Dawkins
Filing
83
MEMORANDUM OPINION re 82 Order.Signed by District Judge Sharion Aycock on 6/13/2011. (kmc)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF MISSISSIPPI
EASTERN DIVISION
DOROTHY DAWKINS
PLAINTIFF
v.
CAUSE NO. 1:09-CV-164
HICKMAN FAMILY CORPORATION and
PERRY HICKMAN
DEFENDANTS
MEMORANDUM OPINION
On June 30, 2009, Plaintiff Dorothy Dawkins filed a Verified Complaint for Dissolution
and Temporary and Preliminary Injunctive Relief against Hickman Family Corporation and
Perry Hickman, in his capacity as Chairman of the Board of Directors and General Manager of
the Corporation. Perry Hickman moved to dismiss the Complaint against him in his capacity as
Chairman of the Board of Directors and General Manager of the Corporation. This Court
granted that Motion on October 1, 2009, leaving only the Hickman Family Corporation as a
Defendant. However, even though Perry Hickman was dismissed as a defendant, he remained a
party to this action as he filed a Notice of Election to Purchase Shares of Dorothy Dawkins in
Lieu of Dissolution pursuant to Mississippi Code Section 79-4-14.34 on July 28, 2009.
Subsequently, shareholders Callie Drake, Virginia Hickman, Mattie Johnson, and Gillie Murry
sought to intervene in this action as additional Plaintiffs also wishing to dissolve the corporation.
As a result, Perry Hickman then filed an Amended Notice of Election to Purchase Shares of all
Petitioning Shareholders on August 21, 2009.
On August 24, 2010, Perry Hickman and the Hickman Family Corporation filed a Motion
to Determine Fair Value of Plaintiffs’ Shares, to Order Sale of Shares, to Stay Proceedings, and
for Entry of a Final Judgment. On September 15, 2010, Virginia Hickman filed a Motion for
1
Summary Judgment, entitled Support Final Judgment to Dissolve the Corporation. Further, on
September 27, 2010, Mattie Johnson filed a Response to Motion for Summary Judgment, which
was another petition to dissolve the corporation.
On November 10, 2010, this Court issued an Order [62] and Opinion [63] denying
Plaintiffs’ motions for summary judgment and granting Perry Hickman’s motion to stay the
proceeding to dissolve the corporation. The Court refrained from addressing Perry Hickman’s
motion to determine the fair value of Plaintiffs’ shares and order the sale of such shares, as the
Court allowed the Plaintiffs, who are mostly proceeding pro se, an additional forty-five days to
retain a property appraiser and valuation expert, or designate one for the Court to appoint.
Specifically, the Court gave the Plaintiffs until December 27, 2010, to provide any evidence they
wished the Court to consider in determining the fair value of their shares. The petitioning
shareholder Plaintiffs, who include Dorothy Dawkins, Callie Drake, Virginia Hickman, Mattie
Johnson, and Gillie Murry, failed to file anything with the Court by December 27. As such, the
only evidence provided to the Court regarding the valuation of shares is from Perry Hickman and
the Hickman Family Corporation. The Court now determines the fair value of the petitioning
shareholders’ shares and addresses Virginia Hickman’s recent Motion for Court to Consider
Changes in Affidavit of James A. Koerber [76].
ANALYSIS AND DISCUSSION
Relevant Statutory Framework of Mississippi Business Corporation Act
The Mississippi Business Corporation Act (“MBCA”), the relevant statute governing this
case, sets out procedures when grounds for judicial dissolution have been alleged. Section 79-414.30 of the Mississippi Code states, in relevant part,
2
(a) The [ ] court may dissolve a corporation: (2) In a proceeding by a shareholder
if it is established that: (ii) the directors or those in control of the corporation have
acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent[.]
MISS. CODE ANN. § 79-4-14.30(a)(2)(ii).
After a shareholder has requested judicial dissolution of a corporation, the MBCA offers
an option to the corporation or other existing shareholders to purchase shares owned by the
petitioning shareholder “in [l]ieu of [d]issolution.” MISS. CODE ANN. 79-4-14.34. This election
to purchase shares is statutory right under Section 79-4-14.34(a). Most other states also allow
the corporation or its shareholder(s) to avoid dissolution by electing to purchase at fair value the
shares owned by the petitioning shareholder(s).1 See, e.g., ALA. CODE § 10-2B-14.34; ALASKA
STAT. § 10.06.630; ARIZ. REV. STAT. ANN. § 10-1434; CAL. CORP. CODE § 2000 and Mart v.
