Opinion ID: 4560966
Heading Depth: 1
Heading Rank: 3

Heading: analysis

Text: No Election to Purchase by A & R [4] In their first assignment of error, A & R and Rafert contend that the court erred by entering judgment against A & R, because the corporation did not elect to purchase any shares from Cheryl. To resolve this issue, we must interpret provisions of the Nebraska Model Business Corporation Act, Neb. Rev. Stat. §§ 21-201 through 21-2,232 (Cum. Supp. 2016). In 1 See Rigel Corp. v. Cutchall, 245 Neb. 118, 511 N.W.2d 519 (1994). 2 Id. 3 Id. - 491 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports ANDERSON v. A & R AG SPRAYING & TRUCKING Cite as 306 Neb. 484 construing a statute, a court must determine and give effect to the purpose and intent of the Legislature as ascertained from the entire language of the statute considered in its plain, ordinary, and popular sense. 4 Cheryl initiated this matter by petitioning the district court to dissolve A & R pursuant to § 21-2,197(a)(2). Section 21-2,201(a) states in part, “In a proceeding under subdivision (a)(2) of section 21-2,197 to dissolve a corporation, the corporation may elect or, if it fails to elect, one or more shareholders may elect to purchase all shares owned by the petitioning shareholder at the fair value of the shares.” Section 21-2,201(b) states that an election may be filed by “the corporation or one or more shareholders,” and it further states that “[a]ll shareholders who have filed an election or notice of their intention to participate in the election to purchase thereby become parties to the proceeding . . . .” Section 21-2,201(c) provides the parties 60 days from the filing of the first election to reach an agreement. If no agreement is reached, under § 21-2,201(d), any party may file an application for stay of the dissolution proceedings and for a determination by the court of the fair value of the petitioning shareholder’s shares as of the day before the date on which the petition was filed or as of such other date as the court deems appropriate under the circumstances. Section 21-2,201(e) provides that upon determining the fair value of the shares, the court shall enter an order directing the purchase upon such terms and conditions as the court deems appropriate. The record shows that Cheryl filed a petition under § 21-2,197(a)(2) and is the petitioning shareholder as described under § 21-2,201. A & R and Rafert separately filed answers to the petition. A & R’s answer requested that the petition be dismissed. Rafert’s answer requested that the court determine a fair price of Cheryl’s interest and direct purchase on such 4 State ex rel. BH Media Group v. Frakes, 305 Neb. 780, 943 N.W.2d 231 (2020). - 492 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports ANDERSON v. A & R AG SPRAYING & TRUCKING Cite as 306 Neb. 484 terms and conditions as may be just. Rafert timely filed an election to purchase pursuant to § 21-2,201(b), which was not resisted. A & R did not file an election to purchase. The record indicates that the corporation was declared deadlocked 2 months prior to Rafert’s election to purchase. Based on the language of § 21-2,201 understood in its plain, ordinary, and popular sense, we determine that A & R was not a party to the election-to-purchase proceedings. A & R remained a party in the dissolution proceedings, but the court stayed and ultimately dismissed the dissolution proceedings, due to Rafert’s application under § 21-2,201(d). Because we determine that A & R was not a party to the election-to-purchase proceedings under § 21-2,201, we conclude that the court lacked statutory authority to enter judgment against A & R once it determined the value of Cheryl’s shares. An appellate court has the duty to determine whether the lower court had the power, that is, the subject matter jurisdiction, to enter the judgment or other final order sought to be reviewed, and to vacate an order of the lower court entered without jurisdiction. 5 We vacate the judgment entered against A & R. Fair Value In Rafert’s next assignment of error, he contends that in its valuation of A & R, the court failed to consider debt and speculated as to the corporation’s value. In its order, the district court found Pofahl’s asset approach valuation to be “not helpful” and “hard to understand.” Additionally, the district court agreed with Rafert’s expert, Labenz, that because A & R uses a cash-based accounting system and was considered an ongoing concern, A & R should be valued according to the income approach rather than the asset approach. The court ultimately applied its modified income valuations of the two experts and split the difference. Rafert does not contend that the court erred in using the income 5 In re Estate of Tizzard, 14 Neb. App. 326, 708 N.W.2d 277 (2005). - 493 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports ANDERSON v. A & R AG SPRAYING & TRUCKING Cite as 306 Neb. 484 approach, nor does Cheryl contend that the court erred in not using Pofahl’s asset approach. As a result, the sole issue presented is whether the district court’s valuation is unreasonably high when considering Labenz’ and Pofahl’s reports and supporting testimony regarding the income approach. [5-7] The determination of the weight that should be given expert testimony is uniquely the province of the fact finder. 