Case Title: Waller v. American International Distribution Corp.

Citation: 167 Vt. 388, 706 A.2d 460

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1997-11-26T00:00:00Z

Document:
Waller v. American International Distribution Corp.  (96-446); 
167 Vt. 388; 706 A.2d 460

[Opinion Filed 26-Nov-1997]

[Motion for Reargument Denied 20-Jan-1998]

  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. 96-446

Arnold D. Waller                             Supreme Court

                                             On Appeal from
    v.                                       Chittenden Superior Court

American International Distribution          March Term, 1997
Corporation, Paul Sprayregen, Peter A.
Miller, and Marilyn McConnell

       Alden T. Bryan, J.

       David W.M. Conard of Portnow, Little & Cicchetti, P.C., Burlington,
  for plaintiff-appellee

       Christina A. Jensen of Lisman & Lisman, P.C., Burlington, for
  defendant-appellant

       PRESENT:  Amestoy, C.J., Dooley, Morse and Johnson, JJ., and Allen,
                 C.J. (Ret.), Specially Assigned

       AMESTOY, C.J.  Defendants appeal from an order of the Chittenden
  Superior Court directing them to purchase plaintiff's minority interest of
  shares in defendant corporation at the value set by the court.  Defendants
  argue that the court erred in its valuation of plaintiff's stock by (1)
  basing valuation on the corporation's 1982 financial performance, (2)
  failing to consider plaintiff's offer to sell his stock, (3) failing to
  consider his minority shareholder status, (4) using the "discounted future
  earnings" method of valuation, and (5) making "normalizing" corrections to
  the corporation's financial performance.   We affirm.

                                  I. Facts

       Plaintiff Arnold Waller founded defendant company American
  International Distribution Corporation (AIDC) in 1986.  Incorporated in
  Vermont, AIDC performs warehousing and order fulfillment for book
  publishers and direct mail services.  Defendant Peter Miller joined the
  company in 1987 as co-owner and chief executive officer.

 

       In July 1987, defendant Paul Sprayregen began providing AIDC with
  substantial funds to help offset company losses, in return for which Waller
  and Miller agreed that Sprayregen would receive a fifty-one percent
  interest in the company, Miller thirty percent, and Waller nineteen
  percent.  In 1988, Waller and Miller each conveyed a five percent interest
  to a new employee, Marilyn McConnell, leaving Miller with a twenty-five
  percent interest and Waller with fourteen percent.  Waller, Miller, and
  McConnell received salaries, while Sprayregen did not.

       In June 1990, Sprayregen negotiated and personally guaranteed a
  $500,000 bank loan for AIDC.  At about that time, Waller requested that
  AIDC assume liability on the renewal of an earlier $10,000 bank loan, which
  had been personally guaranteed by Waller and his wife.  Miller and
  Sprayregen were angered by the request because AIDC was paying interest and
  principal on Waller's note and Sprayregen himself was at risk for over
  $600,000.  Miller told Waller that AIDC would assume Waller's debt only if
  he gave up his stock in the company, an offer which Waller declined. 
  Thereafter, Miller threatened Waller with loss of his job, but retracted
  his threats, and Waller was not fired.

       On April 4, 1990, Waller delivered a letter to the company stating
  that he would sell his stock and resign his position only if $14,500 of
  loans he had taken on behalf of the company were repaid by the company and
  if he received a severance package.  The next day Waller attended a
  shareholders' meeting at which a majority of the shareholders voted to
  remove him as president and director of AIDC, but not to fire him as an
  employee.  Waller then quit his job, telling Miller that he did not want to
  stay where he was not wanted.  Defendants did not involve him in the
  affairs of the company thereafter.

       As of March 1990, Sprayregen had advanced AIDC a total of $618,490
  through promissory notes at ten percent interest.  Although business
  expanded rapidly between 1988 and 1991, AIDC made no payments of interest
  or principal on Sprayregen's advances until 1992, the first year in which
  the company showed a net profit, when it paid him $83,159 in interest.  In

 

  1992, AIDC also paid Sprayregen's wholly-owned company, Investors
  Corporation of Vermont (ICV), a $50,000 management fee, which the court
  found was based on AIDC's ability to pay, rather than on the services
  actually performed by ICV.

       In September 1991, Waller filed a complaint alleging that defendants
  acted to "squeeze out" Waller by withholding information about the affairs
  of the corporation and firing him. Waller claimed damages, however,
  relating only to frustration of his "reasonable expectations to receive a
  return from his investment and labor through the payment of salary and
  benefits."

       The court found that Waller's job loss at AIDC resulted from Waller's
  choice to leave and not from majority oppression.  The court did find,
  however, that the majority had oppressed Waller by depriving him of his
  rights and interests as a minority shareholder of AIDC, and concluded that
  he was entitled to a monetary remedy.

       The court considered several methods of valuing Waller's fourteen
  percent share in AIDC and, based on the testimony of Waller's expert,
  concluded that the "discounted earnings" method was appropriate, which on
  these facts was indistinguishable from the method commonly called the
  "income capitalization" approach.  See Beach Properties, Inc. v. Town of
  Ferrisburg, 161 Vt. 368, 372,