Severson, 95 Cal. App. 4th 521, 115 Cal. Rptr. 2d 717 (2002) (noting that the corporation or fifty
percent shareholder may avoid dissolution of the corporation by purchasing the stock of the
shareholders seeking to dissolve the corporation and finding that the intent of this statutory
framework allowing the avoidance of dissolution is to preserve the corporate enterprise); CONN.
GEN. STAT. §§ 33-871 et seq.; FLA. STAT. § 607.1436; 805 ILL. COMP. STAT. 5/12.55(b) (public
corporations); ME. REV. STAT. ANN. TIT. 13-C, § 1434 and Kaplan v. First Harford Corp., 522 F.
Supp. 2d 275 (D. Me. 2007) (applying Maine state law and noting that “if the corporation
invokes th[e] election provision, the court must dismiss the dissolution petition”) (emphasis
1
In the Official Comment to Section 14.34 of Model Business Corporation Act, which
Mississippi adopted in passing the Mississippi Business Corporation Act, it states:
“Commentators have observed that it is rarely necessary to dissolve the corporation and liquidate
its assets in order to provide relief: the rights of the petitioning shareholder are fully protected by
liquidating only the petitioner’s interest and paying the fair value of his or her shares while
permitting the remaining shareholders to continue the business. In fact, it appears that most
dissolution proceedings result in a buyout of one or another of the disputants’ shares either
pursuant to a statutory buyout provision or a negotiated settlement . . . Accordingly, section
14.34 affords an orderly procedure by which a dissolution proceeding under section 14.30(a)(2)
can be terminated upon payment of the fair value of the petitioner’s shares.” MODEL BUS. CORP.
ACT § 14.34, Official Comment.
3
added); MD. CODE ANN. CORPS & ASS’NS § 4-603; MICH. COMP. LAWS § 450.1489(1)(e); MINN.
STAT. § 302A.751, SUBD 2; MO. REV. STAT. § 351.860; MONT. CODE ANN. §§ 35-1-939(1)(d), 359-503; N.H. REV. STAT. ANN. § 293-A:14.34 and Bendetson v. Killarney, Inc., 913 A.2d 756
(N.H. 2006) (right to elect to purchase shares was subject to court’s authority to set aside election
for equitable reasons); N.J. REV. STAT. § 14A:12-7; N.Y. BUS. CORP. LAW 1118 and In re Kemp
& Beatley, Inc., 64 N.Y.2d 63, 484 N.Y.S.2d 799, 473 N.E.2d 1173 (1984) (noting that before
any dissolution may be accomplished, the majority shareholders must be given the opportunity to
elect to purchase the petitioner’s shares at fair value) and In re Piekos, 2010 WL 3155942, at *17
(N.Y. Sup. Aug. 3, 2010) (finding that the corporation and others shareholders have the
“absolute right” to “avoid the expense and risk of dissolution proceedings by simply offering to
buy out the minority interest; the minority is protected by a court-approved determination of fair
value and other terms of the purchase”); N.C. GEN. STAT. ANN. § 55-14-31(d); Foster v. Foster
Farms, Inc., 112 N.C. App. 625, 436 S.E.2d 843 (1993); N.D. CENT. CODE § 10-19.1-115(3); R.I.
GEN. LAWS § 7-1.1-90.1 and DiLuglio v. Providence Auto Body Shop, Inc., 755 A.2d 757, 77778 (R.I. 2000) (finding that the Rhode Island Business Corporation Act provides “one or more
shareholders with an absolute right to file an election to purchase with the court before the
dissolution hearing commences”) (emphasis added); S.C. CODE ANN. § 33-14-310(D)(4); UTAH
CODE ANN. § 16-10A-1434; VT. STAT. ANN. TIT. 11A § 20.15(B); W. VA. CODE § 31D-14-1434;
WIS. STAT. § 180.1833(2)(A)(9); WYO. STAT. ANN. § 17-17-142.
