Title: SUZANNE W. BROWN, individually; SUZANNE W. BROWN, as Successor Trustee of the Marie Arp Schroeder Testamentary Trust; and SUZANNE W. BROWN, as Successor Trustee of the Catherine S. Holmes Trust V. ARP AND HAMMOND HARDWARE COMPANY

State: wyoming

Issuer: Wyoming Supreme Court

Document:

SUZANNE W. BROWN, individually; SUZANNE W. BROWN, as Successor Trustee of the Marie Arp Schroeder Testamentary Trust; and SUZANNE W. BROWN, as Successor Trustee of the Catherine S. Holmes Trust V. ARP AND HAMMOND HARDWARE COMPANY2006 WY 107141 P.3d 673Case Number: 05-70Decided: 08/29/2006
APRIL TERM, A.D. 2006

 
 
SUZANNE W. BROWN, individually; 
SUZANNE W. BROWN, as Successor Trustee of the Marie Arp Schroeder Testamentary 
Trust; and SUZANNE W. BROWN, as Successor Trustee of the Catherine S. Holmes 
Trust,

 
 
Appellants

(Defendants),

 
 
v.

 
 
ARP AND HAMMOND HARDWARE 
COMPANY,

 
 
Appellee

(Plaintiff).

 
 
Appeal from theDistrictCourtofLaramieCounty

The Honorable Nicholas G. 
Kalokathis, Judge

 
 
Representing 
Appellants:

Scott W. Meier, of Hickey & Evans, LLP, 
Cheyenne, Wyoming.

 
 
Representing Appellee:

John B. "Jack" Speight & Robert T. McCue, of 
Speight, McCue & Associates, P.C., Cheyenne, Wyoming; Amanda Hunkins Newton, 
of Jones, Jones, Vines & Hunkins, Wheatland, Wyoming.

                        
            

Before 
VOIGT, C.J., and GOLDEN, HILL*, KITE, and BURKE, 
JJ.

 
 
* Chief 
Justice at time of oral argument.

 
 
BURKE, 
Justice.

 
 
[¶1]      Suzanne Brown, in 
her individual capacity and as successor trustee of two trusts, (collectively 
"Appellants"), held a minority interest in Arp and Hammond Hardware 
Company.  The corporation executed a 
reverse stock split, cashing out Appellants' resulting fractional shares.  Appellants exercised their right to 
dissent.  Unable to reach an 
agreement concerning the value of Appellants' shares, the corporation filed an 
appraisal proceeding in district court.  
On appeal, Appellants challenge the district court's appraisal of their 
minority shares.  They assert it was 
error for the district court to apply a minority discount and a discount for 
trapped-in capital gains in determining the fair value of Appellants' 
shares.  Appellants also claim 
assets were erroneously omitted from the valuation.  We conclude that the district court 
erred by discounting for minority status and trapped-in capital gains.  We also find error in the district 
court's failure to include all corporate assets in its valuation.  We reverse and remand. 

 
 
ISSUES

 
 
[¶2]      Appellants 
present the following issues for review:

 
 

1)                 
Whether the District 
Court erred when, under the Wyoming dissenters' rights statute, it applied a 
discount for hypothetical trapped-in capital gains in determining the fair value 
of Appellants' [i]nterest in Arp and Hammond Hardware 
Company.

 
 

2)                 
Whether the District 
Court erred when, under Wyoming dissenters' rights statute, it applied 
a lack of control discount (also known as a minority interest discount) in 
determining the fair value of Appellants' interest in Arp and Hammond Hardware 
Company.

 
 

3)                 
Whether the District 
Court committed clear error when, in its Findings of Fact, it failed to include 
the value of non-ranch assets in determining the fair value of Arp and Hammond 
Hardware Company as an entity, and thus undervalued the fair value of 
Appellants' interest in Arp and Hammond Hardware Company.

 
 
Appellee phrases the 
issues as follows:

 
 

1)                 
Whether the Wyoming 
Business Corporation Act allows for the application of the lack of 
control/minority discount in a judicial appraisal proceeding pursuant to Wyo. 
Stat. § 17-16-1301, et 
seq.;

 
 

2)                 
Whether this Court should 
defer to the finding of the District Court that appraisal proceedings are 
inherently fact-specific, and therefore the application of discounts should be 
left for the trier of fact in an appraisal proceeding;

 
 

3)                 
Whether the District 
Court was correct in applying an adjustment for the built-in capital gains tax 
liability based on the facts of this case; and

 
 

4)                 
Whether this Court should 
take into account additional assets not considered by the District Court in its 
valuation of Arp and Hammond.

 
 
FACTS

 
 
[¶3]      Arp and Hammond 
Hardware Company ("Arp and Hammond") is a closely-held corporation, formed in 
1950 under Wyoming law.  Over the years, ownership of Arp and 
Hammond passed to descendants of one of the company's founders.  In recent history, the shares were held 
by four cousins.  Three of the 
cousins, Frances Read, Doran Lummis, and Catharine Holmes each held 
approximately twenty percent, and the fourth cousin, Elizabeth Arp Stoddard, 
held approximately forty percent of the shares.  

 
 
[¶4]      The four 
shareholders contemplated a sale of the company's ranch to Lummis Livestock 
Company, LLC ("Lummis Livestock").  
After discussions with counsel, the majority of the shareholders decided 
that a sale of stock would be preferable.  
On March 31, 2000, Lummis Livestock purchased the shares of Ms. Stoddard 
and Ms. Read for $930 per share, acquiring approximately sixty percent of the 
outstanding shares in Arp and Hammond.  
Although Ms. Holmes had previously agreed to sell the land, she did not 
want to sell her entire interest in the corporation.  She declined to sell her shares.  Subsequently, tension grew between the 
shareholders. 

 
 
[¶5]      Ms. Holmes 
eventually transferred her interest in Arp and Hammond to her daughter, Suzanne 
Brown, as the successor trustee of two trusts.  Ms. Brown also held four shares in her 
individual capacity.  Collectively, 
Appellants held 594 shares.  On June 
12, 2003, Doran Lummis sold his block of shares to Lummis Livestock, of which he 
was a member.  Consequently, of the 
2,717 shares of Arp and Hammond, Lummis Livestock held 2,123 shares, or 
approximately 80% of the outstanding shares.

 
 
[¶6]      On June 13, 2003, 
Arp and Hammond gave notice of its intention to amend its Articles of 
Incorporation to cause a reverse stock split.  The amendment proposed a reduction in 
the number of shares at a rate of 2,123 to 1, and required the corporation to 
acquire all fractional shares.  
Appellants voted against the reverse stock split, but it was approved by 
the majority shareholder on September 25, 2003.  The amendment to the Articles of 
Incorporation was filed with the Secretary of State on September 26, 2003.1  Appellants' 594 shares were thereby 
converted to a fractional share.  
The resolution enacting the amendment provided that following the stock 
split, Arp and Hammond would purchase the fractional 
shares.

 
 
[¶7]      Appellants 
exercised their right to dissent from the reverse stock split pursuant to Wyo. 
Stat. Ann. § 17-16-1302(a)(iv)(E) (LexisNexis 2005).2 They demanded payment for their 
shares and deposited them with the corporation.  Arp and Hammond tendered payment to 
Appellants in the amount it considered to be fair value, $264,924, representing 
$446 per share.3  Appellants objected to the amount of the 
payment, and Arp and Hammond subsequently filed an action in district court, 
requesting an appraisal of Appellants' shares pursuant to Wyo. Stat. Ann. § 
17-16-1330 (LexisNexis 2005).4

 
[¶8]      A bench trial was 
held October 12-14, 2004.  The 
parties stipulated that all of the procedural requirements and prerequisites of 
Wyo. Stat. Ann. § 17-16-1301, et seq. 
were met and carried out in a timely manner, allowing the district court to 
appraise the value of Appellants' shares.  
The parties also stipulated that as of the valuation date, corporate 
assets included ranch land in LaramieCounty, a building in Cheyenne, and cash on 
hand.  Several other assets were 
identified and valued in expert appraisal reports admitted by joint 
stipulation.5  The primary focus at trial was valuation 
of the corporation's largest asset, the ranch property, with the parties 
contesting the value of particular parcels.  The parties disagreed whether certain 
discounts should be applied in determining the fair value of Appellants' 
shares.

