World Egg Bank v. Nesco Invest

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

THE WORLD EGG BANK, INC., Plaintiff/Appellee/Cross-Appellant,

v.

NESCO INVESTMENTS, LLC, Defendant/Appellant/Cross-Appellee.

No. 1 CA-CV 20-0027
FILED 5-18-2021

Appeal from the Superior Court in Maricopa County
No. CV2015-095504, CV2016-007439, CV2017-003792
The Honorable Christopher T. Whitten, Judge

REVERSED AND VACATED IN PART; REMANDED

COUNSEL

Anderson Banta Clarkson, PLLC, Mesa
By Adam C. Anderson

Gillette Blackhurst, PLC, Mesa
By Dennis Kent Blackhurst
Co-Counsel for Plaintiff/Appellee/Cross-Appellant

Ahwatukee Legal Office, PC, Phoenix
By David L. Abney
Counsel for Defendant/Appellant/Cross-Appellee
 WORLD EGG BANK v. NESCO INVEST
Opinion of the Court

OPINION

Chief Judge Peter B. Swann delivered the opinion of the court, in which
Acting Presiding Judge Lawrence F. Winthrop and Judge Maurice Portley1
joined.

S W A N N, Chief Judge:

¶1 Under A.R.S. §§ 10-1302(A)(3) and -1301(4), a shareholder
may dissent from the sale of the corporation and receive payment for the
“fair value” of the shareholder’s shares “in the event of . . . [c]onsummation
of [the] sale,” with “fair value” determined as of the date “immediately
before the effectuation of the corporate action to which the dissenter
objects.” We hold that the formation of a contract for sale of the corporation
is, by itself, insufficient to constitute either consummation or effectuation of
the sale. The sale must not be merely agreed to in order to trigger a
dissenter’s right to payment—it must actually occur.

¶2 Here, the individual who owned the majority shareholder of
The World Egg Bank, Inc., (“TWEB”) obtained authorization at a special
shareholder meeting to sell TWEB to one of her affiliate entities. But though
she claimed to have immediately agreed to the sale on behalf of both TWEB
and the buyer, and though she later executed a written contract claiming
that the sale closed and was effective as of the date of the special
shareholder meeting, she provided no evidence that the sale actually was
consummated or effectuated at that time. We therefore conclude that the
superior court erred by ruling that the dissenting shareholder’s shares were
to be valued as of the date of the special shareholder meeting. Our
conclusion requires us to reverse and vacate with respect to all rulings and
portions of the judgment based on the erroneous valuation date, and to
remand for further proceedings.

1 The Honorable Maurice Portley, Retired Judge of the Court of
Appeals, Division One, has been authorized to sit in this matter pursuant
to Article 6, Section 3 of the Arizona Constitution.

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 WORLD EGG BANK v. NESCO INVEST
Opinion of the Court

FACTS AND PROCEDURAL HISTORY

¶3 This appeal and cross-appeal arise from three consolidated
cases with complicated factual and procedural histories. Only the
following is material to the issues before us.

¶4 At the relevant time, Shari Weiss’s entity Nesco Investments,
LLC, owned 6.67% of the shares of TWEB, and Diana Thomas’s entity
DMCT, LLC, owned the remaining 93.33% of the shares.2

¶5 Thomas wanted to remove Weiss from TWEB. Accordingly,
on April 2, 2015, she sent Weiss notice of an April 17, 2015, special
shareholder meeting set for the purpose of considering and voting on
proposals to immediately sell TWEB’s assets and liabilities and dissolve the
corporation. A letter accompanying the notice specified that Thomas
anticipated majority approval of a sale to an affiliate of hers. Weiss
understood that such a transaction was the plan.

¶6 On April 16, Weiss notified TWEB that she would not vote her
shares in favor of the proposals and that she intended to demand payment
for the fair value of her shares in the event of the proposals’ effectuation.
Before the meeting, TWEB provided Weiss with the written script that
Thomas would use at the meeting to offer the proposals. Weiss approved
the script and agreed not to attend the meeting. Thomas read the script at
the meeting and voted DMCT’s shares in favor of the proposals. Weiss’s
dissenting votes on behalf of Nesco’s shares were recorded in her absence.
The meeting resulted in the following resolutions:

RESOLVED, that Diana Thomas, CEO of the Corporation, and
sole owner of DMCT, LLC, the majority shareholder of the
Corporation, is appointed the liquidation officer (the
“Liquidation Officer”) of the Corporation.