If a shareholder files such an election to purchase shares, the corporation must, within ten
days thereafter, give written notice to all other shareholders, advising the recipients of their right
to join in the election to purchase. MISS. CODE ANN. 79-4-14.34(b). After such an election has
been filed, the original proceeding to dissolve the corporation may not be discontinued or settled,
4
and the petitioning shareholders may not sell or otherwise dispose of their shares. MISS. CODE
ANN. 79-4-14.34(b). In this case, Perry Hickman filed an election to purchase shares in lieu of
dissolution on July 28, 2009.
If the petitioning shareholders who wish to dissolve the corporation and the other
shareholders who wish to purchase the shares cannot reach an agreement as to the fair value of
the shares to be purchased, the court, upon application by any party, shall stay the proceeding to
dissolve the corporation. MISS. CODE ANN. 79-4-14.34(d).
The court shall then make a
determination as to the fair value of the petitioner’s shares as of the day before the date on which
the petition to dissolve the corporation was filed or as of such other date as the court deems
appropriate. MISS. CODE ANN. 79-4-14.34(d). In the present case, Perry Hickman filed a motion
to stay proceedings and a motion for the court to determine the fair value of the petitioners’
shares on August 24, 2010. This Court granted Perry Hickman’s motion to stay the proceedings
on November 10, 2010.
Since the parties are unable to reach an agreement in this case, it is this Court’s duty to
determine the fair value of the shares. MISS. CODE ANN. 79-4-14.34(d). Upon determining the
fair value, the court shall enter an order directing the purchase upon such terms and conditions as
the court deems appropriate, which may include payment of the purchase price in installments,
where necessary in the interests of equity, provision for security to assure payment of the
purchase price and any additional costs, fees and expenses as may have been awarded, and, if the
shares are to be purchased by shareholders, the allocation of shares among them. MISS. CODE
ANN. 79-4-14.34(e).
Upon the entry of this order, the court shall then dismiss the petition(s) to dissolve the
corporation, and the petitioning shareholder(s) shall no longer have any rights or status as a
5
shareholder of the corporation, except the right to receive the amounts awarded to him or her by
the court order, which is enforceable in the same manner as any other court judgment. MISS.
CODE ANN. 79-4-14.34(f). The purchase ordered by the Court under Section 79-4-14.34(e) shall
be made within ten (10) days after the date the order becomes final. MISS. CODE ANN. 79-414.34(g).
Fair Value of Plaintiffs’ Shares
In Mississippi, and for purposes of this valuation, “fair value” is defined as: “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 except, if
appropriate, for amendments to the articles pursuant to Section 79-4-13.02(a)(5).” MISS. CODE
ANN. § 79-4-13.01(4). The fair value of a shareholder’s interest is a question of fact that requires
a court to conduct a discriminating consideration of all relevant evidence. See, e.g., Richton
Bank & Trust Co. v. Bowen, 798 So. 2d 1268, 1272-73 (Miss. 2001); Matter of Seagroatt Floral
Co., Inc., 78 N.Y.2d 439, 576 N.Y.S.2d 831, 583 N.E.2d 287 (1991). As noted by the Mississippi
Supreme Court, since “fair value [i]s purely factual,” it is “peculiarly within the province of the
chancellor, as the trier of facts, to evaluate the evidence, resolve conflicts and to draw reasonable
inferences from it.” Cal-Maine Foods, Inc. v. Duvic, 264 So.2d 383, 384 (Miss. 1972).2 The
Mississippi Supreme Court has further noted that it “will not disturb the chancellor’s findings of
fact unless there is manifest error.” Bowen, 708 So. 2d at 1273 (citing Thomas Truck Lease, Inc.
v. Lee Cnty ex rel. Mitchell, 768 So. 2d 870 (Miss. 1999)). Valuation of shares in a close
2
One trial court judge, Judge Warshawsky, described the court’s role in determining fair value
as that of a “soothsayer.” See Murphy v. United States Dredging Corp., No. 2640-06, 2008 WL
2401230, at *12 (Sup. Ct. Nassau Co. May 19, 2008).