 
 
[¶9]      The district 
court issued its Findings of Fact and Conclusions of Law on November 22, 
2004.  The district court determined 
the value of Arp and Hammond's ranch land to be $4,203,000.6  Appellants' shares represented 21.86% of 
the shares in the company.  Applying 
that percentage to the $4,203,000, the district court found that the 
undiscounted value of Appellants' interest amounted to $918,776. 

 
 
[¶10]   The district court considered four 
discounts proposed by the corporation and rejected two of the discounts.  The district court rejected a 
marketability discount because it would "provide a windfall to Arp and 
Hammond."  It also concluded that a 
10% "real estate discount," as a downward adjustment to the value of the ranch 
land, was not warranted.7  However, two discounts totaling 35% were 
applied. The district court found a minority discount of 30% appropriate because 
the majority and minority took "radically different positions concerning the 
future of Arp and Hammond" and the minority's desire to develop the ranch land 
was "subordinate to the will of the majority."  Additionally, the district court applied 
a 5% discount for trapped-in capital gains in anticipation that Arp and Hammond 
would be forced to sell some of its assets to satisfy the judgment in 
Appellants' favor.8  Applying these discounts, the district 
court determined that the fair value of Appellants' shares was $597,204.  Its fair value determination was based 
upon Arp and Hammond's ranch property and did not include any other corporate 
assets.  After deducting the amount 
Arp and Hammond had previously paid to Appellants, and adding accrued interest 
at 6.5%, the district court entered judgment in the amount of $357,481.13 in 
favor of the minority shareholders.9  This appeal 
followed.

 
 
STANDARD OF 
REVIEW

 
 
[¶11]   "When a matter has been the subject 
of a bench trial before the 
district court, we review its factual determinations under a clearly erroneous standard and the legal 
conclusions de novo."  Union Pacific R.R. v.    Trona   Valley Fed. Credit Union, 2002 WY 165, 
¶ 6, 57 P.3d 1203, 1205 (Wyo. 2002).  
We 
will not set aside a district court's findings of fact unless they are clearly erroneous or contrary to the great weight of the evidence. 
 Kimball v. Turner, 993 P.2d 303, 305 (Wyo. 1999).  When reviewing questions of law, we afford no deference to the district court.  Harber v. Jensen, 2004 WY 104, ¶ 
8, 97 P.3d 57, 60 (Wyo. 2004).  
Statutory interpretation is a question of law 
reviewed de novo. Union Pacific R.R., ¶ 7, 57 P.3d  at 1205.

 
 
DISCUSSION

 
 
[¶12]   As a matter of first impression, we 
consider the meaning of "fair value" in a dissenters' rights proceeding.  Appellants take issue with three aspects 
of the district court's fair value determination: discounting for minority 
status, discounting for trapped-in capital gains taxes, and excluding non-ranch 
assets.  They claim these errors 
deprived them of the fair value of their shares, which according to Appellants, 
is their proportionate interest in the corporation's value.  In response, Arp and Hammond 
characterizes the fair value inquiry as a valuation question, driven by facts 
and subject to broad discretion.  
Arp and Hammond asserts that the district court did not abuse its 
discretion in applying the discounts at issue and asks us to defer to the 
district court's determination of the value of Appellants' shares.  Additionally, Arp and Hammond claims 
Appellants have waived their right to appellate consideration of omitted 
non-ranch assets. 

 
 
Minority 
Discount

 
 
[¶13]   The right to dissent from certain 
corporate action and the procedures governing such action are set forth in 
Article 13 of the Wyoming Business Corporation Act, at Wyo. Stat. Ann. § 
17-16-1301, et seq.  These provisions were enacted in 1989, 
representing Wyoming's adoption of the 1984 version of the 
Model Business Corporation Act (MBCA).  
The MBCA has also been adopted in a majority of states.10 

 
 
[¶14]   In the absence of fraud or 
illegality, a minority shareholder forced out of a Wyoming corporation has 
as her exclusive remedy the right to dissent and receive the fair value of her 
shares.  Wyo. Stat. Ann. § 
17-16-1302(b).11  A reverse stock split triggers the right 
to dissent as an "amendment of the articles of incorporation that materially and 
adversely affects rights in respect of a dissenter's shares" because it 
"[r]educes the number of shares owned by the shareholder to a fraction of a 
share  to be acquired for cash" Wyo. Stat. Ann. § 17-16-1302(a)(iv)(E).  In exercising the right, a dissenting 
shareholder is entitled to receive payment for the "fair value" of her interest 
in the corporation. Wyo. Stat. Ann. § 17-16-1302(a).  If the corporation and dissenting 
shareholder cannot reach an agreement concerning fair value, the corporation may 
seek judicial appraisal in district court.  
Wyo. 
Stat. Ann. § 17-16-1330.   

 
 
[¶15]   The dispute in this appeal centers 
upon the definition of fair value set forth in Wyo. Stat. Ann. § 
17-16-1301(a)(iv) (LexisNexis 2005), which states:

 
 
"Fair value," with 
respect to a dissenter's shares, means 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;

 
 
The plain language of 
Wyo. Stat. Ann. § 17-16-1301(a)(iv) does not specifically authorize, nor 
prohibit, a minority discount.  HMO-W Inc. v. SSM Health Care Sys., 611 N.W.2d 250, 255 (Wis. 2000) (definition language does "not 
directly answer whether the application of a minority discount is permitted in 
determining the fair value of a dissenter's shares").  

 
 
[¶16]   A minority discount is an 
adjustment to account for a lack of control.  The theory behind a minority discount is 
that "non-controlling shares of stock are not worth their proportionate share of 
the [company's] value because they lack voting power to control corporate 
actions."  HMO-W Inc., 611 N.W.2d  at 253 n.3.  The district court concluded that a 30% 
minority discount was warranted.  It 
is important to distinguish the minority discount and another commonly discussed 
discount  the marketability discount, which adjusts for a lack of liquidity.12  The latter is not at issue in this 
appeal because the district court declined to apply a marketability discount, 
and that decision has not been appealed.  

 
 

[¶17]   We must interpret Wyo. Stat. Ann. § 
17-16-1301(a)(iv) by giving effect to the legislature's intent. Fraternal Order of Eagles      
Sheridan Aerie No. 186 v. 
State, 2006 WY 4, ¶ 16, 126 P.3d 847, 855 (Wyo. 2006).  If the plain language of the statute 
presents an ambiguity, we employ principles of statutory construction and may 
use extrinsic aids to interpret the statute.  Id; Diamond B Services, Inc. v. Rohde, 2005 
WY 130, ¶ 15, 120 P.3d 1031, 1039 (Wyo. 2005).   A statute may be ambiguous if it 
is found to be vague or uncertain and subject to varying interpretations.  Stutzman v. Office of the State Eng'r, 
2006 WY 30, ¶ 15, 130 P.3d 470, 
475 (Wyo. 
2006).

 
 
[¶18]   "Ultimately, whether a statute is 
ambiguous is a matter of law to be determined by the court."  Merrill v. Jansma, 2004 WY 26, ¶ 28, 86 P.3d 270, 285 (Wyo. 2004).  We 
conclude that the definition of "fair value" provided by Wyo. Stat. Ann. § 
17-16-1301(a)(iv) is ambiguous.  
Fair value is essentially defined as the value of the shares at a certain 
point in time.  "Value" is an 
inherently ambiguous term.13  In the context of discounts, other 
courts have also found that the statutory definition of "fair value" is 
ambiguous.  See, e.g., Pueblo Bancorporation v. Lindoe, Inc., 
63 P.3d 353, 359 (Colo. 2003); Columbia Management Co. v. Wyss, 765 P.2d 207, 210 (Or. App. 1988); Matthew G. 
Norton Co. v. Smyth, 51 P.3d 159, 163 (Wash. App. Div. 1 2002).   

 
 
[¶19]   Arp and Hammond contends that the 
statute's silence with regard to discounts reflects a clear legislative intent 
to allow the district court discretion to apply them.  Arp and Hammond reasons that if the 
legislative intent was to limit the district court's discretion, the legislature 
would have made that intent clear by adopting subsequent revisions to the MBCA 
to that effect.14  It also suggests that because a discount 
for minority status is a recognized concept in fair market valuation, it is 
likewise a reasonable consideration in a determination of fair 
value.