6 The trial court is not required to accept any one method of stock valuation as more accurate than another accounting procedure. 7 A trial court’s valuation of a closely held corporation is reasonable if it has an acceptable basis in fact and principle. 8 [8] Section 21-2,201(d) states that upon application of any party, the court shall “determine the fair value of the petitioner’s shares.” This court has previously recognized that a proceeding to determine the “fair value” of corporate shares is equitable in nature. 9 While the Nebraska Model Business Corporation Act’s election-to-purchase provisions do not explicitly define “fair value,” the act’s provisions governing appraisal rights state that “fair value” means the value of the corporation’s shares determined “[u]sing customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal[.]” 10 In the context of valuing a dissenting shareholder’s stock, this court has observed that the “‘real objective is to ascertain 6 Fredericks Peebles v. Assam, 300 Neb. 670, 915 N.W.2d 770 (2018). 7 Bryan v. Bryan, 222 Neb. 180, 382 N.W.2d 603 (1986). 8 Detter v. Miracle Hills Animal Hosp., 269 Neb. 164, 691 N.W.2d 107 (2005). 9 See, Stoneman v. United Neb. Bank, 254 Neb. 477, 577 N.W.2d 271 (1998); Rigel Corp., supra note 1; Becker v. Natl. American Ins. Co., 202 Neb. 545, 276 N.W.2d 202 (1979). 10 § 21-2,171(4)(ii). - 494 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports ANDERSON v. A & R AG SPRAYING & TRUCKING Cite as 306 Neb. 484 the actual worth of that which the dissenter loses because of his unwillingness to go along with the controlling stockholders, that is, to indemnify him.’” 11 Such a determination is to be based on all material factors and elements that affect value, given to each the weight indicated by the circumstan­ces. 12 As most relevant here, such factors include, among others, the nature of the business and its operations, its assets and liabilities, its earning capacity, and the future prospects of the company. 13 Moreover, the stock is valued by assuming that the corporation will continue as a going concern and is not being liquidated. 14 Rafert argues that the district court was required to consider the $1,152,000 of corporate debt in valuing A & R, but failed to do so, and that the court’s decision not to depress the value of A & R was based on speculation. The record is clear that the district court’s valuation is based on the testimony of the experts and the supporting exhibits. Both experts agreed that under the income approach, the business must be valued as an ongoing concern, and that under the asset approach, the business is valued based on its assets and liabilities as if the business were to be sold and liquidated. The court considered Labenz’ decision to subtract the whole $1,152,000 of debt and stated that “subtracting 100% of the debt from the valuation estimate of the business does not comport with the overall theory of the Income Approach because a business, as an on-going concern, is not required to pay back all of its debt on a lump sum basis.” The court stated, “Of course, debt will have to be serviced on an ongoing basis, but on a much smaller scale than the total amount owed.” The court agreed with Labenz’ decision to subtract 11 Rigel Corp., supra note 1, 245 Neb. at 127, 511 N.W.2d at 524 (quoting Warren v. Balto. Transit Co., 220 Md. 478, 154 A.2d 796 (1959)). 12 See id. 13 Id. 14 Id. - 495 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports ANDERSON v. A & R AG SPRAYING & TRUCKING Cite as 306 Neb. 484 a $23,000 interest payment that was due, and it noted that Labenz accounted for ongoing interest payments when she calculated A & R’s normalized cashflow. Therefore, Rafert’s claim that the court failed to consider debt is not correct. Additionally, Rafert failed to prove that a lower valuation would be more accurate. The court noted that both experts “generously included” assumptions and limiting conditions in their opinions, which made arriving at an objective valuation of the corporation difficult. Labenz contradicted her own testimony when she strayed from the income approach by subtracting all of the corporation’s debt. The court was not engaging