6
corporation – like the Hickman Family Corporation – is especially fact-dependent upon the
circumstances of each case. See Duvic, 264 So. 2d at 385; Brown v. Allied Corrugated Box Co.,
Inc., 91 Cal. App. 3d 477, 489, 154 Cal. Rptr. 170 (1979) (“Appreciably more detailed
instructions governing the appraisal process would, of course, have been quite impracticable
since the valuation of stock, especially that of a closely-held corporation, requires a factual
determination which must take into account numerous factors and contingencies.”). This is
primarily because shares of a close corporation are not publically traded; thus, a court cannot
simply make its valuation determination based on the “market value” of the shares. Due to this,
courts uniformly recognize that there is no single, inflexible formula that must be mechanically
applied; rather, the determination of fair value in a close corporation must be tailored to the
particular case. See generally, e.g., Hernando Bank v. Huff, 609 F. Supp. 1124 (N.D. Miss.
1985), aff’d, 796 F.2d 803 (5th Cir. 1986); Swope v. Siegel-Robert, Inc., 243 F.3d 486 (8th Cir.
2001); Matter of Prince, 85 F.3d 314 (7th Cir. 1996).
The Plaintiffs in this case presented no evidence to the Court regarding the fair value of
their shares, other than arbitrary numbers without explanation or evidentiary support. Therefore,
as noted above, the Court gave the Plaintiffs forty-five (45) additional days to offer any
supplementary evidence and/or to obtain a valuation expert or provide a designation of proposed
valuators to the Court. Not a single Plaintiff responded. Perry Hickman and the Hickman Family
Corporation, however, retained and paid for a disinterested, third-party property appraiser and
business valuation expert, James Koerber, to determine the fair value of the corporation, and they
have provided the Court with Koerber’s report and affidavit. Koerber conducted a highly
thorough review of the corporation’s business and financial records and produced an extensive
report to the Court, finding that the value of a one-hundred percent (100%) equity interest in the
7
Hickman Family Corporation was $225,000 as of June 30, 2009. The Court accepts this
valuation.3
Koerber began his valuation report with a description of the Hickman Family
Corporation, noting that due to the nature of this corporation – as it is a farm – its value lies in its
assets. He further noted that, under the Internal Revenue Service Ruling 59-60 – important in the
valuation of closely-held corporations – he took into account the following factors in the
valuation analysis: (1) the nature of the business and the history of the enterprise, (2) the
economic outlook in general and the condition and outlook of the specific industry in particular,
(3) the financial condition of the entity, (4) the earnings capacity of the entity, (5) the dividend
paying capacity of the entity, (6) the nature of the tangible and intangible assets of the entity, (7)
the sale of any stock and the size of the block of stock being valued, and (8) the market prices of
actively traded stocks of other corporations in similar business.
Koerber next provided a detailed description of business valuation methodology,
explaining that business valuation methodology is generally categorized into three broad
approaches: (1) income-based approach, (2) market-based approach; (3) asset-based approach.
See also Dunn v. C.I.R., 301 F.3d 339, 350 (5th Cir. 2002) (noting that “appraising corporations
or blocks of corporate stock involves consideration of three approaches: income, market, and
asset-based”); Sys. Components Corp. v. Florida Dept. of Transp., 14 So. 2d 967, 980 (Fla.
2009) (noting the appropriate valuation methods: income-based approach (i.e., value based on
current and future revenue stream discounted to a total present value), market-based approach
3
The Court notes that it is accepting Koerber’s revised valuation report [68]. Koerber’s first
report had relied upon a land appraisal performed by Greg Sirmon. Sirmon applied what was
essentially a “minority discount.” As Defendants concede, minority discounts are not allowed to
be included in determining the fair value of a corporation under Mississippi law. See MISS. CODE
ANN. § 70-4-13.01(4). After noticing this discount, Koerber promptly revised his report.
8
(i.e., value based on comparison to comparable businesses existing in the particular market
adjusted for the individual characteristics and risks associated with the specific business), [and]
asset-based approach (i.e., value based on total assets net liabilities; typically used when the
business is not profitable)”); Horn v. McQueen, 353 F. Supp. 2d 785, 808 (W.D. Ky. 2004)
(same). Koerber went through the three valuation methods, and concluded that the Net Asset
Value Method was the most relevant and deserved the highest consideration.