 
 
[¶20]   Appellants urge us to look to the 
purpose of the statute and the judicial interpretation supplied by other 
courts.  Appellants contend that the 
widely accepted understanding of fair value is that it represents their 
proportionate interest in the corporation as a whole.  They assert that application of a 
discount for minority status undermines the purpose of a dissenters' rights 
proceeding.  In support of their 
argument, Appellants state that the majority of courts have prohibited a 
minority discount, and that this approach represents the better reasoned 
interpretation of fair value under the Model Business Corporation Act.  They claim that the legislature had no 
reason to reconsider the definition of fair value in Wyo. Stat. Ann. § 
17-16-1301(a)(iv), and the failure to adopt revisions does not provide 
meaningful insight to legislative intent. 

 
 

[¶21]   We must resolve the ambiguity in 
Wyo. Stat. Ann. § 17-16-1301(a)(iv) in a manner that is reasonable and 
consistent with legislative intent.  
Stutzman, ¶ 15, 130 P.3d  at 475. As a basic rule of 
statutory construction, we may determine that intent by considering the type of 
statute being interpreted and examining the language used in light of the 
objects and purposes of the statute.  
Fraternal Order of Eagles 
  
 Sheridan Aerie 
No. 186, ¶ 16, 126 P.3d  at 855.  
When confronted with "two possible but conflicting conclusions, we will 
choose the one most logically designed to cure the mischief or inequity that the 
legislature was attempting to accomplish."  Diamond B Services, Inc., ¶ 15, 120 P.3d  
at 1039.  

 
 
[¶22]   We are mindful that Wyo. Stat. Ann. 
§ 17-16-1301(a)(iv) is a provision of a model act. "Decisions of other courts 
offer persuasive support when questions of the interpretation of uniform laws 
arise."  B & W Glass v. Weather Shield Mfg., 
829 P.2d 809, 814 (Wyo. 1992).  This principle applies with equal force 
to the interpretation of a widely adopted model act, such as the MBCA. Norman J. 
Singer, 2B Statutes and Statutory 
Construction § 52:05, p. 318 (6th ed. 
2000).  When the words of a statute 
are materially the same and where the reasoning of another court interpreting 
the statute is sound, "we do not sacrifice sovereign independence, nor undermine 
the unique character of Wyoming law, by relying upon the precedent of 
a foreign jurisdiction."  Iberlin v. TCI Cablevision, 855 P.2d 716, 726 (Wyo. 
1993).

 
 
[¶23]   Dissenters' rights were not 
recognized at common law.  Such 
rights have, however, been provided by Wyoming statute for some time.15  The U.S. Supreme 
Court summarized the historical development of the appraisal remedy and the 
balance struck by dissenters' rights statutes:

At common law, 
unanimous shareholder consent was a prerequisite to fundamental changes in the 
corporation. This made it possible for an arbitrary minority to establish a 
nuisance value for its shares by refusal to cooperate. To meet the situation, 
legislatures authorized the making of changes by majority vote. This, however, 
opened the door to victimization of the minority. To solve the dilemma, statutes 
permitting a dissenting minority to recover the appraised value of its shares, 
were widely adopted.

 
 

Voeller v. Neilston 
Warehouse Co., 311 U.S. 531, 535 
n.6, 61 S. Ct. 376, 378, 85 L. Ed. 322 (1941).16  

 
 
[¶24]   "The appraisal remedy has its roots 
in equity and serves as a quid pro quo: minority shareholders may dissent 
and receive a fair value for their shares in exchange for relinquishing their 
veto power."  HMO-W Inc., 611 N.W.2d  at 254. 
"Appraisal thus grants protection to the minority from forced participation in 
corporate actions approved by the majority."  Id.  Historically, the emphasis in appraisal 
proceedings was to provide "liquidity to a shareholder and a way out' of an 
involuntarily altered investment."  
Barry M. Wertheimer, The 
Shareholders' Appraisal Remedy and How Courts Determine Fair Value, 47 Duke 
L.J. 613, 615 (1998). Over the past few decades, the focus of the appraisal 
remedy has shifted from the liquidity function to constraining majority 
overreaching and protecting minority shareholders who are cashed out of their 
investment.  Robert B. Thompson, Exit, Liquidity, and Majority Rule: 
Appraisal's Role in Corporate Law, 84 Geo. L.J. 1, 21-22 (1995); Barry M. 
Wertheimer, The Shareholders' Appraisal 
Remedy and How Courts Determine Fair Value, 47 Duke L.J. 613, 615-616 
(1998).  "The consensus that has 
developed among courts and commentators is that the modern dissenters' rights 
statute exists to protect minority shareholders from oppressive conduct by the 
majority." Pueblo Bancorporation, 63 P.3d  at 
363.

 
 
[¶25]   Most modern appraisal actions arise 
when the majority seeks to eliminate the minority, raising concerns about 
majority oppression, self-dealing and opportunism.  Robert B. Thompson, Exit, Liquidity, and Majority Rule: 
Appraisal's Role in Corporate Law, 84 Geo. L.J. 1, 25-28 (1995).  Minority shareholders cashed out' by 
the majority are particularly vulnerable. Robert B. Heglar, Symposium  Fundamental Corporate Changes: 
Causes, Effects, and Legal Responses  Note: Rejecting the Minority 
Discount, 1989 Duke L.J. 258, 271 (1989). "A transaction in which the 
majority shareholder is forcing the minority shareholder out of the enterprise 
at a price chosen by the majority is fundamentally different from the minority's 
voluntary decision to abandon the enterprise because of a business change 
proposed by the majority."  F. Hodge 
O'Neal & Robert B. Thompson, O'Neal 
and Thompson's Oppression of Minority Shareholders and LLC Members, § 5:1, 
at 5-5 (2d ed. 2004).  Although a 
reverse stock split may serve a legitimate business purpose, it may also be a 
technique used to "squeeze out" minority shareholders.  F. Hodge O'Neal & Robert B. 
Thompson, O'Neal and Thompson's 
Oppression of Minority Shareholders and LLC Members, § 5:11, at 5-90 (2d ed. 
2004).17  

 
 
[¶26]   Arp and Hammond argues that the 
definition of fair value provided by Wyo. Stat. Ann. § 17-16-1301(a)(iv) was 
intended to supply the district court discretion to apply a minority 
discount.  In support of its 
argument, Arp and Hammond points to language in the official comment to the MBCA 
(1984) which states: "The definition of fair value'  leaves to the parties 
(and ultimately to the courts) the details by which fair value' is to be 
determined within the broad outlines of the definition."  Revised Model Bus. Corp. Act Annotated, 
§ 13.01, at 319 (1984). 18  Those broad outlines, however, are not 
delineated by the MBCA or the comments thereto.  According to the drafters, the 
definition of fair value in the MBCA left "untouched the accumulated case law 
about market value, value based on prior sales, capitalized earnings value, and 
asset value."  Id.  The comment leaves the impression that 
fair value was to be understood in conjunction with existing case law, and 
implies that future judicial decisions would help to further shape the contours 
of fair value.  Significant for 
purposes of this case, the official comment does not discuss whether a minority 
discount is an appropriate factor to consider in fair value 
determinations.

 
 
[¶27]   At the time the MBCA was adopted in 
Wyoming, this 
Court had not provided any guidance pertaining to fair value in dissenters' 
rights proceedings.  These issues 
had been litigated in other states.  
We would turn to the familiar canon that a statute borrowed from another 
jurisdiction is presumed to carry with it the construction placed upon it by 
that jurisdiction's highest court.  
Woodward v. Haney, 564 P.2d 844, 846 (1977).  However, it would 
be difficult to conclude that the legislature had a clear view of the judicial 
treatment of "fair value" and the minority discount when it adopted the 
MBCA.  At that time, there was a 
split of authority concerning the availability of a minority discount in 
dissenters' rights appraisal proceedings.  
See Christopher Vaeth, J.D., 
Annotation, Propriety of Applying 
Minority Discount to Value of Shares Purchased by Corporation or Its 
Shareholders From Minority Shareholders, 13 A.L.R.5th 840 (1993); Robert B. Heglar, Symposium  Fundamental Corporate Changes: 
Causes, Effects, and Legal Responses  Note: Rejecting the Minority 
Discount, 1989 Duke L.J. 258, 260 (1989).  Both parties direct our attention to 
subsequent legal developments in support of their positions.   