in speculation when it rejected Labenz’ blending of the income and asset methods as unpersuasive. The evidence indicates that the trucking and spraying operations of the business have continued after Randy’s death and that there have been no efforts to liquidate. The experts agreed that A & R consistently generates significant cash each year. A & R’s personal banker testified that the company pays loans on an annual basis and that payments are made when they become due. He also stated that the company’s accounts receivable are collectable, which Rafert confirmed in his testimony. The court carefully considered the opinions of both experts, identified aspects of the opinions which are inconsistent with the income approach, adjusted each opinion accordingly, and determined a value based on the average of the two opinions. Upon our de novo review, just as the trial court did, we find that there is evidence in conflict on material issues of fact concerning the appropriate considerations in valuing Cheryl’s shares in A & R. As a result, we consider and give weight to the fact that the trial court observed the witnesses and accepted one version of the facts over another. 15 The trial court’s val­ uation of A & R is reasonable and has an acceptable basis in 15 Fredericks Peebles, supra note 6. - 496 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports ANDERSON v. A & R AG SPRAYING & TRUCKING Cite as 306 Neb. 484 fact and principle. The court did not err in valuing Cheryl’s shares to be purchased by Rafert. This assignment of error is without merit. Vehicles Rafert’s final assignment of error is that the court improperly awarded Cheryl two corporate vehicles pursuant to § 21-2,201(e). Rafert contends that the award of the vehicles constituted equitable division of corporate property rather than a determination of fair value under § 21-2,201(d). Cheryl counters that the award of the vehicles was proper, because under § 21-2,201(e), the court may award expenses to the petitioning shareholder. The court heard testimony that prior to Randy’s death, Cheryl had in her possession two vehicles which were owned by the company. After Randy’s death, Cheryl retained possession of the vehicles despite Rafert’s request that these vehicles be returned. The vehicles were included in the equipment appraisal, which both experts utilized in valuing Cheryl’s shares in A & R. In its decree, the trial court found that “in the interest of equity, and in consideration of the circumstances surrounding the history of this litigation between the parties, [Cheryl] shall also be allowed to keep the Chevrolet Avalanche and the Ford pickup truck, which she currently has in her possession.” Under § 21-2,201(e), when a corporation or shareholder makes an election to purchase a petitioning shareholder’s shares, the court is authorized to award expenses to the petitioning shareholder “[i]f the court finds that the petitioning shareholder had probable grounds for relief under subdivision (a)(2)(i)(B) [illegal, oppressive, or fraudulent conduct] or (D) [misapplication or waste of corporate assets] of section 21-2,197 . . . .” The foregoing provision delineates two of the four situations in which a shareholder may seek corporate dissolution. We agree with Rafert that the court could not have awarded Cheryl expenses under § 21-2,201(e), - 497 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports ANDERSON v. A & R AG SPRAYING & TRUCKING Cite as 306 Neb. 484 because the court did not make the necessary findings under § 21-2,201(e) of probable grounds for relief. Cheryl’s petition asserted causes of action for an accounting and breach of fiduciary duty, but the court dismissed Cheryl’s petition and made no findings that she established probable grounds for relief concerning dissolution. We further note that Cheryl failed to prove any claim for expenses, because her statement of expenses provided to the trial court was not received into evidence and does not appear in our record. Moreover, it is clear the court awarded Cheryl vehicles owned by the corporation, not litigation expenses. A court may have subject matter jurisdiction in a matter over a certain class of case, but it may nonetheless lack the authority to address a particular question or grant the particular relief requested. 16 Under the statutory procedure established by the Legislature for election-to-purchase proceedings under § 21-2,201, discussed above, a corporation does not become a party to the proceedings until it files an election to purchase. A & R did not file an election to purchase and was not a party to the election-to-purchase proceedings. Consequently, the court lacked the authority to award corporate assets to Cheryl. The award of the corporate vehicles is therefore vacated.