Koerber started with an analysis of the income-based approach. He noted that this
approach “consider[s] the company being valued more or less though it were an investment
mechanism, whose purpose is to produce a monetary return for its owner(s).” In other words, this
income approach determines the value of a business based on its ability to generate a desired
economic benefit for the owners. See Horn, 353 F. Supp. 2d at 808 (“The income approach
determines value by estimating the future economic benefits accruing to the business owner, and
discounting those benefits back to an equivalent present value by using a discount rate which
factors in both the time value of money and the riskiness of the business.”). Since Koerber
classified the Hickman Family Corporation as an asset-holding company, as the Corporation
owns real estate in Winston County, Mississippi, Koerber reasoned that the real value of the
Corporation lies in the value of its assets, and “[t]herefore, determining a meaningful value for
the Company using the income-based approach was not applicable.” The Court finds Koerber’s
reasoning to be logical. The Hickman Family Corporation is not an income-producing venture;
that is, it is not a company generating regular income or profit. Rather, it is more akin to a real
estate holding company. Thus, the Court agrees with Koerber finding that that the most relevant
methodology is not the income-based approach. See Rev. Rul. 59-60, sec. 5, 1959-1 C.B. 237,
242-243 (“The values of the stock of a closely held investment or real estate holding company *
9
* * is closely related to the value of the assets underlying the stock. For companies of this type
the appraiser should determine the fair market values of the assets of the company.”).
Koerber next went on to discuss the market-based approach, noting that “[t]his method
represents a market-oriented approach to estimating value.” The market-based approach to
valuation establishes business value by a comparison of historic sales involving similar
businesses. Koerber found that “[a]s formerly mentioned, Hickman Family Farm Corporation,
Inc., currently holds real estate and is not comparable to market data available; therefore,
determining a meaningful value for the Company using the market-based approach was not
possible.” The Court agrees. Market value is not used, or at least is rarely used, in determining
fair value in a close corporation because close corporation stocks are, by definition, not traded on
the public market. See Blake v. Blake Agency, 107 A.D.2d 139, 146, 486 N.Y.S.2d 341 (2d
Dep’t 1985). As the Fifth Circuit noted in Dunn v. C.I.R., 301 F.3d 339, 350 (5th Cir. 2002),
“[w]hen, as here, the corporation being appraised is closely held, is not regularly traded on an
exchange, has not been traded at arm’s length in close proximity of the valuation date, and is not
comparable to other corporations engaged in the same or similar business of which there is
evidence of recent sales of stock, the market approach is inapposite . . . .”
After an analysis of the income-based and market-based valuation methodologies,
Koerber determined that an asset-based approach is the most relevant. The Court finds that
Koerber’s findings under the asset-based approach are appropriate. See Route 188, LLC v.
Middlebury, 93 Conn. App. 120, 124 887 A.2d 958 (Conn. App. 2006) (“the [court] may select
the [valuation method] most appropriate in the case before [it].”). The asset-based approach
seeks to determine the business value based on the value of its assets, less its liabilities. As
Koerber noted, the net asset value methods “are appropriate only in limited circumstances.”
10
However, Revenue Ruling 59-60, section 5 discusses these limited circumstances stating that,
“adjusted net worth should be accorded greater weight in valuing the stock of a closely held
investment or real estate holding company, whether or not family owned, than any of the other
customary yardsticks of appraisal, such as earnings and dividend paying capacity.” Thus, the
Court accepts Koerber’s valuation methodology.
The petitioning shareholders never appear to dispute Koerber’s conclusion that the assetbased valuation methodology is the one most applicable in this instance. In fact, by not
challenging such, they appear to concede that this asset-based methodology is correct. However,
the petitioning shareholders do make two separate arguments concerning Koerber’s report. In
Virginia Hickman’s Motion for Court to Consider Changaes [76] she alleges (1) that Koerber
erred when he calculated the value of a 100% stake in the corporation, rather than the 35.7%
stake owned by the petitioning shareholders, and (2) that Koerber erred when he adjusted the
value of the corporation based on its potential tax liability. The Court discusses each of these
arguments in turn.
First, petitioning shareholder Virginia Hickman makes an argument concerning the fact
that Koerber valued the corporation at 100% interest. Hickman asserts that this was error since
only 35.7% of the shares (i.e., the combined number of shares owned by the petitioning
shareholders) are changing hands, instead of 100%.
Hickman appears to misunderstand
Koerber’s valuation methodology. The number of shares actually changing hands has little to do
with the value of the actual corporation. Calculating the whole in order to see how much each
smaller part is worth is a very basic concept. The value of 35.7% stake in the corporation can be
determined simply by multiplying .357 times the value of a 100% stake in the corporation. Thus,
the Court finds that Koerber did not err in calculating 100% interest in the corporation.