 
 
[¶28]   Shortly after Wyoming adopted the 
MBCA, the Delaware Supreme Court issued its decision in Cavalier Oil Corp. v. Harnett, 564 A.2d 1137 (Del. 1989).  The Delaware 
Supreme Court rejected the minority discount, reasoning:

 
 
The application of a 
discount to a minority shareholder is contrary to the requirement that the 
company be viewed as a "going concern." Cavalier's argument, that the only way 
Harnett would have received value for his 1.5% stock interest was to sell his 
stock, subject to market treatment of its minority status, misperceives the 
nature of the appraisal remedy. Where there is no objective market data 
available, the appraisal process is not intended to reconstruct a pro forma sale but to assume that the 
shareholder was willing to maintain his investment position, however slight, had 
the merger not occurred.   Discounting individual share holdings injects 
into the appraisal process speculation on the various factors which may dictate 
the marketability of minority shareholdings. More important, to fail to accord 
to a minority shareholder the full proportionate value of his shares imposes a 
penalty for lack of control, and unfairly enriches the majority shareholders who 
may reap a windfall from the appraisal process by cashing out a dissenting 
shareholder, a clearly undesirable result.

 
 

Id., 564 A.2d  at 1145.  Since Cavalier Oil, the split in authority has 
narrowed, with most courts following this seminal case.  The vast majority of courts have 
determined that a minority discount should not be applied to determine fair 
value of a minority shareholder's interest.  E.g., Foy v. Klapmeier, 992 F.2d 774, 781 (8th 
Cir. 1993); Stone v. Peoples Trust & Sav. Bank, 363 F. Supp. 2d 1036, 1039 (S.D. Ind. 2005); Arnaud v. Stockgrowers State Bank, 992 P.2d 216, 220 (Kan. 1999); Friedman v. 
Beway Realty Corp., 661 N.E.2d 972 (N.Y. 1995); Rigel Corp. v. Cutchall, 511 N.W.2d 519, 
526 (Neb. 1994); In re Valuation of 
Common Stock of McLoon Oil Co., 565 A.2d 997, 1004-1005 (Me. 1989); Hansen v. 75 Ranch Co., 957 P.2d 32, 42 
(Mont. 1998); First Western Bank Wall v. 
Olsen, 621 N.W.2d 611, 619 (S.D. 2001); Pro Finish USA, LTD v. Johnson, 63 P.3d 288, 294 (Ariz. Ct. App. 2003); Blitch v. 
Peoples Bank, 540 S.E.2d 667, 670 (Ga. Ct. App. 2000); Woolf v. Universal Fid. Life Ins. Co., 
849 P.2d 1093, 1095 (Okla. Ct. App. 1992); Robblee v. Robblee, 841 P.2d 1289, 1295 
(Wash. Ct. App. 1992); Columbia 
Management Co., 765 P.2d  at 214.

 
 
[¶29]   Expounding upon the reasoning of Cavalier Oil, courts have emphasized the 
purpose of the appraisal remedy for dissenting shareholders.  "The dissenter buyout system, with its 
standard of fair value, contemplates that dissenters may elect to realize their 
pro rata share of the whole corporate value."  Pro Finish USA, LTD, 63 P.3d  at 293. 
"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.'"  In re 75,629 Shares of Common Stock of Trapp 
Family Lodge, Inc., 725 A.2d 927, 931 (Vt. 1999).  See also Friedman, 661 N.E.2d  at 976; Pueblo Bancorporation, 63 P.3d  at 361; 
HMO-W Inc., 611 N.W.2d  at 256; Blitch, 540 S.E.2d  at 670.  To provide an adequate remedy, "a 
dissenting shareholder's position should be the equivalent of what it would have 
been had the fundamental change not occurred."  Hansen, 957 P.2d  at 41.  

 
 
[¶30]   Courts have also noted the obvious 
unfairness of discounting for minority status.  Discounts at the shareholder level are 
"inherently unfair to the minority shareholder who did not pick the timing of 
the transaction and is not in the position of a willing seller." Hansen, 957 P.2d  at 41.  The minority discount "inflicts a double 
penalty upon the minority shareholder and upsets the quid pro quo underlying 
dissenters' appraisal rights. The shareholder not only lacks control over 
corporate decision making, but also upon the application of a minority discount 
receives less than proportional value for loss of that control."  HMO-W Inc., 611 N.W.2d  at 257.  

 
 
[¶31]   Courts subscribing to the rationale 
of Cavalier Oil seek to discourage 
oppressive conduct by majority shareholders. "Any rule of law that gave the 
shareholders less than their proportionate share of the whole firm's fair value 
would produce a transfer of wealth from the minority shareholders to the 
shareholders in control. Such a rule would inevitably encourage corporate 
squeeze-outs."  In re Valuation of Common Stock of McLoon 
Oil Co., 565 A.2d  at 1005.  "[A] 
mandatory reduction in the fair value of minority shares to reflect their 
owners' lack of power in the administration of the corporation will inevitably 
encourage oppressive majority conduct, thereby further driving down the 
compensation necessary to pay for the value of minority shares." Friedman, 661 N.E.2d  at 977.  

 
 
[¶32]   This view of fair value, excluding 
any discount for minority status, is also endorsed by the American Law 
Institute.  ALI's Principles of 
Corporate Governance provide that the fair value in an appraisal proceeding 
should be the value of the shareholder's "proportionate interest in the 
corporation, without any discount for minority status or, absent extraordinary 
circumstances, lack of marketability."  
ALI Principles of Corporate Governance:  Analysis and Recommendations § 7.22(a) 
(1994).  To determine fair value, 
the trial court should determine the aggregate value for the corporation as an 
entity, and then simply allocate that value pro rata in accordance with the 
shareholders' percentage ownership.  
ALI Principles of Corporate Governance:  Analysis and Recommendations § 7.22 cmt. 
d (1994). 

 
 
[¶33]   The prohibition on minority discounts 
was included in the MBCA when it was revised in 1999.  The revised 
definition of fair value provides:

 
 
"Fair value" means the value of the corporation's shares 
determined:

(i) immediately before the effectuation of the corporate 
action to which the shareholder objects;

(ii) using customary and current valuation concepts and 
techniques generally employed for similar businesses in the context of the 
transaction requiring appraisal; and

(iii) without discounting for lack of marketability or 
minority status . . .

 
 
3 
Model Bus. Corp. Act Ann. § 13.01(4), at 13-3 (1998).

 
 
[¶34]   Clearly, the majority view considers 
application of a minority discount incompatible with the appraisal remedy for a 
dissenting shareholder.  Appellants ask us to follow this approach and 
reject the minority discount.  Recognizing that the recently amended MBCA 
does not permit a minority discount, Arp and Hammond argues that Wyoming's failure to similarly 
amend Wyo. Stat. Ann. § 17-16-1301(a)(iv) is significant.  It equates the 
legislature's inaction to an affirmative indication of legislative intent, 
citing McLean v. 
Hyland Enterprises, Inc., 2001 WY 111, ¶ 35, 34 P.3d 1262, 1271 (Wyo. 
2001).  In 
light of the legislature's failure to adopt the 1999 revisions to the MBCA, Arp 
and Hammond concludes that the minority discount is available in Wyoming as a matter of law.  We do not attribute 
the significance to the legislature's inaction that Arp and Hammond advocates.  

 
 
[¶35]   "Legislative inaction has been called a 
weak reed upon which to lean' and a poor beacon to follow' in construing a 
statute."  
Norman J. Singer, 2B Statutes and Statutory Construction § 49:10, p. 112-115 
(6th ed. 2000).  Arp and Hammond does not assert that the 
legislature's attention has been directed to the 1999 MBCA or the issue of 
minority discounts.  
Legislative inaction, as an aid to statutory interpretation, is more 
useful when the statute at issue has first been given an interpretation or 
implementation by an agency or a court.  Although we did consider legislative inaction 
in McLean 
significant, that was in the context of long-standing administrative rules that 
had been promulgated in 1984 and applied by the agency for many years.  McLean, ¶ 35, 34 P.3d  at 1271.  McLean did not involve the interpretation 
or application of a model act.  

