Case Title: In re 75,629 Shares of Common Stock of Trapp Family Lodge, Inc.

Citation: 169 Vt. 82, 725 A.2d 927

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1999-01-15T00:00:00Z

Document:
In re 75,629 Shares of Common Stock (97-175); 169 Vt. 82; 725 A.2d 927

[Opinion Filed 15-Jan-1999]
[Motion for Reargument Denied 18-Feb-1999]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as  formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the  Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.

                                 No. 97-175

In re 75,629 Shares of Common Stock                   Supreme Court
of Trapp Family Lodge, Inc.
                                                      On Appeal from
                                                      Lamoille Superior Court

                                                      February Term, 1998

John P. Meaker, J.

       Peter F. Langrock of Langrock, Sperry & Wool, Middlebury, and Averill
  Laundon of Darby,    Laundon, Stearns, Thorndike & Kolter, Waterbury, for
  Appellants.

       Donald J. Randall, Jr. of Sheehey, Brue, Gray & Furlong, P.C.,
  Burlington, for Appellees.

PRESENT:  Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.

       JOHNSON, J.  This is a dissenters' rights case in which Trapp Family
  Lodge, Inc.,  (TFL) appeals from a decision of the Lamoille County Superior
  Court that determined the fair  value of the corporation's stock to be
  $63.44 per share.  TFL argues that the trial court erred by  (1) rejecting
  the testimony of its expert witness and adopting the valuation of the
  dissenting  shareholders' expert in its entirety; (2) failing to consider
  the tax consequences of a hypothetical  sale of corporate assets; (3)
  refusing to give weight to share valuations adopted for the purpose  of a
  shareholders' agreement; and (4) applying a thirty-percent control premium. 
  We affirm.

       The facts as found by the trial court are as follows.  TFL was
  incorporated in Vermont in  1962 as a holding company for certain assets of
  the von Trapp family.  TFL's assets include the  Trapp Family Lodge,
  located in Stowe, Vermont.  The Trapp Family Lodge is a resort hotel 
  complex consisting of a hotel, two residential dwellings, and a
  cross-country skiing complex, all  located on approximately 100 acres of
  land.  In addition to the lodge facility, TFL owns  approximately 2,200
  acres of additional land.  At the time of the merger that spawned this 

 

  dispute, in January 1995, TFL also owned a timeshare facility known as the
  Trapp Family Guest  Houses.  Timeshare unit owners had exercised an option
  to purchase part of this facility, and the  remaining $4,517,000 was
  payable to TFL in June 1995.  Finally, TFL owns some royalty rights  from
  which it receives annual income.  As of the date of the merger, TFL's long
  term debt  totaled approximately $6,430,700.

       In September 1994, TFL gave notice to its shareholders of a special
  meeting to be held to  consider a proposed merger of TFL into a new
  corporation.  Prior to the meeting, TFL received  notice from the
  dissenting shareholders indicating their intent to vote against the merger
  and to  demand the payment of fair value for their shares.  The merger was
  duly approved by the  shareholders on October 17, 1994 at the special
  meeting.  Prior to December 1, 1994, the  dissenting shareholders, holding
  75,629 of the corporation's 198,000 outstanding shares,  tendered their
  shares and submitted forms demanding payment for them.

       On January 28, 1995, TFL notified the dissenting shareholders that the
  merger had been  completed, and paid the dissenting shareholders $33.84 per
  share, which the TFL board of  directors estimated to be the fair value of
  each share based on a valuation completed by its expert  Arthur Haut.  On
  February 24, 1995, the dissenting shareholders filed demands with TFL for 
  additional payments for their shares, claiming each share to be worth
  $61.00.  On March 31,  1995, TFL commenced this action under 11A V.S.A. §
  13.30 to determine the fair value of its  stock as of the date of the
  merger.

       The trial court concluded that the dissenting shareholders had
  complied with all statutory  requirements necessary to entitle them to
  receive fair value for their shares.  The court fixed the  per share value
  of TFL on January 28, 1995, the date of merger, at $63.44 based on a
  valuation  by the dissenters' expert Howard Gordon.  TFL appeals, arguing
  that the court erred in  determining the fair value of TFL shares.

       Vermont's Business Corporation Act was amended effective January 1,
  1994.  See 11A  V.S.A. §§ 1.01-20.16; 1993, No. 85, § 7.  This case brings
  the new dissenters' rights chapter 
 
 

  of this Act before us for the first time.  See 11A V.S.A. §§ 13.01-13.31. 
  Under the new statute,  a shareholder of a Vermont corporation who dissents
  from certain enumerated corporate actions,  including consummation of a
  plan of merger, is entitled to obtain from the corporation payment  of the
  "fair value" of his or her shares.  See 11A V.S.A. § 13.02(a)(1).  Section
  13.01(3) defines  "fair value" to mean "the value of the shares immediately
  before the effectuation of the corporate  action to which the dissenter
  objects, excluding any appreciation or depreciation in anticipation  of the
  corporate action unless exclusion would be inequitable."  See id. §
  13.01(3).  This  definition mirrors the definition of "fair value" in the
  Model Business Corporation Act.  See  Model Bus. Corp. Act § 13.01 (1978). 
  The official comment to the Model Act indicates that this  broad definition
  "leaves untouched the accumulated case law" on the various methods of 
  determining fair value.  Model Bus. Corp. Act § 13.01 cmt. (3).

       Dissenters' rights statutes were enacted in response to the common-law
  rule that required  unanimous consent from shareholders to make fundamental
  changes in a corporation.  See  Hansen v. 75 Ranch Co., 957 P.2d 32, 37
  (Mont. 1998).  Under this rule, minority shareholders  could block
  corporate change by refusing to cooperate in hopes of establishing a
  nuisance value  for their shares.  See id.; see also Model Bus. Corp. Act,
  ch. 13, Intro. Cmt. (minority demands  could be motivated by hope of
  nuisance settlement).  In response, legislatures enacted statutes 
  authorizing corporate changes by majority vote.  See Hansen, 957 P.2d  at
  37.  To protect the  interests of minority shareholders, the statutes
  generally permitted a dissenting minority to  recover the appraised value
  of its shares.  See id.  Most recent statutes allow dissenting 
  shareholders to demand that the corporation buy back shares at fair value. 
  See id.  

       The basic concept of fair value under a dissenters' rights statute is
  that the stockholder is  entitled to be paid for his or her "proportionate
  interest in a going concern."  Weinberger v.  UOP, Inc.,