11
Petitioning shareholder Hickman also contends that Koerber erred when he took into
account the corporation’s future tax liabilities. The Court disagrees and finds that such an
adjustment must be taken into account in order to determine the actual fair value of the shares in
this case. The Hickman Family Corporation – which is a farm – is akin to an asset-holding
corporation. Its worth is in its property; that is, a buyer would only have interest in the
corporation for such property. Tommie Lee Hickman purchased the farm in the 1940s, and its
tax basis now is $19,375.00. The corporation cannot realize the fair market value of the assets
without incurring this tax liability. A simplified example is that if a piece of property was alleged
to be worth 100 dollars, but when sold it would incur a tax liability of 25 dollars, the property
would really only be worth 75 dollars. As the Defendants aptly noted, “Either the Corporation
would sell the property to the buyer and incur the tax liability before dispersing the proceeds to
the shareholders, or the buyer would buy the corporation, but pay a reduced price because he’d
later have to incur the tax liability to sell the property.” Thus, from even just a fairness
standpoint, it only makes sense to include the built in gain tax liability when valuing the
corporation based on its assets. Further, in circumstances such as this, courts – including the
Fifth Circuit – have approved the inclusion of built in gains tax liability in an asset-based
valuation. See, e.g., Dunn, 301 F.3d at 351 (“We hold as a matter of law that the built-in gains
tax liability . . . must be considered as a dollar-for-dollar reduction when calculating the assetbased value of the Corporation, just as, conversely, built-in gains tax liability would have no
place in the calculation of the Corporation’s earnings-based value.”) (emphasis in original). As
such, the Court finds that Koerber did not err in adjusting the value of the corporation based on
its potential tax liabilities.
12
Next, the Defendants contend that the petitioning shareholders should bear the pro rata
share of Defendants’ attorney fees, appraisal costs, and other expenses. Defendants’ argument
for such a contention is as follows:
MISS. CODE ANN. § 79-4-13.31(a) and (b)(2) allow for an award of costs and
expenses when determining the fair value of a corporation pursuant to MISS.
CODE ANN. § 79-4-13.30. The Official Comment to the Model Business
Corporations Act, which was adopted by Mississippi in passing the Business
Corporations Act, provides: “Section 14.34 does not specify the components of
“fair value,” and the court may find it useful to consider valuation methods that
would be relevant to a judicial appraisal of shares under section 13.30.” See
Section 14.30 of the Model Business Corporation Act, Official Comment,
attached to this memorandum as Exhibit 1.
Further, MISS. CODE ANN. § 79-4-14.34(d) allows the Court, when “appropriate
under the circumstances,” to determine the value of the shares on some date other
than the day before the petition to dissolve the corporation was filed. These costs
are additional liabilities for the Corporation, and would affect the value of
everyone’s shares on a pro rata basis equivalent to an award of costs and expenses
under § 79-4-13.31 were the Corporation’s value determined as of the date of
Judgment.
In considering this argument, the Court begins with Mississippi Code Annotated Section 79-414.34, the relevant Section governing this case. This Section is entirely void of a reference to
assessing costs to the petitioning shareholders. Section 79-4-14.34(e), however, does indeed
discuss allowing interest and awarding fees and expenses. First, subsection (e) states, “Interest
may be allowed at the rate and from the date determined by the court to be equitable, but if the
court finds that the refusal of the petitioning shareholder to accept an offer of payment was
arbitrary or otherwise not in good faith, no interest shall be allowed.” MISS. CODE ANN. § 79-414.34(e).
The Code says nothing about assessing costs if the petitioning shareholders act
arbitrarily or in bad faith.
Further, the Code goes on to say, “If the court finds that the
petitioning shareholders had probable grounds for relief under paragraph (ii) or (iv) of section
14.30(2), it may award to the petitioning shareholder reasonable fees and expenses of counsel
13
and of any experts employed by him.” Id. Again, that Section is devoid of any indication that
costs should be assessed to the petitioning shareholders.
The Defendants assert that the Court should instead be guided be Mississippi Code
Annotated Section 79-4-13.31. That Section reads, in relevant part, as follows:
(a) The court in an appraisal proceeding commenced under Section 79-4-13.30
shall determine all court costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the court costs against the corporation, except that the court may assess
court costs against all or some of the shareholders demanding appraisal, in
amounts which the court finds equitable, to the extent the court finds such
shareholders acted arbitrarily, vexatiously or not in good faith with respect to the
rights provided by this article.