 
 
[¶36]   An equally plausible explanation for 
the legislature's failure to amend Wyo. Stat. Ann. § 17-16-1301(a)(iv) is that 
the legislature deemed no revisions necessary.  As interpreted by the majority of courts, the 
definition of fair value in Wyo. Stat. Ann. § 17-16-1301(a)(iv) does not permit 
a minority discount to be applied to dissenters' shares.  If the legislature's 
original intent was consistent with this view, there would be no need to enact 
an express prohibition.  See, e.g., Carroll v. Wyoming Prod. Credit Ass'n, 755 P.2d 869, 873 
(Wyo. 1988) (rejecting argument that 
legislature's failure to adopt revisions to Model Business Corporations Act was 
meaningful).

 
 
[¶37]   We recognize that Wyoming adopted the MBCA before Cavalier Oil was 
decided, although in the same year.  Cavalier Oil was premised upon statutory language that 
did not differ significantly from Wyo. Stat. Ann. § 17-16-1301(a)(iv).  Considering the 
purpose of dissenters' rights and the practical impact of allowing a minority 
discount, Cavalier 
Oil determined that the fair value of dissenters' shares could not be 
determined by applying a minority discount.  Subsequently, the Cavalier Oil view 
flourished, despite the lack of any express prohibition on applying a minority 
discount found in the statutory definition of "fair value" in the 1984 MBCA. 
 The 1999 MBCA 
appears to have embraced Cavalier Oil and its progeny.

 
 
[¶38]   In other states where legislatures have 
not yet adopted the 1999 amendments to the MBCA, courts have nonetheless 
considered the 1999 MBCA amendments persuasive on the issue of whether to allow 
discounts in determining fair value.  Pueblo Bancorporation, 63 P.3d  at 368.  
"A number of states have rejected such discounts since the revisions to 
the Model Act, without benefit of amendments to their statutes."  Matthew G. Norton 
Co., 51 P.3d  at 164.  For example, the court in Matthew G. Norton 
concluded "the fact that our legislature has not amended chapter 23B.13 RCW to 
conform to the most recent revisions to the Model Act does not preclude the 
courts of this state from disapproving such discounts as may be inappropriate in 
ascertaining fair value.'"  Matthew G. Norton Co., 51 P.3d  at 164.  And despite its 
legislature's failure to adopt the most recent version of the MBCA, the Alabama 
Supreme Court nevertheless took note of its clear intent and viewed "the 1999 
revision as reflective of the majority view in states that have adopted the 
MBCA."  Ex parte Baron 
Servs., 874 So. 2d 545, 549 n.5 (Ala. 2003).  Accord Blitch, 540 S.E.2d  
at 670.  

 
 
[¶39]   Characterizing appraisal proceedings as 
fact-intensive, Arp and Hammond urges us to afford discretion to the district 
court's findings.  
It points to the district court's determination that the application of 
discounts is a matter of fact rather than a question of law.  Arp and Hammond 
emphasizes the particular facts of this case, characterizing the Appellants and 
Ms. Holmes as a troublesome, meddling, difficult minority, making the reverse 
stock split necessary for the continued viability of the company.  Arp and Hammond 
stresses the desire of the minority to sell or develop the corporation's real 
estate instead of using it for ranching and makes numerous references to prior 
litigation initiated by Ms. Holmes against the majority.19  These facts, Arp 
and Hammond contends, justify the discounts applied by the district court.

 
 
[¶40]   Although the record reflects a troubled 
history between the shareholders, we cannot overlook the ultimate cause of this 
appraisal proceeding, which is the reverse stock split forcing the Appellants 
out of the corporation.20  Wyoming law provides the 
dissenters' rights appraisal remedy for this situation.  Arp and Hammond is 
correct that questions concerning valuation of closely-held stock will often be 
fact-dependent, requiring discretionary weighing by the district court.  Neuman v. Neuman, 
842 P.2d 575, 582 
(Wyo. 1992).  However, we decline 
to defer to the district court's approach in this case because we conclude that 
the availability of a minority discount in a dissenters' rights appraisal 
proceeding is a question of law.21  We do not defer to the district court's legal 
conclusions.  
Fraternal 
Order of Eagles Sheridan Aerie No. 186, ¶ 16, 
126 P.3d  at 855.  
While courts do not all agree whether the determination of "fair value" 
is a factual or legal one, most generally agree that a minority discount is not 
available as a matter of law.22  

 
 
[¶41]   Additionally, to the extent that Arp 
and Hammond argues that "fair value" can be equated with "fair market value," we 
must reject that interpretation.  Courts construing the meaning of "fair value" 
have emphasized the policies served by dissenters' rights statutes.  In doing so, they 
have generally rejected the notion that the ambiguity in the term fair value can 
be resolved by simply resorting to fair market valuation.  "It is clear  that 
our legislature's use of the term fair value' was not a slip of the pen--the 
legislature did not intend to say fair market value' instead."  Matthew G. Norton 
Co., 51 P.3d  at 163.  "A dissenting shareholder is not in the 
position of a willing seller, however, and thus, courts have held that fair 
value cannot be equated with fair market value.'"  In re 75,629 Shares of 
Common Stock of Trapp Family Lodge, Inc., 725 A.2d  at 931.  "The dissenter's 
rights statute is not designed to produce the equivalent of a sale on the open 
market; rather, it is a legislative remedy for minority shareholders who find 
their interests threatened by significant corporate changes and who may have no 
other recourse."  Columbia Management Co., 765 P.2d  at 214.  "A minority 
discount based on valuing only the minority block of shares injects into 
the appraisal process speculation as to the myriad factors that may affect the 
market price of the block of shares."  HMO-W Inc., 611 N.W.2d  at 256.

 
 
Applying a discount is inappropriate when the shareholder 
is selling her shares to a majority shareholder or to the corporation. The sale 
differs from a sale to a third party and, thus, different interests must be 
recognized. When selling to a third party, the value of the shares is either the 
same as or less than it was in the hands of the transferor because the third 
party gains no right to control or manage the corporation. However, a sale to a 
majority shareholder or to the corporation simply consolidates or increases the 
interests of those already in control. Therefore, requiring the application of a 
minority discount when selling to an "insider" would result in a windfall to the 
transferee. This is particularly true since the transferring shareholder 
would expect that the shares would have at least the same value in her hands as 
in the hands of the transferee.

 
 

Hansen, 
957 P.2d  at 41.

 
 
[¶42]   We join the majority of courts in 
holding, as a matter of law, that a minority discount may not be applied in 
determining the fair value of a dissenting shareholder's interest.  We conclude that 
fair value in Wyo. Stat. Ann. § 17-16-1301(a)(iv) must not include a minority 
discount in order to be consistent with the purpose served by the dissenters' 
rights statutes.  
"The dissenters' rights statute serves as the primary assurance that 
minority shareholders will be properly compensated for the involuntary loss of 
their investment. The remedy protects the minority shareholders ex ante, by 
deterring majority shareholders from engaging in wrongful transactions, and ex 
post, by providing adequate compensation to minority shareholders."  Pueblo Bancorporation, 63 P.3d  at 364. While it is true that dissenters' rights are equitable in nature, 
equity does not afford the district court discretion to offend the purpose of 
the statute.  
The remedy provided to a minority shareholder was not designed to 
encourage majority shareholder oppression.  "To include a minority discount would simply 
penalize [the dissenting shareholder] while allowing the corporation to buy his 
shares cheaply.  
That is not the protection that the legislature had in mind or that other 
courts have provided."  Columbia Management Co., 765 P.2d  at 214.

 
 
[¶43]   In a dissenters' rights appraisal, the 
focus of the valuation "is not the stock as a commodity, but rather the stock 
only as it represents a proportionate part of the enterprise as a whole."  In re Valuation of 
Common Stock of McLoon Oil Co., 565 A.2d  at 1004.  "Thus, to find fair 
value, the trial court must determine the best price a single buyer could 
reasonably be expected to pay for the corporation as an entirety and prorate 
this value equally among all shares of its common stock. Under this method, all 
shares of the corporation have the same fair value."  In re 75,629 Shares of 
Common Stock of Trapp Family Lodge, Inc., 725 A.2d  at 931 (citing McLoon Oil, 565 
A.2d at 1004).   