RESOLVED, that the Liquidation Officer is authorized, in her
sole discretion, to sell all or substantially all of the assets and
liabilities of the Company (the “Assets and Liabilities”) for a

2 The superior court determined the foregoing share allocation over
Nesco’s objection. But though Nesco asserts in passing on appeal that it
owned more than 6.67% of the shares, it neither identifies nor develops the
question of share allocation as an issue on appeal. We therefore deem
waived any objection to the superior court’s share-allocation determination.
See ARCAP 13(a)(6)–(7); Ritchie v. Krasner, 221 Ariz. 288, 305, ¶ 62 (App.
2009).

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 WORLD EGG BANK v. NESCO INVEST
Opinion of the Court

cash price (the “Cash Price”) equal to the fair market value of
(i) the Corporation or (ii) all or substantially all of the assets
and liabilities of the Corporation, as set forth in a valuation
thereof, prepared by an independent Arizona CPA/CFF,
CVA, selected by the Liquidation Officer and dated as of, or
after, December 31, 2014 (the “Sale”).

RESOLVED, the effective date of the Sale shall be determined
by the Liquidation Officer, in her sole discretion, and may not
be earlier than April 17, 2015, and not later than May 31, 2015.

RESOLVED, that the Liquidation Officer is authorized, in her
sole and absolute discretion, to select and approve the buyer
of the Assets and Liabilities (the “Buyer”) provided the Buyer
agrees to pay the Cash Price on or before May 31, 2015. To
the extent that the Buyer, approved by the Liquidation
Officer, is affiliated to any shareholder, the Cash Price may
take into consideration the portion of cash proceeds otherwise
distributable to such Buyer or its affiliate in liquidation of the
Company.

RESOLVED, that the Sale shall be documented by a sale
agreement approved by the Liquidation Officer, in her sole
and absolute discretion, subject to compliance with the
proposals voted on and approved by a majority of the
shareholders on April 17, 2015 (the “Sale Agreement”), and
the Liquidation Officer is authorized to execute the Sale
Agreement on behalf of the Corporation, in her capacity as
CEO of the Corporation.

RESOLVED, that the Liquidation Officer is authorized to
make such additional changes to the Sale Agreement as she
deems appropriate, in her sole and absolute discretion, other
than a change to the Cash Price, to carryout [sic] and
effectuate the Sale on or before May 31, 2015.

RESOLVED, that following the consummation of the Sale, the
Corporation shall be dissolved no later than June 30, 2015.

RESOLVED, that the Liquidation Officer of the Corporation
is authorized to perform all acts on behalf of the Corporation
consistent with A.R.S. § 10-1405, et seq. required to dissolve
the Corporation and liquidate the Corporation’s assets.

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 WORLD EGG BANK v. NESCO INVEST
Opinion of the Court

RESOLVED, that the Liquidation Officer is authorized to take
all actions she deems necessary and appropriate in her sole
discretion, consistent with the Proposals approved by the
Shareholders at the Shareholders Meeting held on April 17,
2015, including the payment of costs and fees related to
obtaining the valuation and finalizing the dissolution of the
Corporation and the sale of the Corporation or all or
substantially all of its assets and liabilities.

RESOLVED, that the Liquidation Officer be authorized, in her
sole and absolute discretion, to determine whether and when
to file suit against Shari Weiss, and/or entities affiliated with
Ms. Weiss, in connection with multiple alleged breaches of
duties owed by Ms. Weiss and/or her entities to the
Corporation.

¶7 Thomas testified that she had long known that the majority-
affiliate buyer, as described in the April 2 letter, would be her solely owned
company TWEB Resources, LLC. Indeed, she had created the assetless
TWEB Resources, which had no assets, the previous year in anticipation of
the sale. Accordingly, on the day of the special shareholder meeting, she
agreed to the sale on behalf of TWEB and TWEB Resources, with a
transition period and documentation to follow. The next day, she “advise[d
her] counsel to begin finishing up the documentation or anything that was
needed to memorialize and formalize the transaction that occurred.” She
also set up new bank accounts following the meeting.

¶8 But the sale did not immediately close.3 TWEB continued to
control bank account and payroll operations, in the case of the latter until
late 2016. TWEB’s name also continued to appear on marketing materials
and contracts.

¶9 Thomas did not sign a written asset purchase agreement on
behalf of TWEB and TWEB Resources until October 2015. And she did not
engage a Certified Business Valuator to determine the Cash Price (based on,
consistent with the resolutions, a December 31, 2014, valuation) until later,
on November 2, 2015—though she understood that she “was going to have
to pay whatever [the valuator’s valuation] was.” Counsel made final
changes to the written agreement on November 20, and the Certified

3 Thomas and counsel acknowledged the same in emails disclosed
after the trial at issue here.

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 WORLD EGG BANK v. NESCO INVEST
Opinion of the Court

Business Valuator provided his valuation—$407,400—three days later. The
record is devoid of evidence of a transfer of the Cash Price or assets, or of
TWEB’s dissolution. But the written agreement between TWEB and TWEB
Resources nonetheless stated that the sale was made, closed, and effective
as of April 17, 2015. The agreement further provided that TWEB would
“maintain its bank accounts” and “serve as an escrow agent” for TWEB
Resource’s benefit, and that if TWEB “fail[ed] to transfer any of the
Transferred Assets to [TWEB Resources], for any reason, then [TWEB]
nevertheless [would] convey all economic benefits and burdens of
ownership of the Transferred Assets to [TWEB Resources] and [would] act
as [TWEB Resources]’s agent for ownership and possession of the
Transferred Assets.”