(b) The court in an appraisal proceeding may also assess the expenses of the
respective parties in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all shareholders
demanding appraisal if the court finds the corporation did not substantially
comply with the requirements of Section 79-4-13.20, 79-4-13.22, 79-413.24 or 79-4-13.25; or
(2) Against either the corporation or a shareholder demanding appraisal, in
favor of any other party, if the court finds that the party against whom the
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by this article.
MISS. CODE ANN. § 79-4-13.31(a), (b)(2). The Defendants recognize that this Section concerns
appraisal proceedings under Article 13, and not judicial dissolution under Article 14. However,
Defendants contend that the Official Comment to the Model Business Corporations Act
provides: “Section 14.34 does not specify the components of ‘fair value,’ and the court may find
it useful to consider valuation methods that would be relevant to a judicial appraisal of shares
under section 13.30.” See MODEL BUS. CORP. ACT § 14.34, Official Comment (emphasis added).
This comment first refers to “valuation methods” – it does not refer to assessing costs, fees, and
other expenses after the various valuation methods have been examined. Second, as noted above,
14
Section 14.34(e) actually discusses the awarding of fees and expenses, and it never refers to
assessing expenses against the petitioning shareholders. Third, even if the Court referred to
Mississippi Code Section 79-4-13.31(a) and (b)(2), it would still not assess attorney fees and
other costs to the petitioning shareholders in this particular case. Under subsection (a), it
explicitly notes that in an appraisal proceeding, the court “shall” assess court costs against the
corporation. MISS. CODE ANN. § 79-4-13.31(a).
Thus, the general rule – as noted by the
mandatory language contained in that subsection – is to assess costs against the corporation, not
the shareholders. The only time the Code deviates from this mandatory language is when the
Court finds that all or some of the shareholders demanding appraisal acted arbitrarily,
vexatiously, or not in good faith. MISS. CODE ANN. § 79-4-13.31(a), (b)(2). Here, almost all of
the petitioning shareholders are proceeding pro se.
While they may have acted without
knowledge of the law, the Model Business Code is complex, and the Court is unable to say that
the petitioning shareholders in fact acted vexatiously or with any type of improperly-motivated
intent.4 Accordingly, the Court rejects Defendants’ arguments and declines to assess costs to the
petitioning shareholders in this case.
4
Defendants also assert that the Court should determine the value of the petitioners’ shares as of
the date of this Order so as to take into consideration the liabilities incurred due to this lawsuit.
Mississippi Code Annotated Section 79-4-14.34(d) states, “the court . . . shall . . . determine the
fair value of the petitioner’s shares as of the day before the date on which the petition under
Section 79-4-14.30(2) was filed or as of such other date as the court deems appropriate under the
circumstances.” In this case, the Court finds that setting the date of valuation as of the date of
this Order would not be appropriate for several reasons. First, the Defendants reasoning appears
to be based upon their allegation that the shareholders filed a “vexatious lawsuit.” The Court has
already concluded that while the pro se shareholders have acted without knowledge of the law,
there is no evidence they in fact acted with bad faith. Second, the general rule is for the Court to
determine the value of the shares as of the day before the date in which petition to dissolve was
filed. Third, the fair value of the shares was in fact determined on the date in which the petition
was filed. That is, Koerber’s report determined the fair value of shares as of June 2009. While
setting the date of valuation as of the date of this Order would take into account the liability
incurred by the corporation due to this lawsuit, the Court currently has no way to know what the
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Once the Court determines the fair value of the shares, the Mississippi Business
Corporations Act directs that the Court shall do as follows:
[T]he court shall enter an order directing the purchase upon such terms and
conditions as the court deems appropriate, which may include payment of the
purchase price in installments, where necessary in the interests of equity,
provision for security to assure payment of the purchase price and any additional
costs, fees and expenses as may have been awarded, and, if the shares are to be
purchased by shareholders, the allocation of shares among them. In allocating
petitioner's shares among holders of different classes of shares, the court should
attempt to preserve the existing distribution of voting rights among holders of
different classes insofar as practicable and may direct that holders of a specific
class or classes shall not participate in the purchase.