 
 
[¶44]   Accordingly, we find that the fair 
value of Appellants' shares should not have been adversely impacted by 
Appellants' status as minority shareholders.  The district court erroneously applied a 30% 
minority discount.  
Appellants are entitled to a modified judgment reflecting the district 
court's determination of their proportionate value of the corporation without 
the minority discount.

 
 
Discount for Trapped-In Capital Gains

 
 
[¶45]   Next, we consider Appellants' challenge 
to the 5% discount applied by the district court to account for potential future 
tax consequences.  The district court found the corporation was 
"cash poor" and estimated that Arp and Hammond would need to sell some of its 
assets in order to satisfy the judgment awarded to Appellants.  A sale, the 
district court reasoned, would likely result in tax consequences.  Appellants claim 
that the discount was not supported by the evidence and is based upon a theory 
that conflicts with the meaning of fair value.  We agree.

 
 
[¶46]   The 5% discount applied by the district 
court does not result in fair value pursuant to Wyo. Stat. Ann. § 
17-16-1301(a)(iv).  
The fair value of Appellants' shares is measured "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."  Wyo. Stat. Ann. § 
17-16-1301(a)(iv). This language generally excludes costs that may be incurred 
after effectuation of the corporate action causing the shareholder to dissent, 
and such costs should not be assessed against the dissenting shareholders.  Hansen, 957 P.2d  at 
43.  The 
valuation date for Arp and Hammond was September 26, 2003.  As of that date, no 
sale of assets was contemplated.  

 
 
[¶47]   Nevertheless, Arp and Hammond contends 
that it would be inequitable to not apply the discount in this case.  It claims that 
liquidation was anticipated because it would be the only way the corporation 
could pay for Appellants' shares.  This justification for applying a tax 
discount has been rejected as inconsistent with the remedy provided by the 
dissenting shareholder's right to appraisal:  

 
 
Under the dissenters' rights statute, the court is required 
to value the corporation as "a going concern."

Accordingly, courts have generally rejected any tax 
discount "unless the corporation is undergoing an actual liquidation." Here, 
there was no evidence that TFL was undergoing liquidation on the valuation date. 
Indeed, the evidence indicated that TFL was a going concern. Thus, the trial 
court correctly declined to consider the tax consequences of the sale of any 
assets.

 

TFL 
maintains that it will have to sell assets in order to pay the dissenters for 
their shares, and that therefore the tax consequences of the sale should be 
considered in the valuation. Under the dissenters' rights statute, however, the 
dissenters are entitled to a pro rata share of the fair value of the corporation 
immediately before the merger. "Thus, if costs are incurred after effectuation 
of the exchange, those costs should not be assessed against the dissenting 
shareholders." Accordingly, it would be inappropriate to consider a future 
sale of assets to determine the fair value prior to merger. 

 
 

In 
re 75,629 Shares of Common Stock of Trapp Family Lodge, Inc., 
725 A.2d  at 934 (internal citations omitted).  

 
 
[¶48]   Courts generally find that "unless the 
corporation is undergoing an actual liquidation, the liquidation method is not 
an appropriate method of valuing shares of a dissenting shareholder." Hansen, 957 P.2d  at 
42.23  As one commentator observed:

            
The purpose of the remedy given to dissenting shareholders is to 
compensate them for the fair value of their shares. The process is designed to 
arrive at a value based upon what the shareholder is forced to give up as a 
result of the transaction triggering the right to dissent. Based upon that 
purpose, . . . neither immediate tax consequences nor deferred tax consequences 
of the triggering transaction should be considered in determining the fair value 
of dissenters' shares. To consider such tax consequences would not only violate 
the clear language of most statutes, but also charge dissenting shareholders 
with taxes which would not accrue but for the transaction itself or taxes which 
may never accrue.

. . 
. when a court is valuing the assets of a corporation as a part of valuing the 
corporation as a whole, tax effects should be considered only in the most 
limited circumstances. Such tax consequences should be considered only when a 
sale of those assets is imminent and 
unrelated to the transaction which triggered the shareholders' right to 
dissent.

 
 
Cecile C. Edwards, Dissenters' Rights: The Effect of Tax Liabilities on the 
Fair Value of Stock, 6 DePaul Bus. L.J. 77, 98-99 (1993).

 
 
[¶49]   Additionally, Arp and Hammond did not 
present evidence to support its assertion that a judgment favoring Appellants 
would force a sale of corporate assets.  The district court found that "Arp and 
Hammond's proof as to the availability of this discount is somewhat 
sketchy"  From 
our review of the record, that may be a generous description.  The undisputed 
testimony indicated that there were no current plans to sell any of Arp and 
Hammond's land, unless such action 
was required to pay the judgment to Appellants.  There was no evidence identifying the 
property that might be sold, the date of sale, or the taxable basis for the 
property.  In 
the absence of specific facts about a prospective sale, "[i]t would be the 
basest form of speculation to attempt to determine tax consequences of a 
voluntary liquidation of assets at an unknown future time."  Hall v. Hall, 2005 WY 166, ¶ 16, 125 P.3d 284, 289 (Wyo. 2005).  

 
 
[¶50]   Under the circumstances of this case, a 
discount for trapped-in capital gains taxes should not have been a consideration 
in the fair value of Appellants' shares because it was premised upon action 
contemplated by the corporation subsequent to (or because of) the reverse stock 
split.  
Additionally, the district court lacked an evidentiary basis to calculate 
the discount when the nature, timing, and details of a sale were 
speculative.  
Application of the 5% discount for trapped-in capital gains was 
erroneous.

 
 
Omission of Non-Ranch Assets

 
 
[¶51]   In their final claim of error, 
Appellants contend that the district court did not award the fair value of their 
shares because several corporate assets were not included.  In valuing the 
corporation, the district court focused upon the ranch land.  The district court 
assigned a dollar amount to each parcel.  The parcel values were added to arrive at the 
corporation's undiscounted value of $4,203,000.  Neither party challenges the value assigned 
to the ranch. However, several non-ranch assets -- a commercial building in 
Cheyenne, the cash on hand, and 
other corporate assets, were not mentioned in the district court's findings of 
fact and conclusions of law.  Appellants contend the district court should 
have included the following values for these omitted assets in its fair value 
determination: $477,584 for cash, $252,400 for the building in Cheyenne, $64,000 for other real 
property identified as the Highlands Village Lots, and $138,000 of other 
assets.

 
 
[¶52]   Arp and Hammond does not dispute the 
existence of non-ranch assets or that the district court did not include these 
other assets in its decision.  However, Arp and Hammond argues that 
Appellants had an opportunity to bring the omission to the attention of the 
district court, and failing to do so, should be precluded from raising this 
issue on appeal.  
"The justification for the rule foreclosing appellate consideration is 
that it is unfair to reverse a ruling of a trial court for reasons that were not 
presented to it, whether it be legal theories or issues never formally raised in 
the pleadings nor argued to the trial court." Oatts v. Jorgenson, 
821 P.2d 108, 111 (Wyo. 1991).  Based upon our 
review of the record, we conclude that the issue of non-ranch assets was 
presented to the district court for consideration.

 
 
[¶53]   Prior to trial, the parties stipulated 
that the corporation owned a commercial building in Cheyenne and had cash on hand, but 
the value of this property was not stated in the stipulation.  Appellants 
submitted proposed findings of fact to the district court that pertained to the 
issue raised on appeal.  Appellants proposed a value for all of the 
corporation's ranch real estate of $5,357,900, and then stated "Arp and 
Hammond's total value is $6,242,164."  On appeal, Appellants explain the $884,264 
difference between the two figures as the sum total of omitted assets, minus an 
undisputed liability for income taxes in the amount of $47,720.  Although the 
non-ranch assets were not specifically listed or identified in Appellants' 
proposed findings, the difference between the two stated value figures suggests 
that assets other than the ranch real estate were involved.  Similarly, the same 
two values were introduced at trial as exhibits supporting Appellants' proposal 
for valuing of the corporation. 

 
 
[¶54]   Furthermore, Arp and Hammond's position 
that non-ranch assets were not at issue or were not properly presented to the 
district court is undercut by evidence that it presented at trial.  Arp and Hammond's appraisal expert prepared 
a report that was admitted into evidence by joint stipulation.  Within that report, 
the building in Cheyenne was identified and valued 
at $252,400. Other real property, the Highlands Village Lots, was identified and 
valued at $64,000.  
Additionally, cash totaling $477,584 and "other assets" amounting to 
$138,000 were included in the appraiser's list of corporate assets.  Testimony presented 
by Arp and Hammond also 
identified cash, the building in Cheyenne, and other real estate as 
corporate assets.  