¶10 TWEB provided Nesco with a written dissenter’s notice on
December 11. Nesco thereafter submitted a written demand for payment
of the fair value of its shares, and deposited its shares certificate. TWEB
then gave Nesco a check representing its estimate of the fair value of
Nesco’s shares: $27,173.58 plus $1,330.58 in accrued interest. Nesco
disputed that valuation, claiming it was entitled to at least $667,000 plus
$32,660 in accrued interest. Nesco asked TWEB to commence an appraisal
action to have the court determine fair value, and TWEB did so.

¶11 After a trial, the superior court defined the fair-value
valuation date as April 17, 2015. In later proceedings, the court determined
that TWEB’s fair value as of April 17, 2015, was $457,000, and the court
entered a judgment from which Nesco appeals and TWEB cross-appeals.

DISCUSSION

¶12 Dissenting shareholders’ rights are defined by statute in
Arizona. Pro Finish USA, Ltd. v. Johnson, 204 Ariz. 257, 260, ¶ 8 (App. 2003).
We review the superior court’s application of the statutes de novo, abiding
by its factual findings unless they are clearly erroneous. Vortex Corp. v.
Denkewicz, 235 Ariz. 551, 557, ¶ 21 (App. 2014). “[T]he ‘best and most
reliable index of a statute’s meaning is its language,’ and where the
language is plain and unambiguous, courts generally must follow the text
as written.” Canon Sch. Dist. No. 50 v. W.E.S. Constr. Co., 177 Ariz. 526, 529
(1994) (citation omitted).

¶13 A shareholder may “dissent from and obtain payment of the
fair value of the shareholder’s shares in the event of . . . [c]onsummation of a
sale or exchange of all or substantially all of the property of a corporation
other than in the usual and regular course of business, if the shareholder is

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 WORLD EGG BANK v. NESCO INVEST
Opinion of the Court

entitled to vote on the sale or exchange, including a sale in dissolution.”
A.R.S. § 10-1302(A)(3) (emphasis added). “‘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 is inequitable.” A.R.S. § 10-1301(4) (emphasis added).
Though the statutes do not define “consummation” or “effectuation,” both
words commonly connote accomplishment: to “consummate” means “[t]o
bring to completion; . . . [t]o achieve; to fulfill[;] [t]o perfect; to carry to the
highest degree,” and to “effect” means “[t]o bring about; to make happen.”
Black’s Law Dictionary (11th ed. 2019). Accordingly, applying the statutes’
plain language, we conclude that when a shareholder dissents from the
corporation’s sale, the dissenter’s rights are triggered by the occurrence of
the sale—not by the entry of a contract for sale.4

¶14 Conditioning a dissenter’s right to payment on the occurrence
of the contracted-for event makes sense. If the contract for sale is for some
reason unperformed, then the dissenter’s basis for dissociating from the
corporation disappears. The dissenter does not lose its shareholder rights
in such circumstances. See A.R.S. §§ 10-1323(B), -1324(B) (providing that
dissenter retains shareholder rights “until these rights are canceled or
modified by the taking of the proposed corporate action”); A.R.S. § 10-
1326(A) (providing mechanism for return of dissenter’s certificates or
release of transfer restrictions “[i]f the corporation does not take the
proposed action within sixty days after the date set for demanding
payment”); see also 6 Arizona Practice, Corporate Practice § 8:15 (“The
effective date of a corporate action is not always the same as the date of the
shareholders’ vote on that action. Because fair value is to be determined
immediately before the effectuation of the corporate action, the statute
ensures that shareholders are not stripped of their rights until the date the
corporate action actually becomes effective.”). Were that not the case,
majority shareholders could easily, and unfairly, force out minority
shareholders by merely feigning a sale—particularly in the case of a self-
dealing sale. And to the extent that the announcement of a contract for sale
might cause an increase in share value in the period before the sale’s

4 We have recognized the distinction between those two events in
other contexts. See Lockett v. Drake, 43 Ariz. 357, 360 (1934) (stating general
rule that real estate broker has fulfilled duties and earned commission once
buyer and seller have entered binding contract, regardless whether contract
ultimately is effected or consummated).

