R.D. CLARK & SONS, INC., et al.
v.
James CLARK et al.
Argued
September 9, 2019
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[Copyrighted Material Omitted]
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Superior Court, Shortall, J.
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Richard P. Weinstein, West Hartford, with whom, on the brief,
was Sarah Lingerheld, for the appellant-cross appellee (named
plaintiff).
Jack G.
Steigelfest, with whom was Christopher M. Harrington,
Hartford, for the appellee-cross appellant (named defendant).
DiPentima,
C. J., and Devlin and Sullivan, Js.
OPINION
DEVLIN,
J.
[194
Conn.App. 693] In this case involving the buyout of minority
shares of a closely held corporation, the plaintiff, R.D.
Clark & Sons, Inc. (corporation),[1] appeals, and the
defendant James Clark[2] cross appeals, from the judgment of
the trial court determining the fair value of those shares,
establishing the terms of payment for the purchase of those
shares, and awarding attorneys fees to the defendant. On
appeal, the corporation asserts that the trial court erred in
determining the value of the defendants shares by (1) not
tax affecting the corporations earnings in analyzing its
valuation, (2) not applying a minority discount to the value
of the defendants shares, and awarding the defendant
attorneys and expert witness fees and costs, on the ground
that the defendant suffered minority oppression at the hands
of the plaintiffs, (3) not applying a marketability discount
to the value of the defendants shares, and (4) incorrectly
accounting for a certain loan due to the corporation from the
defendant and ordering that certain sums be paid to the
defendant within thirty days of the date of judgment. On
cross appeal, the defendant claims that the court erred by
not awarding him attorneys fees in the amount of one third
of the value of [194 Conn.App. 694] his shares in the
corporation in accordance with the retainer agreement that he
had signed with his counsel. We affirm the judgment of the
trial court.
The
following factual and procedural history is relevant to the
issues on appeal. Since 1984, the corporation, which was
founded by Robert D. Clark, the late father
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of the individual parties, who are all siblings, has operated
as a specialty freight trucking business, transporting
primarily gasoline, kerosene and water. Robert D. Clark owned
one third of the shares of the corporation, and John Clark
and the defendant also each owned one third. When Robert D.
Clark died in May, 2011, Carolyn Manchester assumed his
shares of the corporation. The three siblings served as
officers and directors of the corporation, and managed the
operations of the corporation until they had a falling out
later in 2011, and the defendant was terminated from his
position as a driver and occasional dispatcher. The defendant
resigned from his positions as an officer and director of the
corporation in February, 2012.
On
April 2, 2014, the plaintiffs commenced the underlying action
against the defendant and Smart Choice. In their five count
complaint, the plaintiffs alleged, inter alia, that the
defendant, after being terminated from his employment with
the corporation in 2011, improperly utilized certain
proprietary information to start a new business, Smart
Choice, and undermined the corporations business operations.
On
September 19, 2014, the defendant and Smart Choice filed an
answer and special defenses, and the defendant, alone, filed
a five count counterclaim seeking, inter alia, dissolution of
the corporation pursuant to General Statutes § 33-896
(a),[3] on the ground that [194 Conn.App. 695]
the individual plaintiffs had engaged in illegal, oppressive
and/or fraudulent conduct to his detriment.
On
November 21, 2014, the corporation elected, in lieu of
dissolution, to purchase the defendants shares in it at the
fair value of those shares, pursuant to General Statutes §
33-900.[4]
On
February 24, 2016, the plaintiffs withdrew their complaint
against the defendant and Smart Choice. Also on that date,
the defendant filed a second amended counterclaim alleging
that the corporation had a practice for many years of
providing shareholders with funds to pay the federal income
tax liabilities incurred by them as a result of the
pass-through of the corporations profits to them, but that
the defendant had not received any such payments from the
corporation for the years 2012, 2013 and 2014, although he
remained a shareholder of the corporation. The defendant
claimed that said conduct by the plaintiffs was oppressive.