 
 
[¶55]   The record reveals undisputed evidence 
establishing values for the cash ($477,584), the building in Cheyenne 
($252,400), and the Highlands Village Lots ($64,000).  The district 
court's failure to incorporate these values into its determination of fair value 
was clearly erroneous.  The nature of the other assets totaling 
$138,000 is not apparent from the record, and to the extent those assets are not 
in dispute, that value should also be included.  Upon remand, the district court should 
determine the value of Arp and Hammond by adding the value of the non-ranch 
assets to $4,203,000 -- the amount previously determined by the district court 
to be the undiscounted value of Arp and Hammond's ranch property.  The undisputed tax 
liability of $47,720 should be subtracted from the total value.  The fair value of 
Appellants' shares may then be determined as a proportionate share (21.86%) of 
the total corporate value, minus amounts already paid by Arp and Hammond, plus interest.   

 
 
CONCLUSION

 
 
[¶56]   We conclude that in a dissenters' 
rights action pursuant to Wyo. Stat. Ann. § 17-16-1301, et seq., "fair 
value" of a minority shareholder's interest may not be discounted for minority 
status.  The 
district court erred by applying a minority discount.  The district court 
also erred by applying a discount for trapped-in capital gains because it was 
based upon potential corporate action after the date of valuation for 
determining fair value under Wyo. Stat. Ann. § 17-16-1301(a)(iv) and it was not 
supported by evidence.  Finally, the district court erred in omitting 
corporate assets from its calculation of fair value.  The judgment is 
reversed, and we remand this matter to the district court for further 
proceedings consistent with this opinion.   

 
 

FOOTNOTES

 
 

1The parties stipulated 
that the filing date, September 26, 2003, was the appropriate valuation date for 
the appraisal proceeding.

 
 

2Wyo. Stat. Ann. § 17-16-1302 provides the right to 
dissent:

 

(a)  A shareholder is entitled to dissent from, and to obtain 
payment of the fair value of his shares in the event of, any of the following 
corporate actions:

            
 . . 
.

 
 

iv)  An amendment of the articles of incorporation that 
materially and adversely affects rights in respect of a dissenter's shares 
because it:

 
 
. . .

 
 

E)         
Reduces the number of shares owned by the shareholder to a 
fraction of a share if the fractional share so created is to be acquired for 
cash under W.S. 17-16-604.

 
 

3Interest was also paid 
for a total tender of $267,047.02.

 
 

4Wyo. 
Stat. Ann. § 17-16-1330 provides, in pertinent part:

 
 
(a)  If a 
demand for payment under W.S. 17-16-1328 remains unsettled, the corporation 
shall commence a proceeding within sixty (60) days after receiving the payment 
demand and petition the court to determine the fair value of the shares and 
accrued interest.  
If the corporation does not commence the proceeding within the sixty (60) 
day period, it shall pay each dissenter whose demand remains unsettled the 
amount demanded. 

 

(b)  The 
corporation shall commence the proceeding in the district court of the county 
where a corporation's principal office, or if none in this state, its registered 
office, is located.  
If the corporation is a foreign corporation without a registered office 
in this state, it shall commence the proceeding in the county in this state 
where the registered office of the domestic corporation merged with or whose 
shares were acquired by the foreign corporation was located. 

 

(c)  The 
corporation shall make all dissenters, whether or not residents of this state, 
whose demands remain unsettled parties to the proceeding as in an action against 
their shares and all parties shall be served with a copy of the petition. . . 
.

 
 

5In addition to the ranch, 
cash and the building in Cheyenne, the reports identified corporate assets as 
including other real property identified as the Highlands Village Lots, and 
"other assets" totaling $138,000.

 
 

6Neither party challenges 
the district court's valuation methodology or the value assigned to the ranch 
land of $4,203,000.

 
 

7Arp and Hammond does not 
challenge the district court's rejection of these two discounts.

 
 

8The district court estimated that Arp and Hammond would 
need to liquidate one-seventh of its land to satisfy the judgment because it was 
cash poor.  
Anticipating capital gains taxes of approximately 34% on any sale, the 
district court found that one-seventh of 34%, or approximately 5%, should be 
deducted from the amount to be paid to the minority shareholders. 

 
 

9Wyo. 
Stat. Ann. § 17-16-1330(e)(i) provides: 

 
 
(e)  Each dissenter made 
a party to the proceeding is entitled to judgment for:

 
 
      
(i)  The 
amount, if any, by which the court finds the fair value of his shares, plus 
interest, exceeds the amount paid by the corporation[.]

 
 
There is no dispute concerning the rate of 
interest.

10See 3 
Model Bus. Corp. Act Ann. § 13.01, at 13-13 (Supp 2000/01/02) for listing of 
jurisdictions that have adopted the MBCA. 

 
 

11Wyo. Stat. Ann. § 
17-16-1302(b) states:  
"A shareholder entitled to dissent and obtain payment for his shares 
under this article may not challenge the corporate action creating his 
entitlement unless the action is unlawful or fraudulent with respect to the 
shareholder or the corporation."

 
 

12                      
 it is useful to understand the distinction between a marketability 
discount and a minority discount. Some courts confuse those terms. A minority 
discount adjusts for lack of control over the business entity on the theory that 
non-controlling shares of stock are not worth their proportionate share of the 
firm's value because they lack voting power to control corporate actions. A 
marketability discount adjusts for a lack of liquidity in one's interest in an 
entity, on the theory that there is a limited supply of potential buyers for 
stock in a closely-held corporation.

 
 
Lawson Mardon Wheaton v. Smith, 
734 A.2d 738, 747 (N.J. 1999) (internal citations omitted).

 
 

13See 
Black's Law Dictionary 1586-1587 (8th ed. 2004), 
identifying numerous concepts of "value" including "actual cash value," "book 
value," "cash surrender value," "liquidation value," "market value," "net 
value," "optimal use value," "par value," "residual value," "scrap value," 
"surrender value," "true value," "use value," etc.

 
 

14As discussed later in 
this opinion, the MBCA revised the definition of fair value in 1999 to expressly 
prohibit a minority discount.

 
 

15For example, prior to the 
1989 enactment of the MBCA, dissenters' rights were provided by W.S. § 17-1-504 
(1977) (repealed), which also provided dissenting shareholders the right to 
receive the "fair value" of their shares in a judicial appraisal proceeding. 
Subsection (e) to W.S. § 17-1-504 stated, in pertinent part: " All shareholders 
who are parties to the proceeding are entitled to judgment against the 
corporation for the amount of the fair value of their shares. "  This language was 
carried over from W.S. § 17-36.72 (1957) (Laws 1961, ch. 85, § 72).

16All states provide for the right of shareholders, 
who disagree with some fundamental corporate change, to dissent from the 
transaction and receive the value of their shares in cash. Cecile C. Edwards, Dissenters' Rights: The 
Effect of Tax Liabilities on the Fair Value of Stock, 6 DePaul Bus. L.J. 77, 
86 (1993).

 
 

17"A squeeze-out normally does not contemplate fair payment 
to the squeezees for the interests, rights, or powers which they lose."  F. Hodge O'Neal 
& Robert B. Thompson, O'Neal and Thompson's Oppression of Minority Shareholders 
and LLC Members, § 1:1, at 1-2 (2d ed. 2004).

 
 
 A squeeze-out by reverse stock split occurs as 
follows: 

 
 
The controlling shareholder votes to amend the corporate 
charter  to reduce the number of shares outstanding by consolidating the shares 
so that each share is converted into a small fraction  of a share. . . .  Most states and the 
Model Act give the corporation an option to acquire the fractional shares for 
cash.  The 
corporation can insure a complete cash-out simply by reducing the number of 
shares sufficiently so that all minority shareholders have less than one share. 

