harlan asserts....” Like the Wind River dispute, executive compensation is not directly at issue here. Appellants maintain only that the dispute provides context for their oppression claim.

¶ 8 In response, the Browns introduced a past grievance of their own. In the early 1990s, Wyo–Ben went through several rounds of refinancing to recover from debts. One bank required personal guarantees from the families, but the Bixby family refused. Although the Browns were able to satisfy the bank with other personal guarantees—and Wyo–Ben's refinancing has nothing to do with the issues in this case—the Bixby family's refusal found its way into this litigation on several occasions.

¶ 9 Despite the families' past disagreements, by all accounts, Wyo–Ben is a thriving company that has emerged through challenging times to its present strong financial position due to competent leadership. In 2009, Wyo–Ben restructured its board of directors to be more independent of the three families. The company adopted amendments preventing four of the seven board members from being connected with any of the three families. Although there were some reservations, all three families supported this restructuring. The parties agree that the independent directors selected for Wyo–Ben's board had considerable experience, competence, and integrity.

¶ 10 Until recently, the three family branches carefully maintained roughly equal class A voting shares. After the latest redemption offer by Wyo–Ben in 2010, the Bixby family owned 34.31% of Wyo–Ben's class A stock, the Rockwood Brown family owned 34.1%, and the Keith Brown family owned about 31%. While the Bixby family retained the most class A shares of any of the families, it also had redeemed some of its class B stock. By 2010, the Bixby family owned less total stock than the other families, roughly 25% of Wyo–Ben.

¶ 11 On November 19, 2010, Wyo–Ben's board of directors approved a plan to give class B shares the right to vote. The four independent directors agreed that converting the class B shares to voting shares would be good for the business. The Bixby family objected, believing that the plan was intended to diminish their status in the company by diluting their voting rights.

¶ 12 The board solicited proposals to lessen the impact of the plan on the Bixby family. In a telephonic conference on January 20, 2011, the Bixby family expressed concerns about their ability to maintain a presence on the board of directors and to block major corporate actions. The board crafted several resolutions to address the Bixby family's concerns, including a proposal to amend the articles of incorporation to require an 80% affirmative vote to approve major corporate action instead of the two-thirds vote required by statute, § 35–1–823(5), MCA, and a proposal to change the by-laws to guarantee each of the three families a seat on the board. The Bixby family deemed the proposals inadequate and sent Wyo–Ben a notice of intent to demand payment for their shares in accordance with § 35–1–830, MCA.

¶ 13 On February 18, 2011, Wyo–Ben held its annual meeting of shareholders. Four resolutions comprised the agenda: the reclassification of shares and three remedial resolutions designed as concessions to the Bixby family. The remedial measures included lowering the threshold of votes required to block major corporate action and assuring each family a seat on the board of directors. The Bixby family voted against all four resolutions in order to protect their right to dissent.

¶ 14 The measure to reclassify the class B shares passed. The reclassification resulted in an overall decrease to the Bixby voting rights from 34.31% to 24.59%, with a corresponding increase in the total voting rights of the two Brown families from 65.9% to 75.41%. All three remedial resolutions failed.

¶ 15 After the vote, the Bixby family sent a § 35–1–832, MCA, payment demand and deposited all of their shares—both class A and class B—with Wyo–Ben. Wyo–Ben paid $1,541 for each class A share, but refused to pay for class B shares. The dissenters sought payment for their class B shares and also contested Wyo–Ben's valuation of the class A shares. The dissenters sought payment for both classes at $1,850 per share.

¶ 16 Wyo–Ben timely filed a petition with the District Court under § 35–1–838, MCA, seeking a declaration that the dissenters were not entitled to any payment for their class B shares and contesting the dissenters' demand for a higher value for the class A shares. Wyo–Ben stated in its complaint that it would “not resist a claim that the Defendants' Class A shares have been materially and adversely affected.”

¶ 17 The Bixbys opposed Wyo–Ben's request for declaratory judgment, and sought a declaration that they were entitled to payment for both classes of shares at the higher value. They also filed a counter-claim asserting that Wyo–Ben's decision to dilute their voting rights constituted oppressive conduct under § 35–1–938, MCA. Wyo–Ben moved for summary judgment on the entire case, and the Bixbys moved for partial summary judgment on their claim that the dissenters' rights statute required Wyo–Ben to purchase their class B shares. The court denied both motions.

¶ 18 In September 2012, the District Court convened a jury trial on the oppression claim and heard four days of testimony. After the parties rested their cases, but before the jury had returned a verdict, the court dismissed the Bixbys' oppression claim under Rule 41(b), M.R. Civ. P., on the basis that there was insufficient evidence to support a finding of oppression by Wyo–Ben. In November 2013, the District Court found in favor of Wyo–Ben on the right to dissent claim, holding that the dissenters were not entitled to payment for their class B shares because those shares were not materially and adversely affected. The court issued a decision and adopted Wyo–Ben's proposed findings of fact and conclusions of law.

¶ 19 The Bixbys appealed the District Court's...