MISS. CODE ANN. § 79-4-14.34(e). Since the Court has accepted Koerber’s revised valuation, the
Court finds that, as of June 30, 2009, the fair value of a 100% equity interest in the Hickman
Family Corporation is $225,000.
The petitioning shareholders each own 7.143% of the
corporation’s equity. As such, the fair value of the shares is $16,071.75.
Next, it is the Court’s duty to set the terms and conditions of the purchase of shares. The
Official Comment to the Model Business Code provides directives for the Court in determining
the terms and conditions of the sale. As relevant to this case, the Official Comment states,
It is expected that an order pursuant to subsection (e) will ordinarily provide for
payment in case, subject, in the case of any payment by the corporation, to the
provisions of section 6.40. However, mindful that case settlement may sometimes
impose hardship n the purchasers, subsection (e) recognizes the court’s discretion
to provide for payment of the purchase price in installments, but only “where
necessary in the interests of equity.” In determining whether installment payments
are “necessary in the interests of equity,” the court should weigh any possible
hardship to the purchaser against the petitioner’s interest in receiving full and
prompt payment of the value of his shares. Accordingly, before ordering payment
in installments, the court should be satisfied with the purchaser’s ability to meet
actual fair value of the shares are as of the date of this Order. In other words, in order to know
the 100% equity interest in the corporation as of the date of this Order, a new valuation would
need to be done; that is, a valuation demonstrating the fair value as of the date of this Order as
opposed to June 30, 2009. Thus, the Court sees no reason to determine the value of the
corporation on any other date than June 30, 2009.
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the scheduled payments and to provide such security as the court deems
necessary.
Otherwise, the contents of the order under subsection (e) are entirely subject to
the court’s discretion.
See MODEL BUS. CORP. ACT § 14.34, Official Comment. In this case, Perry Hickman and Lee
Hickman have elected to purchase the shares of Dorothy Dawkins, Callie Drake, Virginia
Hickman, Mattie Johnson, and Gillie Murry. Neither Perry Hickman nor Lee Hickman has ever
mentioned a desire to provide payment of the purchase price in installments or any hardship that
might occur as a result of payment not in an installment. Thus, the Court finds that there is no
evidence in the record that would make it “necessary in the interest of equity” to allow for
payment in installments.
Perry Hickman and Lee Hickman both currently own 20.833% in the Hickman Family
Corporation. Under Mississippi Code Annotated Section 79-4-14.34(e), the Court orders that,
upon payment, each of the petitioning shareholders’ shares be transferred to these two
purchasers. Further, in accordance with the Mississippi Business Corporations Act, the Court
dismisses the original petition to dissolve the corporation under Section 79-4-14.30, and the
petitioning shareholders shall no longer have any rights or status as a shareholder in the Hickman
Family Corporation, except the right to receive the amounts awarded to them by the Order of the
Court. See MISS. CODE ANN. § 79-4-14.34(f).5 This purchase, which the Court has ordered
pursuant to Mississippi Code Annotated Section 79-4-14.34(e), “shall be made within ten (10)
5
Mississippi Code Annotated Section 79-4-14.35(f) provides as follows:
Upon entry of an order under subsection (c) or (e), the court shall dismiss the
petition to dissolve the corporation under Section 79-4-14.30, and the petitioning
shareholder shall no longer have any rights or status as a shareholder of the
corporation, except the right to receive the amounts awarded to him by the order
of the court which shall be enforceable in the same manner as any other judgment.
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days after the date the order becomes final unless before that time the corporation files with the
court a notice of its intention to adopt articles of dissolution.” See MISS. CODE ANN. § 79-414.34(g). Accordingly, the purchase of shares in this case shall be made within ten (10) days of
the date of this Order – that is, by June 23, 2011.
CONCLUSION
Based on the foregoing, the Court denies Virginia Hickman’s Motion to Consider
Changes [76], and determines that the fair value of each petitioning shareholder’s shares is
$16,071.75. The Court orders that Plaintiffs’ Verified Complaint for Dissolution [1] shall be
dismissed, that the petitioning shareholders’ rights as shareholders in the Hickman Family
Corporation shall be extinguished, and the purchase of the petitioning shareholders’ shares shall
be made within ten (10) days from the date of this Order.
So ordered on this, the __13th__ day of ____June________, 2011.
/s/ Sharion Aycock
UNITED STATES DISTRICT JUDGE
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