 
 
F. Hodge O'Neal & Robert B. Thompson, O'Neal and Thompson's 
Oppression of Minority Shareholders and LLC Members, § 5:11, at 5-90 & 
5-91 (2d ed. 2004) (footnotes omitted).  As with other kinds of squeeze-outs, courts 
have split on whether a controlling shareholder should be permitted to use a 
reverse stock split to squeeze out minority shareholders.  F. Hodge O'Neal 
& Robert B. Thompson, O'Neal and Thompson's Oppression of Minority Shareholders 
and LLC Members, § 5:11, at 5-92 (2d ed. 2004).  In this case, the 
district court did not make any findings concerning the purpose of the reverse 
stock split, and we do not consider that issue here.  Suffice it to say, 
the parties characterize Arp and Hammond's reverse stock split 
differently.

 
 

18The official comment to 
the MBCA provides, in pertinent part:

 
 
The definition of "fair 
value"  leaves to the parties (and ultimately to the courts) the details by 
which "fair value" is to be determined within the broad outlines of the 
definition.  
This definition leaves untouched the accumulated case law about market 
value, value based on prior sales, capitalized earnings value, and asset 
value.  It 
specifically preserves the former language excluding appreciation and 
depreciation in anticipation of the proposed corporate action, but permits an 
exception for equitable considerations.  The purpose of this exception ("unless 
exclusion would be inequitable") is to permit consideration of factors similar 
to those approved by the Supreme Court of Delaware in Weinberger v. UOP, 
Inc., 457 A.2d 701 (Del. 1983), a case in which the court found that the 
transaction did not involve fair dealing or fair price: "In our view this 
includes the elements of recissory damages if the Chancellor considers them 
susceptible of proof and a remedy appropriate to all the issues of fairness 
before him." Consideration of appreciation or depreciation which might result 
from other corporate action is permitted; these effects in the past have often 
been reflected either in market value or capitalized earning value.

 
 
"Fair value" is to be 
determined immediately before the effectuation of the corporate action, instead 
of the date of the shareholder's vote, as is the case under most state statutes 
that address the issue.  This comports with the plan of this chapter 
to preserve the dissenter's prior rights as a shareholder until the effective 
date of the corporate action, rather than leaving him in a twilight zone where 
he has lost his former rights, but has not yet gained his new ones.

 
 
Id., § 
13.01, at 319-320.

 
 
The Weinberger decision 
by the Delware Supreme Court is notable for discarding the "Delaware Block" 
method as the sole means of valuing corporate shares and for allowing recissory 
damages in an appraisal proceeding.  Robert B. Heglar, Symposium  Fundamental 
Corporate Changes: Causes, Effects, and Legal Responses  Note: Rejecting the 
Minority Discount, 1989 Duke L.J. 258, 265 (1989).  Instead of a 
formulaic weighing of three factors that appeared outdated and outmoded, the Weinberger court 
emphasized a court's duty to consider "all relevant factors involving the value 
of a company."  
Id., 457 A.2d  at 713.  This direction was 
given in light of the "basic concept of value under the appraisal statute  that 
the stockholder is entitled to be paid for that which has been taken from him, 
viz., his proportionate interest in a going concern."  Id. Weinberger did not 
specifically address the minority discount.

 
 

19The referenced litigation 
arose after Lummis Livestock became the majority shareholder in Arp and 
Hammond.  In a 
financing transaction, Arp and Hammond pledged its assets as security for a loan 
to Lummis Livestock. Ms. Holmes sued to set aside the transaction with the suit 
being resolved when Lummis Livestock refinanced its note with the bank, 
releasing the collaterized assets owned by Arp and Hammond. 

 
 

20Arp and Hammond argues 
that the facts of this case present "extraordinary circumstances" and that under 
this exception, a minority discount should be available.  However, the 
exception for extraordinary circumstances pertains to the marketability 
discount, not the minority or lack of control discount.  ALI Principles of 
Corporate Governance:  
Analysis and Recommendations § 7.22(a) (1994).

 
 

21In support of the 
district court's approach, Arp and Hammond cites to several other cases 
discussing fair value appraisal proceedings as equitable and inherently factual. 
E.g., Stanton v. Republic 
Bank of S. Chicago, 581 N.E.2d 678, 683 (Ill. 1991) (fair value is matter 
for court to determine based on credible expert testimony); Balsamides v. Protameen 
Chems., 734 A.2d 721, 730 (N.J. 1999); Matthew G. Norton 
Co., 51 P.3d  at 165 ("Even those courts that generally will not apply such a 
discount do not support a blanket rule that, as a matter of law,' a 
marketability discount should never be considered.") (emphasis in original).

 
 
            
Our review of this authority does not convince us that application of a 
minority discount is a matter of discretion for the district court.  Illinois does consider discounts a 
discretionary matter for the trial court.  Stanton, 
581 N.E.2d 678; Jahn 
v. Kinderman, 814 N.E.2d 116, 125 (Ill. 2004). However, that approach 
places Illinois in a very small minority 
of jurisdictions that allow minority discounts; a position that has been 
criticized. Charles W. Murdock, Squeeze-outs, Freeze-outs, and Discounts: Why Is Illinois in the Minority in 
Protecting Shareholder Interests? 35 Loy. U. Chi. L.J. 737 (Spring 2004). 
Several of the other cases are inapposite to the minority discount at issue in 
this case, but in a general sense, they actually support Appellants' argument 
that the question is one of law.  Balsamides involved an oppressed minority shareholder 
requesting dissolution of the corporation, and the discount at issue was a 
marketability discount, not a minority discount. Still, the court in Balsamides noted 
that "the determination of whether a marketability discount' is applicable 
implicates a question of law, and also is subject to de novo review." Balsamides, 734 A.2d  at 732.  
Citing Balsamides, the Minnesota Supreme Court likewise 
determined that de 
novo review was appropriate because the applicability of a marketability 
discount presented a question of law. Advanced Commun. Design, Inc. v. Follett, 615 N.W.2d 285, 289 (Minn. 2000).

 
 

22See Hogle v. Zinetics Med., Inc., 2002 UT 121, ¶ 10, 63 P.3d 80, 87 (Utah 2002) (While the ultimate determination of fair value is a 
question of fact, the determination of whether a given fact or circumstance is 
relevant to fair value is a question of law which is reviewed de novo.); Arnaud v. Stockgrowers 
State Bank, 992 P.2d 216, 220-221 (Kan. 1999) (answering certified question 
of law that minority and marketability discounts should not be applied when the 
fractional share resulted from a reverse stock split intended to eliminate a 
minority shareholder's interest in the corporation); Hansen, 957 P.2d  at 
37 (issue of minority discount was legal in nature); Wenzel v. Hopper & 
Galliher, P.C., 779 N.E.2d 30, 39 (Ind. Ct. App. 2002) (minority discount 
was improper as a matter of law); First Western Bank Wall, 621 N.W.2d  at 616 (trial 
court's refusal to apply discounts was essentially question of statutory 
interpretation reviewed de novo); Stone, 363 F. Supp. 2d  at 1039 (minority and 
non-marketability discounts are prohibited as a matter of Indiana law); HMO-W Inc., 611 N.W.2d  at 253 (issue of whether minority discount may apply in determining the 
fair value of dissenter's shares involves statutory interpretation and presents 
question of law); Columbia Management Co., 765 P.2d  at 209 (application 
of minority and marketability discounts presented issue of law).  But see, e.g., Richton Bank & 
Trust Co. v. Bowen, 798 So. 2d 1268, 1273-1274 (Miss. 2001) (trial court's 
refusal to apply minority discount upheld as appropriate exercise of 
discretion); Pro 
Finish USA, LTD, 63 P.3d  at 291 (whether trial court properly applied 
statutory fair value standard to facts of this case is a mixed question of law 
and fact reviewed de 
novo).

 
 

23However, we recognize 
that a future sale might impact fair value under appropriate circumstances.

 
 
 while discounts for 
built-in capital gains are not generally appropriate in dissenters' rights 
appraisal cases where no liquidation of the corporation is contemplated, such 
discounts might be appropriate, at the corporate level, if the business of the 
company is such that appreciated property is scheduled to be sold in the 
foreseeable future, in the normal course of business.

 
 
Matthew G. Norton 
Co., 51 P.3d  at 
168.  If a sale 
is contemplated, before applying a tax discount, a trial court should also 
consider whether the shareholder will "effectively be paying his or her 
proportionate share of the tax on this same appreciation, upon taxation of the 
proceeds of sale of his or her appreciated stock back to the corporation." 
Id. at 
169.