The
parties were unable to reach an agreement as to the fair
value of the defendants shares in the corporation and the
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terms of the corporations purchase of them, so those issues
were presented to the court for determination. After a trial
spanning several days in [194 Conn.App. 696] December, 2015,
and February, 2016, the court issued a memorandum of decision
on August 30, 2016, determining that (1) as of December 31,
2014,[5] the value of the corporation was
$3,708,413, and the fair value of the defendants shares of
the corporation was $1,236,138, and (2) because the
corporation, through the actions of its majority
shareholders, engaged in oppressive conduct toward the
defendant, the value of the defendants interest in the
corporation was not subject to a minority discount. The court
further ordered that it would hold another hearing on the
issues of whether there were extraordinary circumstances to
justify the application of a marketability discount to the
value of the defendants shares, the terms according to which
the corporation would purchase those shares, and whether the
defendant was entitled to an award of reasonable attorneys
and expert witness fees and expenses.
On
September 8, 2016, the corporation filed a motion for
reargument and reconsideration. On October 24, 2016, the
court issued a memorandum of decision granting in part and
denying in part that motion, determining that, upon
reconsideration, the value of the corporation as of December
31, 2014, was $2,356,719, and the fair value of the
defendants shares in the corporation was $785,573.
On
December 30, 2016, following another evidentiary hearing, the
trial court issued a memorandum of decision determining,
inter alia, that the value of the defendants shares of the
corporation should not be reduced by a marketability
discount, the defendant was entitled to statutory attorneys
and expert witness fees and expenses pursuant to § 33-900
(e),[6] and the defendant [194 Conn.App. 697]
was not entitled to prejudgment interest, but was entitled to
postjudgment interest.
On
June 19, 2017, the trial court issued a memorandum of
decision, following another hearing held on April 27, 2017,
rendering judgment against the corporation and in favor of
the defendant, holding that the defendant was entitled to a
total sum of $983,028.09, including statutory attorneys fees
and expert witness fees and expenses. The court also found
that the defendant was entitled to postjudgment interest at
the rate of 2.25 percent. The court ordered the corporation
to pay $87,653 to the defendant within thirty days and,
further, to pay $8339.29 per month to the defendant for a
period of ten years, and to maintain a performance bond to
secure payment of the judgment. The court also dismissed the
defendants counterclaim seeking a dissolution of the
corporation.
On
June 28, 2017, the corporation filed a motion for
reconsideration limited to the portions of the trial courts
June 19, 2017 decision requiring it to pay $87,653 to the
defendant within thirty days and ordering it to obtain a
performance bond. The court held an evidentiary hearing on
these issues on August 24, 2017. On September 14, 2017, the
court issued a memorandum of decision declining to modify its
order that the corporation pay $87,653 to the defendant
within thirty days. The court, however, vacated its order
requiring the corporation to obtain a performance bond, but
ordered that the corporation satisfy its
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monthly installments on the first of each month and that it
be assessed a late charge if it did not timely satisfy that
obligation.
The
corporation appeals from the judgment of the trial court
determining the value of the defendants shares and its award
of attorneys and expert witness fees and expenses to the
defendant. The defendant does not quarrel with the trial
courts determination of the value of his interest in the
corporation, but challenges, [194 Conn.App. 698] by way of
cross appeal, the courts decision not to award attorneys
fees in the amount of one third of the value of his interest
in the corporation pursuant to the contingency fee agreement
that he had signed with his counsel.
I
APPEAL
Because
all of the claims raised by the corporation on appeal stem
from the valuation of the defendants shares in it, we begin
by setting forth the following general applicable legal
principles. As noted herein, the corporation elected to
purchase the defendants shares at the fair value of those
shares pursuant to § 33-900 (a). Section 33-900 (d) provides
that, if the parties are unable to reach an agreement as to
the fair value of the shares, the court shall determine the
fair value of them 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.
"Fair
value" is not defined in § 33-900. It is, however,
defined in a separate provision of the Connecticut Business
Corporation Act, which encompasses General Statutes § §
33-600 to 33-998. General Statutes § 33-855 (3)[7] provides in
relevant part: " Fair value means the value of the
corporations shares determined ... (B) using customary and
current valuation concepts and techniques generally employed
for similar businesses in the context of the transaction
requiring appraisal, and (C) without discounting for lack of
marketability or minority status ...." This definition
is identical to the definition of "fair value"
contained in its counterpart under [194 Conn.App. 699] §
13.01 (4) of the American Bar Associations Model Business
Corporation Act.[8] Given this definition, it seems
evident that neither a minority discount nor a marketability
discount would apply to the determination of the fair value
of shares that ...