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 WORLD EGG BANK v. NESCO INVEST
Opinion of the Court

effectuation, § 10-1301(4) specifically forestalls any unfair sharing in that
increase by shareholders who have decided not to participate in the sale.

¶15 Of course, the contracting parties may specify a retroactive
effective date of sale. See El Paso Nat. Gas Co. v. Ariz. Dep’t of Revenue, 174
Ariz. 470, 476 (App. 1992); see also F.W. Leisure Indus. v. Cook Pain & Varnish
Co., 153 Ariz. 342, 343–44 (App. 1987). But they cannot create an effective
date dissociated from reality: they “may agree retroactively to alter their
legal rights with respect to each other based on facts that have already
occurred, but they cannot by agreement alter the nature of those past
occurrences themselves.” El Paso Nat. Gas Co., 174 Ariz. at 476; but see
Oakridge Energy, Inc. v. Clifton, 937 P.2d 130, 131, 134 (Utah 1997) (holding
that when sale terms were announced on May 24 and sale was approved
and closed on September 28 but made effective as of May 1, fair-value
valuation date was pre-May). That rule is particularly important where, as
here, the buyer and the seller are controlled by the same individual.

¶16 Here, the superior court established April 17, 2015, the date of
the special shareholder meeting, as the fair-value valuation date.5 But
though the resolutions adopted at the April 17 meeting authorized Thomas
to sell and dissolve TWEB, they did not themselves effect the sale or
dissolution. And though Thomas testified that she entered the contract for
sale (on behalf of both seller and buyer, in an unwritten agreement
unchallenged under Arizona’s statute of frauds, § 44-101) on April 17, and
months later in the written agreement cited April 17 as the sale’s effective
and closing date, the court was provided no evidence that the sale was
either “consummat[ed]” or “effectuated” under A.R.S. §§ 10-1302(A)(3) or
-1301(A)(4) on April 17. Contrary to the resolutions’ representation,

5 We reject Nesco’s contention that we should reverse because DMCT
improperly voted at the special shareholder meeting. To be sure, the sale
was a “director’s conflicting interest transaction” under A.R.S. § 10-860(1)–
(2) because Thomas owned both the majority shareholder and the buyer.
Accordingly, under §§ 10-861(B)(2) and -863, Thomas was not entitled to
vote DMCT’s shares to authorize the sale—a fact that the superior court
overlooked. But Nesco made no timely attempt to raise a challenge under
§ 10-861(B)(3) and (C), nor under § 10-1302(B). Indeed, before the May 2017
valuation-date trial, Nesco stated in an interrogatory response that it
“ma[de] no allegations that the Special Meeting . . . was improperly
conducted or improperly noticed,” and Nesco reiterated that position in the
joint pretrial statement. On this record, we must conclude that Nesco
waived any challenge to DMCT’s votes.

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 WORLD EGG BANK v. NESCO INVEST
Opinion of the Court

Thomas could not by fiat establish the effective or closing date.
Consummation or effectuation had to be supported by evidence. Similarly,
the written agreement’s announcement of an agency relationship between
TWEB and TWEB Resources was insufficient to support the theory that the
sale closed on April 17—contracting parties cannot by agreement
circumvent the reality that there has been no transfer of resources by simply
claiming a retroactive agency arrangement. The earliest evidence of any
sort of post-agreement progress toward sale post-dated April 17. Further,
Thomas did not act on TWEB’s statutory duty to provide the written
dissenter’s notice, which is triggered when “the corporate action is taken,”
A.R.S. § 10-1322(B) (emphasis added), until well after April 17.

¶17 In our view, none of the evidence presented at the May 2017
valuation-date trial established that the sale was ever consummated at all—
on this record, it is unclear whether there was ever any performance under
the contract. If there was no performance, then the appraisal action may be
premature. At a minimum, however, the court clearly erred by assigning
April 17, 2015, as the fair-value valuation date.

CONCLUSION

¶18 Because the parties’ experts and the court relied on an
inaccurate date in determining fair value, we must vacate the fair-value
award. We also must reverse all rulings and vacate all portions of the
judgment dependent on the fair-value award, including those orders
denying or awarding costs, fees, and sanctions.6 We leave the balance of
the judgment intact. We remand for future proceedings, including
proceedings to determine when (if ever) the contracted-for sale actually
occurred. We award no fees under A.R.S. § 10-1331(B). We award Nesco
costs on appeal under A.R.S. § 12-341 upon compliance with ARCAP 21.

AMY M. WOOD • Clerk of the Court
FILED: AA

6 In view of our conclusion that the court relied on an inaccurate
valuation date, we do not address Nesco’s challenge to the valuation or the
parties’ separate challenges to valuation-dependent rulings.

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